Flash July Purchasing Managers’ Indices (Chart 1)
ISM Markit released preliminary July PMI leading indicators for select countries. The USA and France manufacturing activity accelerated while PMIs declined for Europe, Germany and Japan. All PMIs remained in growth territory (PMI>50).
2Q’17 Electronic Supply Chain Growth (first estimate)
Based upon still very incomplete data global electronic equipment sales grew 1.5% in the second quarter of this year (Chart 2). 2Q’17 was the fifth straight quarter of growth (Chart 3). Please note that these values are VERY early estimates as many large OEMs have not yet reported their second quarter financial results.
Source: Company financial reports with Custer Consulting Group analysis
2Q’17 EMS/ODM Growth
Chart 4 gives our early estimate of second quarter EMS and ODM revenue growth vs. the same quarter a year earlier. This chart is based on compete Taiwan-listed ODM data as well as large global EMS companies 2Q’17 financial reports but on estimates for the smaller global EMS companies.
Source: Company financial reports with Custer Consulting Group analysis
North American June PCB Orders and Shipments
IPC released June North American printed circuit board orders and shipments. The 3-month average book/bill rose to 1.08 (Chart 5) as both orders and shipments increased (Chart 6).
North America-based Manufacturers of Semiconductor Equipment posted $2.29 billion in billings worldwide in June 2017 (Chart 7)
SEMI reported that the three-month average of worldwide billings of North American equipment manufacturers in June 2017 was $2.29 billion. The billings figure is 0.8% higher than the final May 2017 level of $2.27 billion, and is 33.4% higher than the June 2016 billings level of $1.72 billion.
“Through the first half of the year, 2017 equipment billings are 50% above the same period last year," said Dan Tracy, senior director, Industry Research & Statistics, SEMI. “While month-to-month growth is slowing, 2017 will be a remarkable growth year for the semiconductor capital equipment industry."
Supply of 8-inch Silicon Wafers to Remain Tight through 1H’18
The supply of 8-inch silicon wafers is set to remain tight through the first half of 2018, according to industry sources. Wafer suppliers including GlobalWafers and Wafer Works are looking to build new production capacities for 8-inch wafers in China.
Chip Demand from Non-Apple Camp Slowing as Chip Suppliers Engaged In Apple's Supply Chain See Orders Pick Up In June
Chip suppliers engaged in Apple's supply chain started to see orders pick up in June. On the other hand, chip demand from the non-Apple camp has been slow, according to sources at backend houses, which do not expect orders from their non-Apple customers to rise substantially until the fourth quarter.
Fabless firms including MediaTek and HiSilicon continue to slow down their pace of orders, said the sources, which warned of disappointing handset-chip shipments from the non-Apple camp in the third quarter.
Chip orders from the non-Apple camp should have picked up starting April and grown through August, but orders seem to have been pushed back in 2017 as companies adopt a wait-and-see approach before the launch of Apple's upcoming iPhones which they believe will come with revolutionary features, the sources indicated.
In addition, Taiwan Semiconductor Manufacturing Company (TSMC) has seen its non-Apple customers express more interest in the foundry's 12nm node manufacturing, an enhanced version of its 16nm process technology, than its \10nm process, the sources said. The upcoming iPhone series is set to feature Apple's A-series chips built using TSMC's 10nm process technology.
Apple's iPhone sales are expected to sustain demand for TSMC's 10nm mobile chips through the first quarter of 2018, the sources added.
For non-smartphone applications, such as IoT, demand for 28nm chips remains strong as the process offers a better price to performance ratio, the sources indicated. Manufacturing quotes for 28nm are about US$2,500 per wafer, while those for 16nm process are much higher at around US$5,400. The 28nm process also provides stable yield rates for more dies.
Smartphone Production Volume for 1H'17 Expanded by 7% y/y (Chart 8)
The latest smartphone market research by TrendForce shows that global sales have been fairly tepid in the first half of 2017. Besides the traditional off season effects, consumers have held off purchases in anticipation of future products with more exciting features. Still, total smartphone production volume for this year’s first half expanded by 7% compared with first half of the prior year, totaling nearly 650 million units. Collectively, Chinese brands posted a year-on-year growth in their production volume during these six months, while non-Chinese brands together recorded a year-on-year decrease.
TrendForce’s smartphone market outlook for the second half of 2017 indicates that strong sales will return due to the arrival of the three new iPhone models related to the 10th anniversary refresh of Apple’s iPhone series. Non-Apple brands will also be releasing new devices in the third quarter to compete for market share. TrendForce estimates that total smartphone production volume for the year’s second half will increase by more than 10% versus the first half. As for the total annual production volume, it is currently projected to reach 1.39 billion units, which is slightly higher than last year’s figure.
India’s Smartphone Shipments Fall for First Time
The Indian smartphone market contracted for the first time in its history, as shipments to the country fell 4% year on year to just under 27 million units in Q2 2017. Samsung continues to lead the market, with a 25% share, followed by Xiaomi, which more than quadrupled its shipments to 4.8 million units this quarter. Vivo took third place, shipping an all-time high of 3.4 million units, owing to its rising popularity among tier-two and tier-three cities. Oppo displaced Lenovo to take fourth place, while Lenovo finished fifth with 1.9 million smartphones.
“With China suffering its own decline this quarter, India is a market of huge strategic importance to Chinese smartphone vendors,” said Canalys Research Analyst Ishan Dutt. “Samsung is under immense pressure in the mid-tier from the Chinese players. For now, its low-end J Series is helping it sustain its lead and maintain share. But it needs to use its brand to make its mid-tier devices more desirable. The recently launched S8 and S8+ have helped it win back some of its premium share. It now needs to generate a halo affect around these products in the mid-tier to counteract the threat from China.” Collectively, Xiaomi, Oppo, Vivo, Gionee and Lenovo control over 50% of India’s smartphone market.
The Goods and Services Tax (GST), applicable in India from 1 July 2017 across all products and services, has adversely affected the market this quarter. “There is general confusion in the entire market over GST and a lack of awareness about the changes that are needed. Apprehension among distributors and retailers regarding the impact on prices has caused the market to adopt a wait-and-see policy,” said Canalys Analyst Rushabh Doshi. “The market will emerge stronger post-GST. Vendors can look forward to leaner distribution, faster delivery and increased demand from local retailers and distributors.”
Chinese Smartphone Shipments Fall 3% year-on-year
After six consecutive quarters of growth, Chinese smartphone shipments fell 3% to 113 million in Q2 2017. Huawei shipped over 23 million to lead the market for the second quarter in a row. Oppo shipped just over 21 million and had to settle for second place, despite growing 37% year on year. Vivo held onto third place, shipping just over 16 million, losing ground on the leading pair during the quarter.
Xiaomi was the standout vendor as it overtook Apple to take fourth place. It shipped just under 15 million smartphones in China, up more than 60% sequentially. “Xiaomi still offers the best value in the Chinese market, and it remains the preferred choice for price-conscious consumers. The online channel continues to be a key route to market for Xiaomi and this quarter saw it take the lead in the 618 online sales events across online retail platforms, such as JD.com and Tmall,” said Canalys Research Analyst Lucio Chen. “Redmi has had strong uptake in the mid-tier, going head to head with Oppo’s A series and Vivo’s Y series. Xiaomi’s growing network of ‘experience stores’ will pose a threat to Oppo’s and Vivo’s offline dominance, while showcasing the design and build quality of its devices.”
The rest of the top ten, including Apple, Samsung and Meizu, all suffered annual shipment declines this quarter. “China’s smartphone market continues to consolidate. The top five brands accounted for almost three quarters of shipments, with the top four all growing and adding 10% to their cumulative share compared with the same quarter a year ago. Adopting a diverse channel strategy is key to success in China, as competition has intensified in online and offline channels, resulting in many vendors losing market share quickly,” said Canalys Research Analyst Hattie He. “Huawei and Xiaomi have strong online brands, and are now rapidly growing their offline channels. Oppo and Vivo face greater pressure on their mid-range from Redmi and Honor. The failure to establish online channels will slow the momentum of these rising stars.”
U.S. GDP Grows 2.6% in 2Q’17 (Chart 9)
The U.S. economy accelerated in the second quarter as consumers ramped up spending and businesses invested more on equipment, confirming that the sluggish performance early in the year was temporary.
Gross domestic product increased at a 2.6% annual rate in the April-June period, which included a boost from trade, the Commerce Department said in its advance estimate on Friday.
Growth for the first quarter was revised down to a 1.2% rate from the previously reported 1.4% pace. First-quarter growth was the weakest in a year.