July PMI Leading Indicators

IHS Markit (formerly Markit Economics) published its July Purchasing Managers Indices.

  • Global PMI rose 0.1 points to 52.7 (Chart1) as China and Taiwan acclerated while the USA, Europe, South Korea and Japan saw slower manufacturing growth (Chart 2).
  • The Eurozone had its first PMI decline since August 2016 but at 56.6 it still remains solidly in expansion territory (Chart 3). Country performance varied with the UK, France and Russia improving while Germany, Italy, Spain, Sweden and Czech seeing slower but still positive manufacturing growth (Chart 4).
  • Asia results varied (Chart 5) with China (Chart 6) and Taiwan (Chart 7) having accelerating growth, Japan growing at a slower pace (Chart 8) and South Korea slipping back into contraction (Chart 9).

Source: www.markiteconomics.com

2Q’17 Global Electronic Supply Chain Growth

As more companies in our sample have reported their calendar 2Q’17 financial results we have updated our consolidated growth estimates by sector. These are still VERY preliminary estimates.

  • Global electronic equipment sales grew 4.5% in 2Q’17 vs. 2Q’16. This was about the same rate of expansion as the first quarter 2017 and the fifth successive quarter of quarterly growth (Chart 10).
  • Growth by sector of the global electronic supply chain in 2Q’17 vs. 2Q’16 is estimated in Chart 11. Four categories are still under review (noted by TBD).

This is still preliminary data which will be updated continually as more companies report their second quarter financials.

Source: Company financial reports analyzed by Custer Consulting Group

U.S. June Electronic Supply Chain Shipments, Orders and Inventories

The U.S. Department of Commerce published its June “Factory Orders” report detailing shipments, orders and inventories for domestic manufacturing.

  • Relative to the second quarter of 2016 shipments of most electronics related product categories expanded (Chart 12).
  • In 2017 electronic equipment orders (Chart 13) and inventories (Chart 14) have been relatively flat.
  • Vehicle sales are also showing minimal growth (Chart 15) as are military electronics (Chart 16).

Source: Company financial reports analyzed by Custer Consulting Group

U.S. June Electronic Supply Chain Shipments, Orders and Inventories

The U.S. Department of Commerce published its June “Factory Orders” report detailing shipments, orders and inventories for domestic manufacturing.

  • Relative to the second quarter of 2016 shipments of most electronics related product categories expanded (Chart 12).
  • In 2017 electronic equipment orders (Chart 13) and inventories (Chart 14) have been relatively flat.
  • Vehicle sales are also showing minimal growth (Chart 15) as are military electronics (Chart 16).

Source: www.census.gov/manufacturing/m3/

Worldwide Semiconductor Sales increased 23.7% y/y to $97.9 billion in 2Q’17 (Chart 17 to 20)

  • Global sales for the month of June 2017; cumulatively, year-to-date sales expanded 20.8% y/y
  • Q2 sales are highest on record, 5.8% more than previous quarter, 23.7% higher than Q2 of last year

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $97.9 billion during the second quarter of 2017, an increase of 5.8% over the previous quarter and 23.7% more than the second quarter of 2016. Global sales for the month of June 2017 reached $32.6 billion, an uptick of 2.0% over last month’s total of $32.0 billion, and a surge of 23.7% compared to the June 2016 total of $26.4 billion. Cumulatively, year-to-date sales during the first half of 2017 were 20.8% higher than they were at the same point in 2016.

“The global semiconductor industry has enjoyed impressive sales growth midway through 2017, posting its highest-ever quarterly sales in Q2 and record monthly sales in June,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Sales into the Americas market were particularly robust in June, and all regional markets saw growth of at least 18% year-over-year. Conditions are favorable for continued market growth in the months ahead.”

Source: www.semiconductors.org

Custer comments:

Semiconductor shipments to North America reached a record high in June (Chart 21) and continue to well outgrow domestic electronic equipment shipments (Chart 22). This difference in growth rates is likely unsustainable with a downward correction in semiconductor shipments to North America probable.

Significant Mid-Year Revision to 2017 IC Market Forecast (Chart 23)

Significant Mid-Year Revision to 2017 IC Market Forecast DRAM, NAND flash memory markets drive the first annual double-digit upturn since 2010. IC Insights has revised its outlook and analysis of the IC industry and presented its new findings in the Mid-Year Update to The McClean Report 2017. Entering the second half of the year, it is clear the IC industry is on course for a much stronger upturn than was initially forecast in January. IC Insights now expects the IC market to increase 16% in 2017 due to exceptional growth in the DRAM and NAND flash memory markets. The DRAM market is now forecast to grow 55% and the NAND flash market is now expected to rise 35% this year—in both cases, almost entirely due to fast-rising prices rather than unit growth. Excluding these two markets, the overall IC market growth is forecast to show just 6% year-over-year growth. The expected 16% increase would be the first double-digit gain for the IC market since it expanded by 33% in 2010—the recession-recovery year—and the fifth double-digit increase for the IC market since 2000.

As seen in Chart 23, the DRAM market has had a notable impact on total IC market growth in recent years. With market surges of 32% and 34% in 2013 and 2014, respectively, the DRAM market alone boosted the worldwide IC market growth rate by three percentage points in 2013 and four percentage points in 2014.

At $64.2 billion, the DRAM market is forecast to be by far the largest single product category in the IC industry in 2017, exceeding the expected second-ranked MPU market for standard PCs and servers ($47.1 billion) by $17.1 billion this year.

Source: www.ICInsights.com

Taiwan Fabless Firms Expect Short Lead-time Orders to Buoy 4Q’17 Revenues

Taiwan-based fabless IC firms expects to receive an influx of short lead-time orders from their China-based clients prior to the country's National Day holidays in October followed by Single's Day promotions in November, according to industry sources. The pull-in of orders, mainly for smartphones, is set to buoy chip suppliers' revenue performance in the fourth quarter.

Chip orders from China are picking up slowly, but the pace is expected to accelerate around the end of the third quarter, said the sources. Orders will also start pulling in from Europe and the US at the beginning of the fourth quarter, as the regions' year-end shopping season approaches.

Most Taiwan-based IC design houses have seen sales start picking up in July, and sales are expected to see substantial growth starting September, the sources indicated. First-tier Taiwan-based fabless firms including MediaTek, Novatek Microelectronic and Realtek Semiconductor all estimate high single-digit sequential growth in third-quarter 2017 revenues.

MediaTek said, at its recent investors meeting, that chip demand for smartphones has not seen a substantial rise on seasonal factors. The smartphone SoC specialist expects to post revenue growth of 2-10% sequentially in the third quarter.

Small-size display driver ICs will outperform Novatek's other product lines in revenue growth during the third quarter, said the company, adding that an anticipated pick-up in demand for large-size panel applications will buoy revenues in the fourth quarter.

Source: www.digitimes.com

Worldwide Semiconductor Capital Spending Projected to Increase 10.2% y/y in 2017 to $77.7 billion (Chart 24)

Worldwide semiconductor capital spending is projected to increase 10.2% in 2017, to $77.7 billion, according to Gartner, Inc. This growth rate is up from the previous quarter's forecast of 1.4%, due to continued aggressive investment in memory and leading-edge logic which is driving spending in wafer-level equipment.

"Spending momentum is more concentrated in 2017 mainly due to strong manufacturing demand in memory and leading-edge logic. The NAND flash shortage was more pronounced in the first quarter of 2017 than the previous forecast, leading to over 20% growth of etch and chemical vapor deposition (CVD) segments in 2017 with a strong capacity ramp-up for 3D NAND," said Takashi Ogawa, research vice president at Gartner.

According to Gartner's latest view, the next cyclical down cycle will emerge in 2018 to 2019 in capital spending, compared with 2019 to 2020 in the previous quarter's forecast. "Spending on wafer fab equipment will follow a similar cycle with a peak in 2018. While the most likely scenario will still keep positive growth in 2018, there is a concern that the growth will turn negative if the end-user demand in key electronics applications is weaker than expected," said Ogawa.

Source: www.gartner.com

Worldwide Smartphone Shipments Declined 1.3% y/y to 341.6 million units in 2Q’17 (Charts 25 & 26)

Volumes decline slightly in the second quarter of 2017 amid anticipation of strong second half product launches

According to preliminary results from International Data Corporation (IDC) smartphone OEMs shipped a total of 341.6 million smartphones worldwide in the second quarter of 2017 (2Q’17). Coming off a higher than expected first quarter, smartphone shipments declined 1.3% from the same quarter a year ago and were down 0.8% from 1Q’17.

While the smartphone industry contracted slightly in the second quarter, it is worth noting that the leading vendors all saw positive shipment growth. Samsung and Apple both held shares relatively constant from the second quarter a year ago, while the other three vendors rounding out the top 5 – Huawei, OPPO, and Xiaomi – all grew shares. The one change in terms of ranking within the top 5 was Xiaomi slightly outpacing vivo, but not by much.

"In my opinion, the biggest change in the second quarter is the size of the contraction among the 'Others' outside of the top 5 OEMs," said Ryan Reith, program vice president with IDC's Worldwide Quarterly Mobile Device Trackers. "It's no secret that the smartphone market is a very challenging segment for companies to maintain or grow share, especially as already low average selling prices declined by another 4.3% in 2016. The smaller, more localized vendors will continue to struggle, especially as the leading volume drivers build out their portfolio into new markets and price segments."

As we look toward the second half of 2017, IDC expects to see two quarters of positive year-over-year growth, leaving 2017 as a rebound year. Samsung is riding momentum from the Galaxy S8 products, with the presumed August announcement of the Note 8 right around the corner. In parallel, anticipation continues to build for the next round of iPhones that the industry expects Apple to announce in September. Outside of these two industry leaders, the companies to watch will continue to be the next three to five OEMs and how they navigate to position themselves in growing markets.

"Despite some key launches in the second quarter from some well-known players, all eyes will be on the ultra-high-end flagships set to arrive this fall," said Anthony Scarsella, research manager with IDC's Worldwide Quarterly Mobile Phone Tracker. "With devices like the iPhone 8, Pixel 2, Note 8, and V30 in the pipeline, the competition will be fierce come September. We expect all the key players to promote their latest and greatest flagships with an assortment of deals, bundles, and trade-in offers across a variety of channels in most key markets."

Source: www.idc.com

Global smartphone demand 347 million units in 2Q’17 (Charts 27 & 28)

  • Smartphone demand of 347 million units makes 2Q’17 the best second quarter on record
  • Emerging markets are driving the growth
  • Average sales price (ASP) grew 5% year-on-year in the quarter

Global smartphone demand totaled 347 million units in 2Q’17, up 4% year-on-year. This makes it the strongest second quarter on record. Emerging Asia led the demand growth with a 13% year-on-year increase, followed by Central and Eastern Europe at 11%, and Latin America at 10%. Market value grew nine% year-on-year, due to rising average sales price (ASP).

Arndt Polifke, global director of telecom research at GfK, comments, “The record demand for smartphones in the second quarter this year shows that, despite saturation in some markets, the desire to own a smartphone is a worldwide phenomenon. How that manifests itself differs widely by region. Manufacturers are maximizing all their creativity to ensure their latest devices are irresistible – and to increase ASP as a result. Elsewhere, macroeconomic factors and consumer confidence are having an impact, but operators and retailers are employing localized tactics to ensure the smartphone remains the connected device of choice.”

Yotaro Noguchi, product lead in GfK’s trends and forecasting division, adds, “Consumers are willing to pay more for their smartphone as they seek a better user experience. Despite the market reaching high penetration levels, GfK forecasts smartphone demand will continue to see year-on-year growth even in 2018, as innovation from smartphone vendors keeps replacement cycles from lengthening.

Source: www.GfK.com

Worldwide Tablet Shipments Declined 3.4% y/y to 37.9 million units in 2Q’17 (Charts 29 & 30)

Tablet Market Decline Slows in Second Quarter as Low-Cost Tablets Offer Temporary Relief

The downward spiral of the tablet market continued during the second quarter of 2017 (2Q’17), according to preliminary data from the International Data Corporation (IDC). Despite notable product launches like the new lower priced iPad and products from other top-tier vendors, worldwide shipments for tablets declined 3.4% year over year in 2Q’17, reaching 37.9 million.

Once touted as the savior of the market, detachable tablets also declined in the second quarter as consumers waited in anticipation of product refreshes from high-profile vendors like Apple and Microsoft. However, with new product launches towards the end of the second quarter, the detachable market is expected to maintain a stronger position in the second half of the year.

"There's been a resetting of expectations for detachables as competing convertible notebooks offered a convincing and familiar computing experience for many," said Jitesh Ubrani, senior research analyst with IDC's Worldwide Quarterly Mobile Device Trackers. "To date, the 2-in-1 market was bifurcated as Apple and Microsoft led with detachables while the PC vendors led with convertibles. Though that is slowly changing as smartphone vendors and traditional PC vendors begin to offer compelling alternatives, the pace has been rather slow as Surface and iPad Pro still dominate shelf space and mindshare."

Market turmoil aside, three of the top five vendors managed to increase share and grow on an annual basis with price being the largest driving factor. However, these gains may be temporary as the replacement cycle of tablets is still long (closer to traditional PCs rather than smartphones) and first-time buyers have become a rare commodity. With downward pressure on pricing from big name brands, "whitebox" tablet vendors and smaller brands are starting to turn their attention away from tablets and IDC expects this trend to continue.

"The tablet market has essentially become a race to see if the burgeoning detachables category can grow fast enough to offset the long-term erosion of the slate market," said Linn Huang, research director, Devices & Displays at IDC. "From that lens, the second quarter was a slight righting of the ship and there is still much to be hopeful about in the back half of 2017. New product launches from Microsoft and Apple are generally accompanied by subsequent quarters of inflated shipments, the reintroduction of Windows to the ARM platform could help remedy the aforementioned hollowing of the middle of the market, and we expect a proliferation of Chrome OS-based detachables in time for the holidays."

Source: www.idc.com

Desktop Sales Expected to Resume Growth in 3Q’17 driven by new products from AMD and Intel for the Gaming and High-end Desktop Markets

Desktop demand remained weak in the first half of 2017, but is expected to start growing in the third quarter driven by new products from AMD and Intel for the gaming and high-end desktop markets, according to sources from the upstream supply chain.

AMD's new top-end 16-core Ryzen Threadripper 1950X and 12-core 1920X will become available in the retail channel on August 10, while its 8-core 1900X is scheduled to be released at the end of August.

Several vendors have already begun accepting pre-orders for desktop models using AMD's latest top-end CPU processors since the end of July including the Alienware Area-51 Threadripper from Dell.

AMD also recently announced its new Vega-based GPUs including the Radeon RX Vega 64, using either liquid or air cooling modules, and Radeon RX Vega's prices start from US$399. AMD also offers free games and discounts on hardware including Samsung's CF791 monitor as well as price-cuts on CPU/motherboard bundles to help consumers save up to US$300.

Intel has also prepared to release its next-generation 14nm Coffee Lake processors in the near future and will initially launch products such as the Core i7 8700K.

AMD and Intel are also seeing growing sales in the server segment. AMD's EPYC 7000 series processors were unveiled at the end of June. Although the processor series currently only accounts for less than 1% of the server market, orders for related server makers have been picking up recently and are expected to stay strong in the second half of 2017 with players including Microsoft, Baidu, Dell, Hewlett-Packard (HP), Supermicro, Inventec, Wistron, Asustek Computer, Gigabyte Technology and Tyan eagerly promoting their systems.

Intel debuted its Purley server platform in July and is currently seeing strong orders from enterprises looking to replace their existing server systems. Some market watchers believe the replacement trend will last for a whole year and shore up Intel's profitability and revenues.

Source: www.digitimes.com

Walt D. Custer


Walt Custer

Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.

Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.

He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website.

View other posts from Walt D. Custer. View other posts from Walt D. Custer.
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