Weekly Global Update for September 6, 2017

August PMI Leading Indicators

August PMI Leading Indicators have been released for most countries:

• Although manufacturing growth appeared to have peaked a few months ago it has now accelerated again (Chart 1) as the USA, China and the Eurozone are now seeing increased expansion rates.
• The global PMI reached a 43 month high in August (Chart 2).
• U.S. manufacturing activity is at its highest level since 2011(Chart 3).
• The Eurozone PMI rebounded from a brief dip and is now also at its highest point since 2011(Chart 4).
• Eurozone growth was led by Germany, the UK, France and Italy but all key European manufacturing sectors were in expansion in August with PMIs>50 (Chart 5).
• Most Asian countries also improved (Chart 6). China (Chart 7), Taiwan (Chart 8) and Japan (Chart 9) accelerated while South Korea (Chart 10) edged back to the manufacturing positive growth line of PMI=50.

Source: IHS Markiteconomics & ISM

2Q’17 Revenue Growth – EMS/ODM Companies and Electronic Supply Chain

Here are updated 2Q’17 global electronic supply chain growth estimates:

• World electronic equipment revenues grew an estimated 4.5% in 2Q’17 vs 2Q’16 (Chart 11). A few large companies in our sample including Dell Technologies and HP Enterprise will report their calendar second quarter financial results later this week.
• Chart 12 gives estimated second quarter growth by sector of the world electronic supply chain.
• A combined group of 52 global EMS and ODM companies had revenues increase11.5% in 2Q’17 vs 2Q’16 (Chart 13).

Source: Company financial reports

Japan Update

JEITA just released June Japanese domestic production for electronic equipment, components and devices

• Chart 14 shows 2Q’17 vs 2Q’16 revenue growth by sector. Although local electronic equipment production has weakened significantly since 2000 (Chart 15) it improved 3% in the first half of 2017.
• Discrete & IC semiconductor production has strengthened slightly (Chart 16) but passive component output is little changed this year after correcting for monthly volatility (Chart 17)
• Shipments of semiconductors to Japan from all regions are growing much more than electronic equipment. Increased memory prices and possible double ordering due to fears of shortages are likely causes (Chart 18).
• Domestic component and device growth, although positive, may be peaking on a 3/12 basis (Chart 19).
• PCB production has been flat in 2017 (Chart 20) although its 3/12 growth barely edged back into growth territory in June (Chart 21).
• PMI leading indicator growth has peaked but still points to a modest expansion ahead (Chart 22).

Source: JEITA and IHS Markiteconomics.

Semiconductor Capex to Increase 20% Y/Y to Record $80.9 Billion in 2017 with Majority Funding Foundry and Flash Memory Technology (Chart 23)

• Most of 2017 Capital Spending will go to Foundry and Flash Memory
• Spending for DRAM expected to show biggest percentage gain in 2017

Following a substantial increase in semiconductor capital expenditures during the first half of this year, IC Insights raised its annual semiconductor capex forecast to a record high of $80.9 billion for 2017, a 20% increase from $67.3 billion in 2016. Previously, 2017 semiconductor capex was expected to grow 12% in 2017 to $75.6 billion.

A little over half of 2017 capex spending is forecast for wafer foundries (28%) and upgrades for NAND flash memory (24%), as shown in Figure 1. With a projected 53% increase in 2017, the DRAM/SRAM segment is expected to display the largest percentage growth in capital expenditures of the major product types this year. With DRAM prices surging since the third quarter of 2016, DRAM manufacturers are once again stepping up spending in this segment. Although the majority of this spending is going toward technology advancement, DRAM producer SK Hynix recently admitted that it can no longer keep up with demand by technology advancements alone and needs to begin adding wafer start capacity.

Even with a DRAM spending surge this year, capital spending for flash memory in 2017 ($19.0 billion) is still expected to be significantly higher than spending allocated to the DRAM/SRAM category ($13.0 billion). Overall, IC Insights believes that essentially all of the spending for flash memory in 2017 will be dedicated to 3D NAND process technology, including production of 3D NAND at Samsung’s giant new fab in Pyeongtaek, South Korea.

Overall, capital spending for the flash memory segment is forecast to register a 33% surge in 2017 after a strong 23% increase in 2016. However, historical precedent in the memory market shows that too much spending usually leads to overcapacity and subsequent pricing weakness. With Samsung, SK Hynix, Micron, Intel, Toshiba/Western Digital/SanDisk, and XMC/Yangtze River Storage Technology all planning to significantly ramp up 3D NAND flash capacity over the next couple of years (and new Chinese producers possibly entering the market), IC Insights believes that the future risk for overshooting 3D NAND flash market demand is high and growing.

Source: www.ICInsights.com

North American PCB shipments dropped 6.2% in July but Bookings increased 8% (Charts 24-27)

IPC announced the July 2017 findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Positive year-on-year growth in orders and negative growth in sales continued, driving the book-to-bill ratio up to 1.09 in July.

Total North American PCB shipments in July 2017 were down 6.2% compared to the same month last year. This year to date, shipments are 4.4% below the same period last year. Compared to the preceding month, July shipments decreased 22.3%.

PCB bookings in July increased 8.0% year-on-year, driving year-to-date order growth up to 2.5% above the same period last year. Bookings in July were down 19.8% compared to the previous month.

"Results for the North American PCB industry in July continued a trend of sales below last year's levels and growth in bookings," said Sharon Starr, IPC's director of market research. "This combination of factors pushed the book-to-bill ratio still higher in July. The ratio has been above parity for six consecutive months, indicating the prospect of a recovery in sales by the end of this year." She added, "The steep declines in month-to-month growth rates should not raise alarms, as these reflect normal seasonal patterns."

Source: www.ipc.org

Worldwide Smartphone Shipments to Grow at 3.3% CAGR from 1.47 billion in 2016 to 1.7 billion in 2021 (Chart 28)

According to International Data Corporation (IDC) worldwide smartphone shipments are expected to maintain positive growth through 2021. IDC expects shipments to grow from 1.47 billion in 2016 to just over 1.7 billion in 2021. In 2016, the market experienced its first-ever single-digit growth year with shipments up just 2.5% over 2015. IDC believes the combination of new user demand as well as a somewhat stagnant 2-year replacement cycle will be enough to keep the market at a 5-year compound annual growth rate (CAGR) of 3.3%.

"The big inflection point that everyone is watching for is when the smartphone market experiences its first year-over-year decline," said Ryan Reith, program vice president with IDC's Worldwide Quarterly Mobile Device Trackers. "We believe the two main catalysts for continued growth are bringing first-time users onto a smartphone and maintaining life cycles that are close to two years. At the end of 2016, we estimated that about half of the world's population was using a smartphone, which leaves plenty of room for additional first-time users. And, despite very high saturation levels in mature markets like North America, Western Europe, Korea, and Japan, we still see the majority of users replacing their handsets roughly every two years. We expect these trends will hold through the forecast."

The story around operating system market share hasn't changed much in the past couple of years and this recent forecast doesn’t call for much change. To summarize, Apple has generally held 14-15% share and Android 85% with the bits and pieces spread across a few dying platforms. When analyzing this by market value based on non-subsidized device retail pricing the story is quite different. By 2021, IDC expects Apple to own 36% of the device market value, equaling roughly $180 billion. This is over half the combined value of all other Android OEMs combined and does not include revenue from services or its app ecosystem.

"The high-end spectrum of the smartphone market shows no signs of slowing down as we expect the average selling price of a smartphone to increase over 7% in 2017," said Anthony Scarsella, research manager with IDC's Worldwide Quarterly Mobile Phone Tracker. "Premium phablet offerings from a variety of vendors look to be the main driving force behind the growth of devices with screens 5.5 inches and larger, which are set to grow over 34% in 2017 across all operating systems. The average selling price of these devices is also expected to increase 9.0% as we await the arrival of ultra-premium devices such as the iPhone 8, Note 8, V30, Essential Phone, and the second-generation Pixel. The large screen phenomenon shows no signs of slowing down as phablets will make up 40% of the smartphone market by the end of 2017. By 2021, phablets will control slightly over 51% of the market proving that bigger is most often better to most consumers."

Source: www.idc.com

Personal Computing Device Market expected to continue its decline with -1.7% CAGR from 435.1 million units in 2016 to 398.3 million in 2021 (Chart 29)

According to International Data Corporation (IDC) global shipments of personal computing devices (PCDs), comprising traditional PCs (a combination of desktop, notebook, and workstations) and tablets (slates and detachables), are expected to continue a slight decline through 2021. The results show PCD shipments declining from 435.1 million units in 2016 to 398.3 million in 2021, which represents a five-year compound annual growth rate (CAGR) of -1.7%.

While growth for the overall PCD market is not expected at any point in the forecast, there are a few interesting trends that continue to develop. Apart from 2018, notebook PCs show small but steady year-over-year growth throughout the forecast. Detachable tablets and convertible notebooks, which represent newer more versatile designs, will be the fastest growing segments in PCD with a 5-year CAGR of over 14%. Ultraslim notebooks are also expected to continue to grow quickly, with a CAGR of 11.8% through 2021. The other relative bright spot in the forecast is the commercial segment, which stabilizes in 2017 and shows growth in 2019 and beyond.

"Looking at the PCD market collectively can be challenging because of all the different product category trends that are unfolding," said Ryan Reith, program vice president with IDC's Worldwide Quarterly Mobile Device Trackers. "When looking at tablets we continue to expect that category to decline as the appeal of slate devices diminishes and life cycles for these devices look more like those of PCs 4-5 years ago. Detachable tablets will continue to grow, but we've reduced the short-term forecast on the assumption that OEMs are making a slower transition from notebook PCs to detachables than previously expected. The good news for this space is that both consumers and commercial buyers are opening up to Windows 10, and we are already at a point where Windows detachables represents more than 50% of shipments in the category. This should continue throughout the forecast."

"The traditional PC market continues a steady transition to newer slim and convertible designs," said Loren Loverde, vice president with IDC's Worldwide Personal Computing Device Tracker and Tracker Forecasting. "Nevertheless, commercial and particularly consumer users continue to stretch the life of older PCs – constraining their spending and spreading usage across a portfolio of devices. Shipments could pick up if accelerators like economic conditions, adoption of gaming, VR, and Windows 10 speed up, but even in the best case, overall growth would likely remain limited."

Source: www.idc.com

Graphics Card Prices to Rise reflecting Increasing Memory Costs

Consumer demand for graphics cards may be undermined by price hikes arising from GDDR memory shortage and first-tier vendors are expected to raise their Nvidia GeForce GTX 1080/1070/1060/1050 graphics card pricing by 3-10% at the end of August, according to sources from the upstream supply chain.

From April to mid-July, graphics card sales were contributed mainly by the cryptocurrency mining segment. With demand from the segment starting to cool off since mid-July and graphics cards' supply and pricing both stabilizing, sales from the retail channel have started picking up.

But the stable pricing may not last long, the sources said, expressing concerns that the price hikes caused by memory shortages could again deter consumer demand.

With Samsung and SK Hynix cutting their memory supply for the graphics card segment, August quotes for RAMs used in graphics cards have risen to US$8.50, up by 30.8% from US$6.50 in July. Both memory suppliers have allocated more of their production capacities to making memories for servers and handsets, reducing output for the graphics cards segment and fueling the price rally.

Source: www.digitimes.com

World Wearable Market Shipments Grew 10.3% y/y to 26.3 million units in 2Q’17 (Charts 30 & 31)

Basic Trackers Take a Back Seat as Smartwatches Accelerate in the Second Quarter,

The worldwide wearables market was once again graced with positive growth as shipments grew 10.3% year over year, reaching 26.3 million during the second quarter of 2017 (2Q’17), according to the International Data Corporation (IDC) Worldwide Quarterly Wearable Device Tracker. The quarter also marked a turning point in the market as basic wearables (those that do not run third party apps) declined for the first time with annual growth of -0.9%. Meanwhile, smartwatches like the Apple Watch and Android Wear lineup grew 60.9% in the quarter thanks to fitness and fashion enthusiasts.

"The transition toward more intelligent and feature-filled wearables is in full swing," said Jitesh Ubrani senior research analyst for IDC Mobile Device Trackers. "For years, rudimentary fitness trackers have acted as a gateway to smartwatches and now we're at a point where brands and consumers are graduating to a more sophisticated device. Previous niche features such as GPS and additional health tracking capabilities are quickly becoming staples of the modern smartwatch. Just a year ago only 24.5% of all wearables had embedded GPS while today that number has reached almost 41.7%.

"Equally important to device features will be the algorithms tracking workouts and providing health insights," continued Ubrani. "There is growing interest from the medical industry to adopt wearables and consumer expectations are also on the rise. This is where companies like Apple and Fitibit have the potential to maintain their lead as their investments in the tracking and perhaps diagnosing of diseases will be a clear differentiator from low-cost rivals."

"Market growth favored new and emerging products in the second quarter," noted Ramon Llamas, research manager for IDC's Wearables team "Smartwatches recorded double-digit year-over-year growth, with much of that increase attributable to a growing number of models aimed at specific market segments, like the fashion-conscious and outdoor enthusiasts in addition to the technophile crowd, lower price points, and a slowly-warming reception from consumers and enterprise users alike. Factor in how smartwatches are taking steps to become standalone devices, and more applications are becoming available, and the smartwatch slowly becomes a more suitable mass market product.

"Meanwhile, we also saw triple-digit growth from clothing and earwear," continued Llamas. "These products are still in their initial stages, but by targeting specific market niches (performance tracking clothing for professional athletes) or providing unique value propositions (audio adjustment or language translation for earworn devices), these products are offering solutions to problems other than simply reporting data, and gaining traction."

Source: www.idc.com

U.S. 2Q’17 GDP Growth revised up to 3%, highest in 2+ years (Chart 32)

U.S. gross domestic product rose at a 3.0% annual rate in 2Q’17, the Commerce Department said.

Source: www.bea.gov/national