Europe Update

Business conditions in Europe remain strong.

  • European Purchasing Managers Index rebounded to near 6-year high in August (Chart 1).
  • All sectors of European electronic supply chain had positive growth in 2Q’17 vs. 2Q’16 (Chart 2).
  • European electronic production rebounded in July to near a record high (Chart 3).
  • Motor vehicle production is relatively stable but slightly below 2015 levels (Chart 4).
  • Production of instruments and appliances for measuring, testing and navigation was at a record high in July (Chart 5).
  • Medical electronics production remains volatile but it rebounded in July (Chart 6).
  • Loaded board (electronic assembly) production dipped slightly from June but remains near an all-time high (Chart 7).
  • Semiconductor shipment growth to Europe remains above electronic equipment growth but appears to be correcting downward to meet end market demand on a 3/12 basis (Chart 8).
  • Wiring device (bare PCBs) production is at a 9-year high (Chart 9). The European PMI leading indicator points to continued PCB growth ahead (Chart 10).

Chart 11 summarizes the annualized and 3-month growth of the European supply chain. All growth rates were positive in July!

Sources: Eurostat, IHS Market and SIA

Taiwan/China Update

China’s PMI rose sharply in August (Chart 12) and Taiwan’s (Chart 13) rose modestly. Both are in manufacturing expansion territory (PMI>50).

August sales have been released for Taiwan-listed companies, many of which manufacture in China.

  • Electronic equipment sales are in their normal seasonal upturn cycle. August 2017 was up 7% vs. August 2016 and up 4.6% sequentially from July to August. Both seasonal and year/year growth is occurring (Chart 14).
  • ODM revenues rose also – up 7.3% in August 2017 vs. August 2016 and up 3% sequentially from July (Chart 15).
  • Wafer foundry sales rebounded sharply (Chart 16).
  • Package & Test (Chart 17), Memory (Chart 18) Passives (Chart 19) and Solar/Photovoltaic (Chart 20) producer groups all reported August sales increases.
  • Rigid & flex PCB sales returned to their long term, rising trend line (Chart 21) and CCL (rigid laminate) sales continue to climb (Chart 22).

Sources: Composite monthly revenues of Taiwan-listed companies

Worldwide Semiconductor Equipment Billings up 35% y/y to record US$14.1 billion in 2Q’17 (Charts 23 & 24)

SEMI reported that worldwide semiconductor manufacturing equipment billings reached US$14.1 billion for the second quarter of 2017.

Quarterly billings of US$14.1 billion represent an all-time historic record for quarterly billings, exceeding the record level set in the first quarter of this year. Billings for the most recent quarter are 8% higher than the first quarter of 2017 and 35% higher than the same quarter a year ago. Sequential regional growth was mixed for the most recent quarter with the strongest growth exhibited by Korea. Korea maintained the largest market for semiconductor equipment for the year, followed by Taiwan and China. The data are gathered jointly with the Semiconductor Equipment Association of Japan (SEAJ) from over 95 global equipment companies that provide data on a monthly basis.


Fab Equipment Spending to Increase 37% y/y in 2017 to new Annual Record of US$55 Billion (Chart 25)

The latest SEMI World Fab Forecast report reveals record spending for fab equipment. Out of the 296 Front End facilities and lines tracked by SEMI, the report shows 30 facilities and lines with over $500 million in fab equipment spending. 2017 fab equipment spending (new and refurbished) is expected to increase by 37%, reaching a new annual spending record of about US$55 billion. The SEMI World Fab Forecast also forecasts that in 2018, fab equipment spending will increase even more, another 5%, for another record high of about $58 billion. The last record spending was in 2011 with about $40 billion. The spending in 2017 is now expected to top that by about $15 billion.

Examining 2017 spending by region, SEMI reports that the largest equipment spending region is Korea, which increases to about $19.5 billion in spending for 2017 from the $8.5 billion reported in 2016. This represents 130% growth year-over-year. In 2018, the World Fab Forecast report predicts that Korea will remain the largest spending region, while China will move up to second place with $12.5 billion (66% growth YoY) in equipment spending. Double-digit growth is also projected for Americas, Japan, and Europe/Mideast, while other regions growth is projected to remain below 10%.

The World Fab Forecast report estimates that Samsung is expected to more than double its fab equipment spending in 2017, to $16 billion to $17 billion for Front End equipment, with another $15 billion in spending for 2018. Other memory companies are also forecast to make major spending increases, accounting for a total of $30 billion in memory-related spending for the year. Other market segments, such as Foundry ($17.8 billion), MPU ($3 billion), Logic ($1.8 billion), and Discrete with Power and LED ($1.8 billion), will also invest huge amounts on equipment. These same product segments also dominate spending into 2018.

In both 2017 and 2018, Samsung will drive the largest level in fab spending the industry has ever seen. While a single company can dominate spending trends, SEMI's World Fab Forecast report also shows that a single region, China, can surge ahead and significantly impact spending. Worldwide, the World Fab Forecast tracks 62 active construction projects in 2017 and 42 projects for 2018, with many of these in China.


Worldwide Server Shipments Grew 2.4% in 2Q’17; Revenue Grew 2.8% (Charts 26-29)

In the second quarter of 2017, worldwide server revenue increased 2.8% year over year, while shipments grew 2.4% from the second quarter of 2016, according to Gartner, Inc. "The second quarter of 2017 produced some growth compared with the first quarter on a global level, with varying regional results," said Jeffrey Hewitt, research vice president at Gartner. "The growth for the quarter is attributable to two main factors. The first is strong regional performance in Asia/Pacific because of data center infrastructure build-outs, mostly in China. The second is ongoing hyperscale data center growth that is exhibited in the self-build/ODM (original design manufacturer) segment.

"x86 servers increased 2.5% in shipments and 6.9% in revenue. RISC/Itanium Unix servers fell globally for the period — down 21.4% in shipments and 24.9% in vendor revenue compared with the same quarter last year. The 'other' CPU category, which is primarily mainframes, showed a decline of 29.5% in revenue,” Hewitt said.

Hewlett Packard Enterprise (HPE) continued to lead in the worldwide server market based on revenue. Despite a decline of 9.4%, the company posted $3.2 billion in revenue for a total share of 23% for the second quarter of 2017. Dell EMC maintained the number two position with 7% growth and 19.9% market share. Huawei experienced the highest growth in the quarter with 57.8%.

In server shipments, Dell EMC maintained the number one position in the second quarter of 2017 with 17.5% market share. HPE secured the second spot with 17.1% of the market. Inspur Electronics experienced the highest growth in shipments with 31.5%, followed by Huawei with 26.1% growth.


Worldwide Enterprise Storage Systems Factory Revenue increased 2.9% y/y to $10.8 billion in 2Q’17, Total Capacity Shipments were up 16.5% y/y to 65.3 Exabytes (Charts 30 & 31)

Total worldwide enterprise storage systems factory revenue was up 2.9% year-over-year and reached $10.8 billion in the second quarter of 2017 (2Q’17), according to the International Data Corporation (IDC). Total capacity shipments were up 16.5% year over year to 65.3 exabytes during the quarter. Revenue growth increased within the group of original design manufacturers (ODMs) that sell directly to hyperscale datacenters. This portion of the market was up 73.5% year-over-year to $2.5 billion. Sales of server-based storage declined 13.4% during the quarter and accounted for $2.9 billion in revenue. External storage systems remained the largest market segment, but the $5.3 billion in sales represented a decline of 5.4% year-over-year.

"The enterprise storage market finished the second quarter of 2017 on a positive note, posting modest year-over-year growth and the first overall growth in several quarters," said Liz Conner, research manager, Storage Systems. "Traditional storage vendors continue to expand their product portfolios to take advantage of the market swing towards All Flash and converged/hyperconverged systems. Meanwhile, hyperscalers saw new storage initiatives and event-driven storage requirements lead to strong growth in this segment during the second quarter."


Wearable Device Shipments will increase 16.6% y/y to 121.7 million units in 2017 (Charts 32 & 33)

Growth in Wearables Shows No Signs of Wearing Out with Double-Digit Gains Forecast Through 2021

International Data Corporation (IDC) expects the popularity of wrist-worn devices – including watches and wrist bands – will continue to drive the wearables market forward. Meanwhile, lesser-known wearable products, such as clothing and earwear, will experience market-beating growth in the years to come. According to IDC vendors will ship a total of 121.7 million wearable devices this year, marking a 16.6% increase from the 104.4 million units shipped in 2016. The wearables market is forecast to maintain this pace of growth with shipments reaching 229.5 million units in 2021, resulting in a five-year compound annual growth rate (CAGR) of 17.2%."We expect the most innovation and development in the wearables market to take place on the wrist," said Ramon T. Llamas, research manager for IDC's Wearables team. "It's the ideal location for users to collect, view, and interact with data and applications, and the point to execute tasks like responding to notifications or communicating with other people and devices. Layer on top of that varieties in style, design, segment, and feature set, and wristworn wearables are poised to remain well out in front of the market."

Outside of wrist-worn wearables, IDC also anticipates clothing and earwear – though small in volume and market share – will develop quickly as feature sets emerge. Earworn wearables with personal assistants built in or clothing that tracks your vital signs and transmits them to your doctor can be very powerful solutions for select users, and clearly there will be plenty of possible use cases.

"Other factors fueling growth in the wearables market will be the inclusion of cellular connectivity along with improved sensors and algorithms," said Jitesh Ubrani senior research analyst for IDC Mobile Device Trackers. "Not only do these technologies provide increased accuracy, but they also make it possible for companies to sell wearables through new channels and more importantly, to new customers."


Global Tablet Shipments dropped 17.9% y/y to 33.39 million units in 2Q’17

Global tablet shipments reached 33.39 million in second-quarter 2017, decreasing 10.6% sequentially and 17.9% on year, according to Digitimes Research. The volume consisted of 9.9 million iPads, 15.9 million from other international vendors, and 7.60 million from white-box ones.


Global Notebook Shipments grew 6.4% y/y to 38.2 million units in 2Q’17

Taiwan ODMs shipped 31.297 million units, rising 11.1% y/y

Global notebook shipments reached 38.214 million units in second-quarter 2017; growing 6.4% both sequentially and on year, and meanwhile Taiwan ODMs shipped 31.297 million units, rising 7.1% sequentially and 11.1% on year, according to Digitimes Research.


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.

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