Strong 3Q’17 Global Electronic Equipment Growth

Based on preliminary third quarter regional electronic equipment shipment data:

  • Consolidated global sales were up 6.3% in 3Q’17 vs. 3Q’16 on a fluctuating exchange rate basis (Chart 1).
  • China/Taiwan and Europe had strong third quarters (Chart 2).
  • September 2017 experienced a “normal” seasonal upturn with sales up 6.3% vs. September 2016 and up 14% sequentially from August 2017 (Chart 3).

Source: Actual and estimated regional data analyzed by Custer Consulting Group

China/Taiwan Update

September PMI leading indicators remained in modest expansion territory for both China (Chart 4) and Taiwan (Chart 5).

September sales were released by Taiwan listed companies, many of which manufacture in China:

  • OEM revenues were up 4.7% compared to September 2016 and up 24.1% sequentially compared to August 2017 (Chart 6).
  • ODM company sales in September 2017 were up 3.3% vs. September 2016 and up 30% sequentially from August 2017 (Chart 7). They rose 7.1% in 3Q’17 vs. 3Q’16, their third successive quarterly increase (Chart 8).
  • Industrial computer sales have risen substantially (Chart 9), perhaps due to robotics demand?
  • Motherboard revenues showed their normal September seasonal peak (Chart 10).
  • Semiconductor shipment growth to Asia appears to have peaked on a 3/12 basis, but this growth still remains in very positive (+22%) territory (Chart 11).
  • Taiwan wafer foundry sales have rebounded and are back “in sync” with global semiconductor shipments (Chart 12).
  • Package and test (Chart 13), memory (Chart 14), and passive component (Chart 15) sales increased in September.
  • Solar/photovoltaic equipment revenues continue to climb (Chart 16).
  • Rigid and flex circuit board sales have crossed their long-term trend line (Chart 17) as rigid CCL laminate shipments mirror rigid PCB sales (Chart 18).

Sources: Company financial reports, SIA/WSTS semiconductor shipments and ISM Markit PMI reports

Europe Update

Business conditions remain strong in Europe. The Eurozone PMI leading reached an 80-month high in September.

Based on the most recent Eurostat data:

  • Eurozone industrial production rose sharply in August led by Germany (Chart 20).
  • European electronic equipment production was near an all-time high (Chart 21).
  • Motor vehicle production reached a record high (Chart 22) as did aerospace equipment output (Chart 23).
  • Production of instruments and appliances for measuring, testing and navigation remained near its high (Chart 24) but medical electronics output continues erratic (Chart 25), perhaps due to a small dataset?
  • Loaded board production weakened (Chart 26) and wiring device output declined slightly (Chart 27).
  • Loaded board production weakened (Chart 26) and wiring device output declined slightly (Chart 27).

Chart 29 summarizes the annualized and 3-month growth of the European electronic supply chain.

Sources: Eurostat, SIA/WSTS & IHS Markit

Worldwide Semiconductor Revenue to increase 19.7% y/y to $411 Billion in 2017 Driven by Memory (Chart 30)

Worldwide semiconductor revenue is forecast to total $411.1 billion in 2017, an increase of 19.7% from 2016, according to Gartner, Inc. This represents the strongest growth since the 2010 recovery from the financial crisis when revenue increased by 31.8%.

"Memory continues to lead the semiconductor market higher and is expected to increase 57% in 2017 as supply and demand dynamics increase prices. A shortage of memory, and in particular DRAM, is driving semiconductor revenue higher," said Jon Erensen, research director at Gartner. "Strength is spreading to other semiconductor categories as well with non-optical sensors, analog, discretes and image sensors all forecast to grow over 10% in 2017.

"Higher memory costs and component shortages are cause for concern as we enter the fourth quarter," said Erensen. "Memory is driving the bill-of-materials cost higher across electronic equipment categories and we are starting to see increased costs get passed on by OEMs through higher pricing."

The semiconductor market is expected to increase 4% in 2018 and reach $427.4 billion. Gartner forecasts the market to decline 1% in 2019 as the memory market turns with leading vendors adding new supply.

IMF World Economic Outlook: 3.6% GDP Growth in 2017 and 3.7% in 2018 (Chart 31)

Short-Term Recovery, Long-Term Challenges – International Monetary Fund

The global upswing in economic activity is strengthening, with global growth projected to rise to 3.6% in 2017 and 3.7% in 2018. Broad-based upward revisions in the euro area, Japan, emerging Asia, emerging Europe, and Russia more than offset downward revisions for the United States and the United Kingdom. But the recovery is not complete: while the baseline outlook is strengthening, growth remains weak in many countries, and inflation is below target in most advanced economies. Commodity exporters, especially of fuel, are particularly hard hit as their adjustment to a sharp step-down in foreign earnings continues. And while short-term risks are broadly balanced, medium-term risks are still tilted to the downside. For policymakers, the welcome cyclical pickup in global activity provides an ideal window of opportunity to tackle key challenges—namely to boost potential output while ensuring its benefits are broadly shared, and to build resilience against downside risks.

The earlier projected increase in growth is strengthening. Notable pickups in investment, trade, and industrial production, coupled with stronger business and consumer confidence, are supporting the recovery. With early 2017 growth generally stronger than expected, upward revisions to projections are broad-based, including for the euro area, Japan, China, emerging Europe, and Russia, more than offsetting downward revisions for the United States, the United Kingdom, and India. After disappointing global growth over the past few years, this recent pickup provides an ideal window of opportunity for policymakers to undertake critical reforms to stave off downside risks, raise potential output, and improve living standards more broadly.

Worldwide PC Shipments declined 3.6% y/y to 67 million units in 3Q’17 (Charts 32-35)

Traditional Promotions, Such as Back-to-School Sales, No Longer an Effective Growth Driver

Worldwide PC shipments totaled 67 million units in the third quarter of 2017, a 3.6% decline from the third quarter of 2016, according to preliminary results by Gartner, Inc. This is the 12th consecutive quarter of declining PC shipments.

"While there were signs of stabilization in the PC industry in key regions, including EMEA, Japan and Latin America, the relatively stable results were offset by the U.S. market, which saw a 10% year-over-year decline in part because of a very weak back-to-school sales season," said Mika Kitagawa, principal analyst at Gartner. "Business PC demand, led by Windows 10 upgrades, continued to drive PC shipments across all regions, but its refresh schedule varies by region. The countries with stable economies, such as the U.S., have created a positive sentiment among businesses, especially for small and midsized businesses (SMBs), which are more vulnerable to external events, such as economic or political."

There are ongoing component shortages, with DRAM shortages getting particularly worse during the third quarter of the year compared with the first half of 2017. "The component price hike impacted the consumer PC market as most vendors generally pass the price hike on to consumers, rather than absorbing the cost themselves," Kitagawa said. "We expect the DRAM shortage to continue to the end of 2018, but it will not be reflected in the final PC prices immediately."

In the third quarter of 2017, HP Inc. and Lenovo were in a virtual tie for the top spot in the PC market based on shipments. However, HP Inc. is in an upward trend, as it has experienced five consecutive quarters of global PC growth, while Lenovo is on a downward trend with declining shipments in eight of the last 10 quarters.

HP Inc. experienced growth in all key regions, except the U.S. market. The company experienced double-digit growth in Latin America, while in Asia/Pacific HP Inc. secured positive growth for the fifth consecutive quarter. Lenovo experienced its steepest year-over-year decline of PC shipments in the U.S. since it acquired the IBM PC business division in 2005. Lenovo continues to face the dilemma of market share gains versus profitability. It appears the company is putting more emphasis on profitability than share gain. Dell's worldwide PC shipments were slightly down compared with a year ago, as it registered its first year-over-year shipment decline since the first quarter of 2016.

In the U.S., PC shipments totaled 14.7 million units in the third quarter of 2017, a 10.3% decline from the third quarter of 2016. It was the fourth consecutive quarter of declining PC shipments.

"Weak back-to-school sales were further evidence that traditional consumer PC demand drivers for PCs are no longer effective," Kitagawa said. "Business PC demand is stable in the U.S., but demand could slow down among SMBs due to PC price increases due to component shortages."

PC shipments in EMEA totaled 19 million units in the third quarter of 2017, a 1.1% decline year over year. The contraction in the Western European PC market appears to have slowed down, with the potential for stability in the fourth quarter of 2017. Eastern Europe is experiencing flat to small unit declines as demand is not improving, and there is no obvious impact yet from the Windows 10 migration in the business segment.

In Asia/Pacific, PC shipments reached 24 million units in the third quarter of 2017, down 2.1% from the same period last year. While consumer demand remained lackluster, PC demand in the business segment remained steady, especially for notebooks. In China, the PC market is estimated to have declined by 5% in the third quarter of 2017, with more stability in the business market, particularly in large enterprises, than in the consumer space.

Service Robots Sales for Professional Use up 12% to Record $5.2 billion in 2017 (Chart 36)

Sales in service robots for professional use will increase 12% by the end of 2017 to a new record of 5.2 billion U.S. dollars. And the long-term forecast is positive too, with an expected average growth rate of 20 to 25% in the period 2018 - 2020. That’s the latest projection from the International Federation of Robotics (IFR).

“In terms of value, the sales forecast 2018-2020 indicates a cumulative volume of around 27 billion U.S. dollars for the professional service segment”, says Gudrun Litzenberger, General Secretary of the IFR. “Robots for medical, logistics and field services are the most significant contributors.”

At the same time, the market for personal service robots which assist humans in their everyday lives is also progressing rapidly; it is projected that sales of all types of robots for domestic tasks, e.g. vacuum cleaning, lawn mowing or window cleaning – could reach an estimated value of around 11 billion U.S. dollars (2018-2020).

“Robots are clearly on the rise, in manufacturing and increasingly in everyday environments”, says Martin Hägele, IFR Service Robot Group.” The growing interest in service robotics is partly due to the variety and number of new start-ups which currently account for 29% of all robot companies. Furthermore, large companies are increasingly investing in robotics, often through the acquisition of start-ups.”

Service robot manufacturers and start-ups by regions
European service robot manufacturers play an important role in the global market: about 290 out of the 700 registered companies supplying service robots come from Europe. North America ranks second with about 240 manufacturers and Asia third with about 130.

Further progress will rely on entrepreneurs taking up disruptive technologies and deploying them for new applications and markets. In the US, about 200 start-up companies are working on new service robots. The European Union plus Switzerland count 170 companies that are creating a new entrepreneurial culture for the service robotics industry – followed by Asia with 135 start-ups. Virtually all economies are attempting to foster a vibrant entrepreneurial environment and the service robotics industry has become one of the focus areas of their public policies.

Service robotics market overview
Robotics in professional applications has already had a significant impact in areas such as agriculture, surgery, logistics or public relations and is growing in economic importance. There is a growing demand to monitor our everyday surroundings which results in increased and difficult-to-manage workloads and data flows. To meet this demand, robots will play an even greater role in the maintenance, security and rescue markets.

Robotics in personal and domestic applications has experienced strong global growth with a limited number of mass-market products: floor cleaning robots, robo-mowers and robots for edutainment. Future product visions point to domestic robots of higher sophistication, capability and value, such as assistive robots for supporting the elderly, for helping with household chores and for entertainment.

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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