3Q’17 Global Electronic Supply Chain Growth – preliminary estimate
Based on a combination of actual and estimated third quarter company revenues here is our first estimate of 3Q’17 global electronic equipment growth:
- World electronic equipment sales grew an estimated 3.4% in 3Q’17 vs. 3Q’16 (Chart 1).
- Third quarter growth was less than the 5% growth of the second quarter but the 3Q’17 value is still a very early estimate (Chart 2).
- Chart 3 summarizes estimated growth by sector of the global supply chain.
Source: Company financial reports and Custer Consulting Group estimates
Third Quarter EMS & ODM Growth
- For a group of 52 EMS and ODM companies, actual/estimated revenues rose 11.1% in 3Q’17 vs. 3Q’16 (Chart 4).
- Eleven ODM companies saw third quarter revenues rise 7.1% in NT$ compared to the same quarter in 2016 (Chart 5).
- Seven large domestic EMS companies had a 6.4% 3Q’17 increase (Chart 6). Including Foxconn and Venture Manufacturing this increase is estimated at 6.1% (Chart 7).
Source: Company financial reports and Custer Consulting Group estimates
September “Flash” PMI Leading Indicators
IHS Markit released its October “Flash” PMI leading indicators:
- Chart 8 compares the actual September vs. flash October PMIs.
- USA PMIs are surging based on both the IHS Markit and ISM data (Chart 9).
- Eurozone’s October PMI is very near its early 2011 high (Chart 10) as both Germany (Chart 11) and France (Chart 12) have seen strong increases.
- Japan remains well in expansion territory but its PMI rate of growth has leveled out (Chart 13).
September U.S. Electronic Supply Chain Shipments, Orders and Inventories
The September U.S. Durable Goods report was just released:
- Electronic equipment book/bill increased to 1.01 (Chart 14).
- Electronic equipment orders and shipment growth rates both increased on a 3/12 basis (Chart 15).
- Actual equipment orders and shipments also increased on a dollar basis (Chart 16).
- Ratio of electronic equipment inventories/orders declined (Chart 17).
- Defense capital equipment orders and shipments rose (Chart 18) as their book/bill rose to 1.1 (Chart 19).
- Aircraft and parts shipments rose driven by the commercial sector (Chart 20) as non-defense orders rose (Chart 21).
- Communication equipment orders rose (Chart 22) but computer equipment bookings were flat (Chart 23).
Global AMOLED Panel Production Capacity Set to More than Quadruple over Next Five Years (Chart 24)
Samsung Display and LG Display to remain as market leaders
As organic light-emitting diode (OLED) displays are used in more smartphones and high-end flat panel TVs, panel makers have boosted their investments in new OLED display fab construction. As a result, the global production capacity of AMOLED panels – including both red-green-blue (RGB) OLED and white OLED (WOLED) – is forecast to surge 320% from 11.9 million square meters in 2017 to 50.1 million square meters in 2022, according to new analysis from IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions.
The production capacity of RGB OLED panels will increase from 8.9 million square meters in 2017 to 31.9 million square meters in 2022 while that of WOLED panels is set to grow from 3.0 million square meters in 2017 to 18.2 million square meters in 2022, says the latest Display Supply Demand & Equipment Tracker by IHS Markit.
The two market leaders – Samsung Display and LG Display, have taken different paths: Samsung is focusing on RGB OLED panels for mobile devices, and LG on WOLED displays for TVs. To cope with the trend of RGB OLED replacing the liquid crystal display (LCD) in smartphones and other mobile devices, especially for the full-screen and flexible feature of OLED panels, LG Display has started to manufacture RGB OLED panels in 2017. Meanwhile, Chinese panel makers, including BOE, ChinaStar, Tianma, Visionox, EverDisplay, Truly and Royole, are all expanding the production capacity of RGB OLED panels, targeting the mobile market.
“It takes more than $11.5 billion to build a Gen 6 flexible OLED factory with a capacity of 90,000 substrate sheets per month, and this is a much larger investment required than building a Gen 10.5 TFT LCD fab with the same capacity,” said David Hsieh, senior director at IHS Markit. “The learning curve costs for the mass production of flexible OLED panels are also high. The financial and technological risks associated with the AMOLED panels have hampered Japanese and Taiwanese makers from entering the market aggressively,” Hsieh said. “In other words, the capacity expansion of AMOLED display, whether it is RGB OLED or WOLED, is only apparent in China and South Korea.”
Samsung Display will remain the dominant supplier of the RGB OLED panels for smartphones. Its RGB OLED panel capacity will grow from 7.7 million square meters in 2017 to 16.6 million square meters in 2022, IHS Markit says. Even though many Chinese panel makers are building RGB OLED fabs, each of their production capacity is much smaller than that of Samsung Display. Due to the gap in their production capacities, they will target different customers: Samsung Display will mainly focus on two major customers -- Samsung Electronics (the Galaxy) and Apple (the iPhone), while Chinese makers will be targeting at Chinese smartphone makers at a smaller scale. These include Huawei, Xiaomi, Vivo, Oppo, Meizu, Lenovo and ZTE, and white box makers.
South Korea’s panel makers are estimated to account for 93% of the global AMOLED production capacity in 2017, and their share is expected to drop to 71% in 2022. Chinese players (BOE, ChinaStar, Tianma, Visionox, EverDisplay and Royole) will account for 26% in 2022 from 5% in 2017.
“Many interpret the strong expansion of RGB OLED capacity in China as a threat to South Korean makers. It is indeed a threat. However, while South Korean companies have high capacity fabs with high efficiencies, China’s OLED fabs are relatively small and dispersed across multiple regions and companies,” Hsieh said. “Also, while the Chinese makers could expand fabs with government subsidies, the operating performance will completely depend on the panel makers themselves. How long it will take until they could sustain the business, getting over the challenges with learning curve costs, initial low yield rates and capacity utilization is still an open question.”
The Display Supply Demand and Equipment Tracker by IHS Markit is a comprehensive guide to fab activity, capacity, utilization, supply/demand, capital spending, financial information and relevant news analysis for the entire FPD supply chain. With quarterly coverage of all industry participants and key analytical metrics, this report delivers the most current and complete view of both the supply and demand sides of the industry.
MEMS Packaging Market (Charts 25 & 26)
According to Yole Développement, the MEMS packaging market will grow from US$2.56 billion in 2016 to US$6.46 billion in 2022, showing a 16.7% CAGR over this period. The MEMS packaging market’s value is growing faster than the MEMS device market’s value: respectively, a 16.7% CAGR for packaging versus 14.1% for devices, during the period 2016 – 2022.
The MEMS packaging market is becoming more and more attractive, offering important business opportunities for advanced packaging companies. What are the market needs? What are the conditions to penetrate this market? Are the technologies “ready to use”? Through its analyses, Yole Group believes that companies which will be successful are the ones that will adapt their technologies portfolio to match with the market evolution and ensure their market shares. Yole and System Plus Consulting’s analysts put a spotlight today on MEMS packaging.
MEMS devices are characterized by a wide range of different designs and manufacturing technologies, with no standardized processes. As a consequence, many technical challenges are in place and create a strong competition between packaging companies.
“Players have to take into account specifics of each component as well as many application constraints, from the need to low cost packaging for consumer applications to the ability to withstand high temperature and harsh environment for automotive and aeronautics packaging,” explains Dr. Eric Mounier, Senior Technology and Market Analyst at Yole.
MEMS application scope is broad, very fragmented and diversified. Therefore, under its annual report, Status of the MEMS Industry, Yole’s MEMS and Sensors team analyzed more than 200+ applications. Thus, MEMS packaging must always cope with different end-application requirements. It includes for example, protection in different media, hermeticity, interconnection type, and thermal management. This context creates many issues within the packaging industry, which faces different package configurations (open/ closed package).
Under System Plus Consulting’s report, MEMS Packaging: Reverse Technology Review, the company analyzed more than 100 MEMS components developed by the major manufacturers. This review is a relevant comparison between the main existing packaging solutions. It includes the encapsulation processes, the preferred interconnection methods as well as the latest innovations. System Plus Consulting also evaluated the components in term of integration and functionalities.
“No tremendous changes in packaging platforms are expected,” comments Audrey Lahrach, in charge of costing analyses at System Plus Consulting. “But we rather see a change in the complexity of existing platforms to respond to the growing needs of sensor fusions”. Therefore, combining inertial and pressure sensors is now a reality. For example, TDK/InvenSense released this month a high-performance “7-Axis” motion tracking device targeting drone applications and based on an exclusive assembly step stacking the 3-axis gyroscope, the 3-axis accelerometer and a barometric pressure sensor.
Driven by the complexity associated with the move to 5G and therefore the increasing demand for RF filters in 4G/5G, the largest MEMS growth will be for RF MEMS, especially BAW filters
“The real opportunity of MEMS packaging is carried by RF MEMS devices as the number of units could be multiplied by five by 2022,” confirms Dr. Mounier from Yole. Optical MEMS including micromirrors and microbolometers are second with a 28.5% CAGR, driven by consumer, automotive, and security applications.
Acoustic and ultrasonic sensors including microphones are third. Demand for audio processing is particularly strong, with high unit growth for MEMS microphones targeted at increasingly sophisticated applications that use the microphone to continuously sense what is happening around it.
But why is the MEMS packaging industry becoming so attractive? Yole identified several reasons:
1) “OSATs already have very low package margins due to fierce competition” asserts Emilie Jolivet, Technology and Market Analyst at Yole. And she adds: “And it will be difficult for such companies to lower the cost further.”
2) The second factor is related to the importance of testing steps. Because every MEMS is different, testing strategies defined by MEMS devices manufacturers are usually dedicated to one device type and account for a significant fraction of the final cost.
3) The third reason is focused on the packaging’s material cost that is playing a key role within the attractiveness of the MEMS packaging business.
At the end, the strong CAGR of certain devices such as RF MEMS devices, also directly impacts the MEMS packaging industry with numerous opportunities to ensure larger volumes and better margins.