3Q’17 World Electronic Supply Chain Growth – Updated Estimate
About 50% of the companies in our survey have now released their 3Q’17 financials. We now estimate that global electronic equipment revenues grew 4.4% in third quarter 2017 vs. third quarter of 2016 (Chart 1). Growth by sector of the global supply chain is now estimated in Chart 2.
Please note that many large companies have not yet reported their 3Q’17 financials so these estimated growth rates are still very preliminary and will likely change over the next few weeks.
Growth of the key electronic supply chain segments may now have peaked for this current business cycle. Chart 3 shows the 3/12 world growth of SEMI equipment, semiconductors, PCBs and the Global PMI. Purchasing Manager Indices greater than 1.0 indicate an expansion but the current declining 3/12 PMI rates indicate a slowing (but still positive) expansion.
Sources: SEMI, SIA, IHS Markit and company financial reports
October PMI Leading Indicators
October Purchasing Managers indices have now been released. They are excellent leading indicators.
- Global PMI is at a 6-year high, rising slightly from September to October (Chart 4).
- Although PMI values for all key countries/regions are still in expansion territory, PMI growth rates varied (Chart 5).
- The Eurozone October PMI reached its highest level since early 2011 (Chart 6). Country values are giving in Chart 7.
- Asian results are given in Chart 8. China’s PMI was unchanged at a very modest value of 51 (Chart 9).
Worldwide Semiconductors Sales Increased 22.2% y/y to $107.9 billion 3Q’17 (Charts 10-14)
- Global Semiconductor Industry Posts Highest-Ever Quarterly Sales
- Worldwide Q3 sales increase 10.2% compared to Q2; September sales increase 22.2% year-to-year and 2.8% month-to-month
The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $107.9 billion for the third quarter of 2017, marking the industry's highest-ever quarterly sales and an increase of 10.2% compared to the previous quarter. Sales for the month of September 2017 were $36.0 billion, an increase of 22.2% over the September 2016 total of $29.4 billion and 2.8% more than the previous month's total of $35.0 billion. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.
"Global semiconductor sales increased sharply year-to-year in September, and year-to-date sales through September are more than 20% higher than at the same point last year," said John Neuffer, SIA president and CEO. "The industry posted its highest-ever quarterly sales in Q3, and the global market is poised to reach its highest-ever annual revenue in 2017."
"The Americas market continued to stand out, notching its largest year-to-year sales increase in more than seven years," Neuffer said. "Standouts among semiconductor product categories included memory products like DRAM and NAND flash, both of which posted major year-to-year growth in September, as well as Logic products, which enjoyed double-digit growth year-to-year."
Custer Comments: Even considering the strong demand and price increases of memory chips, semiconductor growth is well in excess of end market demand. Double ordering and stock piling are quite likely.
U.S. “Factory Orders” - September Electronic Supply Shipments, Orders and Inventories
The U.S. Commerce Department’s “September Factory Orders Report” has just been released.
- Electronic equipment shipment and order September growth rates increased on both a 3/12 (Chart 15) and dollar basis (Chart 16).
- Historical domestic electronic equipment orders by type are given in Chart 17. The instrument and control equipment sector dominates.
- Electronic equipment inventories relative to orders are declining (Chart 18). Inventories are not climbing!
- Vehicle shipments have been flat (Chart 19).
- Defense electronic equipment orders and shipments continue to increase (Chart 20).
- Electromedical, measurement and control equipment demand continues to surge (Chart 21).
Chart 22 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronic supply chain. Chart 23 compares 3Q’17 vs 3Q’16 growth.
Global Smartphone Shipments grew 2.7% y/y to 373.1 Million Units in 3Q’17 (Chart 24)
According to preliminary results from the International Data Corporation (IDC), smartphone OEMs shipped a total of 373.1 million smartphones worldwide in the third quarter of 2017 (3Q’17). Third quarter volumes were up 2.7% year over year, and up 7.4% from the second quarter. Despite the annual growth being low, the fact that it is positive leading into the holiday quarter is a sign the industry still has momentum.
During the lead-in quarter to the holiday season all of the top 5 vendors experienced positive year-over-year growth, with Xiaomi growing the strongest by more than doubling its sales from this quarter a year ago. When all was said and done, the top 5 ranking did not change from the second quarter. Asia/Pacific, excluding China and Japan, performed the best by far. This market grew double digits, likely as a result of the continued slowdown in the China domestic market, which was close to flat year over year in 3Q’17.
"As much of the focus has been on the wide range of high-profile flagship smartphones launched or announced in Q3, it is also important to look at what is happening with the rest of the industry," said Ryan Reith, program vice president with IDC's Worldwide Quarterly Mobile Device Trackers. "Collectively, the industry continues to grow, but at a much slower pace than past years. What is clear is that the 'Others' outside of the top 5 leading vendors continue to struggle and the industry leaders are quickly forming two camps. First, those able to drive significant volumes at the high end, which right now is basically Samsung, Apple, and Huawei, despite high-profile launches from Google, Essential, LG, and others. Second, a few other Chinese OEMs that are making tremendous headway outside of the China domestic market."
"With an overabundance of high-end flagships launching in the coming weeks, the fourth quarter will be extremely competitive as vendors will fight it out to win over holiday shoppers," said Anthony Scarsella, research manager with IDC's Worldwide Quarterly Mobile Phone Tracker. "Although these premium flagships will capture all the hype while driving up the average selling price in the quarter, we still believe a clear majority of shipments will come from more affordable models across many markets. IDC previously forecast the fourth quarter to grow at less than 1% year over year as initial supply constraints surrounding the iPhone X and higher than normal prices on many flagships could lead to consumers playing the waiting game until prices come down after the holidays or opt for a more affordable device."
Global Smartphone Demand up 3% y/y to 367 million units in 3Q’17 (Chart 15)
Average Selling Price increased 7% y/y
Global smartphone demand reached 367 million units in 3Q’17, up three percent year-on-year. This is the highest 3Q tracked by GfK, in terms of absolute demand, despite moderating growth.
The record demand was primarily driven by Latin America (up 11% year-on-year) and Central and Eastern Europe (up nine percent year-on-year). Global average sales price (ASP) continued to increase in 3Q, rising by a record seven percent year-on-year.
Arndt Polifke, global director of telecom research at GfK, comments, “Although unit sales may be down in some regions, the increase in ASP reveals the fantastic opportunity to grow the value of the smartphone market. This is welcome news for manufacturers, particularly in regions such as Western Europe where saturation has resulted in declining sales volumes year-on-year.
"The industry has clearly been switching its focus to drive sales value, and top tier global brands, such as Apple, Google, HTC, Huawei, LG, Moto, Nokia, Samsung and Sony, either already have, or will release, new premium models in an effort to upsell customers to their flagship devices. At the same time, premium features are increasing in importance to consumers, so we expect to see more emphasis on water and dust protection, battery power and memory, high resolution sound, camera and video capabilities, bezel-less design and even biometric sensors on new launches.”
Top 10 Trends in Information and Communication Technology Sector for 2018
As 2017 comes to an end, global market intelligence provider TrendForce has unveiled a list of top 10 trends in the information and communication technology sector for 2018. These trends will be influencing the development of key industries in the upcoming year.
For the infographic of the top 10 trends in the global information and communication sector for 2018, visit: http://press.trendforce.com/press/20171102-3008.html
North American PCB Shipments increased 1% y/y & Booking grew 4.1% y/y in September 2017 (Charts 26-28)
North American PCB Sales Growth Turns Positive
IPC announced the September 2017 findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Positive year-over-year shipment growth was seen in September for the first time this year. Strong order growth in recent months kept the book-to-bill ratio high at 1.14 in September.
Total North American PCB shipments in September 2017 were up 1.0% compared to the same month last year. This year to date, shipments are 3.5% below the same period last year. Compared to the preceding month, September shipments increased 13.8%.
PCB bookings in September increased 4.1% year-on-year, while year-to-date order growth held steady at 4.0% above the same period last year. Bookings in September were up 5.3% compared to the previous month.
“After eight consecutive months of book-to-bill ratios above parity (1.0), North American PCB sales finally saw positive year-over-year growth in September, driven by rigid PCB shipments,” said Sharon Starr, IPC’s director of market research. “Thanks to strong orders in recent months, the book-to-bill ratio remained high in September, indicating a likelihood of further sales growth in the coming months,” she added.
Optoelectronics, Sensors/Actuators & Discretes Semiconductor Segments Expected to Collectively Grow 10.5% y/y to Record-high $75 billion in 2017 and another 7.4% to $80.5 billion in 2018 (Chart 29)
Optoelectronics, Sensors/Actuators and Discretes Climb
The O-S-D market segments are growing at above average rates in 2017 and all three are expected to reach new record highs for the first time in six years, says new update.
More than a dozen product categories in optoelectronics, sensors/actuators, and discretes semiconductors (O-S-D) are on track to set record-high annual sales this year, according to a new update of IC Insights’ 2017 O-S-D Report—A Market Analysis and Forecast for Optoelectronics, Sensors/Actuators, and Discrete Semiconductors. Driven by the expansion of the Internet of Things (IoT), increasing levels of intelligent embedded controls, and some inventory replenishment in commodity discretes, the diverse O-S-D marketplace is having a banner year with combined sales across all three semiconductor segments expected to grow 10.5% in 2017 to a record-high $75.0 billion, according to the O-S-D Report update.
In 2017, above average sales growth rates are being achieved in all but one major O-S-D product category—lamp devices, which are now expected to be flat in 2017 because of continued price erosion in light-emitting diodes (LEDs) for solid-state lighting applications. Chart 29 compares annual growth rates in five major O-S-D product categories, based on the updated 2017 sales projection.
For the first time since 2014, all three O-S-D market segments are on pace to see sales growth in 2017. Moreover, 2017 is expected to be the first year since 2011 when all three O-S-D market segments set record-high annual sales volumes, according to IC Insights’ update.
The 2017 double-digit percent increase will be the highest growth rate for combined O-S-D sales since the strong 2010 recovery from the 2009 semiconductor downturn that coincided with the 2008-2009 financial crisis and global economic recession. Total O-S-D revenues are now forecast to reach a ninth consecutive annual record high level of $80.5 billion in 2018, which will be a 7.4% increase from 2017 sales, says the O-S-D Report update.
After a rare decline of 3.6% in 2016, optoelectronics is recovering this year with sales now projected to grow 8.1% in 2017 to an all-time high of $36.7 billion, thanks to strong double-digit sales increases in CMOS image sensors (+22%), light sensors (+19%), optical-network laser transmitters (+15%), and infrared devices (+14%).
Meanwhile, record-high revenues for sensors and actuators are being fueled by the expansion of IoT and new automated controls in a wide range of systems—including more self-driving features in cars. Sensors/actuator sales are now expected to climb 17.5% in 2017 to $13.9 billion, marking the strongest growth year for this market segment since 2010. Sales of sensors and actuators made with microelectromechanical systems (MEMS) technology are forecast to rise by 18.5% in 2017 to a record-high $11.6 billion. The O-S-D Report update shows all-time high sales being reached in 2017 with strong double-digit growth in actuators (+20%), pressure sensors, including MEMS microphone chips (+18%), and acceleration/yaw sensors (+17%).
Even the commodity-filled discretes market is thriving in 2017 with worldwide sales projected to rise 10.3% to $24.1 billion, which will finally surpass the current peak of $23.4 billion set in 2011. Sales of power transistors, which account for more than half of the discretes market segment, are forecast to grow 9.0% in 2017 to a record-high $14.0 billion, according to the new O-S-D Report update.
Vast Market for Smart Products (Chart 30)
Gartner predicts that by 2020 there will be 20.8 billion smart devices, and McKinsey estimates the total IoT market size will grow to $3.7 trillion within that same time frame. With so much data being recorded, there is strong demand for platforms that serve as the bridge between sensors and the web of data; some companies are tapping into this major source of potential revenue by operating as IoT service providers. This market is highly consolidated, with the top 20 IoT service providers accounting for about 80% of the market, according to industry estimates by Zinnov.
Several research firms like Gartner and Visual Capitalist predict IoT devices to reach 50 billion by 2020. (Courtesy of Visual Capitalist)
Electronics Supply Chain Seeing Double-ordering as Component Lead Times have Stretched into Mid-2018
Why Analysts Are Skeptical About Component Demand
By: Barbara Jorgensen
You can’t really blame financial analysts for their skepticism on current component demand. The last time the electronics supply chain took orders at face value the industry was left with $13 billion in semiconductor excess alone. Everyone from component manufacturers through OEMs had to write down or write off millions of dollars’ worth of inventory.
At least two Wall Street research firms have flagged signs of double-ordering in the electronics supply chain. When component supply gets tight, OEMs or EMS providers may place the same order with two different vendors, such as a component manufacturer and a distributor. If demand for those components doesn’t materialize, someone will be left with unutilized inventory.
One analyst found that several component suppliers cancelled some backlog at distributors and OEMs based on double-booking concerns. Here’s the quandary for the electronics supply chain: how “real” is demand?
That's tough to answer. The electronics industry has become accustomed to short lead times: components have been readily available and manufacturers rarely had to wait for shipments. Now that some component lead times have stretched in to the middle of next year, manufacturers are placing orders 6 to 9 months out. Although those orders represent components that haven’t been manufactured yet, they are interpreted as demand signals. Component demand looks strong for the next 6 to 9 months.
Since the historic inventory glut of 2001, the supply chain has built in safeguards against double ordering. Suppliers and distributors check current orders against a customer’s historic demand. If an order looks too high, suppliers will allocate volumes in-line with customers’ past purchases. Problem solved.
Except it’s not. Component makers and authorized distributors routinely share forecast data. If a customer places duplicate orders with both Arrow and Avnet, the component maker may flag the double-ordering. If a second order goes outside the authorized channel to an independent distributor, that information isn't shared. Component makers may be producing to orders that are being fulfilled by independents. That, too, may cause excess.
It’s in everybody’s interest that excess is avoided. Oversupply causes prices to drop and profit margins to shrink. Also, since 2001, contractual agreements between suppliers and customers spell out inventory liability. Non-cancellable, non-returnable (NCNR) clauses mean customers are “stuck” with inventory even if they don’t use it.
Despite these practices and today’s sophisticated ERP/MRP systems, supply chain veterans still expect there will be excess once this cycle ends. I’m not convinced it will, at least in the semiconductor industry. Since the late 1990s, chip makers have begun to use independent fabs. When chip makers owned production facilities, idle lines meant lost revenue. Chip makers were incentivized to keep those lines humming. Today’s fabs and foundries allocate capacity to many semiconductor designers. If one customer’s demand drops off, another customer is there to take their place. Factory utilization remains high.
Even for relatively low-priced products, such as resistors and capacitors, suppliers are cautious about ramping up production. Although multiple passive and discrete suppliers have upped capacity by as much as 15%, lead times are still stretched out to mid-2018. Electronics distributors have not seen lead times come in or IP&E orders cancelled.
It will really be up to customers to avoid inventory excess. In spite of all the technology now used in the supply chain, component makers and distributors say customer forecasts are wildly inaccurate. It’s possible that customers' forecast skills have atrophied thanks to ample supply. Bad forecasting is considered standard operating procedure.
Avnet, the first global distributor to report quarterly results so far, sees demand signals as real. Distributors interface with hundreds of suppliers and thousands of customers so they get a broad view of the industry. Avnet's book to bill is 1:04 to 1.00; order cancellations are in-line with normal activity; and lead times aren't shrinking. Executives are bullish through the first half of next year. Still, Wall Street remains cautious.
"Our research suggests C3Q is likely to be at the high‐end or above revenues expectations and that C4Q growth guidance should be better than expected as book‐to‐bill ratios remain elevated and demand reads remain positive," one firm reported. "Our biggest concerns are keyed by bookings stronger through the channel than through end customers; bookings at least partially driven by stretched lead times; and capacity additions planned due to stretched lead times."
Suppliers appear to be trying to take action to combat double ordering including encouraging distributors to match their orders with true end demand and cancelling order backlogs that extend well beyond normal levels, the firm noted. Maybe this time, things will be different.