Weekly Global Update for January 17, 2018

Very Strong Finish to 2017

Thanks to record high electronic equipment sales in China/Taiwan in December, record electronic equipment production in the Eurozone in November and a 4Q upturn in U.S. bookings and shipments of electronic equipment, 2017 ended on a high note.

Based upon preliminary regional composite data December 2017 equipment revenues were up almost 24% vs December 2016 and up 3% sequentially vs. November 2017 (Chart 1). China led the sharp upturn but the USA and Europe also saw year end increases (Chart 2).

Source: Regional data

China/Taiwan Update

As noted above the sales of Taiwan-listed electronics producers, many of which manufacture in China, had record sales in December. They were up 9.2% in NT$ for total 2017 vs 2016 (Chart 3).

Leading indicators remain positive as both the China (Chart 4) and Taiwan (Chart 5) PMI‘s climbed in December.

• Most of the December upturn was likely from Apple X and other mobile phones as computer motherboard sales dropped at year end (Chart 6).
• Semiconductor shipments to SE Asia Pacific have moved “into sync” with electronic equipment shipments on a 3/12 growth basis indicating that chip purchases are in balance with end market demand (Chart 7).
• Wafer foundry sales dipped at year end, a normal seasonal performance (Chart 8). This suggests that global semiconductor sales will also see a modest but imminent seasonal downturn as monthly foundry revenues serve as a leading indicator for semiconductor sales (Chart 9).
• Package and test (Chart 10), memory (Chart 11) and passive components (Chart 12) also had modest seasonal downturns in December.
• Solar/photovoltaic growth continued throughout 2017 (Chart 13).
• ODM companies not surprisingly had a strong year-end (Charts 14 & 15) as Foxconn, the major Apple iPhone maker had record sales in December.
• Rigid and flex PCB shipments peaked in November (Chart 16).
• CCL (laminate) has been outgrowing printed circuit sales, most likely due to price increases (Chart 17).

Source: Company financial reports

Europe Update

Europe’s economy remains strong. The Eurozone December PMI (Chart 18) as well as the PMIs for Germany (Chart 19) and France (Chart 20) reached all-time record highs in December.

November Eurostat production data were just released:

• Electronic equipment production reached a record high in November (Chart 21).
• Both motor vehicle (Chart 22) and aerospace (Chart 23) production also had record highs.
• Instruments and appliances for measuring, testing and avigation also had record production (Chart 24) but volatility continued in medical electronics (Chart 25).
• Semiconductor shipments to Europe continue to converge on end market growth when analyzed on a 3/12 growth basis in euros (Chart 26).
• The current European business cycles for electronic equipment, semiconductors, semiconductor capital equipment and electronic component distribution appear to have all peaked on a 3/12 growth basis (Chart 27). Growth continues but at a slower pace.
• Electronic assembly activity rebounded (Chart 28).
• Components and boards (Chart 29), “wiring devices” (Chart 30) and printed circuit boards (Custer extrapolation of wiring device data) (Chart 31) all saw modest growth in November.

Chart 32 summarizes the annualized (12/12) and 3-month (3/12) growth of the European electronic supply chain through November 2017.

Sources: IHS Markit, SIA/WCTS and Eurostat

Global Economy to Edge Up 3.1% in 2018 but Future Potential Growth a Concern (Chart 33)

Current Slack in Global Economy Expected to Fade

The World Bank forecasts global economic growth to edge up to 3.1% in 2018 after a much stronger-than-expected 2017, as the recovery in investment, manufacturing, and trade continues, and as commodity-exporting developing economies benefit from firming commodity prices.

However, this is largely seen as a short-term upswing. Over the longer term, slowing potential growth – a measure of how fast an economy can expand when labor and capital are fully employed – puts at risk gains in improving living standards and reducing poverty around the world, the World Bank warns in its January 2018 Global Economic Prospects.

Growth in advanced economies is expected to moderate slightly to 2.2% in 2018, as central banks gradually remove their post-crisis accommodation and as an upturn in investment levels off. Growth in emerging market and developing economies as a whole is projected to strengthen to 4.5% in 2018, as activity in commodity exporters continues to recover.

“The broad-based recovery in global growth is encouraging, but this is no time for complacency,” World Bank Group President Jim Yong Kim said. “This is a great opportunity to invest in human and physical capital. If policy makers around the world focus on these key investments, they can increase their countries’ productivity, boost workforce participation, and move closer to the goals of ending extreme poverty and boosting shared prosperity.”

2018 is on track to be the first year since the financial crisis that the global economy will be operating at or near full capacity. With slack in the economy expected to dissipate, policymakers will need to look beyond monetary and fiscal policy tools to stimulate short-term growth and consider initiatives more likely to boost long-term potential.

The slowdown in potential growth is the result of years of softening productivity growth, weak investment, and the aging of the global labor force. The deceleration is widespread, affecting economies that account for more than 65% of global GDP. Without efforts to revitalize potential growth, the decline may extend into the next decade, and could slow average global growth by a quarter percentage point and average growth in emerging market and developing economies by half a percentage point over that period.

“An analysis of the drivers of the slowdown in potential growth underscores the point that we are not helpless in the face of it,” said World Bank Senior Director for Development Economics, Shantayanan Devarajan. “Reforms that promote quality education and health, as well as improve infrastructure services could substantially bolster potential growth, especially among emerging market and developing economies. Yet, some of these reforms will be resisted by politically powerful groups, which is why making this information about their development benefits transparent and publicly available is so important.”

Risks to the outlook remain tilted to the downside. An abrupt tightening of global financing conditions could derail the expansion. Escalating trade restrictions and rising geopolitical tensions could dampen confidence and activity. On the other hand, stronger-than-anticipated growth could also materialize in several large economies, further extending the global upturn.

“With unemployment rates returning to pre-crisis levels and the economic picture brighter in advanced economies and the developing world alike, policymakers will need to consider new approaches to sustain the growth momentum,” said World Bank Development Economics Prospects Director Ayhan Kose. “Specifically, productivity-enhancing reforms have become urgent as the pressures on potential growth from aging populations intensify.”

In addition to exploring developments at the global and regional levels, the January 2018 Global Economic Prospects takes a close look at the outlook for potential growth in each of the six global regions; lessons from the 2014-2016 oil price collapse; and the connection between higher levels of skill and education and lower levels of inequality in emerging market and developing economies.

Source: World Bank

Worldwide PC shipments declined 2% y/y in 4Q’17 and dropped 2.8% y/y in 2017 vs. 2016 (Charts 34-38)

Amid Market Consolidation, the Top Four PC Vendors Accounted for 64% of Shipments in 2017

Worldwide PC shipments totaled 71.6 million units in the fourth quarter of 2017, a 2% decline from the fourth quarter of 2016, according to preliminary results by Gartner, Inc. For the year, 2017 PC shipments surpassed 262.5 million units, a 2.8% decline from 2016. It was the 13th consecutive quarter of declining global PC shipments, as well as the sixth year of annual declines. However, Gartner analysts said there were some signs for optimism.

"In the fourth quarter of 2017, there was PC shipment growth in Asia/Pacific, Japan and Latin America. There was only a moderate shipment decline in EMEA," said Mikako Kitagawa, principal analyst at Gartner. "However, the U.S. market saw a steep decline, which offset the generally positive results in other regions.

"The fourth quarter results confirmed again that PCs are no longer popular holiday gift items. This does not mean that PCs will disappear from households," Kitagawa said. "Rather, the PC will become a more specialized, purpose-driven device. PC buyers will look for quality and functionality rather than looking for the lowest price, which will increase PC average selling prices (ASPs) and improve profitability in the long run. However, until this point is reached, the market will have to go through the shrinking phase caused by fewer PC users."

HP Inc. moved into the No. 1 position in the fourth quarter of 2017, as its shipments grew 6.6%, and its market share totaled 22.5%. The company showed year-over-year growth in all regions, including the challenging U.S. market. For the fourth consecutive quarter, Lenovo experienced a decline in shipments. Lenovo had moderate growth in EMEA and Asia/Pacific, but shipments declined in North America.

Dell's shipments grew slightly in the fourth quarter of 2017. Dell did well in EMEA, Asia/Pacific and Latin America, but it had weak results in North America. Generally, Dell has put a higher priority on profitability over market share.

Steep PC Shipment Decline in the U.S.

In the U.S., PC shipments surpassed 15.2 million units in the fourth quarter of 2017, an 8% decline from the fourth quarter of 2016. Four of the top five vendors experienced a decline in U.S. PC shipments in the fourth quarter of 2017. HP Inc. was the only vendor to increase shipments in the quarter. The decline was attributed to weak consumer demand despite holiday season sales.

"U.S. consumer confidence was high in the fourth quarter of 2017, but that did not influence PC demand. U.S. holiday sales were filled with popular products, such as voice-enabled speakers, and newly released smartphones," Kitagawa said. "PCs simply could not compete against these gift items during the holiday season. We did see some consistent growth of gaming and high-end PCs."

PC shipments in EMEA totaled 21.8 million units in the fourth quarter of 2017, a 1.4% decline year over year. PC demand in the U.K. was still ailing and unit shipments into Germany were weaker than expected. PC revenue is expected to be up year over year in Western Europe. The rise in ASPs is due to currency fluctuations, the need for vendors to offset rising component costs, and a product-mix shift toward higher-value items, such as gaming systems and high-performing notebooks.

The Asia/Pacific PC market totaled 25 million units in the fourth quarter of 2017, a 0.6% increase from the fourth quarter of 2016. The consumer market stabilized with fourth-quarter online promotions in many countries, which drove demand for gaming PCs and thin and light notebooks. China experienced its first positive PC shipment growth since the first quarter of 2012. The success of the 11.11 shopping festival and the continuing demand for PCs in the commercial market drove the China PC market to 1.1% growth in the quarter.

PC Market Consolidation in 2017

For the year, worldwide PC shipments totaled 262.5 million units in 2017, a 2.8% decrease from 2016. As the PC industry continues to consolidate, the top four vendors in 2017 accounted for 64% of global PC shipments. In 2011, the top four vendors accounted for 45% of PC shipments.

"The top vendors have taken advantage of their volume operations to lower production costs, pushing small to midsize vendors out of the market," Kitagawa said.

These results are preliminary. Final statistics will be available soon to clients of Gartner's PC Quarterly Statistics Worldwide by Region program. This program offers a comprehensive and timely picture of the worldwide PC market, allowing product planning, distribution, marketing and sales organizations to keep abreast of key issues and their future implications around the globe.

Source: www.gartner.com