Global Automotive Electronics Production Value to Rise at 5.4% CAGR in 2018-2022
Video cameras, millimeter wave radars and LiDARs combined global production value estimated to grow at 35.0% CAGR to US$21.99 billion in 2022
The global production values for automotive electronics and semiconductors will increase at CAGR of 5.4% and 7% respectively during 2018-2022, significantly higher than the 2% CAGR for car production in the same period.
The higher growths will be driven by increasing use of ADAS (advanced driver assistance system) that needs more components supporting safety, sensing, data computing and storage applications.
While ADAS is mainly adopted for mid-range and high-end car models currently, reductions in ADAS production cost will extend the adoption to economy-class models, Digitimes Research believes. In 2020, over 50% of new cars to be launched in the US, Europe, Japan and China will come with ADAS.
Global production value for ADAS will increase to US$67.18 billion in 2022 at CAGR of 27.3% from 2017 to 2022.
Video cameras, millimeter wave radars and LiDARs are three main sensing devices of ADAS, with combined global production value estimated to keep increasing to US$21.99 billion in 2022 at CAGR of 35.0% during 2017-2022.
World Semiconductor Revenue to Grow 7.5% in 2018 (Chart 1)
Worldwide semiconductor revenue is forecast to total $451 billion in 2018, an increase of 7.5% from $419 billion in 2017, according to Gartner, Inc. This represents a near doubling of Gartner's previous estimate of 4% growth for 2018.
"Favorable market conditions for memory sectors that gained momentum in the second half of 2016 prevailed through 2017 and look set to continue in 2018, providing a significant boost to semiconductor revenue," said Ben Lee, principal research analyst at Gartner. "Gartner has increased the outlook for 2018 by $23.6 billion compared with the previous forecast, of which the memory market accounts for $19.5 billion. Price increases for both DRAM and NAND flash memory are raising the outlook for the overall semiconductor market."
However, these price increases will put pressure on margins for system vendors of key semiconductor demand drivers, including smartphones, PCs and servers. Gartner predicts that component shortages, a rising bill of materials (BOM) and the resulting prospect of having to raise average selling prices (ASPs) will create a volatile market through 2018.
Despite the upward revision for 2018, the quarterly growth profile for 2018 is expected to fall back to a more normal pattern with a mid-single-digit sequential decline in the first quarter of the year, followed by a recovery and buildup in both the second and third quarters of 2018, and a slight decline in the fourth quarter.
On January 3, a security vulnerability that spans all microprocessor vendors was revealed, impacting nearly all types of personal and data center computing devices. While this is an obscure security vulnerability that is difficult to achieve, the potential of a high-impact security issue cannot be ignored and must be mitigated.
"The current mitigation solution is via firmware and software updates, and has a potential processor performance impact. This may result in an increased demand for high-performance data center processors in the short term, but Gartner expects that in the longer term, microprocessor architectures will be redesigned, reducing the performance impact of the software mitigations and limiting the long-term forecast impact," said Alan Priestley, research director at Gartner.
Taking the memory sectors out of the equation, the semiconductor market is forecast to grow 4.6% in 2018 (compared with 9.4% in 2017) with field-programmable gate array (FPGA), optoelectronics, application-specific integrated circuits (ASICs) and nonoptical sensors leading the semiconductor device categories.
The other significant device category driving the 2018 forecast higher is application-specific standard products (ASSPs). The predicted growth in ASSPs was influenced by an improved outlook for graphics cards used in gaming PCs and high-performance computing applications, a broad increase in automotive content and a stronger wired communications forecast.
The mixed fortunes of semiconductor vendors in recent years serves as a reminder of the fickleness of the memory market," said Lee. "After growing by 22.2% in 2017, worldwide semiconductor revenue will revert back to single-figure growth in 2018 before a correction in the memory market results in revenue declining slightly in 2019."
World Fab Equipment Forecast (Chart 2)
The year-end update to the SEMI World Fab Forecast report reveals 2017 spending on fab equipment investments will reach an all-time high of $57 billion. High chip demand, strong pricing for memory, and fierce competition are driving the high-level of fab investments, with many companies investing at previously unseen levels for new fab construction and fab equipment.
The SEMI World Fab Forecast data shows fab equipment spending in 2017 totaling US$57 billion, an increase of 41% year-over-year (YoY). In 2018, spending is expected to increase 11% to US$63 billion.
While many companies, including Intel, Micron, Toshiba (and Western Digital), and GLOBALFOUNDRIES increased fab investments for 2017 and 2018, the strong increase reflects spending by just two companies and primarily one region.
SEMI data shows a surge of investments in Korea, due primarily to Samsung, which is expected to increase its fab equipment spending by 128% in 2017, from US$8 billion to US$18 billion. SK Hynix also increased fab equipment spending, by about 70%, to US$5.5 billion, the largest spending level in its history. While the majority of Samsung and SK Hynix spending remains in Korea, some will take place in China and the United States. Both Samsung and SK Hynix are expected to maintain high levels of investments in 2018.
In 2018, China is expected to begin equipping many fabs constructed in 2017. In the past, non-Chinese companies accounted for most fab investments in China. For the first time, in 2018 Chinese-owned device manufacturers will approach parity, spending nearly as much on fab equipment as their non-Chinese counterparts. In 2018, Chinese-owned companies are expected to invest about US$5.8 billion, while non-Chinese will invest US$6.7 billion. Many new companies such as Yangtze Memory Technology, Fujian Jin Hua, Hua Li, and Hefei Chang Xin Memory are investing heavily in the region.
Historic highs in equipment spending in 2017 and 2018 reflect growing demand for advanced devices. This spending follows unprecedented growth in construction spending for new fabs also detailed in the SEMI World Fab Forecast report. Construction spending will reach all-time highs with China construction spending taking the lead at US$6 billion in 2017 and US$6.6 billion in 2018, establishing another record: no region has ever spent more than US$6 billion in a single year for construction.
iPhone Supply Chain Braces for Low Order Visibility in 1Q’18
Component suppliers in the iPhone supply chain are likely to be forced to prolong their Lunar New Year holidays in the first quarter of 2018 due to low order visibility for iPhone X, iPhone 8 and iPhone 8 Plus, according sources from the supply chain.
Component orders for iPhone devices will come 15-30% less than expected for the first quarter due mostly to seasonal factors, but some sources argued that the slower-than-expected sales of iPhone 8 and iPhone 8 Plus have dragged down the momentum for the iPhone X.
In fact, the order visibility for iPhone devices, particularly for iPhone 8 and iPhone 8 Plus, began to show signs of declining in the fourth quarter of 2017 as sales of these devices have been slower than expected, indicated the sources.
Some suppliers reportedly plan to temporarily halt their production in February as the low order visibility from Apple and the week-long Lunar New Year holidays will drastically bring down their capacity utilization rates, said the sources.
Other upstream suppliers including those for memory chips, camera modules, 3D sensing modules, PCBs and IC backend service firms, have also been alerted to the need to control their inventory levels to cushion the possible impacts that might result from decreasing iPhone component orders, revealed the sources.
IT Infrastructure for Cloud to Total $46.5 billion in 2017 (Charts 3-5)
According International Data Corporation (IDC) total spending on IT infrastructure products (server, enterprise storage, and Ethernet switches) for deployment in cloud environments is expected to total $46.5 billion in 2017 with year-over-year growth of 20.9%. Public cloud datacenters will account for the majority of this spending, 65.3%, growing at the fastest annual rate of 26.2%. Off-premises private cloud environments will represent 13% of cloud IT infrastructure spending, growing at 12.7% year over year. On-premises private clouds will account for 62.6% of spending on private cloud IT infrastructure and will grow 11.5% year over year in 2017.
Worldwide spending on traditional, non-cloud, IT infrastructure is expected to decline by 2.6% in 2017 but nevertheless will account for the majority, 57.2%, of total end user spending on IT infrastructure products across the three product segments, down from 62.4% in 2016. This represents a faster share loss than in the previous three years. The growing share of cloud environments in overall spending on IT infrastructure is common across all regions.
In cloud IT environments, spending in all three technology segments is forecast to grow by double-digits in 2017. Ethernet switches and compute platforms will be the fastest growing at 22.2% and 22.1%, respectively, while spending on storage platforms will grow 19.2%. Investments in all three technologies will increase across all cloud deployment models – public cloud, private cloud off-premises, and private cloud on-premises.
Long-term, IDC expects spending on off-premises cloud IT infrastructure will grow at a five-year compound annual growth rate (CAGR) of 12.0%, reaching $51.9 billion in 2021. Public cloud datacenters will account for 82.1% of this amount growing at a 12.1% CAGR while spending on off-premises private cloud infrastructure will increase at a CAGR of 11.7%. Combined with on-premises private cloud, overall spending on cloud IT infrastructure will grow at an 11.7% CAGR and by 2020 will surpass spending on non-cloud IT infrastructure. Spending on on-premises private cloud IT infrastructure will grow at a 10.8% CAGR, while spending on non-cloud IT (on-premises and off-premises combined) will decline at a 2.7% CAGR during the same period.
"As adoption of public cloud services and private cloud deployments continue to spread around the world replacing traditional on-premises hardware-centric IT settings, overall market spending on servers, storage, and networking will follow this move," said Natalya Yezhkova, research director, Enterprise Storage. "The industry is getting closer to the point when cloud deployments will account for the majority of spending on IT infrastructure, which will be a major milestone embracing the benefits of service-centric IT."
Global IT Spending to Reach $3.7 Trillion in 2018 (Chart 6)
Worldwide IT spending is projected to total $3.7 trillion in 2018, an increase of 4.5% from 2017, according to the latest forecast by Gartner, Inc.
"Global IT spending growth began to turn around in 2017, with continued growth expected over the next few years. However, uncertainty looms as organizations consider the potential impacts of Brexit, currency fluctuations, and a possible global recession," said John-David Lovelock, research vice president at Gartner. "Despite this uncertainty, businesses will continue to invest in IT as they anticipate revenue growth, but their spending patterns will shift. Projects in digital business, blockchain, Internet of Things (IoT), and progression from big data to algorithms to machine learning to artificial intelligence (AI) will continue to be main drivers of growth."
Enterprise software continues to exhibit strong growth, with worldwide software spending projected to grow 9.5% in 2018, and it will grow another 8.4% in 2019 to total $421 billion. Organizations are expected to increase spending on enterprise application software in 2018, with more of the budget shifting to software as a service (SaaS). The growing availability of SaaS-based solutions is encouraging new adoption and spending across many subcategories, such as financial management systems (FMS), human capital management (HCM) and analytic applications.
The devices segment is expected to grow 5.6% in 2018. In 2017, the devices segment experienced growth for the first time in two years with an increase of 5.7%. End-user spending on mobile phones is expected to increase marginally as average selling prices continue to creep upward even as unit sales are forecast to be lower. PC growth is expected to be flat in 2018 even as continued Windows 10 migration is expected to drive positive growth in the business market in China, Latin America and Eastern Europe. The impact of the iPhone 8 and iPhone X was minimal in 2017, as expected. However, iOS shipments are expected to grow 9.1% in 2018.
"Looking at some of the key areas driving spending over the next few years, Gartner forecasts $2.9 trillion in new business value opportunities attributable to AI by 2021, as well as the ability to recover 6.2 billion hours of worker productivity," said Lovelock. "That business value is attributable to using AI to, for example, drive efficiency gains, create insights that personalize the customer experience, entice engagement and commerce, and aid in expanding revenue-generating opportunities as part of new business models driven by the insights from data."
"Capturing the potential business value will require spending, especially when seeking the more near-term cost savings. Spending on AI for customer experience and revenue generation will likely benefit from AI being a force multiplier — the cost to implement will be exceeded by the positive network effects and resulting increase in revenue," said Lovelock.
Global Server Shipments to Grow 8.5% in 2018
Driven by need to store and process enormous amounts of data in the age of 5G, IoT and AI
Global server shipments will grow 8.5% to reach 13.73 million units, driven by the needs to store and process enormous amounts of data in the age of 5G, IoT and AI. According to Digitimes Research's latest Special Report on the global server industry, server shipments worldwide will grow at a CAGR of 6.5% during the period 2017-2022, with growth mainly driven by large-scale data centers and the China market.
An increasing number of enterprises are making use of cloud servers instead of building their dedicated server infrastructure to save up-front investment and operating costs. This will spur growth in server demand by cloud service providers including Amazon, Microsoft and Google, who are now making more purchases directly from Taiwan-based white-box or brand vendors, putting pressure on the traditional server brands Dell and HP, who are estimated to see only 2% to 3% shipment growth in 2017, according to Digitimes Research's Special Report on the global server industry.
Taiwan's server suppliers have been playing a key role in the server market.
Taiwan's server industry has been transitioning from simply making motherboards to providing downstream complete server systems. Having accumulated R&D capabilities during the transition, Taiwan-based server manufacturers will keep advancing toward the development of software integration and total solutions to enhance their technological edge.
Taiwan-based manufacturers' share of global server shipments will remain above 90% through 2022.
Of the major suppliers, the top-2, Inventec and Wistron (including Wiwynn) have been neck and neck in terms of shipment volume, each shipping an estimated volume of 2.6 million servers in 2017 and their shipments will both grow in 2018, with Inventec taking a narrow lead.
The Digitimes Research Special Report on the server industry offers an analysis and shipment forecasts for 2018, as well as market outlook till 2022.
U.S. and Global Industrial Production Growth (Charts 7 & 8)
Chart 7 shows that domestic industrial production reached a high in December 2017. Chart shows growth by major country.