China/Taiwan – Sharp February Declines

Taiwan-listed electronics companies, many of which manufacture in China, reported very large drops in February sales.

A combination of the Lunar New Year holidays, a drop in Apple mobile phone demand and normal post-Christmas seasonal slowing caused OEM sales to plunge from all-time record highs in January to 2-year lows in February (Chart 1). ODM revenues mirrored this OEM February decline (Chart 2).

  • Wafer foundry sales also dropped sharply suggesting that global semiconductor shipments will soon weaken significantly also (Chart 3).
  • Package and test (Chart 4) and passive component (Chart 5) sales also declined sharply but memory revenues (Chart 6) were relatively unaffected.
  • Rigid (CCL) laminate and printed circuit boards (Charts 7 & 8) also had sharp February declines for Taiwan-listed producers

Source: Taiwan-listed companies’ February sales reports

World Semiconductor Sales up 22.7% y/y to $30.6 billion in January (Charts 9-11)

  • Worldwide sales of semiconductors reached $37.6 billion for the month of January 2018, an increase of 22.7% compared to the January 2017 total of $30.6 billion.
  • Global sales in January were 1.0% lower than the December 2017 total of $38.0 billion, reflecting normal seasonal market trends.
  • Global semiconductor market grew year-to-year for the 18th consecutive month.
  • Month-to-month sales decrease slightly.

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $37.6 billion for the month of January 2018, an increase of 22.7% compared to the January 2017 total of $30.6 billion. Global sales in January were 1.0% lower than the December 2017 total of $38.0 billion, reflecting normal seasonal market trends. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a 3-month moving average.

“After notching its highest-ever annual sales in 2017, the global semiconductor industry is off to a strong and promising start to 2018, posting its highest-ever January sales and 18th consecutive month of year-to-year sales increases,” said John Neuffer, president and CEO, Semiconductor Industry Association. “All major regional markets saw double-digit growth compared to last year, with the Americas leading the way with year-to-year growth of more than 40%. With year-to-year sales also up across all major semiconductor product categories, the global market is well-positioned for a strong start to 2018.”


Custer comments:
This current semiconductor business cycle appears to be near its peak growth (Chart 12). Chip shipments to North America dropped sharply in January (Chart 13) and the February wafer-fab decline in Taiwan/China (Chart 3) added credence to a likely an imminent semiconductor sales decline.

U.S. January Electronic Supply Chain Shipments, Orders and Inventories

The January “Factory Orders” report for U.S. manufactured goods was just released:

  • Electronic equipment shipment growth continued to increase but order growth eased -although remaining well in growth territory (Chart 14).
  • The instrument, control and electromedical sectors of electronic equipment continue strong (Chart 15).
  • Vehicle shipments rose modestly from December (Chart 16).
  • Military electronics orders and shipments increased (Chart 17).
  • Electromedical, instrument and control equipment orders and shipments are at record highs (Chart 18)
  • Passive component orders and shipments continued to rise but their long lead times and shortages continue (Chart 19).

Chart 20 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic supply chain.

German Component Distribution Market grew 12% in 4Q’17; Orders Remain High (Charts 21 & 22)

2017 was a record-breaking year for the German component distribution, measured in terms of turnover. In the fourth quarter sales grew by 12% to 845 million euros. Although this is 10% less than in the third quarter, it is still impressive. Considering the very stable order situation (plus 14% to 976 million euros and a book-to-bill rate of 1.16) the first quarter of 2018 could remain positive.

For the full year of 2017 companies registered with the Fachverband Bauelemente Distribution (FBDi e.V.) in Germany reported a sales plus of 12% to 3.6 billion euros and incoming orders of 3.91 billion euros – a record result. Apart from shortage and price increases 2017 was further affected by fluctuations in exchange rates (Dollar/Euro), which nearly compensated across all quarters.

Concerning the different component types, they show differing trends: Whereas semiconductors grew by 11.4% to 2.41 billion euros, the sales of passive components grew more slowly by 10.3% to 488 million euros, and the sales of electromechanics rose by 25.5% to 377 million euros. Furthermore power supplies grew strongly by 15.8% to 98 million euros, whereas remaining components did not fulfill expectations. The breakdown of distribution turn-over remained nearly unchanged: semiconductors 69.8%, passive components 13.6%, electromechanics 10.5%, power supplies 2.7%, and all others together 3.4%

FBDi Chairman of the Board, Georg Steinberger: Under normal circumstances a book-to-bill rate of 1.16 for the year would indicate a solid growth in 2018. But, as some customers postpone or cancel their orders depending on shortage and availability, there is a possibility for a small disillusion throughout the year. FBDi expects a solid but not groundbreaking year 2018.”

Furthermore Steinberger comments: „Regarding a further outlook, the important factor is the component production, and if a relaxation can be expected. Concerning the customers the demand seems to remain high, less driven by availability (and hence the risk of double orders) but by innovation and good economy in all industries.”


North American PCB Shipments up 9.8% y/y in January 2018 (Charts 23-25)

Bookings grew 25.3% y/y and Book/Bill climbed to 12-year high of 1.16

IPC announced the January 2018 findings from its North American Printed Circuit Board (PCB) Statistical Program. Both sales and orders were up year-over-year in January. Due to continued strong order growth in January, the book-to-bill ratio climbed to a 12-year high of 1.16.

Total North American PCB shipments in January 2018 were up 9.8% compared to the same month last year. Compared to the preceding month, January shipments decreased 8.5%.

PCB bookings in January grew 25.3% year-over-year. January bookings were down 13.9% compared to the previous month.

“Year-over-year sales growth for the North American PCB industry continued to climb in January and growth was positive for the fifth consecutive month,” said Sharon Starr, IPC’s director of market research. “Strong bookings growth also continued, pushing the book-to-bill ratio to its highest point since September 2005. This performance, capping 12 consecutive months of positive book-to-bill ratios, offers a strong indication of continued sales growth in the first half of 2018,” she added.


India's PCB Industry – Naka’s Comments

Over the past several years, there are many Indian delegates from the PCB industry that have visited Taiwan and Japan. They are accompanied with IPCA officials to request “investments and JVs.” So far, no one from Japan and Taiwan has complied. Taiwan continues to invest in China while Japan invests in South East Asia for their PCB expansions. Neither country is investing in India. The largest PCB investor in India is AT&S which is located in a town called Nanjangud, which is about a four hour drive from Bangalore. AT&S has exercised a lot patience to make it work. AT&S is cautiously expanding at its Indian subsidiary, one step at a time.

Indian government’s 25% subsidy does not seem to be working according to my Indian friends. The local government doesn’t have the financial muscle to support this program. My friend told me that the $2.5 million for a $10 million investment has not been met. Bank interest was 14% a year, payable at 1.2% per month. It may have been lowered, but still not in the range of today’s international standard.

Recently, the rumor is that AT&S has started to move a few old laser drilling machines to its Indian subsidiary from Shanghai, but this is not going to make HDI boards for cellphones. To the best of my knowledge, there is only one workable laser drilling machine in India and it is located at Hi-Q. To supply HDI boards for the Indian cellphone industry there needs to be hundreds of laser drilling machines and the technologies to use them. Both of these are non-existent when it comes to mass production which will be necessary to supply the Indian cellphone industry, which at this moment, is a screwdriver industry. Presently, all the PCBs for cellphones are imported, pre-assembled, and are mostly from China.

For India to be self-sufficient in the cellphone industry, its PCB investment should be at least $500 million or more where the total PCB production was about $350 million a year. A few PCB makers produce this amount in one month!

Someone must break the ice for Indian PCB industry to grow.

To raise the status of its PCB industry, India must stand on its own two feet instead of begging foreign countries to invest. At this moment, I cannot see anyone that will invest a good amount for PCB growth.

H. Nakahara, N.T. Information Ltd

Global Printed Circuit Board Monthly Shipments by Country (Charts 26-28)

Chart 26 shows the 3-month (3/12) shipment growth rate of key countries’ PCB shipments. In the case of South Korea some of these PCBs are made elsewhere in SE Asia.

Chart 27 shows monthly PCB shipments by country and Chart 28 shows estimated monthly global shipments. Notice the large February sales plunge driven by the Taiwan/China seasonal decline.

Sources: IPC, JEITA, Eurostat, South Korean private contacts and composites of Taiwan listed PCB companies with manufacturing in China.

Worldwide Server Revenue up 25.7% y/y to $18.6 billion but Unit Shipments rose only 8.8% y/y to 3.2 million (Charts 29-32)

Revenue Increased 10.4% and Shipments Grew 3.1% in Full-Year 2017

The worldwide server market continued to grow through 2017 as worldwide server revenue increased 25.7% in the fourth quarter of 2017, while shipments grew 8.8% year over year, according to Gartner, Inc. In all of 2017, worldwide server shipments grew 3.1% and server revenue increased 10.4% compared with full-year 2016.

"Server growth was driven by relatively strong economies for the quarter across the globe," said Jeffrey Hewitt, research vice president at Gartner. "This was a somewhat surprising quarter because the strength was exhibited in a variety of positive server shipment and revenue mixes in almost all geographies."

Regional results were a mixed bag. North America and Asia/Pacific were particularly robust demonstrating double-digit growth in revenue (27.6% and 35.1%, respectively). In terms of shipments, North America grew 9.7% and Asia/Pacific grew 21.2%. EMEA posted strong yearly revenue growth of 19.9% while shipments decreased 7.9%. Japan grew 4.8% in revenue, but declined 5.1% in shipments. Latin America was the only region to exhibit a decline in both shipments (negative 4.7%) and revenue (negative 2.9%) in the fourth quarter of 2017.

Dell EMC and Hewlett Packard Enterprise (HPE) were neck-and-neck in the worldwide server market based on revenue in the fourth quarter of 2017. Dell EMC ended the year in the number one spot with 19.4% market share, followed closely by HPE with 19.3% of the market. Dell EMC experienced strong growth in the quarter with 39.9% growth. HPE grew 5.5%. Inspur Electronics experienced the strongest growth in the fourth quarter of 2017 with 127.8% growth.

In server shipments, Dell EMC maintained the number one position in the fourth quarter of 2017 with 18.2% market share. Despite a decline of 12.8% in server shipments, HPE secured the second spot with 13.8% of the market.

In 2017, worldwide sever shipments increased 3.1%, while revenue grew 10.4%.

"Both enterprises and hyperscale data centers produced positive results globally for the year as end users seek to implement more digital business solutions," said Hewitt. "The outlook for 2018 suggests that modest growth will continue, with enterprise end users taking an ongoing hybrid approach to both on-premises and public cloud choices based on their server application objectives."


Flexible AMOLED Market more than Tripled to $12B in 2017 (Charts 33 & 34)

Thanks to a sudden increase in demand, shipment revenue of flexible active-matrix organic light-emitting diode (AMOLED) displays more than tripled in 2017, accounting for 54.6% of total AMOLED panel shipment revenue, according to business information provider IHS Markit.

The flexible AMOLED panel market expanded by about 250% in 2017 to $12 billion from $3.5 billion in 2016, while rigid AMOLED panel shipment revenue contracted by14% during the same period. Samsung Display started supplying its flexible AMOLED displays for the iPhone X in the third quarter of 2017, which greatly contributed to the overall shipment revenue increase. LG Display, BOE and Kunshan Govisionox Optoelectronics also started producing flexible AMOLED panels for smartphones and smartwatches in 2017, helping the market growth.

“High-end smartphone brands have increasingly applied flexible AMOLED panels to their products for unique and special design,” said Jerry Kang, senior principal analyst at IHS Markit. “The number of flexible AMOLED panel suppliers is also increasing, but the supplying capacity is still concentrated in Samsung Display.”

The flat type flexible AMOLED panels accounted for about a half of total flexible AMOLED shipment units in 2017, shifting from the curved type that used to be the major flexible AMOLED display form factor until 2016.

“As Apple applied the flat type to the iPhone X, the form factor of smartphone displays has diversified,” Kang said.

According to the latest AMOLED & Flexible Display Intelligence Service by IHS Markit, the demand for flexible AMOLED panels is not expected to grow as fast as supply capacity in 2018. “In a way to overcome potential oversupply, many panel makers are trying to develop another innovative form factor, such as foldable or rollable, within a few years,” Kang said.


Mobile DRAM Revenues Grow Slower in 1Q’18 Due to Dampened Contract Prices Rise (Charts 35-37)

Global mobile DRAM revenue hit a new high of US$8 billion in 4Q’17, a robust sequential growth of 23.6%, says DRAMeXchange, a division of TrendForce. In 4Q’17, the major suppliers raised their prices by 10-15% on average, driven by expected strong demand from the smartphone market during the traditional busy season, and continuing brisk demands from North American datacenters.

According to DRAMeXchange, Micron staged the best performance, scoring 58.8% growth in sales, which drove down combined revenue share of the two leading suppliers Samsung and SK Hynix to 82.5%, down from Q3's 85.6%.

Sales of Taiwanese suppliers Nanya Technology and Winbond remained flat, as their products are not meant for use in mainstream smartphones. The combined share of their revenues was below 5%. In 1Q’18, global mobile DRAM revenues are expected to grow slower due to weaker demands on the smartphone market. Most smartphone brands have made adjustments to their production plans and postponed the restocking of materials, because of the rising inventories of their mobile DRAM and other components. In addition, the prospects for a major contract-price hike in Q1 has been dampened.

On the other hand, 1Q’18 contract prices of PC DRAM rise by about 5% compared with 4Q’17. The prices of server DRAM increase by 3-5% QoQ in 1Q’18 due to the restocking demand from datacenters in North America. DRAMeXchange estimates that overall revenue of DRAM industry will grow by over 30% in 2018, reaching US$96 billion.


Worldwide Ethernet Switch Market increased 3.2% y/y to $25.7 billion in 4Q’17 (Charts 38 & 39)

Router Market grew 2.4% y/y to $15.2 billion.

The worldwide Ethernet switch market (Layer 2/3) recorded $6.9 billion in revenue in the fourth quarter of 2017 (4Q’17), an increase of 3.2% year over year. For the full year 2017, the market recorded more than $25.7 billion in revenue for a year-over-year growth rate of 5.4%.

Meanwhile, the worldwide total enterprise and service provider (SP) router market recorded just under $4.0 billion in revenue in 4Q’17, increasing 2.4% on a year-over-year basis. For the full year 2017, the router market finished at $15.2 billion, an increase of 4.0% over 2016.


NAND Flash Revenue Rose Just 6.8% QoQ in 4Q’17, Traditional Off-Season Effects Will Continue to Influence Sales in 1Q’18 (Charts 40 & 41)

During 4Q’17, the yield rates of suppliers’ respective 3D-NAND processes climbed steadily, while smartphones remained the major demand contributor in peak season, according to DRAMeXchange, a division of TrendForce. As the result, only contract prices of eMMC and UFS products went up by 0-5% QoQ in 4Q’17, but other major application markets such as PCs, tablets, and servers together with data centers showed weaker growth momentum. Their contract prices were either flat or fell by a small margin, and the market shifted toward an equilibrium of supply and demand.

As for 1Q’18, the market is currently experiencing a slight oversupply due to the off season effect. NAND Flash suppliers will see their revenue performances suffer as they cut prices on their products to spur demand. However, they can still maintain a healthy level of profit because their costs of 64- and 72-layer 3D NAND solutions have also shrunk.


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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