2011 & 2012 Outlook Weakens
Statements of fact and or opinions expressed in MarketEye by its contributors are the responsibility of the authors alone and do not imply an opinion of the officers or the representatives of TTI, Inc.
Industry-wide and individual company forecasts are now being revised downward on a regular basis. Gartner just significantly reduced its SEMI equipment forecast (see below) noting a “broad, across the board” weakening in semiconductor capital spending.
End market and component demand is flat. Global electronic equipment shipments were up only 1% in August 2011 vs. August 2010 (Chart 1) and the outlook for a normal seasonal fall upturn looks uncertain. World printed circuit board shipments were down 1% in August 2011 compared to the same month last year (Chart 2) as both the electronic equipment end markets and electronic components are feeling the results of global economic weakness.
Chart 3 and Chart 4 summarize the outlook for electronic supply chain growth in 2011 and 2012. Next year’s forecasts may be colored by some “wishful thinking” as near-term growth prospects are not strong.
U.S. Electronics Demand Flat in August
Domestic electronic equipment shipments and orders were flat in August (Chart 5) as their 3-month average book/bill was 0.99 (Chart 6) and orders dropped 3% on a 3/12 basis (Chart 7). The ratio of electronic equipment inventories/orders eased slightly but still remains near a 2-year high (Chart 8).
Semiconductor shipments to N America have ended their 2009-2011 excess ordering and inventory building “bubble” and are now well into the downward correction portion of their cycle (Chart 14). We never seem to purchase the correct amount of semiconductors based upon actual equipment demand!
Japanese Industrial Production up 0.8% in August vs. July
Japanese industrial production continued to recover in August from the country’s March 11 earthquake and tsunami. But its near-term prospects remains clouded as the yen's strength, the financial crisis in Europe and the U.S. economic slowdown all threaten Japan's recovery
Japan’s Electronics Sector Struggles to Recover
Although industrial production is recovering Japan’s electronic equipment shipments were still down 11% in July 2011 vs. July 2010 (Chart 16). Demand did improve for many electronics end markets but still remains well below 2010 levels (Chart 17).
Japan’s printed circuit shipments are still weak (Chart 18) as 3-month (3/12) “growth” was near minus 20% in July (Chart 19). Electronic component and device shipment growth rates were both near minus 12% in July although the curves in Chart 20 appear to signal a lower turning point followed by “declines at slower rates” near term.
Chart 21 summarizes Japanese electronic component and device shipment volumes YTD through July.
Worldwide Semiconductor Capital Equipment Spending to Decline 19.2% in 2012
Worldwide semiconductor capital equipment spending is expected to total $35.2 billion in 2012, a 19.2% decline from projected 2011 spending of $43.5 billion according to Gartner, Inc. Excess electronics inventory and poor demand as a result of the slowing macro economy are to blame for the declining spending.
"The slowdown appears to be across the board. While it appears the foundries will continue their capacity race at 28 nanometers (nm), spending on 45 to 90 nm technologies is slowing, and some equipment from those technology nodes is being used for 28 nm production to help increase capacity utilization," said Klaus Rinnen, managing vice president at Gartner. "Due to weaker-than-expected growth in the production units of media tablets, NAND spending has softened slightly, as well."
Gartner expects the slowdown to last for the remainder of 2011 and into the first half of 2012. By mid-2012 Gartner expects the supply and demand to be more in balance, so DRAM and foundry will need to begin to increase spending to meet an increase in demand as the PC market rebounds and consumers begin spending once the economy stabilizes a bit. The next growth year is expected to be 2013, when capital spending will increase by 18.4%.
Worldwide wafer fab equipment (WFE) revenue started slowing in the second quarter of 2011, and the decline will accelerate in the second half of 2011 with the added pressure of slowing device sales and excess inventory liquidation. WFE revenue is forecast to grow 9.4% in 2011, but decline 19.6% in 2012. The need for leading-edge equipment is benefiting immersion lithography, etch, certain segments in deposition involved in double patterning, and critical leading-edge logic processes. Leading edge is not the only benefactor of expanding mobile media markets. Analog and discrete devices needed for power management and energy management will drive the need for 200-millimeter (mm) equipment.
Worldwide packaging and assembly equipment (PAE) revenue is projected to decline 1.4% in 2011 and decrease 17.5% in 2012. Orders for PAE have softened more aggressively than previously expected as supply comes in line with expectations. For back-end process providers' capital expenditure (capex) purchases, 3D packaging and copper wire bonding for lower-cost solutions will still be the focus, but at a reduced pace. Most major tool segments will see slightly negative sales in 2011, but advanced tooling will once again be stronger than the general market this year. For 2012, traditional tooling segments will see a sizable decline in sales, while advanced packaging segments are expected to fall less than traditional when compared with 2011.
For 2011, the automated test equipment (ATE) market is expected to remain essentially flat with revenue growth at 0.4%. The market has been driven by the continued demand of system-on-chip and the advanced radio frequency segments of the market. Memory ATE will likely pull back in 2011 as DRAM capex softens. However, NAND testing platforms are expected to be stronger than the general memory test market this year. For 2012, analysts expect a significant decline in tester sales, though memory systems should hold up reasonably well compared with most cycles as DRAM capex returns.
U.S. Consumer Confidence unchanged in September
Consumer confidence remained weak in September after dropping to a post-recession low in August.
"The pessimism that shrouded consumers last month has spilled over into September," said Lynn Franco, director of The Conference Board Consumer Research Center.
Global HDD Shipments to Grow only 3% sequentially in 3Q’11
Global hard disc drive (HDD) shipments are expected to grow slightly by 3% in the third quarter, up from 165 million units in the second, while shipments in the fourth quarter are expected to stay flat on quarter or grow only slightly, according to sources from HDD players.
Affected by increasing demand for tablet PCs, which mostly use non-HDD storage devices, and weakening economies in Europe and the US, HDD orders from the OEM market, which accounts for the largest shipment proportion of the HDD market, are starting to weaken.
In addition to the third quarter, due to Japan's earthquake in March, notebook players, in the second quarter, placed large volumes of HDD orders to accumulate inventories for avoiding possible shortage in the future and such actions have created a large sequential comparative base for the shipments in the third quarter and causing shipments to grow only less than 5%.
Although products such as ultrabooks and Chromebooks that require smaller storage devices are expected to impact shipments of HDD players, but as cloud data storage solutions start rising because of these mobile devices, HDD players' shipments to the enterprise market may turn strong and help cover the gap from the consumer market.