Weekly Market Updates for March 7, 2012
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The U.S. Department of Commerce released its January “Durable Goods” report last week. In general, domestic electronics demand softened in the first month of 2012.
Here are some results:
- Electronic equipment orders dropped below shipments (Chart 1) driving their book/bill ratio down to 0.96 (Chart 2).
- Electronic equipment growth on a 3/12 basis plunged as computer equipment order growth weakened substantially (Chart 3).
- The ratio of electronic equipment inventories/orders held steady on a sequential basis (Chart 4).
- Aircraft/parts orders rose significantly (Chart 5).
- Defense capital goods orders improved slightly but remained well below shipments (Chart 6) driving their 3-month average book/bill ratio to 0.78 (Chart 7).
- Communication equipment orders were flat (Chart 8) but computer equipment orders plunged
January Semiconductor Shipments
The SIA announced that two major contributors to its monthly statistical program have withdrawn. Also SICAS announced that its quarterly capacity and utilization report will be discontinued, effective Q1’12.
Here are some preliminary results for January but we are not sure of the data continuity compared to prior months (since fewer companies now report). We assume that the SIA will clarify how it will rationalize the current and historical data going forward.
- Global shipment growth dropped to 0.912 on a 3/12 basis. That is, world shipments on a US$ basis were down 8.8% for the 3 months ending January 2012 versus the same months a year earlier (Chart 10).
- Actual $ 3-month average shipments dropped significantly in January compared to December (Chart 11).
U.S. February Manufacturing PMI at 52.4 versus 54.1 in January (Chart 12)
Manufacturing ISM PMI 52.4; New Orders, Production and Employment Growing; Supplier Deliveries Faster; Inventories Contracting
Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee reported “The PMI registered 52.4%, a decrease of 1.7 percentage points from January’s reading of 54.1%, indicating expansion in the manufacturing sector for the 31st consecutive month. The New Orders Index registered 54.9%, a decrease of 2.7 percentage points from January’s reading of 57.6%, reflecting the 34th consecutive month of growth in new orders. Prices of raw materials increased for the second consecutive month, with the prices index registering 61.5%. As was the case in January, new orders, production and employment all grew in February — although at somewhat slower rates than in January. Comments from the panel continue to reflect a generally positive outlook for the next few months.”
Eurozone February PMI -Signs of Stabilization in Eurozone Manufacturing Soured by Greece (Chart 13)
Signs of stabilization in Eurozone manufacturing was soured by survey-record contraction in Greece.
- Markit Manufacturing PMIR 49.0 in February
- Greece falls further adrift as PMI hits record low
- Input prices surge higher, but weak demand means selling prices rise only modestly
Manufacturing PMIR (overall business conditions)
The Eurozone manufacturing sector showed further signs of stabilization in February. The seasonally adjusted Markit Eurozone Manufacturing PMIR rose to a six-month high of 49.0, unchanged from the earlier flash estimate and above January's 48.8.
Austria was the only nation to see any meaningful improvement, but the Netherlands reported the first positive reading for six months and France saw conditions stabilize after six months of decline. Germany registered growth for the second month running, albeit at a weaker pace than in January.
Elsewhere, Ireland saw manufacturing conditions deteriorate only marginally, posting the weakest decline in the current four-month sequence. But downturns in Spain and Italy continued at steep rates, albeit with some easing evident in Italy. The recession in Greece took a turn for the worse, when the PMI plunged to a record low.
|Countries ranked by Manufacturing PMIR (Feb.)|
Eurozone manufacturing production posted only fractional growth for the second month running in February as an ongoing decline in new orders restricted firms' willingness to raise output significantly. New orders fell for the ninth month running with the downturn in demand generally remaining broad-based as only Austria and the Netherlands reported increases. Greece saw records falls in both output and new orders.
The level of new export orders fell for the eighth month running, albeit at the weakest pace since last July. The drop in foreign demand was led by a Page 1 of 3 C Markit Economics Limited 2012 steep reduction in Greece and marked falls in Spain and Germany, the region's largest exporter.
Raw Material Prices Surge Higher
Increased prices for fuel, oil, plastics, steel and other raw materials led to the sharpest rise in manufacturers' input costs since June last year. Moreover, the acceleration in the rate of increase was among the steepest seen in the survey's history, largely reflecting a surge at intermediate goods producers (firms supplying products as inputs to other manufacturers).
Input price pressures rose in all of the nations covered by the survey, in most cases hitting levels last seen in the middle of 2011.
Updated charts for the exchange rates of the US$ versus various key trading partners:
- Trade-weighted exchange value of the U.S. dollar versus a broad group of major U.S. trading partners
- Euro (Chart 15)
- Canadian Dollar (Chart 16)
- Japanese Yen (Chart 17)
- Chinese Yuan (Chart 18)
- Taiwanese Dollar (Chart 19)
- South Korean Won (Chart 20)
- Indian Rupee (Chart 21)
- Brazilian Real (Chart 22)
Updated metal prices:
- Copper (Chart 23)
- Tin (Chart 24)
- Silver (Chart 25)
- Gold (Chart 26)
IPC Releases North American PCB Industry Results for January 2012 (Charts 27-35)
Rigid PCB shipments were down 3.1% in January 2012 from January 2011, but bookings increased 10.9% year-over-year. The book-to-bill ratio for the North American rigid PCB industry in January 2012 strengthened to 1.01.
Flexible circuit shipments in January 2012 were down 7.9% and bookings were down 29.4% compared to January 2011. The North American flexible circuit book-to-bill ratio rose to 1.05.
For rigid PCBs and flexible circuits combined, industry shipments in January 2012 decreased 3.5% from January 2011, while orders booked increased 6.2% from January 2011. The combined (rigid and flex) industry book-to-bill ratio in January 2012 continued to inch up and now stands at 1.01.
“Both rigid PCB and flexible circuit sales followed normal seasonal patterns in January, with sales down from December,” said Sharon Starr, IPC market research director. “The good news,” she added, “is that rigid PCB orders are up and the book-to-bill ratios for both rigid and flex improved again this month. They are now just above parity, which suggests a return to modest growth in the new few months.
Notice in (Chart 35) how North American rigid PCB order growth has now corrected from its 2010 bloat but appears to be headed into another period of excess ordering relative to domestic electronic equipment demand.
Worldwide Server Revenue Grew 7.9% and Shipments Increased 7% in 2011
The worldwide server market ended 2011 with mixed results, as worldwide server revenue declined 5.4% in the fourth quarter of 2011 and server shipments increased 4.5%, according to Gartner, Inc. For the year, worldwide server revenue grew 7.9% and server shipments increased 7%.
“The shortage of hard-disk drive (HDD) inventory because of the Thailand floods in October 2011 provided supply issues, and many providers could not meet the demand in the last weeks of 2011, said Jeffrey Hewitt, research vice president at Gartner. “We expect the negative impact of these drive supply issues to continue into Q1 2012.”
From a geographic perspective, all regions grew year-on-year in shipments for the quarter, with the exception of Western Europe which fell 3.1% for the period. In vendor revenue for the fourth quarter of 2011, Asia/Pacific, Eastern Europe, Japan and Middle East/Africa all posted mid-high-single-digit to low-double-digit year-on-year growth, while Canada, Latin America, U.S. and Western Europe all posted high-single-digit to low-double-digit declines.
IBM was the market leader in the worldwide server market based on revenue−the company ended the year with $4.7 billion in revenue for the fourth quarter of 2011 for a total share of 33.7%. IBM’s revenue was down 10.2% compared to the same quarter in 2010. IBM’s growth was fueled by its Power Systems product line.
Of the top five global vendors, Dell was the only vendor to experience a growth in worldwide server revenue with 7.3% growth in the fourth quarter of 2011.
In server shipments, HP remained the worldwide leader for the fourth quarter of 2011. HP accounted for 28.1% of global shipments in the fourth quarter of 2011, despite a shipment decline of 8.1%.
Of the top five vendors in server shipments worldwide, Lenovo and Dell were the only vendors to post shipment increases. Lenovo’s shipments grew 51%, and Dell increased 11.2% compare to the fourth quarter of 2010.
The results for the quarter were centered on x86 server demand which increased in shipments by 5% and revenue by 2.6% for the fourth quarter of 2011.
“The outlook for 2012 suggests that growth will continue,” Mr. Hewitt said. “These increases continue to be buffered by the use of x86 server virtualization to consolidate physical machines as they are replaced, but the introduction of new processors from Intel and AMD is likely to help fuel and initiate a new round of server replacement cycles.”
In Europe, the Middle East and Africa (EMEA), server shipments reached 700,755 units in the fourth quarter of 2011, a decrease of 0.8% from the same period last year. Server revenue totaled $4.1 billion in the fourth quarter, a decline of 4.6% from the same quarter last year. For the year, EMEA server revenue grew 5%, and server shipments increased 3.3%.
"Following the recovery that started in 2010, the EMEA server market suffered a second consecutive decline in the fourth quarter, this time with both units and revenue declining," said Adrian O'Connell, research director at Gartner. "Whilst the Eastern Europe and Middle East and Africa regions saw growth, this was not enough to offset the weakness in Western Europe where revenue declined by nearly
8%. The market has failed to recover to anywhere near pre-downturn levels. Current market revenue levels are around three quarters of what we saw in the fourth quarter of 2007, which underlines how much pressure vendors are currently under."
The fourth quarter of 2011 saw mixed results in the key segments. While x86 system revenue was flat, growing at 0.6% in the fourth quarter of 2011, the "Other CPU" category declined 20.9% and RISC/Itanium UNIX systems declined 3.9%. "The "Other CPU" category is highly cyclical and prone to swings up and down, but the RISC/Itanium UNIX segment in particular is increasingly facing longer term challenges as many users look at alternative platforms. The economic challenges in EMEA also continue to impact the server market as spending is constrained in each of the key technology segments," said Mr. O'Connell.
Of the top five vendors, only Dell and Oracle, ranked number three and number four respectively, managed to achieve revenue growth in the fourth quarter of 2011. HP held onto the number one position, despite a 10.9% decline year-on-year. Second-ranked IBM also declined, by 8.2%, largely due to cyclical weakness in its System z product line. In volume terms, Dell and Cisco, ranked number two and number five respectively, were the only vendors in the top five ranking to achieve year-on-year growth.
Mr. O'Connell added, "Overall, RISC and Itanium Unix revenue decreased 3.9% in the fourth quarter of 2011, although this top-level figure does not tell the whole story. HP had weak results in this segment, but IBM is benefiting from the difficulties of other vendors and consolidating its lead." IBM grew RISC/Itanium UNIX revenue by 21.4% and ended the fourth quarter with a 48.4% share of revenue in this segment.
"With a weak economic backdrop expected to persist throughout 2012, server vendors are likely to continue facing difficult market conditions over the next few quarters," said Mr. O'Connell. "However, with the x86 segment going through a replacement cycle this year there will be opportunities to gain share for vendors with the best execution."