06.06.2012 // Posted by: Walt Custer // Posted in: Articles, Industry Conditions

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Economic Overview

The world economic recovery faltered in May as the JPMorgan global purchasing managers’ index declined to near the zero growth mark of 50.0 (Chart 1). Although most major countries saw a May decline in economic activity, Europe was the major culprit for the world PMI decline. (Chart 2)

As economic activity slowed oil and metal prices dropped on lower demand. (Chart 3).

Many investors fled the Euro (Chart 4) as they moved to the U.S. dollar and Japanese Yen in search of stability. On a trade-weighted basis, the U.S. dollar strengthened in May (Chart 5). With the exception of the Yen (Chart 6) most currencies recently have weakened versus the dollar. See the Canadian dollar (Chart 7), Chinese Yuan (Chart 8), Taiwanese NT$ (Chart 9), South Korean Won (Chart 10), Indian Rupee (Chart 11) and Brazilian Real. (Chart 12)

Solar/Photovoltaic Industry’s Difficult First Quarter

Based on the composite financials of 60 publicly traded companies serving the solar/photovoltaic industry sales declined 21% in 1Q’12 versus 1Q’11 (Chart 13) and inventories relative to sales climbed (Chart 14). By sector of the supply chain’s 1Q’12 revenues declined for most product groups except batteries, inverters and some process equipment. (Chart 15).

It should be noted that some solar/photovoltaic companies are slow to report their quarterly financials and partly because some sectors have a very limited sample sizes, charts 13-15 are based upon a combination of real data and some estimates. However, the 1Q’12 data are relatively complete so these charts should provide a reasonable view of solar/photovoltaic supply chain performance in the first quarter of 2012.

Growth Slowdown in Global Manufacturing during May

The JPMorgan Global Manufacturing PMI fell to 50.6 in May from 51.4 in April, its lowest reading in five months. (Chart 1).

JPMorgan and Markit Economics stated that the main drag on global industry remained Europe, with the Eurozone and UK PMIs falling to a 3-year low. PMIs for Germany, France, Italy, Spain, the Netherlands and Greece all signaled contractions. Ireland saw a modest expansion, but Austria edged closer to stagnation.

Elsewhere in Europe, Poland, the Czech Republic and Switzerland, all reported faster rates of decline, and growth slowed sharply in Denmark.

There were also signs of slowdown in the U.S. and Asia. The ISM U.S. Manufacturing PMI eased from April's 10-month high, but remained well above the global average. Growth in Japan steadied at a marginal pace, eased in India, Taiwan and in South Korea, but deteriorated in China.

Global manufacturing production increased for the sixth consecutive month in May, but at the slowest pace during that period. Growth of total new orders meanwhile remained lackluster, in part reflecting the first decline in new export business since last December. Manufacturers in Europe, China and Japan all reported reduced levels of new export business. Growth of new exports slowed sharply in the U.S.

Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said, "The rate of expansion in global manufacturing production slowed sharply in May, as growth of total order books remained lackluster and international trade volumes posted a marginal decline. The sector is hitting a softer patch heading into mid-year and this is being reflected in reduced cost inflationary pressures and lower commodity prices."

Source: www.jpmorgan.com

U.S. ISM Manufacturing Index Falls to 53.5 after a 10-month High of 54.8 in April (Chart 16)

The Institute for Supply Management’s U.S. Purchasing Managers Index (PMI) was 53.5 in May, a decrease of 1.3 points from April. This indicates expansion, but at a slower rate, in the manufacturing sector for the 34th consecutive month.

The New Orders Index continued its growth trend for the 37th consecutive month, registering 60.1 in May, an increase of 1.9 points from April and also its highest level since April 2011.

The Prices Index for raw materials fell to 47.5 in May, dropping 13.5 points from April, indicating lower prices for the first time since December 2011.

Comments from the panel generally reflect stable-to-strong orders, with sales showing steady improvement over the first five months of 2012.

Source: www.ism.ws

South Korea Printed Circuit Market

Below is a report by colleague Dr. Hayao Nakahara on the South Korean PCB Market.

South Korean PCB output was estimated to have been about $7,380 million in 2011. The growth from 2010 was more than 10%. There were a few PCB makers which did not do well, such as LG Innotek, because of its parent's poor cellphone performance, and STEMCO (COF maker, because of reduction of COF used for flat TV), most of the South Korean PCB makers enjoyed healthy growth, particularly those that are engaged in the manufacture of HDI microvia boards for smartphones and tablets, and also IC substrates for baseband applications.
 
Although Apple dominated the news, Samsung outpaced Apple in smartphone shipments in 2011 and will continue to outperform Apple. Samsung's 2012 shipment target is 420-430 million units of cellphones, of which 190-200 million will come from Galaxy smartphones.  Samsung Electro-Mechanics (SEMCO) is shipping 30% of Samsung's need for HDI microvia boards. Daeduck Electronics, DAP and Korea Circuit are three other PCB makers that supply Samsung Electronics. Several other HDI microvia board makers from Taiwan and Japan are also supplying Samsung Electronics.
 
Interflex, which is the major Flexible PCB supplier to Samsung Electronics, is building a huge manufacturing plant right behind the office building of Korea Circuit Co (KCC). KCC started Interflex in the mid-1990s. Interflex’ s output in 2011 was $469 million. It is aiming for $1 billion. Interflex's major shareholder is Young Poon Electronics, which is also a major FPC maker in South Korea with 2011 revenue of $253 million. Hence, the group's total FPC output in 2011 was $722 million. Therefore, $1 billion is within reach with the new expansion.
 
Isu-Petasys, a major high layer-count MLB supplier to CISCO System, acquired 51% stake in HK-based Tat Chun Electronics, which has two PCB manufacturing plants in Zhongshan City, Guangdong Province.

SEMCO finished building the foundation for its second HDI microvia plant in Kunshan.

Simmtech, a rising star in South Korea, started to operate a newly-built high-tech PCB plant in Xian, China.  Nearly all the South Korean FPC makers have operations in China. Flexcom has a plant in Vietnam that supplies Samsung Electronics near Hanoi. Its overseas production is still small compared to Taiwan ($11 billion), Japan ($5 billion) and the U.S. ($3 billion).  However, with these aggressive overseas investments, South Korean overseas production will grow by leaps and bounds in the near future.  It is said that 80% of the PCBs manufactured by the South Korean PCB makers are consumed by Samsung Electronics and LG Electronics.
 
Source: N.T. Information Ltd

Taiwan Notebook ODMs Starting to Reduce Component Orders for June

Taiwan-based notebook ODMs, although still maintaining their shipment forecast for the second quarter, have recently started decreasing its orders to upstream component makers and the actions could possibility reduce their notebook shipment volume in June to lower than expected, according to sources from the upstream supply chain.

With Europe's crises continuing to impact PC demand in the region, brand vendors have turned conservative about their shipments. However, so far, notebook ODMs have not yet adjusted their shipment forecast for the second quarter. Quanta Computer is expecting sequential growth of 5-10%, Compal Electronics is expecting 15%, Wistron is projecting 0-5%, Inventec is expecting to stay flat and Pegatron Technology is projecting a 30-35% increase.

However, notebook ODMs have responded that their shipments in June will continue to rise since Europe's crises have already occurred and channel retailers are hesitant simply because of the uncertainty of the situation.

Notebook ODMs also pointed out that notebook demand is still expected to become strong in the second half of 2012 with assistance from Intel's new processors and Microsoft's Windows 8.

Source: www.digitimes.com

Global PC Shipments to Increase to 478 Million Units in 2012, up 15% over 2011

IC Insights has raised its forecast for total shipments of personal computers and now expects total PC shipments to rise to 478 million units in 2012, an increase of 15% over 416 million units in 2011. According to the company’s mid-year update to its 2012 IC market drivers report, IC Insights forecasts total PC shipments will increase to 783 million units in 2015, which represents an average annual increase of 16% between 2010 and 2015.
 
A breakdown of annual PC unit shipments by system type based on IC Insights’ newly updated forecast is shown in Charts 17 and 18. New design concepts such as hybrid touch-screen/keyboard systems as well as growing use of tablet computers by businesses will significantly boost shipments of tablet and notebook PCs in 2012 and through the forecast period. Shipments of tablet PCs are forecast to rise 75% to 110 million units in 2012 and notebook shipments are forecast to increase 11% to 205 million units.

It is important to note that personal computer categories are beginning to blur as a result of Intel’s Ultrabook campaign, Microsoft’s new support for tablets in Windows 8, and the ongoing efforts to differentiate systems from Apple’s iPad products. New hybrid portable PC designs supported in Intel’s Ultrabook roadmap will attempt to merge the best features of tablets and notebooks.
 
Total portable computer shipments (i.e., full-feature notebooks, less-powerful netbooks, and touch-screen tablets) are forecast to represent 80% of worldwide units sold in 2015 compared to 68% forecast in 2012 and 63% in 2011. Portable computers exceeded the shipments of desktop PCs for the first time in 2009, and since then, the gap between stationary and mobile systems has been growing wider. The introduction of touch-screen tablets has accelerated this trend.
 
IC Insights’ refreshed outlook for PC integrated circuit sales raises the projected dollar volume for ICs in 2012 due to higher system shipments. PC integrated circuit sales are now expected to grow 3% in 2012 to $78.6 billion compared to $76.6 billion in 2011, which was a 2% decline from $78.5 billion in 2010.

Source: www.icinsights.com

Worldwide Server Shipments Grew 1.5% in 1Q’12 to 2.3 Million Units but Revenue Declined 1.8% to $12.4 Billion (Charts 19-22)

“The first quarter of 2012 produced relatively weak shipment growth on a global level with a variation in results by region,” said Jeffrey Hewitt, research vice president at Gartner. “All regions showed growth in server shipments except Western Europe which posted a decline of 6.4%. In terms of revenue, Asia/Pacific, Middle East/Africa, and Western Europe posted declines. These results are not that surprising considering the current variations in regional economic conditions.”

“x86 servers forged ahead and grew 1.7% in units in the first quarter of 2012 and 5.6% in revenue. RISC/Itanium Unix servers declined 5.7% in shipments and dropped 15.2% in vendor revenue compared to the same quarter last year. The other CPU category, which is primarily mainframes, showed a decline of 16.4% in vendor revenue,” Hewitt said.

From a regional standpoint, Eastern Europe grew the most significantly in shipments with a 16.0% increase. Japan posted the highest vendor revenue growth at 10.6% for the period.

IBM had the lead in the worldwide server market based on revenue, (see Table 1) the company posted nearly $3.5 billion in server vendor revenue for a total share of 28.1% worldwide for the first quarter of 2012. IBM’s server revenue declined 7.2%. Most of IBM’s revenue contribution came from its Power Systems brand with some contribution by System x as well.

Among the top five global server vendors, Fujitsu was the only company to post positive revenue growth (at 4.5%).

Source: www.gartner.com

Apple Supply Chain Labor Shortages because of New MacBook

Apple's new MacBooks are expected to launch soon, and related upstream supply chain players are reportedly facing labor shortages because of strong orders from Apple, while some supply chain makers are even outsourcing their orders to meet shipment schedules, according to sources from the upstream supply chain.

Component manufacturing plants in eastern China have been suffering from labor shortages for a long time, and although May and June are the IT industry's traditional slow season when shortage issues are usually not as significant, the strong orders from Apple's new MacBook are leaving many upstream makers unable to satisfy demand.

The MacBook supply chain started delivering products in April with shipments for chassis seeing obvious growth in May. The sources expect component shipments to continue to rise in June, with the new MacBooks possibly to launch in July.

Shipments have a chance to grow from 12.79 million units in 2011 to 16.24-19.2 million units in 2012, up 30-50% on year, the sources added.

Source: www.digitimes.com