Weekly Global Update for February 13, 2013

Coming Events:

• Lunar New Year holidays in SE Asia have delayed the January financial reports of Taiwan-listed companies. We’ll provide an update next week.
• Custer Consulting Group will exhibit at the IPC EXPO/APEX trade show February 19-21 at the San Diego, CA Convention Center. Our booth is #2001. Please stop by and visit Nancy, Jon and Walt.
• Walt will present his "Business Outlook for the Global Electronics Industry" on Monday February 18 from 9:15-10:00 am at the joint session of the IPC EMS Management Council Meeting and the IPC PCB Supply Chain Leadership Meeting. This event is also at the convention center.

4Q’12 Global Electronic Supply Chain Growth

Two weeks ago we reported preliminary results for sector growth in the world electronic supply chain. With many more companies now having reported their 4th quarter financials we now estimate OEM electronic equipment revenue growth just under 1% (Chart 1) in the last quarter of 2012 (versus the same quarter in 2011) with growth by sector summarized in Chart 2. It should be noted that some apparently very strong 4Q’12 growth rates (example: rigid and flex CCL laminate and passive components) were relative to a bad 4Q’11. We’ll continue to update these results as more companies report. The supportive data are available. E-mail walt@custerconsulting.com

Source: Custer Consulting Group

U.S. Electronics Demand Increases at Year-end 2012

The U.S. "Factory Orders report showed improving 3/12 growth for electronic equipment orders and shipments (Chart 3) and a sequential upturn in actual orders and shipments (Chart 4).

Of note was a huge spike in defense capital goods orders (Chart 5) – presumably some large, non-recurring government purchase?

Military electronic equipment (Chart 6) and electromedical, measurement and control equipment (Chart 7) orders also improved.

Chart 8 summarizes the growth of the domestic electronic supply chain in December. The 3/12 (3-month) "leads" the 12/12 (annualized) growth. A value of 100 indicates no growth compared to the same period in the prior year.

Source: http://www.census.gov/manufacturing/m3/

Worldwide Semiconductor Sales Decreased 2.7% year-over-year to $291.6 Billion in 2012 – SIA (Charts 9-11)

• Semiconductor Industry Posts Near-Record Sales Total in 2012
• Year-end global sales lag slightly behind 2011 but outperform industry forecast

The Semiconductor Industry Association (SIA) announced that worldwide semiconductor sales for 2012 reached $291.6 billion, the industry’s third-highest yearly total ever but a decrease of 2.7% from the record total of $299.5 billion set in 2011. Total sales for the year narrowly beat expectations from the World Semiconductor Trade Statistics (WSTS) organization’s industry forecast (Chart 12). Global sales for the month of December 2012 hit $24.7 billion, a decline of 3% from the previous month when sales were $25.5 billion. Fourth quarter sales of $74.2 billion were 3.8% higher than the total of $71.5 billion from the fourth quarter of 2011. All monthly sales numbers represent a three-month moving average.

"Despite substantial macroeconomic challenges, the global semiconductor industry outperformed forecasts and posted one of its highest yearly sales totals in 2012," said Brian Toohey, president and CEO, Semiconductor Industry Association. "Recent momentum, led by strength in the Americas, has the industry well-positioned for a successful 2013."

The industry saw strong demand in several market segments during 2012. Logic was the largest semiconductor category, reaching $81.7 billion in 2012, a 3.7% increase compared to 2011. MOS microprocessors ($60.2 billion) and memory ($57 billion) rounded out the top three segments, but both lagged behind 2011 sales totals. Optoelectronics was the fastest growing market on a yearly basis, increasing 13.4% in 2012 to reach $26.2 billion for the year. Optoelectronic applications offer energy efficiency and low cost in a wide range of products including mobile devices and cameras. NAND flash – used in a host of mobile devices, USB flash drives, memory cards and related products for the storage and transfer of data – grew at the second-fastest rate of 4.1% to reach $25.4 billion in 2012.

Regionally, the Americas continued to show signs of strength, increasing sales by 13.4% in December 2012 compared to December 2011 and by 12% in the fourth quarter of 2012 compared to the third quarter of 2012, but ongoing economic and policy uncertainty continues to pose risks to the near-term market outlook. Sales in Asia Pacific during December also increased compared to the same month in 2011 (6.7%), while sales in Europe (-5.5%) and Japan (-11.2%) decreased over the same period. Total yearly sales in all four regions were lower in 2012 than 2011, with Asia Pacific (-0.6%) and the Americas (-1.5%) seeing the smallest declines.

"Despite lingering economic and policy uncertainty, the U.S. semiconductor market continues to show signs of strength, posting impressive growth in December," continued Toohey. "As the foundation of all modern electronics, semiconductors are critical to America’s economic strength, national security and global competitiveness. By enacting measures that foster growth and remove uncertainty, policymakers can further strengthen the industry and help unlock its full potential in 2013 and beyond."

Source: www.sia-online.org

Commodity DRAM Price Rises, DRAM Industry Value Increases by 7% in 4Q’12 (Charts 13 & 14)

According to DRAMeXchange, a division of TrendForce, as top-tier DRAM makers continued to lower commodity DRAM output in favor of more profitable mobile and server DRAM products and demand surged on China’s MID market, DRAM spot prices increased in the fourth quarter of 2012. DDR3 1600Mhz 2Gb spot price rose from US$0.82 to US$1.05 in the fourth quarter, a nearly 30% increase. On the contract market, as PC OEMs’ inventory levels were relatively low, DRAM makers gradually raised contract prices as well. Significant price increases are already evident so far in the first quarter of 2013. Benefitting from spot price increases, the value of the DRAM industry increased by nearly 7% QoQ in the fourth quarter, and revenue figures were up across the board.

Source: http://www.dramexchange.com

Worldwide Tablet Shipments Outpaced Predictions Reaching a Record Total of 52.5 Million Units Worldwide in 4Q’12 (Chart 15)

Worldwide tablet shipments outpaced predictions reaching a record total of 52.5 million units worldwide in the fourth quarter of 2012 (4Q’12), according to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Tablet Tracker. The tablet market grew 75.3% year-over-year in 4Q’12 (up from 29.9 million units in 4Q’11) and increased 74.3% from the previous quarter's total of 30.1 million units. Lower average selling prices (ASPs), a wide range of new product offerings, and increased holiday spending all acted as catalysts to push the already climbing tablet market to record levels.

"We expected a strong fourth quarter, and the market didn't disappoint," said Tom Mainelli, research director, Tablets, at IDC. "New product launches from the category's top vendors, as well as new entrant Microsoft, led to a surge in consumer interest and robust shipments totals during the holiday season. The record-breaking quarter stands in stark contrast to the PC market, which saw shipments decline during the quarter for the first time in more than five years."

Apple's iPad once again led the market, and the firm's shipment total of 22.9 million units was exactly in line with IDC's forecast for the period. A strong iPad mini launch, plus availability of the fourth generation full-sized iPad, led to solid 48.1% shipment growth over the same quarter last year. However, strong competition in the market led to Apple's market share declining for a second quarter in a row (down to 43.6% from 46.4% last quarter). Number two vendor Samsung experienced 263% year-on-year growth, shipping nearly 8 million combined Android and Windows 8 tablets during the quarter to grab 15.1% of the market, its same market share total from the previous quarter.

Amongst the other top 5 vendors, Amazon and Barnes & Noble both saw their market share increase sharply as new products gained traction during the holiday season. Amazon shipped more than 6 million tablets during the quarter, increasing its share to 11.5%, up from 8.3% the previous quarter, with year-over-year growth of 26.8%; Barnes & Noble shipped close to a million units, increasing its share to 1.9%, up from 0.7%, despite a year-over-year growth rate of -27.7%. Meanwhile, number four Asus saw its share slip from 7.8% to 5.8% despite continued strong shipments of its Google-branded Nexus 7 tablet and the highest year-over-year increase in the top five at 402.3%. Microsoft entered the market during the quarter with its Surface with Windows RT tablet, but failed to reach the top five after shipping just shy of 900,000 units into the channel.

"There is no question that Microsoft is in this tablet race to compete for the long haul. However, devices based on its new Windows 8 and Windows RT operating systems failed to gain much ground during their launch quarter, and reaction to the company's Surface with Windows RT tablet was muted at best," said Ryan Reith, program manager, Mobile Device Trackers at IDC. "We believe that Microsoft and its partners need to quickly adjust to the market realities of smaller screens and lower prices. In the long run, consumers may grow to believe that high-end computing tablets with desktop operating systems are worth a higher premium than other tablets, but until then ASPs on Windows 8 and Windows RT devices need to come down to drive higher volumes."

Source: www.idc.com

Handsets to Become Biggest Consumer of Flash Memory in 2013 (Chart 16)

In another sign of the pre-eminent position smartphones now hold in the global technology market, handsets as a whole are set to become the world's single largest consumer of flash memory in 2013, according to IHS iSuppli.

A vast array of products now makes use of NAND flash memory. However, handsets will jump to the lead spot with a 24.6% share of global bit shipments in 2013, up from second place in 2012 with 23.3%, said IHS.

"With smartphones accounting for an ever-increasing portion of the global cellphone business, the mobile handset market is demanding more and more memory − particularly flash," said Ryan Chien, analyst for memory and storage at IHS. "This is causing the cellphone business to eclipse all other application markets for flash usage. Indeed, the shift in flash demand is reflective of a widespread transition in technology markets to focus more on mobile platforms like smartphones."

The device last year with the largest market share of flash memory consumption − flash storage cards - in 2013 will tumble to third place with a 19.7% share of flash consumption. Sitting between handsets and flash storage cards will be solid state drives (SSDs), ranked the number two consumer this year with 20.6%, up two spots from 2012.

Other devices in 2013 with prominent market share in flash consumption include number four ranked USB flash drives, tablets in fifth place, and MP3 players in sixth. Together, the top six devices will account for a whopping 93.2% market share of projected flash memory usage in 2013, HIS noted.

The remaining share will then be split among 10 products, including personal navigation devices, video camcorders, handheld game players and digital set-top boxes (STBs).

For ultrabooks, Intel announced new requirements for expensive touch screens, likely increasing cache SSD usage relative to standalone SSDs because of cost pressures related to the bill of materials (BOM), HIS indicated.

As the intersection of flash, storage and the cloud deepens in the consumer and enterprise environments, a bounce-back for the NAND industry is imminent in 2013 with revenues projected to climb to a record US$22 billion, HIS pointed out. Revenues contracted to US$20 billion in 2012 from US$21 billion in 2011.

Source: www.digitimes.com

Hard Disk Drive Market Revenue to drop 11.8% Year-over-Year to an Estimated $32.7 Billion in 2013 (Charts 17 & 18)

Facing a relentless onslaught from tablets, smartphones and solid state drives (SSD), global hard disk drive (HDD) market revenue in 2013 will decline by about 12% this year, according to an IHS iSuppli Storage Space market brief from information and analytics provider IHS.

Revenue is set to drop to an estimated $32.7 billion in 2013, down 11.8% from $37.1 billion last year. HDD revenue will be flat the following year, amounting to $32.0 billion in 2014, as shown in the figure below.

"The HDD industry will face myriad challenges in 2013," said Fang Zhang, analyst for storage systems at IHS. "Shipments for desktop PCs will slip this year, while notebook sales are under pressure as consumers continue to favor smartphones and tablets. The declining price of SSDs also will allow them to take away some share from conventional HDDs."

HDD gross and operating margins likewise will decline as a result of continued price erosion. "However, HDDs will continue to be the dominant form of storage this year, especially as demand for Ultrabooks picks up and hard drives remain essential in business computing," Zhang added.

HDD vs. SSD

HDDs overall will maintain market dominance because of their cost advantage over SSDs, particularly when higher densities are involved and dollars per gigabyte are calculated. HDD costs and pricing are significantly lower than SSDs, with already falling HDD average selling prices expected to decline further this year by 7%.

Moreover, HDDs will continue to be part of storage solutions even in Ultrabooks that make use of an SSD component. The solution, which cobbles hard disk drives together with a so-called cache SSD module, boasts of a superior price-value proposition compared to SSD-only counterparts.

A major growth area for HDDs will be the use of hard disk drives in the business sector spanning the enterprise space, cloud storage, big data and big-data analytics. Bearing the lowest cost of any storage medium now on the market, HDDs will remain the final destination for the majority of digital content that need to be filed away. And toward the last quarter of this year, Western Digital is expected to launch a 5-terabyte Helium HDD, catering mostly to data centers for enterprise servers and storage applications, further propelling the HDD space into overdrive.

Source: www.iSuppli.com

Japanese Semiconductor Equipment December Book-to-Bill 1.23 (Chart 19)

JAPAN-based manufacturers of semiconductor equipment posted ￥72,277 million in orders in December 2012 (3-month average basis) and a BB Ratio of 1.23 according to SEAJ. The 3-month average of worldwide bookings in December 2012 was ￥72,277 million. The bookings figure is 13.6% up the final November 2012 level of ￥63,621 million and 28.3% down the December 2011 bookings level of ￥100,788 million.

The 3-month average of worldwide billings in December 2012 was ¥ 58,953 million. The billings figure is 17.4% down the final November 2012 level of ￥71,415 million and 30.1% down the December 2011 billings level of ￥84,318 million.

The SEAJ book-to-bill is a ratio of three-month moving average bookings to three-month moving average billings for the Japanese semiconductor equipment industry. Billings and bookings figures are in millions of Japanese ¥.

Source: www.seaj.or.jp

IPC Releases North American PCB Industry Results for December 2012 (Chart 20)

IPC announced the December findings from its monthly North American Printed Circuit Board (PCB) Statistical Program.

Rigid PCB shipments were down 16.1% in December 2012 from December 2011, and bookings decreased 8.8% year-over-year. Year to date, rigid PCB shipments declined 5.5% and bookings decreased 1.7%. Compared to the previous month, rigid PCB shipments were up 7.1% and rigid bookings increased 19.0%. The book-to-bill ratio for the North American rigid PCB industry in December 2012 recovered to 0.99.

Flexible circuit shipments in December 2012 were up 6.7%, and bookings were up 9.4% compared to December 2011. Year to date, flexible circuit shipments decreased 1.5% and bookings decreased 10.0%. Compared to the previous month, flexible circuit shipments decreased 7.4% but flex bookings were up 20.2%. The North American flexible circuit book-to-bill ratio improved to 0.84.

For rigid PCBs and flexible circuits combined, industry shipments in December 2012 were down 14.5% and bookings decreased 7.5%, compared to December 2011. Year to date, combined industry shipments were down 5.2% and bookings were down 2.4%. Compared to the previous month, combined industry shipments for December 2012 increased 5.7% and bookings increased 19.1%. The combined (rigid and flex) industry book-to-bill ratio in December 2012 rose to 0.98.

"North American PCB book-to-bill ratios appear to have begun recovering after a downward trend that began in the second quarter of 2012," according to Sharon Starr, IPC director of market research. "The industry’s sales ended 2012 at 5.2% below 2011."

Source: www.ipc.org