Weekly Global Update for March 13, 2013

Taiwan February OEM Sales Down 14% Sequentially

Taiwan-listed electronic equipment manufacturers’ sales dropped significantly in February thanks to the Lunar New Year shutdowns. Estimated from a still incomplete set of 104 companies’ February financials, the composite revenues of TSE-listed OEMs dropped 14% sequentially from January to February (Chart 1).

Source: Company February sales reported to Taiwan Stock Exchange

Global Electronic Equipment Monthly Shipments - Seasonal Slowdown

Based upon electronic equipment growth rates from the U.S., Japan, Europe and Taiwan/China, demand softened in early 2013 with only Taiwan/China having positive (but slowing) growth (Chart 2).

Using the monthly growth data in Chart 2 and 2010 as a base year, Custer Consulting Group calculates monthly electronic equipment sales by region (Chart 3). The normal first quarter seasonal sales downturn is quite obvious. However comparing January 2013 to January 2012 (Chart 4), the year-on-year decline of 7% is sobering. Our present "global recovery" is still quite muted.

Source: Custer Consulting Group

U.S. January Electronics Demand Softens; Inventories Climb

U.S. electronic equipment orders and shipments dropped in January (Chart 5) as only the communication equipment sector has shown much recent growth (Chart 6).

As electronic equipment sales have declined, inventories of their materials and supplies have climbed (Chart 7). The ratio of electronic equipment finished goods inventories/orders has risen to its highest level since 2003 (Chart 8). This is worrisome as bloated inventories must be consumed before a strong sales rebound can occur.

Semiconductor shipments to North America have been growing far in excess of end market demand (Chart 9) suggesting that over-ordering or inventory building is occurring.

Passive component sales and orders are flat (Chart 10) but fortunately their growth rates are similar to electronic equipment – in contrast to what appears to be excessive semiconductor shipments to North America (Chart 11).

Leading indicators point to slow growth of domestic passive component shipments in 2013.

Source: Custer Consulting Group and www.census.gov/indicator/

World Semiconductors Sales were $24.05 Billion in January 2013, up 3.8% from January 2012 (Charts 13-16)

Americas post best January of last decade; global sales down slightly compared to December

The Semiconductor Industry Association (SIA) announced that worldwide sales of semiconductors reached $24.05 billion for the month of January 2013, an increase of 3.8% from January 2012 when sales were $23.16 billion. Global sales from January 2013 were 2.8% lower than the December 2012 total of $24.74 billion, reflecting normal seasonal trends. Regionally, the Americas posted its highest sales total of any January in the last decade. All monthly sales numbers represent a three-month moving average.

"Led by continuing strength in the Americas, the global semiconductor industry has built on its momentum from the end of 2012 with an encouraging start to 2013, but ongoing economic uncertainty is holding back more robust growth," said Brian Toohey, president and CEO, Semiconductor Industry Association. "The across-the-board spending cuts that hit last week and the threat of a government shutdown later this month are just the latest examples of fiscal disruptions that sidetrack economic growth. Congress and the Administration must work together to get our country’s fiscal house in order to restore confidence in the U.S. economy and spur growth."

Source: www.sia-online.org

North America PCB Shipments down 1.1% and Bookings down 4.0% in January 2013 from January 2012 (Chart 17-19)

Total North American PCB shipments were down 1.1% in January 2013 from January 2012, and bookings decreased 4.0% year over year. Month-to-month growth rates are not available in January due to the change in IPC’s survey sample as of the first of the year. The book-to-bill ratio for the North American PCB industry crossed into positive territory in January and stands at 1.01.

"The book-to-bill ratio for the North American PCB industry strengthened for the second consecutive month, turning the corner in December after an eight-month downturn," according to Sharon Starr, IPC director of market research. "Sales and orders, however, remained sluggish in January."

Source: www.ipc.org

Worldwide External Disk Storage Systems Factory Revenue Increased 2.3% in 4Q’12 and 4.7% for the Full Year (Chart 20)

Worldwide external disk storage systems factory revenues posted year-over-year growth of 2.3%, totaling just over $6.7 billion, in the fourth quarter of 2012 (4Q’12), according to the International Data Corporation. For the quarter, the total (internal plus external) disk storage systems market generated $8.6 billion in revenue, representing 0.7% growth from the prior year's fourth quarter. Total disk storage systems capacity shipped in 4Q’12 reached 8 exabytes, growing 25.3% year over year. The external disk storage systems market generated $24.7 billion in sales during the full year, which represented a 4.7% increase over 2011. Total external disk storage systems capacity shipped during the year surpassed 20 exabytes, which represents an increase of 27% over 2011.

"Although the rate of growth decelerated during the quarter, the external disk storage system market finished the year with solid fourth quarter results and even posted a record-breaking $24.7 billion in full year factory revenue," said Eric Shepard, Research Director, Storage.

"FICON attached array sales and network attached storage (NAS) both helped drive the factory revenue increase during the quarter as companies invested in storage required to support mainframe environments and to deal with the continued growth in unstructured data."

Source: www.idc.com

Fab Equipment Spending Remains Flat in 2013; Up 24% in 2014 (Chart 21)

Semiconductor industry investments coast with caution through 2013, accelerating in 2014

Fab equipment spending for Front End facilities is expected to hover around flat in 2013 and with an increase of 24% in 2014. The SEMI World Fab Forecast, published at the end of February, reveals little has changed from the projections published at the end of November when the report was last issued. The report tracks equipment spending at over 180 facilities in 2013.

At the time of the November 2012 publication, semiconductor companies had not announced their capex plans for 2013, so fab spending predictions were based on extensive modeling. More than 262 updates have been made since the last publication and are based on announced spending plans, including major changes for TSMC, Samsung, Intel, SK Hynix, Globalfoundries, UMC, and for some Japanese facilities and LED facilities. Despite these adjustments, the overall forecast for equipment spending for 2013 has remained about the same. Depending on macro-economic risk factors, possible scenarios project a range of -3% to +3% change rate for fab equipment spending in 2013; in other words, hovering around flat.

Global chip sales have started on a bright note in 2013, as the SIA reports that three-month average for global chip sales for January increased 3.8% above January 2012. It also appears that the average sentiment for revenue growth is in the upper single digits in 2013, about 7% YoY, compared to about -3% in 2012.

Though the overall outlook has improved some, fewer players in the market can afford the rising costs for R&D and upgrading facilities as the amount of money needed to upgrade facilities at the leading edge technologies is immense.

Source: Christian Gregor Dieseldorff, SEMI Industry Research & Statistics Group

PC Shipments to Decline 1.3% in 2013 (Chart 22)

Despite intense industry efforts to overcome market inertia, 2012 nonetheless ended on a sour note with global PC shipment volume shrinking 3.7% on the year. With limited initial traction from Windows 8 in the holiday season, and continued pressure from tablets, IDC now expects 2013 PC shipments to decline by 1.3% in 2013.

Disappointing holiday sales, an underwhelming reception to Windows 8, and continuing economic malaise that further crimped IT budgets marked the face of the market during the second half of 2012, leading to a year-on-year decline of 8.3% in fourth quarter shipments, the most substantial decline recorded for a holiday quarter.

Furthermore, emerging market growth potential is declining and coming closer to that of mature regions. 2012 marked the first year that emerging markets have seen a volume decline, and while 2013 will return to growth, it is projected at less than 1% and with modest, single-digit growth through 2017. For mature regions, 2013 will mark the third consecutive year of volume declines. IDC continues to expect limited growth in 2014 and 2015 with contracting volume in later years.

Although the PC industry had banked on Windows 8 and a more varied and less expensive offering of ultrathin notebooks to revive demand, efforts thus far have been disappointing. A lack of touchscreen components has contributed to a limited supply of touch-enabled Windows 8 models – being out of step with the touch focus of Windows 8, and appearing relatively expensive compared to other options.

"The PC market is still looking for updated models to gain traction and demonstrate sufficient appeal to drive growth in a very competitive market," said Loren Loverde, Program Vice President, Worldwide PC Trackers at IDC. "Growth in emerging regions has slowed considerably, and we continue to see constrained PC demand as buyers favor other devices for their mobility and convenience features. We still don't see tablets (with limited local storage, file system, lesser focus on traditional productivity, etc.) as functional competitors to PCs – but they are winning consumer dollars with mobility and consumer appeal nevertheless."

"The U.S. PC market struggled in 2012, culminating with a 6.5% year-on-year decrease in the fourth quarter and -7.6% growth for the full year. Market saturation, a tough economic environment and weakness across the board, and lack of momentum for Windows 8, which led to 2012 contraction, are expected to persist at least during the first half of 2013," said Rajani Singh, Research Analyst at IDC. "IDC expects the second half of 2013 to regain some marginal momentum partly as a rubber band effect from 2012, and largely thanks to the outcome of industry restructuring, better channel involvement, and potentially greater acceptance of Windows 8. We also anticipate a new refresh cycle momentum in the commercial segment driven by the end of Window XP life support."

Source: www.idc.com