Weekly Global Update for September 11, 2013

Global Manufacturing Activity Strengthens; PMI Leading Indicators Rise

August PMI leading indicators improved for most major countries (Chart 1) as 3/12 growth rates moved into positive territory for the total world, China, Europe and the U.S. (Chart 2) as well as key SE Asian countries (Chart 3).

Sources: ISM, JPMorgan & Markit Economics with Custer Consulting Group analysis

July 2013 World Semiconductor Sales $25.53 Billion, the Highest Total of 2013 and up 5.1% versus July 2012 (Charts 4-8)

Sales in Americas up 21.5% year-over-year; global sales increase for fifth straight month.

The Semiconductor Industry Association (SIA) announced that worldwide sales of semiconductors reached $25.53 billion in July 2013, the highest total of 2013 and up 5.1% over July 2012. Global sales in July were 2.6% higher than June 2013. Sales in the Americas increased 21.5% compared to July 2012, marking the region’s largest year-over-year increase in more than two years. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent 3-month moving averages.

"The consistent, upward trajectory of global semiconductor sales continued in July, with the Americas showing particular strength and surging ahead of last year’s pace,” said Brian Toohey, president and CEO, Semiconductor Industry Association. "Sales increased in all regions and across every product category and macroeconomic indicators bode well for continued growth during the remainder of 2013.”

Regionally, July sales increased on a sequential monthly basis in Japan (7.9%), the Americas (5.4%), Asia Pacific (1.2%), and Europe (0.3%). Compared to the same month in 2012, sales in July increased sharply in the Americas (21.5%), solidly in Asia Pacific (7.2%), and modestly in Europe (1.1%), but fell steeply in Japan (-18.6%), largely because of the devaluation of the Japanese yen.

"The semiconductor industry has built a head of steam as fall approaches, and we look to Congress and the Administration to help us keep the momentum going by enacting initiatives that spur growth and boost U.S. competitiveness,” Toohey continued. "With the need for access to the world’s top talent growing stronger by the day, the time is now for policymakers to take action on meaningful immigration reform legislation. Congress also must swiftly approve legislation to secure the supply of helium, a gas that is needed for semiconductor manufacturing and a range of other applications, before an October 7 deadline, when a key source of helium – the Federal Helium Reserve – is scheduled to go offline to industrial and scientific helium users.”

Source: www.sia-online.org

Custer Comments: Custer Consulting Group’s semiconductor leading indicator points to continued global chip shipment growth (Chart 9) although we are concerned that semiconductor shipments to North America have been out-of-balance with domestic electronic equipment production for the last year (Chart 10). Where are the "excess” chips going?

U.S. Electronic Equipment Demand Still Flat

Although July domestic electronic equipment orders improved on a 3/12 growth basis (Chart 11) this 3-month growth rate (May-July 2013 versus May-July 2012) is relative to a weak demand period in 2012 (Chart 12). Sequential growth has been declining.

Orders for all major electronic equipment categories declined in July (Chart 13).

• Military electronics orders have returned to near their recent shipment trend line but are declining on a longer term basis (Chart 14).
• Instrument and control equipment orders have been weak for the last few months (Chart 15).
• Passive component demand remains flat (Charts 16 & 17) although the U.S. PMI leading indicator points to coming growth (Chart 18).
• Chart 19 summarized the annualized (12/12) and 3-month (3/12) growth of the domestic electronics supply chain. A value of 100=zero growth versus the same period a year earlier. Most categories are still in negative territory.
• As noted above semiconductor shipment growth far exceeds electronic equipment demand.

Source: www.census.gov/indicator/www/m3/

North American PCB Sales and Orders Trending Upward (Charts 20-22)

IPC reported that total North American PCB shipments decreased 1.5% in July 2013 from July 2012, and bookings increased 10.2% year-over-year. Year to date, PCB industry shipments were down 4.2% and bookings were up 0.1%. Compared to the previous month, PCB shipments in July were down 13.7% and bookings were down 3.2%. Bookings exceeded shipments in July and the PCB book-to-bill ratio strengthened to 1.06.

Although still not quite in positive territory, year-on-year sales growth has been improving steadily over the past three months, bolstered by solid growth in orders since the beginning of 2013. Most of the improvements in July’s results are due to the strong performance of the rigid PCB segment.

"Month-to-month growth is typically negative in the first month of the quarter due to seasonal trends,” said IPC’s director of market research Sharon Starr. "Year-on-year growth is the best indicator of industry performance, and these growth rates in July continue to be encouraging,” she explained. "Rigid PCB year-on-year sales growth in July reached positive territory for the first time in more than two years. Orders in both rigid and flex segments were strong, resulting in a slight uptick in the PCB book-to-bill ratio."

Source: www.ipc.org

Global Mobile Phone Market to Grow 7.3% in 2013 (Chart 23)

The worldwide mobile phone market is forecast to grow 7.3% year-over-year in 2013, marking a sharp rebound from the nearly flat (1.2%) growth experienced in 2012. Strong demand for smartphones across all geographies will drive much of this growth as worldwide smartphone shipments are expected to surpass 1 billion units for the first time in a single year, according to the International Data Corporation (IDC).

The overall mobile phone market is growing faster than previously forecast thanks to a stronger-than-expected first half of the year driven by strong gains in emerging markets and the sub-$200 smartphone segment. IDC previously projected 5.8% growth for the year. Vendors are now forecast to ship more than 1.8 billion mobile phones this year, growing to over 2.3 billion mobile phones in 2017.

Worldwide smartphone shipments are forecast to grow 40.0% year-over-year to more than 1.0 billion units this year. High smartphone growth is the result of a variety of factors, including steep device subsidies from carriers, especially in mature economic markets, as well as a growing array of sub-$200 smartphones. Total smartphone shipments are forecast to reach 1.7 billion units in 2017.

"Two years ago, the worldwide smartphone market flirted with shipping half a billion units for the first time – to double that in just two years highlights the ubiquity that smartphones have achieved," said Ramon Llamas, Research Manager with IDC's Mobile Phone team. "The smartphone has gone from being a cutting-edge communications tool to becoming an essential component in the everyday lives of billions of consumers."

"Smartphones will represent virtually all of the mobile phone market in many of the world's most developed economies by the end of 2017," said Kevin Restivo, Senior Research Analyst with IDC's Worldwide Mobile Phone Tracker program. "Aggressive carrier subsidies of handsets, falling prices, higher consumer awareness, and a vast array of devices will mean almost all phones shipped to the developed world will be 'smart.' However, smartphone shipment volume will be dominated by emerging markets, such as China, even though the percentage of smartphones to feature phones won’t be as high."

Source: www.idc.com

Microsoft and Nokia Suppliers to Compete Fiercely for Orders

Taiwan-based makers in Microsoft's and Nokia's supply chains are expected to gear up efforts to garner orders for smartphones, games consoles, tablets and other peripherals after Microsoft completes its consolidations with Nokia's Devices and Services unit.

While Nokia is currently working with Taiwan-based handset ODMs, handset component makers and accessories suppliers, Microsoft has been tying up with local suppliers in the fields of games consoles, tablets and PC peripherals.

Orders for Windows-based mobile phones is bound to increase substantially since the main reason for Microsoft to take over Nokia's devices unit is to ramp up shipments of Windows Phone devices. As a result, Nokia's current handset ODM partners Compal Communications and FIH Mobile are likely to benefit from increasing orders for Windows phones.

However, Pegatron is likely to emerge as a new contender for Microsoft's handset orders since the Taiwan-based EMS company has been cooperating with the software giant on the production of Surface tablets.

Foxconn Electronics is also likely to benefit from the Microsoft-Nokia deal, leveraging its current partnership in the production of games consoles for Microsoft.

Silitech Technology and Merry Electronics are currently the two major component suppliers of Nokia, but it remains to be seen if Microsoft will continue to rely on the two firms for component supplies.

Optics component makers such as Lite-On Technology will benefit from the expanding economics of scale at Microsoft, which will expand the applications of camera modules from games consoles and tablets to mobile devices.

While Microsoft will continue to market Nokia-branded feature phones, its purchases of handset solutions from STMicroelectronics and Broadcom for feature phones are likely to be reduced as Microsoft may focus on the smartphone sector. However, the consolidation between Microsoft and Nokia may attract chipset makers, including Qualcomm, MediaTek, Intel and even China-based Spreadtrum Communications to compete for solution orders.

Innolux, a major LCD panel supplier for Nokia's smartphones and feature phones and a panel subsidiary of Foxconn Electronics, is set to receive more handset panel orders from Microsoft. Meanwhile, touch panel maker Wintek may land tablet touch panel orders from Microsoft, leveraging its partnership relations with Nokia in the handset sector.

Source: www.digitimes.com

Fab Equipment Spending to Decline 1% in 2013 (to $31.8 Billion), but Increase 25% in 2014 (Chart 24)

The SEMI World Fab Forecast indicates that capital expenditure for semiconductor fab equipment spending will increase to US$ 39.8 billion in 2014, the highest on record.

Semiconductor revenue has improved in 2013 compared to 2012 and early forecasts for 2014 project revenue growth averaging about 8%. Semiconductor companies have adjusted their capital expenditure accordingly, and the SEMI report tracks over 200 projects, with details revealing that fab equipment spending is expected to decline by 1% in 2013 (to $31.8 billion), but increase by 25% in 2014, including new, used and internally manufactured in-house equipment.

Overall fab spending in the first half of 2013 was slow, especially for fab equipment spending. Fab equipment spending is stronger in the second half of 2013, with a 30 to 40% increase over the first half. The SEMI data shows a different outlook for fab construction projects, forecasting a 25% spending increase in 2013 to over $7 billion and then a drop of 16% in 2014 to about $5.9 billion. Fabs under construction this year will begin equipping next year which affects fab equipment spending.

Fab equipment spending for dedicated foundries remains strong in 2013 ($12 billion) and in 2014 ($13 billion) — a growth rate of 5% in 2014. In the years prior to the economic downturn, fab equipment spending for DRAM was the highest spending industry segment. Since 2011, however, the dedicated foundry sector replaced DRAM as the leading industry sector.

While DRAM equipment spending dropped by 35% in 2011 and 25% in 2012, the SEMI data shows that DRAM fab equipment spending will increase by 17% in 2013 and at least 30% in 2014. An increase of about 2 to 3% for installed capacity for DRAM in 2014 is small but remarkable, given that the industry has not added any new DRAM capacity for years, and actually cutback capacity between 2011 and 2013.

The sector with largest growth rate for fab equipment spending in 2014 is expected to be Flash with a 40 to 45% increase (YoY). Over the last few years, capacity additions for the Flash sector also stagnated though technology investments. SEMI’s reports show detailed predictions for robust spending in DRAM and Flash by several large companies including Micron and Samsung. Overall fab equipment spending for Flash alone is expected to hit a record of almost $8 billion in 2014. After Flash and DRAM, MPU is expected to show the next largest growth in 2014, with fab equipment spending growing by over 40% (YoY). Intel is now preparing for 14nm, kicking off an MPU surge for 2014. The World Fab Forecast report gives insight into Intel’s preparations for 14nm.

Source: www.semi.org