Weekly Global Update for February 26, 2014

Global Economy

Business conditions softened a bit in early 2014 for some key countries. Based on the most recent industrial production growth values (Chart 1) most countries were still expanding at year end 2013. However "flash" PMI estimates for February (Chart 2) show a contraction in China and France, slower growth in Germany and Europe and only the U.S. expanding faster. The Markit Economics flash report is given only for the five areas noted above, with full reporting (all countries) occurring in late February and early March. However based on the most recent PMI data (combination of January and February "flash") it appears that growth has plateaued in most regions (Chart 3) following an expansion in 4Q'13.

4Q'13 Electronic Supply Chain Growth Update

With all the major companies in our global supply chain survey now having reported their fourth quarter financials, we can report "final" 4Q'13 versus 4Q'12 growth by sector for the world electronic supply chain (Chart 4).

Global electronic equipment shipments rose 5.5% with all segments except military, business and office, consumer and Internet (datacom) equipment showing positive growth. Both PCB and SEMI capital equipment sales growth was very strong. It is typical for capital equipment to outgrow the end markets in the upturn of a business cycle.

Source: Company financial reports & Custer Consulting Group

Global PCB Forecast

Thanks to our friend and colleague Dr. Hayao Nakahara Chart 5 provides his printed circuit board production forecast by major country by year through 2017. Naka travels worldwide and visits MANY printed circuit board companies to get these numbers. Based on his broad experience and the data collected in his travels he then generates a multiyear forecast.

Custer Consulting Group took a different forecasting approach. We maintain a database of monthly PCB shipments by region using a combination of trade organization, government and composite company sales data. Using actual data through 2013 we extended monthly sales through 2014 using current growth trends and normal monthly seasonality (Charts 6 & 7). The results are very similar to Naka's (about 5% global PCB growth in 2014) but our methodology is different.

Source: Personal communications with Dr. Nakahara and Custer Consulting Group

Japan's 2013 Electronics Performance

December and year end 2013 Japanese electronic equipment, device and component domestic production results were just released by JEITA.

• Electronic equipment production was flat sequentially from November to December (Chart 8).
• Printed circuit board domestic production was down 14.8% in 2013 vs. 2014 (Chart 9) with Chart 10 showing Japan's domestic PCB product mix.
• Component and device production growth slowed (Chart 11) with their combined product mix given in Chart 12.

North American SEMI Equipment Industry January orders $1.28 Billion and Book/Bill 1.04 (Charts 13 & 14)

North America-based manufacturers of semiconductor equipment posted $1.28 billion in orders worldwide in January 2014 (3-month average basis) and a book-to-bill ratio of 1.04, according to SEMI.

The 3-month average of worldwide bookings in January 2014 was $1.28 billion, 7.2% lower than December 2013 and 19.1% higher than January 2013.

The 3-month average of worldwide billings in January 2014 was $1.24 billion, 8.3% lower than December 2013 and 27.9% higher than January 2013.

"Both bookings and billings are at values higher than reported one year ago and are good indications of growth in the 2014 equipment market," said Denny McGuirk, president and CEO of SEMI. "Device makers are investing in 20nm technology and advanced device structures, while leading packaging houses focus their investments on flip chip, wafer-level, and 3-D packaging."

Source: www.semi.org

Worldwide Large Format Printer shipments increased 4.1% y/y to 82,000 units in 4Q'13 (Chart 15)

Most regional markets posted year-over-year growth during the fourth quarter of 2013 (4Q'13), leading to a 4.1% over-year-year increase in the worldwide large format printer (LFP) market, according to the International Data Corporation (IDC). Overall shipments in the worldwide large format market grew to 82,000 units in 4Q'13, an increase of 4,000 units from the third quarter. Both mature and emerging markets had positive year-over-year growth in 4Q'13, at 3.6% and 4.8% respectively. Despite experiencing a strong second half, the global market finished the full year 2013 with a year-over-year decline of -1.7% in unit shipments.

Source: www.idc.com

Mobile DRAM Revenue Drops Slightly in 4Q13, Micron Benefits from Elpida Acquisition (Charts 16 & 17)

According to DRAMeXchange, a division of global research firm TrendForce, the mobile memory industry's worldwide revenue reached US$3.039 billion in the fourth quarter of 2013, bringing the yearly total to US$11.826 billion, representing 34.3% of DRAM industry value. The fire at SK Hynix's Wuxi fabrication plant did not have a significant effect on mobile DRAM output, market competition brought average selling price down by 10% in the fourth quarter.

Thus, despite a 3% QoQ increase in mobile shipments, total mobile memory revenue experienced a 7.8% QoQ decline.

According to TrendForce's mobile DRAM revenue ranking, the two Korean manufacturers' combined market share was 74.8%, while Micron came in third with 23% of the market, only 3% behind SK Hynix. Since Micron's acquisition of Elpida, the manufacturer has been focusing on developing MCP and eMCP products, which will likely increase its mobile memory market share, and allow it to compete with SK Hynix more effectively.

Looking ahead to the first quarter of 2014, a 7.4% QoQ decrease in smartphone shipments is forecast, while tablet sales are expected to be weak as well. However, mobile memory supply is likely to increase by 8.5% QoQ, which would result in a decrease in average selling price, leading to an estimated 5-10% decline in mobile DRAM revenue for the first quarter. As major manufacturers unveil new devices at the Mobile World Congress (MWC) on February 24 and subsequently begin volume production, TrendForce expects mobile memory revenue will grow again in the second quarter.

Source: www.trendforce.com

Worldwide Hardcopy Peripherals Shipments increased 2% y/y in 4Q'13 (Charts 18 & 19)

The worldwide hardcopy peripherals (HCP) market continued its recovery in 4Q'13. The 31.7 million unit shipments in 4Q'13 represented a year-over-year increase of 2.0% while shipments for the full year 2013 declined just -1.6%, according to the International Data Corporation (IDC). Contributing to the overall growth was the positive performance from the laser segment, which grew 4.5% year-over-year in 4Q'13 and 3.6% for the full year 2013.

"2013 was a relatively good year for major hardcopy peripherals vendors as most reported a return to some level of growth. IDC anticipates that the recovery will continue at a slow and steady pace in 2014. Effective sales execution will come from having a comprehensive product portfolio, of course, but more important is being well versed in the language of the customer," said Phuong Hang, Program Director, Worldwide Hardcopy Peripheral Trackers.

Source: www.idc.com

Worldwide Service Provider VoIP and IMS Equipment Revenue Totaled $3.7 Billion in 2013, up 30% from 2012 (Chart 20)

"The market for carrier VoIP and IMS shined in 2013 as mobile operators ramped for voice over LTE (VoLTE), and Huawei, Alcatel-Lucent, Ericsson, and NSN rode the wave, each putting up impressive 20%+ year-over-year growth," reports Diane Myers, principal analyst for VoIP, UC, and IMS at Infonetics Research. "Though there's still room for pure-play vendors and product specialists, the large equipment manufacturers benefit from long-standing relationships with mobile operators and broad product portfolios that extend well beyond carrier VoIP and IMS."

Market Highlights

For the full year 2013, worldwide service provider VoIP and IMS equipment revenue totaled $3.7 billion, up 30% from 2012.

Spending was particularly strong in the U.S., China, and Japan, where the mobile markets are large and operators are competitive, though all major regions posted strong growth from a year ago.

Mobile wasn't the entire story: Fixed-line transformation projects are not dead, and there was a fair share of spending on class 5 replacement and voice over broadband (VoBB) and Session Initiation Protocol (SIP) trunking expansion.

Infonetics expects the forward spending that happened in 2013 across multiple areas in the carrier VoIP and IMS market to taper off as operators launch services and draw down significant inventory, creating lumpiness.

Source: www.infonetics.com