Weekly Global Update for March 5, 2014

Global Electronic Equipment Growth Positive in All Regions

2014 has begun in a growth mode relative to 2013:

• 3/12 growth rates (comparing most recent 3-months to same 3-months a year earlier) are positive (3/12>1) in all regions (Chart 1)
• The seasonal downturn is underway in South East Asia but shipments were up 10% in Taiwan/China for the recent November - January 3-month period compared to the same period a year ago (Chart 2)
• Global electronic equipment shipments were up 8.4% for November -January (Chart 3)

Domestic Electronic Equipment Demand Increases Slightly in January

The U.S. Department released its January 2014 Durable Goods report last week.

• Electronic equipment book/bill declined (Chart 4) although both orders and shipments increased (Chart 5).
• 3/12 growth rates for electronic equipment orders and shipments moved further into positive territory (Chart 6).
• Ratio of electronic equipment inventories/orders declined but still remain at an uncomfortably high level (Chart 7).
• Defense capital equipment demand remained depressed (Chart 8) as its book/bill plunged to an 8-year low (Chart 9).
• Aircraft shipments improved (Chart 10).
• Communication (Chart 11) and computer (Chart 12) equipment orders and shipments remained relatively flat.
• Semiconductor shipment growth to North America remained well above U.S. electronic equipment growth suggesting that semiconductors have been “over bought” in recent months (Chart 13).

Chart 14 summarizes the growth of the domestic electronic supply chain on both an annualized (12/12) and 3-month (3/12) growth basis (where a value of 100=zero growth).

European Semiconductor Distribution Market Sales Increased 11.1% to 1.41 Billion Euro in 4Q’13; Total CY2013 Ended at 5.87 Billion Euro (Charts 15 & 16)

• European Semiconductor Distribution Market (DMASS) Enjoys Healthy Year-End 2013
• Q4/CY13 grew by 11.1% over Q4/CY12. Stabilization occurs across all markets and regions. CY 2013 ends at low single-digit growth.

A healthy fourth quarter lifted the semiconductor distribution industry in Europe in 2013 across the base line and provided an annual growth of 2.6%. According to DMASS (Distributors' and Manufacturers' Association of Semiconductor Specialists) sales in Q4/CY13 ended with an increase of 11.1% at 1.41 billion euro. The full calendar year 2013 ended at 5.87 billion euro total distribution sales.

Georg Steinberger, chairman of DMASS, reviewed the results: "2013 turned out as predicted. After a disappointing and sluggish 2012, the return to normal growth came as a relief to the whole industry. Unfortunately, we experienced a further decline of average selling prices, as the over-proportional growth in volume confirms. On the positive side, strong order books suggest that 2014 will be a healthy year (provided no major disasters occur)."

Looking at the regions, no real surprises occurred during Q4/CY13. Germany grew by 11.5% to 433 million euro, nearly 31% of DMASS Total. Italian distribution sales increased by a surprising 14.1% (to 130 million euro); France grew even faster with 17.9% to 109 million euro; the UK trailed the major regions of Europe with an increase of 8% to 121 million euro. Eastern Europe grew by 13%, the Nordic countries by 11.6% and Israel by 21%. The only countries/regions with a negative trend were the Baltic States, Russia and Hungary. On an annual basis, the main culprits for the slow overall growth were the UK, Germany and Russia, who all ended negatively.

Georg Steinberger, "Looking at the full year, a strong South and a weak Centre would have been the last thing you expected, considering all the macro-economic news influencing the electronics market and subsequently the semiconductor industry. It is not quite clear what was driving the German weakness, but apparently it is behind us."

At the product detail level, Programmable Logic remained the weakest spot with 4.1% growth (to 117 Million Euro), followed by Discretes (mainly RF) with 6.9% (to 72 Million Euro) and Analog with 9.8% (to 396 Million Euro). The only major product segment to suffer a slight decline was Sensors at -2.2% (only in Q4, the full CY ended at a healthy 7.5%). The highest growth rates in Q4 occurred at DRAMs (40.4%) 32-Bit-MCUs (35.7%) and NAND-Flash (33.9%), the lowest at EPROMs (-34.7%) and RF Discretes (-8.1%).

Georg Steinberger: "Sequential quarterly developments show a very disparate and rarely consistent pattern, so let's focus on the annual picture. All areas recovered nicely, except two major ones: Programmable Logic and MOS Micro, the latter one having only remained positive due to high-end MCUs. So what is wrong here? The conclusion we came to is the increased price pressure. We hope this pattern is going to change during 2014."

2013 World Server Shipments Grew 2.1%, While Revenue Decreased 4.5% (Charts 17-20)

In the fourth quarter of 2013, worldwide server shipments grew 3.2% year-over-year, while revenue declined 6.6% from the fourth quarter of 2012, according to Gartner, Inc. In all of 2013, worldwide server shipments grew 2.1%, and server revenue declined 4.5%.

"2013 presented some pronounced differences in various server market segments," said Jeffrey Hewitt, research vice president at Gartner. "We've seen ongoing growth in Web-scale IT deployments, while the enterprise remained relatively constrained."

"In terms of hardware platform types, mainframe and RISC/Itanium Unix platform market performance kept overall revenue growth in check," Hewitt said.

In the fourth quarter of 2013, the regions with the highest growth rates in terms of unit shipments were Asia/Pacific (16.3%), Japan (7.5%) and North America (relatively flat at 0.01%). All regions declined in vendor revenue except Asia/Pacific, which grew by 0.6% year-over-year.

Worldwide Smartphone Shipments will Slow to 8.3% Annual Growth in 2017 and 6.2% in 2018; 2014 Volumes are Expected to Increase 19.3% y/y to 1.2 Billion (Charts 21-23)

International Data Corporation (IDC) predicts smartphone shipments will slow to 8.3% annual growth in 2017 and 6.2% in 2018. Annual smartphone volume in 2013 surpassed one billion units for the first time, accounting for 39.2% growth over 2012. In the coming year, IDC expects mature markets like North America and Europe to drop to single digits, and Japan might contract slightly. Despite the high growth expected in many emerging markets, 2014 will mark the year smartphone growth drops more significantly than ever before. 2014 volumes are expected to be 1.2 billion, up from one billion in 2013, representing 19.3% year-over-year growth.

As mature markets become saturated and worldwide growth slows, service providers and device manufacturers are seeking opportunities to move hardware wherever they can. The result is rapidly declining price points, creating challenging environments in which to turn a profit. Worldwide smartphone average selling price (ASP) was $335 in 2013, and is expected to drop to $260 by 2018.

"In order to reach the untapped demand within emerging markets, carriers and OEMs will need to work together to bring prices down," said Ramon Llamas, Research Manager with IDC's Mobile Phone team. "Last year we saw a total of 322.5 million smartphone units ship for under $150 and that number will continue to grow going forward. We've already seen numerous smartphone announcements targeting this priceband this year, with some as low as $25. Just as the dynamics have changed for overall smartphone growth, so have the dynamics for smartphone pricing in the markets where continued growth is expected. Not all vendors will want to get into this space, but those who do must make deliberate choices about their strategies in order to succeed."

Metal Prices

Historical metal prices:

• Copper (Chart 24)
• Gold (Chart 25)
• Silver (Chart 26)
• Tin (Chart 27)

Exchange Rates versus U.S. Dollar

Historical exchange rates of various currencies versus U.S. dollar:

Trade-weighted versus broad group of currencies (Chart 28)
Euro (Chart 29)
Canada dollar (Chart 30)
Japan yen (Chart 31)
China yuan (Chart 32)
Taiwan NT$ (Chart 33)
South Korea won (Chart 34)
India rupee (Chart 35)
Brazil real (Chart 36)