Weekly Global Update for December 3, 2014

Final 3Q'14 Global Electronic Sector Growth

All the key electronics companies in our sector composites have now reported their third quarter results.

• HP's 3Q'14 sales were below expectations causing the overall OEM growth estimate to drop to 2.9% (Chart 1) with 3/12 growth now apparently peaked for this current business cycle (Chart 2).
• Growth by sector for 3Q'14 vs. 3Q'13 is given in Chart 3.
• Inventories/sales climbed sharply for the EMS companies (Chart 4 & Chart 5). The main contributor to this large 3Q'14 inventory increase was Foxconn (Chart 6).
• Solar/photovoltaic companies had near zero growth in the third quarter (Chart 7) as their business cycle peaked in 1Q'14 (Chart 8).

Source: Custer Consulting Group based on company financial reports

U.S. Preliminary October Electronic Supply Chain Orders and Shipments

The October U.S. Durable Goods report was just released:

• The domestic electronic equipment book/bill ratio was at its highest point since July 2013 (Chart 9)
• Electronic equipment order growth reached +6.7% for Aug-Oct 2014 vs. Aug-Oct 2013 (Chart 10) as orders remain well above shipments (Chart 11).
• Defense capital goods orders increased (Chart 12).
• Aircraft shipments held steady (Chart 13) and will likely increase soon due to the August order spike (Chart 14).
• Communication (Chart 15) and computer (Chart 16) equipment orders remained flat suggesting that electromedical, instrument and control equipment orders drove the October total electronic equipment bookings increase. The "Factory Orders" report released this week will confirm this hypothesis.
• Semiconductor shipments to North Americas and U.S. electronic equipment shipments are in balance on a 3/12 growth basis (Chart 17).

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

North American PCB shipments Increased 0.8% y/y in October 2014; Bookings Increased 28.8%. Book/Bill Ratio Rebounded to 1.05 (Charts 18-20)

IPC announced the October findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Orders increased sharply, driving up the book-to-bill ratio, while sales remained flat.

Total North American PCB shipments increased 0.8% in October 2014 from October 2013, bringing year-to-date shipment growth to -1.0%. Compared to the previous month, PCB shipments were down 5.2%.

PCB bookings increased by 28.8% compared to October 2013, improving the year-to-date order growth rate to -1.1%. Order growth jumped 15.5% in October compared to the previous month.

The North American PCB book-to-bill ratio rebounded to 1.05 in October.

"Unusually strong growth in North American PCB orders in October is good news for an industry that has experienced declining sales for more than three years," said Sharon Starr, IPC's director of market research. "The impact can be seen in the book-to-bill ratio, which made a strong comeback this month, indicating that sales may begin to rebound by the end of the year," she added.

Source: www.ipc.org

Worldwide WLAN Market increased 7.4% y/y in 3Q'14 (Chart 21)

Enterprise WLAN Market Grew 9.6% Year over Year in Third Quarter of 2014

The combined consumer and enterprise worldwide wireless local area network (WLAN) market segments increased 7.4% year over year in the third quarter of 2014 (3Q'!4). According to the preliminary results by IDC, the enterprise segment continued to grow at a steady rate and increased another 9.6% over the same period last year. While the pace of the enterprise WLAN market growth had been steadily decreasing over the last several quarters, 3Q'14 represented a moderate increase in the growth rate compared to the 7.7% seen in 2Q'14.

"Although 3Q'14 was a fairly strong quarter for growth in the worldwide enterprise WLAN market, growth stories diverged across geographies and vendors. As demand for 802.11ac continues to rise, and as innovation drives network upgrades, expect to see continued overall market growth with some variations among vendors and geographies."

The consumer WLAN market increased 4.8% year-over-year in 3Q'14. This was noticeably lower than the

10.9% year-over-year growth seen in 2Q'14. The ongoing transition from the older 802.11n standard to the newer and faster 802.11ac standard continues to drive growth across all geographies.

Source: www.idc.com

Worldwide Tablet Growth 7.2% to 235.7 million units in 2014, First Year of iPad Decline (Charts 22-24)

The worldwide tablet market is expected to see a deceleration in 2014 with on-year growth slowing to 7.2%, down from 52.5% in 2013, according to a new forecast from IDC. At the core of this slowdown is the expectation that 2014 will represent the first full year of decline in Apple iPad shipments.

Both the iPad and the overall market slowdown do not come as a surprise as device life-cycles for tablets have continued to lengthen, increasingly resembling those of PCs more than smartphones.

"The tablet market continues to be impacted by a few major trends happening in relevant markets," said Ryan Reith, program director with IDC's Worldwide Quarterly Mobile Device Trackers. "In the early stages of the tablet market, device life-cycles were expected to resemble those of smartphones, with replacement occurring every 2-3 years. What has played out instead is that many tablet owners are holding onto their devices for more than three years and in some instances more than four years. We believe the two major drivers for longer than expected tablet life-cycles are legacy software support for older products, especially within iOS, and the increased use of smartphones for a variety of computing tasks."

"We need to look at how the tablet ecosystem is answering these challenges, and right now we see a lot of pressure on tablet prices and an influx of entry-level products, which ultimately serves Android really well," said Jean Philippe Bouchard, research director for Tablets. "But we also see tablet manufacturers trying to offset this price pressure by focusing on larger screens and cellular-enabled tablets. The next six months should be really interesting."

Source: www.idc.com

Global smartphone shipments will grow from 1.219 billion units in 2014, to 1.488 billion units in 2015 - Digitimes Research

Samsung, Apple, LG rank as top-3 smartphone vendors in 3Q'14

Samsung Electronics, Apple and LG Electronics ranked as the top three smartphone vendors globally in the third quarter as well as the first three quarters of 2014, based on third-quarter reports released by individual vendors and data from makers in the supply chain, according to Digitimes Research.

China-based vendors Huawei, Xiaomi Technology and Lenovo took the fourth, fifth and seventh positions, respectively, during the same period, Digitimes Research added.

Additionally, five out of the top-10 vendors in the January-September period were China-based suppliers, with Xiaomi leading all vendors with a nearly 200% on-year shipment growth. China-based ZTE, which ranked eighth in 2013, has dropped out of the top-10 list.

Global smartphone shipments are expected to reach 1.219 billion units in 2014, growing less than 30% from a year earlier. For 2015, global smartphone shipments will expand 22% on-year to 1.488 billion units, contributed by shipment growth in emerging markets, Digitimes Research estimated.

Source: www.digitimes.com

Global TV shipments improved 4% Y/Y in Q3'14, and LCD TV shipments alone rose nearly 9% - DisplaySearch (Chart 25)

Led by continued strong demand in North America, global TV shipments grew more than 4% last quarter, after several quarters of weak growth.

TV shipments improved 4% Y/Y in Q3'14, and LCD TV shipments alone rose nearly 9%, according to the latest findings by DisplaySearch, part of IHS.

Annual TV shipment growth averaged less than 1% on a unit and revenue basis in 1H'14, with LCD TV growth barely compensating for declining shipments of plasma and CRT TVs. However, a continued strong trend of shipment growth in North America continues to be a catalyst, evidenced by LCD TV growth exceeding 12% Y/Y in Q3'14.

LCD TV shipments from China rose 9%, compared to a soft period a year ago following the end of government subsidies, and despite modest sales results during the Chinese Golden Week of public holidays in the fall. Results for the Asia-Pacific region were also quite strong, led by improved growth in an economically stronger India, where more favorable currency valuations are making LCD TVs affordable to a wider group of Indian consumers.

"While the last several years in the TV business have been difficult in terms of overall shipments and revenue, the market is showing some broad resiliency now, with most regions enjoying growth in the third quarter," said Paul Gagnon, director of global TV research at DisplaySearch. "Consumption for primary TVs is entering a renewed replacement cycle in some key regions, while adoption of larger screens and 4K and other higher resolutions will keep consumers upgrading."

Although 4K TVs have been available for several years now, shipments in 2014 have significantly accelerated due to broader competition and more accessible price points activating new consumer groups. 4K TV shipments jumped more than 500% Y/Y in Q3'14 to top three million units, bringing total shipments to 6.4 million units in 2014.

China is the leading 4K TV consumer market, and local Chinese brands are now fiercely competing with Samsung, which is aggressively pushing for growth in China. After debuting a greatly expanded lineup in Q2'14, Samsung leads all 4K brands in the nation. With 36% of the 4K TV shipments, Samsung led the market on a revenue basis globally in Q3'14. The company has significantly outpaced all other brands. Chinese brands have a stronger share thanks to greater volume within China, and a low average price compared to global brands competing in markets outside of China. However, with the arrival of greater competition in North America and other markets, as well as rising 4K TV exports from Chinese brands, competitive price compression will be difficult to avoid for most brands.

Source: www.displaysearch.com