Weekly Global Update for April 30, 2015

April Leading Indicators

"Flash" PMI leading indicators were just released by Markit Economics for April:

• All six countries' PMIs (USA, China, Japan, Europe, Germany & France) weakened with China, Japan and France dropping into contraction territory (PMI < 50) per Chart 1.
• Historical PMI data are given in the attached charts for the Eurozone (Chart 2), Japan (Chart 3) and China (Chart 4).
• For the USA Markit Economics and the Institute for Supply Management have reported separate Purchasing Managers' Indices (Chart 5) since 2012. Results are similar but not identical and diverge significantly from time to time.

U.S. March Durable Goods Report

March domestic electronic equipment shipments, orders and inventories were released on a preliminary basis as part of the U.S. Department of Commerce's "Durable Goods" report. More complete information will be provided May 4, 2015 as part of the "Factory Orders" report.

• Electronic equipment book/bill ratio rose slightly to 1.031 (Chart 6).
• Both electronic equipment orders and shipments improved (Chart 7) but the 3-month rate of growth of orders dropped (Chart 8).
• Ratio of electronic equipment inventories/orders declined (Chart 9).
• Defense capital goods orders and shipments increased as their book/bill improved slightly (Chart 11).
• Aircraft shipments reached a record high (Chart 12) as orders increased (Chart 13).
• Communication equipment orders weakened (Chart 14) but demand for domestically made computer equipment improved (Chart 15).
• Growth of semiconductor shipments to N. America remains well above end-market growth (Chart 16).

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

N American SEMI Equipment Industry: $1.37 Billion in Global Orders & Book/Bill of 1.10 (Charts 17 & 18)

North America-based manufacturers of semiconductor equipment posted $1.37 billion in orders worldwide in March 2015 (3-month average basis) and a book-to-bill ratio of 1.10, according to SEMI.

The 3-month average of worldwide bookings in March 2015 was $1.37 billion, 4.6% higher than February 2015 and 5.9% higher than the March 2014.

The 3-month average of worldwide billings in March 2015 was $1.25 billion, 2.4% lower than February 2015, and 1.9% higher than the March 2014.

"Three-month average bookings reported by North American-based semiconductor manufacturing equipment providers reflected sequential and year-over-year momentum in the first quarter of 2015," said SEMI president and CEO Denny McGuirk. "This marks the third consecutive month that bookings exceeded billing and the ratio remained above parity."

Source: www.semi.org

Worldwide Semiconductor Sales Expected to Increase 4% y/y to $354 Billion in 2015 (Chart 19)

Currency Shifts, Excess Inventory and End to PC Upgrade Cycle Slowing Growth

Worldwide semiconductor revenue is forecast to reach $354 billion in 2015, a 4% increase from 2014, but down from the previous quarter's forecast of 5.4% growth, according to Gartner, Inc.

"Concern is mounting about semiconductor revenue growth in 2015 as system suppliers start to grapple with the rapid depreciation in value of global currencies relative to the U.S. dollar, excess inventories in the semiconductor and electronics supply chains, and the end of a PC upgrade cycle," said Bryan Lewis, research vice president at Gartner. "The downward revision from last quarter's forecast is due to these three factors combining to create a significant headwind for the semiconductor market in 2015."

The strong dollar is causing system suppliers and system buyers to re-evaluate their strategies. System suppliers will raise prices in select regions such as Europe to keep their margins intact as well as de-feature some products to maintain current price points. System buyers will push out purchases in select regions, extending product life cycles as well as buying down the price curve. All this leads to reduced semiconductor growth in 2015.

From an application point of view, smartphones, solid-state drives (SSDs) and ultramobiles will see the largest semiconductor growth, while the traditional PC segment will experience the greatest decline. The end of support for Windows XP, which lifted the replacement demand for traditional PCs, particularly in the professional market, faded out in late 2014.
Through 2015, the replacement demand is expected to remain muted, as consumers delay migrating to Windows 10. The next critical season for the PC and ultramobile markets is in the third quarter of 2015, when Windows 10 and Intel's Skylake products come to market.

From a device point of view, DRAM continues to be one of the primary growth drivers of the overall industry. DRAM revenue is expected to increase 7.9% in 2015, following a 32% increase in 2014. However, Gartner maintains its view that the good times in DRAM will come to an end in 2016 and 2017 when the DRAM industry revenue will decline 20.2% and 8.4%, respectively. While this may seem like a dire outlook, it is actually slightly better than the previous quarter's forecast for 2016 and 2017 declines of 30.1% and 20.0%, respectively.

"2015 semiconductor growth hinges on the strength of the second-quarter bounce," said Mr. Lewis. "The second quarter is traditionally where we see strong sequential growth coming off the traditionally negative first quarter as inventory is burned off from the holidays. First quarter 2015 looks to have the worst sequential growth since 2009 with at least a 7% decline, so a strong second-quarter bounce is needed to achieve the 4% annual growth predicted for 2015. Intel's recent second quarter's mid-point sequential revenue guidance of a 3.3% increase was in-line with the expected industry re-bound after it experienced a 13.2% sequential decline in the first quarter of 2015."

Source: www.gartner.com