Weekly Global Update for August 26, 2015

August "Flash PMI Data"

Markit Economics just released preliminary PMI results for August (Chart 1). Historical PMI data are shown for:

• Europe (Chart 2)
• China (Chart 3)
• Japan (Chart 4)
• USA (discussed below)

Source: www.markiteconomics.com

U.S. Manufacturers Report Slowest Improvement in Business Conditions for 22 Months (Chart 5)

Key points:

• Manufacturing PMI drops to its lowest level since October 2013
• Output, new orders and employment all expand at slower rates in August
• Input cost inflation picks up fractionally, but remains well below the survey average
• U.S. manufacturers indicated a renewed loss of momentum during August, with output, new business and payroll numbers all increasing at a slower rate than in the previous month

Commenting on the flash PMI data, Tim Moore, senior economist at Markit said: "August’s survey highlights a lack of growth momentum and continued weak price pressures across the U.S. manufacturing sector, which adds some fuel to the dovish argument as policymakers weigh up tightening policy in September.”

With the headline PMI swiftly losing ground after a modest rebound during July, the latest figure now points to the weakest overall pace of manufacturing growth for almost two years."

According to survey respondents, the strong dollar continued to put pressure on export sales and competitiveness, while heightened global economic uncertainty appeared to have dampened client spending both at home and abroad.

Alongside this, manufacturers of investment goods widely cited growth headwinds from the slump in capital spending across the energy sector.”

Sluggish manufacturing demand conditions and subdued cost pressures resulted in further restraint in terms of factory gate prices during August. Output charge inflation has broadly flat lined this summer and remains close to its lowest recorded by the survey over the past three years.

Source: www.markiteconomics.com

North American SEMI Equipment Industry July 2015 Book/Bill = 1.02 (Charts 6 & 7)

North America-based manufacturers of semiconductor equipment posted $1.59 billion in orders worldwide in July 2015 (three-month average basis) and a book-to-bill ratio of 1.02, according to the July EMDS Book-to-Bill Report published today by SEMI.

SEMI reports that the three-month average of worldwide bookings in July 2015 was $1.59 billion. The bookings figure is 5.1% higher than the final June 2015 level of $1.52 billion, and is 12.5% higher than the July 2014 order level of $1.42 billion.

The three-month average of worldwide billings in July 2015 was $1.56 billion. The billings figure is 0.3% higher than the final June 2015 level of $1.55 billion, and is 18.2% higher than the July 2014 billings level of $1.32 billion.

"Year-to-date, the bookings and billings reported in the SEMI North American equipment book-to-bill report indicate a solid year for the industry,” said SEMI president and CEO Denny McGuirk. "The outlook for the remainder of the year is somewhat clouded, but we see investments in 3D NAND and advanced packaging as drivers.”

Source: www.semi.org

Worldwide Smartphone Sales Recorded Slowest Growth Rate since 2013 (Charts 8-12)

• Smartphone Sales Declined for the First Time in China
• Android's Year-Over-Year Growth Rate at its Lowest

Gartner, Inc. said worldwide smartphone sales recorded the slowest growth rate since 2013 in the second quarter of 2015. Worldwide sales of smartphones to end users totaled 330 million units, an increase of 13.5% over the same period in 2014.

"While demand for lower-cost 3G and 4G smartphones continued to drive growth in emerging markets, overall smartphone sales remained mixed region by region in the second quarter of 2015,” said Anshul Gupta, research director at Gartner. Emerging Asia/Pacific (excluding China), Eastern Europe and Middle East and Africa were the fastest-growing regions, driven by good performance from Chinese and local vendors. By contrast, smartphone sales in China fell for the first time year-over-year, recording a 4% decline.

"China is the biggest country for smartphone sales, representing 30% of total sales of smartphones in the second quarter of 2015. Its poor performance negatively affected the performance of the mobile phone market in the second quarter,” said Gupta. "China has reached saturation — its phone market is essentially driven by replacement, with fewer first-time buyers. Beyond the lower-end phone segment, the appeal of premium smartphones will be key for vendors to attract upgrades and to maintain or grow their market share in China.”

Despite the launch of new S6 models, Samsung's premium phones continued to be challenged by Apple's large-screen iPhones. Samsung lost 4.3 percentage points in market share and declined 5.3% in unit sales in the second quarter of 2015. Huawei recorded the highest sales growth rate of 46.3%, thanks to strong overseas sales and 4G smartphone sales in China. iPhone sales increased 36%, which helped Apple gain 2.4 percentage points in market share. Apple recorded strong iPhone replacements in both emerging and mature markets — and particularly in China. Total iPhone sales in China grew 68% to 11.9 million units.

*The results for Lenovo include sales of mobile phones by Lenovo and Motorola both in 2Q15 and 2Q14.

Apple's double-digit growth in the high-end segment continued to negatively impact its rivals' premium phone sales and profit margins. Many vendors had to realign their portfolios to remain competitive in the midrange and low-end smartphone segments. This realignment resulted in price wars and discounting to clear up inventory for new devices planned for the second half of 2015.

In the smartphone operating system (OS) market, Android's global share was affected by the weak performance of China in the second quarter of 2015 and the strong performance in China of Apple, which has taken share from Android for the last three quarters. "Android saw its lowest year-over-year growth of 11% with share reaching 82.2% in the second quarter of 2015,” said Gupta. Microsoft continued to struggle to generate wider demand for Windows Phone devices — even at the lower end. "In light of Microsoft's recent cuts in its mobile hardware business, we'll await signs of its long-term commitment in the smartphone market.”

"The low barrier to entry into the Android segment will continue to encourage an array of new players, adding to further disruptions coming from Chinese manufacturing and innovative Internet players with new business models that are not reliant on hardware margins,” said Gupta.

Worldwide mobile phone sales to end users totaled 446 million units during the second quarter of 2015. The performance was flat (0.4 per cent) year-over-year. Vendors that are focused on the emerging markets, such as Huawei, ZTE, TCL Communication and Micromax, benefited from high demand in these markets, while global vendors such as Sony, Samsung and HTC struggled to achieve growth at the high end of the market.

*The results for Lenovo include sales of mobile phones by Lenovo and Motorola both in 2Q15 and 2Q14.

Source: www.gartner.com

Global Mobile DRAM Industry Sees 7.7% Revenue Growth in Q2 as it Resists Price Decline (Charts 13-15)

According to DRAMeXchange, a division of TrendForce, global mobile DRAM revenue reached US$3.851 billion in the second quarter, a 7.7% increase versus the prior period. The percentage of mobile DRAM revenue within the total DRAM sales also rose to 33.7% and is expected to keep rising. The revenue growth is due to mobile DRAM being relatively resistant to price decline compared with other types of DRAM. Another factor is that the next generation of LPDDR4 has raised the average selling price of mobile DRAM.

"South Korean supplier Samsung remained main driver of bit shipment growth for mobile DRAM in the second quarter,” said Avril Wu, Assistant Vice President of DRAMeXchange. "By equipping its flagship smartphones Galaxy S6 and S6 Edge with 3GB LPDDR4, Samsung significantly raised shipments of its own mobile DRAM to about 40% of its total DRAM shipments during the same period. Correspondingly, PC DRAM’s percentage in Samsung’s total DRAM shipments has been reduced to a low 20%.”

Prices for DRAM products, particularly PC DRAM, are expected to continue dropping. The average contract price fell considerably by 15% in July, and the decline is forecast to approach 30% in the third quarter, rapidly eroding DRAM makers’ profits. Samsung has already decided to temporarily decrease PC shipments in favor of shifting capacity to mobile DRAM in hopes LPDDR4 shipments will increase with the arrival of the next iPhone. At the same time, Samsung also intends to increase its market share among other mobile DRAM clients. "Samsung’s strategy is likely to succeed and will further narrow the profit margins of its competitors because it has the technological advantage as well as comprehensive product lines,” said Wu. "In this DRAM market downturn, the competitive gaps among suppliers are expected to widen.”

Source: www.dramexchange.com