November PMI Leading Indicators

Market Economics and the Institute of Supply Management have released their November Purchasing Managers Indices:

  • The Global PMI decreased slightly from 51.3 in October to 51.2 in November (Chart 1) as Europe and Japan growth accelerated, USA moved to contraction, China and Taiwan shrank at a slower pace and South Korea was unchanged. (Chart 2) Note that PMI values greater than 50 indicate an expanding manufacturing sector.
  • For the USA both the Markit Economics and ISM PMIs dropped (Chart 3) with ISM reporting that the domestic manufacturing sector actually contracted in November while Markit reported slower growth.
  • The European countries in our survey all had positive manufacturing activity (Chart 4) although UK growth slowed significantly. The Eurozone PMI grew (Chart 5).
  • With the exception of Japan, growth was negative or very modest for key Asian countries (Chart 6). China’s PMI rose but still remained in contraction territory (Chart 7) however Japan saw improved growth (Chart 8).

Viewed on a 3/12 growth basis both Asia (Chart 9) and the world – other than the USA (Chart 10) seem to have passed the low points of their current business cycles.

Worldwide Semiconductor Shipments Drop 2.5% y/y to $29.0 billion in October 2015 (Charts 11-13)

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $29.0 billion for the month of October 2015, 1.9% higher than the previous month’s total of $28.4 billion and 2.5% lower than the October 2014 total of $29.7 billion. The Americas market posted 3.9% growth compared to last month, leading all regions. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average. Additionally, a new WSTS industry forecast projects slight market growth for the next three years.

"Global semiconductor sales have shown signs of stabilizing in recent months, with October marking the third straight month of month-to-month growth," said John Neuffer, president and CEO, Semiconductor Industry Association. "Year-to-date sales are narrowly ahead of where they were through the same time last year, and slight growth is projected for next year and beyond."

Additionally, SIA today endorsed the WSTS Autumn 2015 global semiconductor sales forecast, which projects the industry’s worldwide sales will reach $336.4 billion in 2015, a 0.2% increase from the 2014 sales total.


Custer Comment: Per Chart 14 global semiconductor growth on a US$ denominated basis is now negative but appears to have bottomed with an expansion resuming in the first quarter of 2016.

WSTS Semiconductor Autumn Market Forecast (Charts 15 & 16)

From the autumn 2015 Forecast Meeting, held in Hong Kong, November 17 to 19, 2015

The World Semiconductor Trade Statistics (WSTS) has released its new semiconductor market forecast generated in November 2015. WSTS expects the world semiconductor market to show flattish growth of 0.2% to US$336 billion in 2015. For 2015, growth in Optoelectronics (12.1%), Sensors (3.4%), and Analog (2.5%) is expected to be partially offset by declines in Discrete (-6.8%), Micro (-1.5%), Logic (-1.6%), and Memory (-1%).

By geography, for 2015, growth in Asia-Pacific is expected to be offset by declines in Americas, Europe and Japan. Europe and Japan will show a decline in 2015 at the US$ based forecast, which is mainly based on the current FX effect between Euro/USD and Yen/USD.

The semiconductor market growth in 2015 is expected to be driven by Analog Signal Converters (up 17%), Communication Analog (up 9%), 32b MCU (up 14%), Automotive DSP (up 28%), Display Drivers (up 12%), Touch Screen Controllers (up 31%), Communications Logic/short range (up 13%), Optoelectronics (up 12%), and Actuators (up 10%).

Worldwide Semiconductor Market is expected to grow moderately in 2016 and 2017.

For 2016, all major product categories (excluding Memory) and all regions (except Europe) are forecasted to grow.

For 2017, all major product categories and regions are forecasted to grow with the assumption of a rebound in the macro economy throughout the forecast period.

As a result, the worldwide semiconductor market is forecasted to be up 1.4% to US$341 billion in 2016, and up to 3.1% to US$352 billion in 2017, respectively.

By end application, automotive and wireless communications are projected to grow faster than the total market, whereas consumer and computer are assumed to grow slower than the total market.

By region, a positive growth rate is projected for all regions in 2017. The Americas region is expected to show the highest growth rate for 2016 and

2017 and is expected to reach US$71 billion in 2016, which is a 21% share of the total semiconductor market.


U.S. October Factory Orders (Electronic Equipment Shipments, Orders and Inventories)

The U.S. Department of Commerce just released its October "Factory Orders" report:

  • Electronic equipment orders and shipments increased modestly from September to October (Chart 17) with the electromedical, instrument and control sector driving the increase (Chart 18).
  • Vehicle shipments declined slightly from September (Chart 19).
  • Military electronics orders contracted sequentially but shipments held steady (Chart 20).
  • The instrument and control sector remained very strong (Chart 21).
  • Passive component demand remained robust in October (Chart 22) but the PMI leading indicator suggests that orders may decline soon (Chart 23).

Chart 24 summarizes the growth of the domestic electronic supply chain on both an annualized (12/12) and 3-month (3/12) basis. The 3/12 "leads" the 12/12.


North American PCB Shipments Increased 1.4% y/y in October 2015; Bookings Declined 20.5% y/y; book-to-bill ratio was 1.02 (Charts 25-28) North American PCB Sales Growth Continues at a Slow Pace

IPC announced the October findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Modest sales growth continued in October and the book-to-bill ratio retreated to 1.02.

Total North American PCB shipments increased 1.4% in October 2015 compared to October 2014. Year-to-date shipment growth continued positive at 0.4%. Compared to the previous month, PCB shipments were down 6.9%.

PCB bookings declined sharply to -20.5% compared to October 2014, reducing year-to-date order growth to 2.1%. Orders were down 6.0% in October compared to the previous month.

"Modest sales growth continued in October for the North American PCB industry, thanks to strong order growth earlier in the year," said Sharon Starr, IPC’s director of market research. "A sharp decline in orders pulled down the book-to-bill ratio in October, although it remains in positive territory," she added. "Thirteen consecutive months of positive book-to-bill ratios indicates positive sales growth in the fourth quarter of this year, provided orders bounce back."


Worldwide Smartphone Shipments will grow 9.8% in 2015 to a Total of 1.43 billion units (Charts 29-32)

First Single-Digit Growth Year on Record

According to International Data Corporation 2015 will be the first full year of single-digit worldwide smartphone growth. IDC predicts worldwide smartphone shipments will grow 9.8% in 2015 to a total of 1.43 billion units. IDC updated its previous forecast to reflect slowing growth in Asia/Pacific (excluding Japan), Latin America, and Western Europe. The slower growth is expected to intensify slightly over the 2015-2019 forecast period and is largely attributed to lower shipment forecasts for Windows Phone as well as "alternative platforms" (phones running operating systems other than Android, iOS, and Windows Phone).

China has been the focal point of the smartphone market in recent quarters as its economic slowdown has dampened worldwide growth due to the sheer size of the market. However, IDC maintains its view that China has largely become a replacement market. As a result, shipment growth in China is only forecast to be in the low single digits. The Middle East & Africa (MEA) region will see the highest growth in 2015 with shipments expected to increase nearly 50% year over year, surpassing "hot growth" markets like India and Indonesia.

"With the smartphone market finally slowing to single-digit growth, maintaining momentum will depend on several factors," said Ryan Reith, Program Director with IDC's Worldwide Quarterly Mobile Phone Tracker. "The main driver has been and will continue to be the success of low-cost smartphones in emerging markets. This, in turn, will depend on capturing value-oriented first-time smartphone buyers as well as replacement buyers. We believe that, in a number of high-growth markets, replacement cycles will be less than the typical two-year rate, mainly because the components that comprise a sub-$100 smartphone simply do not have the ability to survive two years. Offering products that appeal to both types of buyers at a suitable price point will be crucial to maintaining growth and vendor success."

"As shipment volumes continue to slow across many markets, consumers will be enticed by both affordable high-value handsets as well as various financing options on pricier models," said Anthony Scarsella, Research Manager with IDC's Mobile Phones team. "Vendors will look to push device financing and trade-in options across many of the developed markets as growth in these markets is expected to primarily come from replacement purchases and second devices. Apple has taken the lead with its iPhone Upgrade Program, and several other vendors are expected to implement similar plans in the months ahead. These plans could represent the most effective way to get flagship devices into the hands of consumers while speeding up the upgrade cycle through trade-in and incentives."


Worldwide Wearables Market Shipments grew 198% y/y to 21.0 million units in 3Q’15 (Charts 33 & 34)

A quarter after Apple debuted as the number two wearables vendor worldwide, Chinese vendor Xiaomi finished the third quarter of 2015 (3Q’15) as a strong contender for this position. Similarly, newcomer XTC beat out Samsung as the world's number five wearables vendor. According to the International Data Corporation (IDC ) Worldwide Quarterly Wearable Device Tracker , total shipment volume for the quarter came to 21.0 million units, up 197.6% from the 7.1 million units shipped in 3Q’14.

"The early stages of the wearables market have led to tight competition among the leading vendors, and Chinese vendors have seized upon market momentum to grab market share," noted Ramon Llamas, Research Manager for IDC's Wearables team. "China has quickly emerged as the fastest-growing wearables market, attracting companies eager to compete on price and feature sets. In addition, multiple vendors have experimented with a broad range of products and applications. The challenge, however, is whether these vendors can expand their presence, as few have extended beyond the country's borders and into other markets."

While there has been clear growth in the wearable market, there has been little sign of product cannibalization. Smart watches have drawn increased attention to the market from the likes of Apple, Motorola, Pebble, and Samsung, but this has not dampened interest in fitness trackers. By the end of 3Q’15, shipment volumes for both product categories increased sequentially and year over year, showing that, for now, the categories can co-exist and grow. This also provides end users with choice in terms of feature sets and functionalities, ranging from simple fitness tracking to smartphone-like experiences.

"The bifurcation doesn't just exist in features, but also in price," said Jitesh Ubrani, Senior Research Analyst for IDC Mobile Device Trackers. "The average smart watch or band came in at just over $400 and the average basic watch/band at $94. This leaves a lot of room for new players like Fossil and niche players like Pebble as they have an opportunity to address this space."


Worldwide Server Revenue Grew 7.5% in the Third Quarter of 2015, While Shipments Increased 9.2% (Charts 35-38)

In the third quarter of 2015, worldwide server shipments grew 9.2% from the third quarter of 2014, while vendor revenue increased 7.5% year over year.

"The third quarter of 2015 produced growth on a global level with mixed results by region," said Jeffrey Hewitt, research vice president at Gartner. "All regions showed growth in both shipments and vendor revenue, except for Eastern Europe, Japan and Latin America, which posted revenue declines of 5.8%, 11.7% and 24.2%, respectively, for the period. Currency exchange rates are one of the main reasons for the disparity in regional server market performance."

From the regional standpoint, Asia/Pacific grew the most in shipments, with a 23.8% increase. The region also posted the highest vendor revenue growth at 25.4% for the period.

HP continued to lead the worldwide server market based on revenue. The company posted just over $3.7 billion in server vendor revenue for a total market share of 27.3% for the third quarter of 2015.

All of the top five global vendors had revenue increases for the third quarter of 2015, except for IBM with a decline of 42.8%. IBM’s decline is due primarily to its sale of its x86 server business to Lenovo. Beyond that, IBM’s server revenue fell 3.1% for the RISC segment, but grew 15% for mainframes to post a 5.1% total growth in the third quarter for the server businesses that it retained.

In server shipments, HP remained the worldwide leader in the third quarter of 2015 with a year-over-year shipment increase of 7.7%. HP's worldwide server shipment market share was 22.2%, virtually the same share as in the third quarter of 2014.

All of the top five vendors in server shipments worldwide produced shipment increases in the third quarter of 2015, with Lenovo recording the largest growth of 183.2%.

Hewitt said, "x86 servers managed to produce an increase with growth of 9.2% in shipments and 9.7% in revenue year over year. RISC/Itanium Unix server revenue declined 11.5% in the third quarter, while shipments grew 1.1%. The 'other' CPU category, which is primarily mainframes, showed an increase of 3.5% in terms of revenue."


Walt D. Custer

Walt Custer

Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.

Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.

He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website.

View other posts from Walt D. Custer. View other posts from Walt D. Custer.
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