Weekly Global Update for April 13, 2016

4Q'15 Electronic Supply Chain Growth by Sector (updated)

We have increased (from 175 to 213) the number of companies in our global electronic equipment producers group with an emphasis on the less populated sectors:

• Chart 1 gives the quarterly revenues, net income and inventories of the upgraded 213 OEM-company composite. Included are the following OEMs: Computer equipment13, Internet (datacom) 13, Data Storage 17, Communication 30, Semiconductor fab, test and measurement 40, Medical electronics 21, Instrument and control 16, Military 21, Business and Office 6, Consumer 21, Automotive electronics15.
• The companies in Chart 1 saw revenues decline 5.8% when their results are consolidated to U.S. dollars in 4Q’15 versus 4Q’14 - but this was calculated at fluctuating exchange rates (as the companies reported their financials). At constant 2015 exchange rates the decline was much less (-0.5% vs -5.8%).
• Chart 2 shows their quarterly consolidated U.S. dollar revenue growth (at fluctuating exchange) from 2001 to 2015.
• Growth by sector of the supply chain for 4Q’15 versus 4Q’14 is given in Chart 3.

Source: Company financials with Custer Consulting Group analysis

Solar/Photovoltaic Industry 4Q’15 Growth

We have completed our analysis of the 4Q’15 performance of the solar/photovoltaic supply chain:

• Chart 4 shows the consolidated revenues of 90 global companies in the solar/photovoltaic supply chain. Sales have increased sequentially for the last four quarters despite the dampening effect of exchange rates
• Chart 5 shows 4Q’15 versus 4Q’14 growth by sector. It should be noted that some sectors are only represented by a few companies so this chart should only be treated as an estimate.

Source: Company financials with Custer Consulting Group analysis

U.S. February Electronic Supply Chain Shipments, Orders and Inventories

The U.S. Department of Commerce released its “Factory Orders” report for February:

• Chart 6 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronic supply chain in February.
• Electronic equipment order and shipments declined on both a 3/12 growth (Chart 7) and actual dollar basis (Chart 8) in February.
• All electronic equipment sectors saw weaker February orders (Chart 9).
• The medical, instrument and control sector continued to dominate orders (Chart 10).
• Automotive shipments held steady from January (Chart 11).
• Military electronics orders declined (Chart 12).
• Electromedical, measurement and control equipment orders and shipments saw modest sequential growth from January (Chart 13).
• Passive component sales plateaued following 1 ½ years of very robust growth (Charts 14 & 15). This sector seems to be “ripe” for an “inventory correction.”

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

South Korean 4Q’15 Electronic Equipment Company Growth

South Korean Electronics companies have finally reported their 4Q’15 financial results. A group of seven OEMs have reported three quarters of sequentially increasing sales on a consolidated basis in local currency (Chart 16).

Source: Company financials with Custer Consulting Group analysis

Global Semiconductor Sales Dip Slightly in February (Charts 17-20)

Sales decrease 3.2% month-to-month and 6.2% year-to-year

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $26.0 billion for the month of February 2016, a decrease of 3.2% compared to the previous month’s total of $26.9 billion and 6.2% lower than the February 2015 total of $27.7 billion. Sales into the Americas fell sharply, decreasing 19.3% year-to-year, while year-to-year sales into China increased 3.5%. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

“Global semiconductor sales slipped somewhat in February, due to normal seasonal trends, demand softening, and unfavorable macroeconomic conditions,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Most regional markets have struggled to overcome these headwinds, and sales have dipped across the majority of semiconductor product categories.”

Regionally, sales decreased nearly across the board: China (-4.6% month-to-month/+3.5% year-to-year), Europe (-0.9%/-6.3%), Japan (-0.8%/-3.5%), Asia Pacific/All Other (-0.7%/-6.3%), and the Americas (-7.0%/-19.3%).

Sales also decreased across most major semiconductor product categories, with the notable exception of microprocessors, which increased year-to-year by 3.4%.

Source: www.semiconductors.org

Custer Comments:

• Per Chart 21 our semiconductor leading indicator suggests that revenue growth vs. the same month in 2015 will remain negative for at least the next 2-3 months.
• Semiconductor shipments to North America have plunged, perhaps due to excess ordering in 2015 (Chart 22). This “correction” is apparent in the large 3/12 growth difference between U.S. electronic equipment and North American semiconductor shipments (Chart 23).

Worldwide Semiconductor Revenue Declines 2.3% y/y to $334.8 billion in 2015 (Chart 24)

Slowing Demand for Key Applications and Currency Fluctuations Cause Turbulence in Semiconductor Market

Worldwide semiconductor revenue totaled $334.8 billion in 2015, a 2.3% decline from 2014, according to final results by Gartner, Inc. The combined revenue of the top 25 semiconductor vendors fell by 0.5% during 2015. This was a better performance than the rest of the market, however, which saw a 6.9% revenue decline. The top 25 vendors accounted for 73.5% of the market, down slightly from 74% in 2014.

"The worldwide semiconductor market declined in 2015 as slowing demand for key applications combined with strong currency fluctuations to subdue the market," said Andrew Norwood, research vice president at Gartner. "2015 saw a mixed performance by the different device categories, unlike 2014 when all categories posted positive growth. Nonoptical sensors performed best due to increased usage of fingerprint sensors in smartphones, while discretes saw the strongest decline due to a mix of weak demand and currency issues."

Intel retained the number one market share position for the 24th consecutive year, capturing 15.4% of the worldwide market, despite experiencing a 1.2% revenue decline in 2015.

Infineon Technologies experienced the strongest growth among the top vendors, 2015 saw record merger and acquisition (M&A) activity between major semiconductor vendors, including several acquisitions and disposals that had a material effect on semiconductor sales. Among the most significant deals was Intel's acquisition of Lantiq. Driven by Lantiq's broadband gateway and digital home capabilities, this acquisition helped Intel nearly double its wired ASSP business.

"2015 semiconductor revenue results are skewed by the large amount of M&A activity during the year," said Norwood. "If we adjust for this M&A activity by adding in revenue for 2015 and 2014 where necessary, then the performance is somewhat different: The top 25 vendors would have experienced a 1.7% revenue decline, and the rest of the market would have declined 3.9%."

Source: www.gartner.com

Worldwide Semiconductor Wafer-Level Manufacturing Equipment Market declined 1% y/y to $33.6 billion in 2015 (Chart 25)

Worldwide semiconductor wafer-level manufacturing equipment revenue totaled $33.6 billion in 2015, a 1% decline from 2014, according to final results by Gartner, Inc. The top 10 vendors accounted for 77% of the market, down slightly from 78% in 2014.

"Slowing demand for key electronics end markets, combined with looming oversupply in memory, prompted semiconductor manufacturers to adopt conservative capital spending plans in 2015, which impacted spending on WFE," said Bob Johnson, research vice president at Gartner. "Strength in memory spending was not sufficient to overcome caution in logic markets as major producers focused on logic process upgrades instead of adding new capacity."

Applied Materials retained the number one position in the WFE market with 1.3% growth. The industry's investments in 3D device manufacturing fin field-effect transistor (FinFET) and 3D NAND were the main drivers for the company's growth in 2015. Lam Research experienced the strongest growth of the top 10 vendors in 2015, moving into the number two position. The move of the industry to 3D device manufacturing pushed the company to 24.7% growth. Lam continues to be the dominant conductor etch manufacturer, but competition in the etch and deposition segment is expected to be fierce moving forward.

"Capital spending in 2015 was selective, with logic manufacturers focused on upgrades and the latest technology buys, while memory added new capacity in response to increased demand and favorable pricing," said Johnson. "However, there was another factor at work: Both the yen and euro declined significantly against the dollar in 2015. In a market which was essentially flat over the previous year, the changes in these exchange rates had a noticeable effect, especially in the lithography segment, where all tools are priced in either euros or yen."

In dollar terms, lithography dropped 13%, the largest decline of any of the major segments. Two segments were especially strong: The ion implant segment grew 24%, and the material removal and clean segment grew 6%. Process control overall declined 2.5%, with the optical patterned wafer inspection segment dropping 15% as manufacturers held back on purchases of new inspection tools.

Source: www.gartner.com

OE Automotive Semiconductors Revenues totaled USD 28.2 Billion in 2015 (Chart 26)

According to the latest analysis by Semicast Research, NXP was the leading vendor of semiconductors to the OE automotive sector in 2015. Infineon Technologies passed Renesas Electronics to become the second largest vendor, with STMicroelectronics and Texas Instruments completing the top five. Semicast estimates that revenues for OE automotive semiconductors totaled USD 28.2 billion in 2015.

Supplier consolidation and currency movements are the key factors influencing changes in the vendor share ranking in 2015. NXP completed the acquisition of Freescale Semiconductor in early December 2015, propelling the combined company to the top of the share ranking, with an estimated 14.5%. Similarly, Infineon’s acquisition of International Rectifier in January 2015 moves it ahead of Renesas to number two, with an estimated market share of 10.1%. Having been the largest semiconductor supplier to the OE automotive sector for each of the last five years, Renesas is thus relegated to third position in the vendor share ranking in 2015, with an estimated 9.5% share.

The combination of NXP and Freescale creates a formidable force, not just in automotive semiconductors but in other areas such as industrial, medical and microcontrollers. It will now almost certainly require the merger of two other leading suppliers to move NXP from the head of the automotive vendor share rankings.

Colin Barnden, Principal Analyst at Semicast Research, commented “The combination of NXP and Freescale creates a formidable force, not just in automotive semiconductors but in other areas such as industrial, medical and microcontrollers. It will now almost certainly require the merger of two other leading suppliers to move NXP from the head of the automotive vendor share rankings.”

Changes in the value of the euro and yen relative to the U.S. dollar have also impacted the vendor share ranking. Compared with 2014, the Euro was an average of sixteen% weaker against the US Dollar in 2015, while the Yen was almost thirteen% weaker.

Source: www.semicast.net

Global Quantum Dot Display Market Expected to reach USD 3.96 billion

Increasing awareness regarding energy-efficient displays is expected to boost global quantum dot display market growth. Surge in demand for advanced QLED powered TVs has propelled industry growth.

Advancements in quantum dot (QD) technology have made them useful for television manufacturers giving them a competitive edge in the industry. Creating better color with color tuning features has become a key selling point for display manufacturers. Moreover, adoption of QDs is expected to increase in smaller displays such as in smartphones and tablet devices owing to its capabilities in creating sharp crisp displays.

Cadmium-containing semiconductor-based QDs exhibit superior performance as compared to their cadmium-free counterparts. However, the toxic nature of such heavy metals has raised environmental concerns. Regulations in EU and Japan restrict the use of cadmium, compelling vendors to focus on the development of Cadmium Free Quantum Dots (CFQD). Manufacturers offering high-performance cadmium-free QDs in adequate volumes are expected to gain competitive advantage in the market moving forward.

Further key findings from the report suggest:

• QD based LEDs or QLEDs segment dominated the global quantum dot display industry accounting for over 45% of the market share in 2014. QD LED technology enables OEMs to manufacture UHD TVs with enhanced color gamut as compared to OLED UHD TVs, at reduced costs and improved energy-efficiency. In 2014, Samsung progressed from conventional UHD OLED TVs to QD-based LED 4K TVs to evade high development costs. Competitor TV companies such as Panasonic, LG and Sharp have started developing UHD TVs incorporating QD technology, thereby driving the industry's growth prospects.
• QDs are made up of binary compounds such as cadmium selenide, cadmium sulfide, cadmium telluride, and indium arsenide. However, toxicity of cadmium and global environmental regulations like the Restriction of Hazardous Substances (RoHS) Directive and the Toxic Substances Control Act have limited the amount of heavy metals such as cadmium, lead, and mercury that can be used in consumer electronic devices resulting in increased production of CFQD technology, and opened the doors for OEMs to use QDs in a variety of consumer electronic display devices.
• Consumer electronics segment dominates the QD display market accounting for over 70% of the revenue share owing to increasing use of this technology in TVs and mobile devices. In healthcare, such display technology is extensively used in activities such as cancer diagnosis, DNA labeling, cellular labeling, and biological imaging.
• North America dominated the global quantum dot display industry acquiring over 40% of the overall global revenue share in 2014. Key QD manufacturers in the industry are based in the U.S. owing to extensive R&D spending over advanced QD display technologies and high production capacities.
• Key industry participants include Dow Chemical, Nanoco Group, Nanosys, and Quantum Material Corporation. In addition to these, consumer electronic giants such as LG and Samsung are making joint efforts to develop and encourage the use of CFQD, with the latter already incorporating such advanced technology in its SUHD TV models.

Source: www.grandviewresearch.com

Worldwide IT Spending Forecast to Decline 0.5% y/y in 2016 (Chart 27)

Worldwide IT spending is forecast to total $3.49 trillion in 2016, a decline of 0.5% over 2015 spending of $3.5 trillion, according to Gartner, Inc. This is down from last quarter's forecast of 0.5% growth. The change in the forecast is mainly due to currency fluctuations.

"There is an undercurrent of economic uncertainty that is driving organizations to tighten their belts, and IT spending is one of the casualties," said John-David Lovelock, research vice president at Gartner. "Concurrently, the need to invest in IT to support digital business is more urgent than ever. Business leaders know that they need to become digital businesses or face irrelevance in a digital world. To make that happen, leaders are engaging in tough cost optimization efforts in some areas to fund digital business in others."

"As an example, the savings from legacy system optimization and enhancements are being redirected to fund digital initiatives. It's about doing more with the same funds," said Lovelock. "Typically, less than 10% of organizations are in cost optimization or cost cutting mode. However, the need to spend on digital business initiatives in a time when revenue growth does not support runaway IT budgets is forcing more organizations to optimize as a first step. Business processes, as well as IT, are undergoing optimization — digital business requires both. However, many CIOs are reluctant to raise this possibility, given the cultural and political barriers to optimizing business costs."

The most evident results of these optimization efforts are in the switches in spending between assets and services. "Most traditional IT now has a 'digital service twin' — license software has cloud software, servers have Infrastructure as a Service, and cellular voice has VoLTE," Lovelock said. "Things that once had to be purchased as an asset can now be delivered as a service. Most digital service twin offerings change the spending pattern from a large upfront payment to a smaller reoccurring monthly amount. This means that the same level of activity has a very different annual spend."

Source: www.gartner.com

Top 50 EMS/ODM Companies Revenue Grew 3.2% y/y to New High of $273 Billion in 2015

Manufacturing Market Insider released its annual MMI Top 50TM list of the world’s largest EMS/ODM providers. In 2015, Top 50 sales reached a new high of $273 billion - more than $8 billion greater than in 2014.

Top 50 sales grew 3.2% last year. Company growth rates in revenue ranged from plus 274% to minus 31% with the majority exhibiting positive numbers.

MMI Top 50 providers were ranked based on 2015 sales in U.S. dollars. In order, the top ten were Hon Hai, Pegatron, Flextronics, Jabil, Sanmina, Celestica, New Kinpo Group, Wistron, Universal Scientific Industrial and Plexus Corp.

In addition to ranking providers by 2015 sales, the MMI Top 50 listings include previous year’s sales growth and rank, number of employees, number of plants, facility production capacity, number of SMT lines and leading customers. This special survey was published in the March 2016 edition of MMI.

Source: www.mfgmkt.com/