Annual Revision of Historical U.S. Shipments, Orders and Inventories

The U.S. Department of Commerce did its annual revision of historical shipments, orders and inventories including electronic equipment by type, passive components, defense capital goods, automotive and aircraft revenues.

The DOC commented:
Revised historical data from the Manufacturers’ Shipments, Inventories, and Orders (M3) Survey were issued on May 18, 2016. These revisions result from: benchmarking the 2008-2011 Annual Survey of Manufactures (ASM) shipments and inventories data to the revised 2012 Economic Census data on a 2007 North American Industry Classification System (NAICS) basis; benchmarking the M3 shipments and inventories data to the 2014 ASM and revised 2013 ASM data, as well as the revised 2012 Economic Census data, on a 2012 NAICS basis, and ASM benchmarks for prior years on a 2007 NAICS basis…(see URL below).

These revisions were quite significant historically- raising electronic equipment shipment values from 2009-2012 and lowering them from 2014 to present (Chart 1). Recent growth rates were less affected (Chart 2).

All electronics-related series were impacted. Custer Consulting Group’s “Business Outlook” charts have all been updated with these May revisions. The upcoming DOC April Durable Goods and Factory Orders reports will reflect these changes.


Japan Update

JEITA just released March 2016 Japanese domestic production data:

  • March 2016 electronic equipment production rose sequentially from February 2016 (Charts 3 & 4) but 1Q’16 was down significantly compared to 1Q’15.
  • Electronic equipment production declined 12% in the first quarter compared to a year ago. Component production declined 13% and device production dropped 18% (Chart 5).
  • Semiconductor shipments to Japan exceeded domestic electronic equipment production on a 3/12 growth basis (Chart 6).
  • Both device and component production increased sequentially from February to March (Chart 7).
  • Passive component production increased slightly in March after its sharp decline from its September 2015 high (Chart 8).
  • Printed circuit board production also had a modest increase in March vs. February (Chart 9) but its 3/12 growth is declining (Chart 10) and Japan’s PMI leading indicator points to further declines in the next few months (Chart 11).
  • Component and device growth is also in contraction (3/12<1) per Chart 12.


Top-20 Semiconductor Companies' Sales Declined 6% y/y in 1Q’16 (Chart 13)

Qualcomm, Micron, and SK Hynix registered ≥25% drops, with total top-20 sales off by 6%.

IC Insights will release its May Update to the 2016 McClean Report later this month. This Update includes a discussion of the 1Q’16 semiconductor industry market results, an update of the capital spending forecast by company, a review of the IC market by electronic system type, and a look at the top-25 1Q’16 semiconductor suppliers (the top 20 1Q’16 semiconductor suppliers are covered in this research bulletin).

The top-20 worldwide semiconductor (IC and O S D—optoelectronic, sensor, and discrete) sales ranking for 1Q’16 is shown in Chart 13. It includes eight suppliers headquartered in the U.S., three in Japan, three in Taiwan, three in Europe, two in South Korea, and one in Singapore, a relatively broad representation of geographic regions.

The top-20 ranking includes three pure-play foundries (TSMC, GlobalFoundries, and UMC) and six fabless companies. If the three pure-play foundries were excluded from the top-20 ranking, U.S.-based IDM ON Semiconductor ($817 million), China-based fabless supplier HiSilicon ($810 million), and Japan-based IDM Sharp ($800 million) would have been ranked in the 18th, 19th, and 20th positions, respectively.

As would be expected, given the possible acquisitions and mergers that could/will occur this year (e.g., Microchip/Atmel), as well as any new ones that may develop, the top-20 semiconductor ranking is likely to undergo a significant amount of upheaval over the next few years as the semiconductor industry continues along its path to maturity.


Global DRAM Revenue Drop 16.6% in 1Q’16 due to Falling Prices (Chart 14-16)

DRAMeXchange, a division of TrendForce, reports that the global DRAM industry posted US$8.56 billion in revenue in this first quarter, down 16.6% from the previous quarter. Market oversupply and sliding average selling price were the main culprits behind the revenue decline.

DRAMeXchange Research Director Avril Wu noted: “While there was some demand from smartphone inventory restocking in China, the first quarter was traditionally the slow period, and downward revisions on notebooks and iPhone shipment estimates further exacerbated the oversupply problem in the DRAM market.”


Global Branded NAND Flash Revenue Fell for Second Consecutive Quarter to US$8.06 Billion (Chart 17)

In the first quarter of this year, the average contract price of NAND Flash chip fell by about 10% compared with the previous quarter due to persistent market oversupply. During the same period, the prices of eMMCs and Client-SSDs also dropped 13~18% quarterly as a result of steep decline in shipments of smartphones, tablets and notebooks. The latest NAND Flash market analysis from DRAMeXchange, a division of TrendForce, reveals that the overall decrease in average selling prices (ASPs) is much greater than the total bit shipment growth for the first quarter. Consequently, branded NAND Flash manufacturers suffered an average quarterly revenue drop 2.9%, marking two consecutive quarters of decline.

“The consumer electronics market will remain weak this year, so demand growth for NAND Flash will come from content per box increases,” said Sean Yang, research director at DRAMeXchange. “While planar (2D) NAND migration is reaching the last generation, there are also delays in progress with manufacturers’ respective 3D-NAND schedules. Thus, the overall cost reduction will be limited this year, and manufacturers will face slow revenue growth this year.”


Worldwide Silicon Wafer Area Shipments Decreased 3.8% y/y in 1Q’16 (Chart 18)

First Quarter 2016 Silicon Wafer Shipments Increase Quarter-Over-Quarter

Worldwide silicon wafer area shipments increased during the first quarter 2016 when compared to fourth quarter 2015 area shipments according to the SEMI Silicon Manufacturers Group (SMG) in its quarterly analysis of the silicon wafer industry.

Total silicon wafer area shipments were 2,538 million square inches during the most recent quarter, a 1.3% increase from the 2,504 million square inches shipped during the previous quarter. However, new quarterly total area shipments are 3.8% lower than first quarter 2015 shipments.

"After two quarters of negative silicon shipment volume growth, the increase in silicon volume shipments in the most recent quarter is encouraging,” said Dr. Volker Braetsch, chairman SEMI SMG and senior vice president of Siltronic AG. “It remains to be seen if silicon shipment volumes will exceed the record amount shipped last year.”

All data cited is inclusive of polished silicon wafers, including virgin test wafers and epitaxial silicon wafers, as well as non-polished silicon wafers shipped by the wafer manufacturers to the end-users.


SSD Industry Resiliency in Down Market for both HDDs and PCs (Charts 19 & 20)

TRENDFOCUS has just released its latest NAND/SSD Quarterly update. In this latest report, covering CQ1’16 results and the updated quarterly forecast, all segments, both client and enterprise, saw growth from CQ4 ’15.

In an otherwise down market for HDDs, the enterprise SSD market saw growth in all segments – SATA, SAS, and PCIe. For enterprise SATA SSDs, unit growth was 5%, while SAS and PCIe saw higher growth at 6.7% and 16.3%, respectively. SAS average capacities jump significantly in CQ1’16 as many system OEM companies are transitioning to a higher mix of product as being offered by multiple vendors. Although PCIe SSDs did not show as high a percentage growth as CQ4’15, it did still post a 16.3% increase Q-Q. Also, PCIe SSDs still benefit from shipping the highest average capacity of all enterprise SSD interfaces.

Total Client SSDs shipped in CQ’16 topped 27 million units, an increase of 4% Q-Q. Both Drive Form Factor (DFF) and module SSDs saw a slight increase versus CQ4 ’15, DFF inched out modules as having the largest increase versus CQ4’15 with 5% Q-Q unit growth. This is a reflection of the down PC market in CQ1’16 as modules are somewhat tied directly to PC demand with system OEMs. In addition, there were some share shifts in both client and enterprise SSDs in CQ’16.

The NAND industry also saw another quarter of continued growth, and NAND shipping into SSDs increased again in CQ1’16. Tablet, phones, and other applications consumed the balance of over 60% of the NAND output. With multiple vendors now moving to 3D NAND in the coming quarters, NAND shipments into SSDs will increase in capacity mix and bit absorption.


Worldwide Smartphone Sales Grew 3.9% in 1Q’16 (Charts 21-24)

  • Chinese Smartphone Vendors in the Top Five Garnered 17%
  • Apple Registered First Double-Digit Decline

Global sales of smartphones to end users totaled 349 million units in the first quarter of 2016, a 3.9% increase over the same period in 2015; according to Gartner, Inc. smartphone sales represented 78% of total mobile phone sales in the first quarter of 2016.

Smartphone sales were driven by demand for low-cost smartphones in emerging markets and for affordable 4G smartphones, led by 4G connectivity promotion plans from communications service providers (CSPs) in many markets worldwide.

“In a slowing smartphone market where large vendors are experiencing growth saturation, emerging brands are disrupting existing brands' long-standing business models to increase their share,” said Anshul Gupta, research director at Gartner. “With such changing smartphone market dynamics, Chinese brands are emerging as the new top global brands. Two Chinese brands ranked within the top five worldwide smartphone vendors in the first quarter of 2015, and represented 11% of the market. In the first quarter of 2016, there were three Chinese brands – Huawei, Oppo and Xiaomi – and they achieved 17% of the market.”

In terms of the smartphone operating system (OS) market, Android regained share over iOS and Windows to achieve 84% share. “As mature smartphone markets are reaching saturation, Google is pursuing new revenue growth opportunities by expanding the reach of its platforms in cars, wearables, connected homes, immersive experiences and more,” said Roberta Cozza, research director at Gartner.

“Despite the Android platform’s advancements and its dominant market share, the challenges of profitability remain for a number of Android players. This will have an impact on the vendor landscape where new or more innovative business models will increasingly become key to succeed.”


Custer comment: Smart phones, media tables, computers and digital cameras all experienced a 1Q’16 sequential decline as growth has slowed in the “volume” consumer markets (Chart 25).

Total Wearables Shipments increased 67% y/y to 19.7 Million Units in 1Q’16 (Charts 26-28)

A combination of device releases, price reductions, and company rationalizations marked the first quarter of 2016 (1Q’16) in the worldwide wearables market. According to data from International Data Corporation, (IDC) Worldwide Quarterly Wearable Device Tracker, total shipment volumes reached 19.7 million units in 1Q’16, an increase of 67.2% from the 11.8 million units shipped in 1Q’15.

The first quarter saw its fair share of significant events to entice customers, with multiple fitness trackers and smartwatches introduced at the major technology shows; post-holiday price reductions on multiple wearables, including Apple's Sport Watch; and greater participation within emerging wearables categories, particularly clothing and footwear. Conversely, several start-ups announced headcount reduction or shut down entirely, underscoring how competitive the wearables market has become.

“The good news is that the wearables market continues to mature and expand,” noted Ramon Llamas, research manager for IDC's Wearables team. “The wearables that we see today are several steps ahead of what we saw when this market began, increasingly taking their cues from form, function, and fashion. That keeps them relevant. The downside is that it is becoming a crowded market, and not everyone is guaranteed success.”

Still, there are two areas where the market shows continued growth: smart watches and basic wearables (devices which do not run third party applications).

“There's a clear bifurcation and growth within the wearables market,” said Jitesh Ubrani senior research analyst for IDC's Mobile Device Trackers. “Smart watches attempt to offer holistic experiences by being everything to everyone, while basic wearables like fitness bands, connected clothing, or hearables have a focused approach and often offer specialized use cases.”

Ubrani continued, “It's shortsighted to think that basic wearables and smart watches are in competition with each other. Right now, we see both as essential to expand the overall market. The unique feature sets combined with substantial differences in price and performance sets each category apart, and leaves plenty of room for both to grow over the next few years.”


U.S. Industrial Production up 0.7% in April (Chart 29)

U.S. factory output expanded in April.

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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