May PMI Leading Indicators

Markit Economics just released its May Purchasing Managers Indices for key countries:

  • Global PMI declined to 50.0 indicating zero growth in world manufacturing (Chart 1).
  • By major country/region only the USA and Europe were in expansion with much of Asia contracting (Chart 2).
  • Manufacturing growth in the U.S. has been slowing but is still positive (Chart 3).
  • The Eurozone PMI has held relatively steady since early 2015. Growth is modest but still positive (Chart 4).
  • Eurozone growth varies by country but only France and Russia of the countries in Chart 5 are contracting.
  • Asia performance is mixed (Chart 6). China (Chart 7), Japan (Chart 8), South Korea (Chart 9) and Taiwan (Chart 10) are contracting while Vietnam, Indonesia and India are growing.


April U.S. “Factory Orders” Show Modest Improvement

The Department of Commerce’s M3 report on April domestic orders, shipments & inventories was just released. This adds more detail to the Durable Goods report of a week earlier. Some key points:

  • Electronic equipment 3-month average book/bill increased slightly to 1.033 (Chart 11).
  • Electronic equipment order and shipment growth was near zero (3/12=1.0) when comparing the 3-month totals of February-April 2016 to February-April 2015 (Chart 12) but for April 2016 alone both orders and shipments rose (Chart 13).
  • Electromedical, instrument and control equipment continues to dominate domestic electronic equipment production (Chart 14).
  • Vehicle shipments increased from March (Chart 15).
  • Defense capital goods orders rose sharply in March and continued in April (Chart 16).
  • Military electronics orders are increasing significantly (Chart 17).
  • Electromedical, instrument, and control equipment orders continue their steady growth (Chart 18).
  • Passive component orders and shipment continue to expand but at a slower pace than in 2015 (Chart 19) as their 3/12 growth rates are declining significantly from the probably inflated recent highs (Chart 20).

Chart 21 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronic supply chain.

Source: with Custer Consulting Group interpretation

North American PCB Business Growth Continued in April (Charts 22-24)

IPC announced the April 2016 findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Sales and orders in April both exceeded last year's levels and the book-to-bill ratio stands at 1.02.

Total North American PCB shipments in April 2016 were 5.6% above the same month last year, causing year-to-date growth to remain at 5.5% for the first four months of the year. Compared to the preceding month, April shipments were down 16.8%.

PCB bookings in April increased 6.4% year-on-year, boosting year-to-date bookings growth for the first quarter to 5.0%. Orders in April 2016 were down 19.3% from the previous month.

“April was another good month for the North American PCB industry, with solid year-on-year growth in both sales and orders,” said Sharon Starr, IPC's director of market research. “Bookings exceeded shipments for the sixth consecutive month, but only by a small margin in April. This brought the book-to-bill ratio down although it remains positive,” she added.

“Growth rates and book-to-bill ratios for the first quarter changed slightly from previously published reports, due to a re-tabulation necessitated by a change in the survey sample this month. The revised ratios are 1.05 in January, 1.04 in February and 1.05 in March. April's 1.02 book-to-bill continues a positive trend indicating continued sales growth in the second and third quarters.”


Top 10 automotive PCB makers in 2015 (Chart 25)

The total 2015 automotive PCB market is estimated to have been $5.2 billion expecting to grow to $7.5 billion in 2020

According to Dr. Hayao Nakahara the top automotive PCB producers are given in Chart 25.

Source: H Nakahara, N.T. Information Ltd

U.S. Drone Sales Accelerate (Chart 26)

In the past 12 months (ending April 2016), drone sales have grown 224% year-over-year to nearly $200 million, according to The NPD Group. Over the past six months (ending April 2016), sales growth has accelerated to more than four times higher than the same time period last year.

Drones with 4K cameras accounted for more than one-third of dollar sales in the 12 months ending April 2016, while drones with built-in GPS accounted for 64% of revenue. Additionally, drones with an average price greater than $500 accounted for 56% of dollar sales in that same time period. The average drone sold for more than $550 in April, giving drones one of the highest average prices of all categories in technology at retail.

“The drone category is continuing to take shape as new products and features such as 4K cameras, Bluetooth and built-in GPS, reveal an expanding range of use cases. The market is maturing in that respect,” said Ben Arnold, executive director, industry analyst for The NPD Group. “The continued interest around unmanned aerial systems and an expanding retail footprint point to a strong 2016 and 2017 as a result.”

Drones proved to be a compelling holiday item with the 2015 holiday season seeing unit sales increasing 445% from the prior holiday season. Accompanied by high consumer interest and competitive prices, sales for December alone were 273% higher. Demand for drones were seemingly unaffected by the announcement and implementation of the Federal Aviation Administration’s registration rule, requiring owners of drones weighing between 0.55 lbs. and 55 lbs. to register their products before flying them outdoors. From the announcement in October to the implementation in December, dollar sales at least doubled month over month.

“It’s not surprising that drones were highly sought after during last year’s holiday season,” said Arnold. “But even after the holidays, NPD’s consumer research indicates drone purchase expectations remain high, especially among younger consumers. This points to continued growth and healthy demand for the category.”


Worldwide Smartphone Shipments Expected to grow 3.1% y/y in 2016 and grow to 1.84 billion in 2020, as Focus Shifts to Device Lifecycles (Charts 27 & 28)

International Data Corporation reported that smartphone shipments are expected to grow 3.1% in 2016, which is a substantial slowdown from the 10.5% growth in 2015 and 27.8% in 2014. Shipments are expected to hit 1.48 billion in 2016 and grow to 1.84 billion in 2020. The new forecast is 2.6 percentage points lower than IDC's previous forecast for 2016 on the basis of the continued slowdown in mature markets and China.

IDC expects large markets like the United States, Western Europe, and China to see low single digit growth rates in 2016 while Japan and Canada are expected to contract by 6.4% and 6.9%, respectively. In all these markets, smartphone buying behavior is changing in many ways. In operator-driven markets the transition away from two year subsidized contracts toward monthly installment plans are slowly taking place. Meanwhile, many retail heavy markets are seeing a surge in the eTailer channel, better known as online marketplaces.

"Consumers everywhere are getting savvy about how and where they buy their smartphones, and this is opening up new doors for OEMs and causing some traditional channels to lose some control of the hardware flow," said Ryan Reith, program vice president with IDC's Worldwide Quarterly Mobile Phone Tracker. “Smartphones sold into eTailer channels grew 65% in 2015 and are expected to account for roughly 12% of smartphone shipments in 2016, up from just 4% in 2013. Consumers are having more say over which brands they want and at the same time able to bargain shop.”

Outside of the few remaining markets with low smartphone penetration, the focus has shifted toward trying to ensure that smartphone life cycles aren't extended further. IDC believes early trade-in programs, much like the one Apple is facilitating, as well as the broader range of cheap unlocked devices, will play a significant role in keeping mature market life cycles close to two years.

“Despite single-digit growth for the overall smartphone market throughout the forecast period, Phablets (devices with 5.5-inch screens and larger) are expected to have double-digit growth until 2019, then slowing to 9.2% growth in 2020,” said Anthony Scarsella, research manager with IDC's Mobile Phones team. “Vendors continue to push larger screened devices at a variety of price points that feature big bold displays as well as powerful multimedia capabilities in both mature and developed markets. We are witnessing a plethora of vendors shifting their flagship devices towards the Phablet category as the average selling price for a Phablet will remain significantly higher than a regular smartphone ($383 vs. $260 in 2016) through the forecast period.”


Worldwide Server Revenue Declined 2.3% y/y, while Shipments Grew 1.7% y/y in 1Q’16 (Charts 29-32)

In the first quarter of 2016, worldwide server revenue declined 2.3% year over year, while shipments grew 1.7% from the first quarter of 2015, according to Gartner, Inc.

“Although revenue declined, the first quarter of 2016 continued with a trend of low-level shipments growth on a global level with a variation in results by region,” said Jeffrey Hewitt, research vice president at Gartner. “The drop in revenues in light of shipment increases demonstrates that the servers that shipped during the period had lower average selling prices than those that shipped in the same time frame last year.”

All regions showed a decline in either shipments and/or vendor revenue except for Asia/Pacific, which posted 9.7% growth in revenue and 8.4% growth in shipments for the period. Western Europe grew 1.4% in shipments and 1.5% in revenue. North America posted a 1% increase in shipments but declined 5.9% year-over-year in revenue.

“The real driver of global growth continues to be the hyperscale data center segment. The enterprise and small or midsize business (SMB) segments remain relatively flat as end users in these segments accommodated their increased application requirements through virtualization and considered cloud alternatives,” Hewitt said.

Hewlett Packard Enterprise (HPE) continued to lead in the worldwide server market, based on revenue, with a 25.2% market share. HPE was the only vendor in the top five to experience growth in the first quarter of 2016. Despite a decline of 1.4%, Dell maintained the second spot in the market with 17.3% market share. IBM secured the third position with 9.7% of the market, but experienced the largest decline among the top five vendors.

In server shipments, HPE remained the worldwide leader in the first quarter of 2016, even with a year-over-year shipment decline of 1.6%. HPE's worldwide server shipment share was 19.4%, representing a 0.6% drop in share from the first quarter of 2015.

Of the top five vendors in server shipments worldwide, only Huawei and Inspur produced shipment increases.


Worldwide Large Format Printer Shipments Grew 1.2% y/y in 1Q’16 (Charts 33 & 34)

The International Data Corporation (IDC) indicated that global large format printer (LFP) shipments grew 1.2% year-over-year in Q1 2016 (1Q’16) while hardware revenue grew by almost 7%.

“We see large format print service providers investing in new technologies that they can use to grow their businesses or drive efficiencies through their operation,” said Tim Greene, research director, U.S. Large Format Printer Tracker. “Growth of single-pass large format printers in the CAD/technical segment and alternative ink technologies in the graphics business made up for declines in more mature market segments.”

Segment Highlights

  • Shipments in the large format CAD/Technical printer market segment grew 1.6% year over year in 1Q’16 while hardware revenue grew by 13.2%. The HP PageWide and KIP 800-series color printers drove much of that revenue growth.
  • On the large format graphics side total shipments grew by just 0.6% year over year in 1Q’16 while revenue grew 2.8% over the same period. The durable graphics segment fueled that growth as shipments of large format printers that serve the durable graphics business grew by over 9.5% worldwide in 1Q’16 versus 1Q’15, continuing a trend from 2014 and 2015, and led by UV-curable inkjet, Latex, eco-solvent, and dye-sublimation inkjet printers.


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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