“Flash” August PMI Leading Indicators

Markit Economics just released its August “flash” purchasing managers’ indices for select countries:

  • All PMIs except Japan’s declined (Chart 1).
  • Manufacturing growth in the USA (Chart 2) and Europe (Chart 3) remained in expansion although the rate of expansion slowed.
  • Japan edged back to near expansion territory (Chart 4).


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

The July “Durable Goods” report was just released by the U.S. Department of Commerce.

  • Electronic equipment book/bill ratio was 1.03 (Chart 5) as both orders and shipments increased (Chart 6).
  • 3/12 growth of shipments increased but booking’s growth eased slightly (Chart 7).
  • Electronic equipment inventories continued to decline relative to orders (Chart 8).
  • Defense capital goods orders corrected upwards from their May decline (Chart 9) but their 3-month average book/bill dropped to 0.85 (Chart 10).
  • Aircraft shipments were flat from May (Chart 11) but non-defense aircraft orders returned to their pre-May levels (Chart 12).


European Semiconductor Distribution Market sales grew 2.15% y/y to 1.86 Billion Euro in 2Q’16 (Charts 13 & 14)

  • Grows Less in Second Quarter 2016
  • Growth rate for semiconductor distribution slows down through a quiet spring quarter. Germany and Eastern Europe stay ahead, UK and Nordic decline.

Signs of a seasonal weakness occurred in semiconductor distribution during the spring quarter. According to DMASS (Distributors' and Manufacturers' Association of Semiconductor Specialists), sales in the second quarter grew by 2.15% to 1.86 billion euro in Q2/CY16 over the same quarter last year. Currency effects have eased out in the meantime.

Georg Steinberger, chairman of DMASS: "The second quarter ended a bit below our expectations, but bookings are still holding up. The first half of 2016 ended with a healthy 5.2% growth at the EMEA level. We would expect 2016 in total to remain solidly positive, as the slowdown did not occur across the board but was driven by a few special effects, like business having been taken direct by some manufacturers."

Regionally, the differences in Q2 performance were considerable. While astern Europe, Germany, Austria, Iberia and Turkey held up quite nicely, France and Italy finished on average and the UK, Switzerland, Norway, Sweden, Belgium + Luxembourg, Russia, Poland and Israel came back negative. Germany as the biggest market ended the second quarter with 575 million euro (+5%), Italy with 182 million (+2.3%), UK with 141 million euro (-1.7%) and France at 137 million euro (+1.6%). Nordic declined to 161 million euro (-10.7%), Israel to 68 million euro (-5%).

Georg Steinberger: "What we are seeing from a regional perspective is a weakening market in the UK, more production transfer from Nordic to Eastern Europe and strong growth in some low-cost manufacturing countries in Eastern Europe. There is a lot of movement but, on the positive side, Germany returns a healthy, organic growth and so does Italy. The question is 'are we seeing now the end of a long positive streak for distribution or is it just a normal slowdown'? I would tend to believe that in spite of a slowdown, the opportunities for organic growth are still excellent in the mature economies."

On the product-side, the picture is as mixed as at the regional view. While Power, Sensors, Opto and MCUs grew way above average, Discretes (here RF) and Logic returned negatively. Analog and Memory grew slightly above average. In detail, Analog products grew by 3.8% to 559 million euro, MOS Micro by 3.9% to 387 million euro, Optoelectronics by 9.9% to 198 million euro, Power by 6.3% to 185 million euro and Memories by 3.2% to 146 million euro. On the negative side were Discretes (-4.2% to 96 million euro), Programmable Logic (-14.8% to 123 Million Euro) and Other Logic (-9.5% to 91 million euro.

Georg Steinberger: “There are clearly some special effects at work that hit some distributors in certain product areas, like RF, Programmable Logic and Other Logic, some of which are due to manufacturers having taken distribution business direct. Without these effects, Q2 would have ended at around 4%. However, that is part of the game.” DMASS continues to report to members only on Passive Components, Electromechanical Components and Power Supplies, the latest statistics addition to DMASS Ltd.


Global Smartphone sales increased 4.3% y/y to 344 million in 2Q’16 (Charts 15-17)

Five of top 10 worldwide mobile phone vendors saw increased sales in Q2, according to Gartner, with global sales of smartphones growing 4.3% Y-on-Y.

Global sales of smartphones reached 344 million units in Q2 of 2016, a 4.3% increase over the same period in 2015, according to Gartner Inc. However, the overall sales of mobile phones contracted by 0.5% with only five vendors from the top 10 showing growth.

Among them were four Chinese manufacturers: Huawei, Oppo, Xiaomi and BBK Communication Equipment.

The demand for premium smartphones slowed in the second quarter of 2016 because, according to Anshul Gupta, research director at Gartner, consumers are waiting for new hardware launches in the second half. Also, the decline in sales of “feature phones” (down 14%) bolstered the decline in overall sales of mobile phones in the second quarter of 2016.


North America-based Manufacturers of SEMI Equipment had $1.79 billion in Orders Worldwide in July (3-month avg.) and Book/Bill of 1.05 (Charts 18 & 19)

North America-based manufacturers of semiconductor equipment posted $1.79 billion in orders worldwide in July 2016 (3-month average basis) and a book-to-bill ratio of 1.05 according to SEMI.

SEMI reports that the 3-month average of worldwide bookings in July 2016 was $1.79 billion, 4.7% higher than June 2016 and 13.1% higher than July 2015.

The 3-month average of worldwide billings in July 2016 was $1.71 billion, 0.6% lower than June 2016 and 9.6% higher than July 2015.

“Monthly bookings have exceeded $1.7 billion for the past three months with monthly billings trending in a similar manner,” said Denny McGuirk, president and CEO of SEMI. “Recent earnings announcements have indicated that strong purchasing activity by China and 3D NAND producers will continue in the near-term.”


Top-20 Semiconductor Companies' Sales increased by 7% q/q in 2Q’16; Seven of top-20 Semiconductor suppliers posted double-digit sales gains in 2Q’16. (Chart 20)

MediaTek and AMD register the fastest 2Q’16/1Q’16 growth rates of 32% and 23%, respectively.

IC Insights will release its August Update to the 2016 McClean Report later this month. This update includes an update of the semiconductor industry capital spending forecast, an analysis of the IC foundry industry, and a look at the top-25 semiconductor suppliers for 1H’16, including a forecast for the full year ranking (the top 20 1H’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 1H’16 is shown in Chart 20. 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, China-based fabless supplier HiSilicon ($1,710 million), U.S.-based IDM ON Semiconductor ($1,695 million), and U.S.-based IDM Analog Devices ($1,583 million) would have been ranked in the 18th, 19th, and 20th positions, respectively.

IC Insights includes foundries in the top-20 semiconductor supplier ranking since it has always viewed the ranking as a top supplier list, not a market share ranking, and realizes that in some cases the semiconductor sales are double counted. With many of our clients being vendors to the semiconductor industry (supplying equipment, chemicals, gases, etc.), excluding large IC manufacturers like the foundries would leave significant “holes” in the list of top semiconductor suppliers. As shown in the listing, the foundries and fabless companies are identified. In the April Update to The McClean Report, market share rankings of IC suppliers by product type were presented and foundries were excluded from these listings.

Overall, the top-20 list shown in Figure 1 is provided as a guideline to identify which companies are the leading semiconductor suppliers, whether they are IDMs, fabless companies, or foundries.

Thirteen of the top-20 companies had sales of at least $3.0 billion in 1H’16. As shown, it took $1.86 billion in sales just to make it into the 1H’16 top-20 semiconductor supplier list. There was one new entrant into the top-20 ranking in 1H’16 as compared to the 2015 ranking—AMD, which replaced Japan-based Sharp. In 2Q’16, AMD registered a strong 23% increase in sales while Sharp was moving in the opposite direction logging a 13% decline in its 2Q’16/1Q’16 revenue.

Intel remained firmly in control of the number one spot in the top-20 ranking in 1H’16. In fact, it increased its lead over Samsung’s semiconductor sales from only 20% in 2015 to 33% in 1H’16. The biggest upward move in the ranking was made by Apple, which jumped up three positions in the 1H’16 ranking as compared to 2015. Other companies that made noticeable moves up the ranking include MediaTek and the new Broadcom Ltd. (the merger of Avago and Broadcom), with each company moving up two positions.

Apple is an anomaly in the top-20 ranking with regards to major semiconductor suppliers. The company designs and uses its processors only in its own products—there are no sales of the company’s MPUs to other system makers. IC Insights estimates that Apple’s custom ARM-based SoC processors had a “sales value” of $2.9 billion in 1H’16, which placed them in the 14th position in the top-20 ranking.

In total, the top-20 semiconductor companies’ sales increased by 7% in 2Q’16/1Q’16. Although, in total, the top-20 2Q’16 semiconductor companies registered a 7% increase, there were seven companies that displayed a double-digit 2Q’16/1Q’16 jump in sales and only two that registered a decline (Intel and Renesas).

The fastest growing top-20 company in 2Q’16 was Taiwan-based MediaTek, which posted a huge 32% increase in sales over 1Q’16. Although worldwide smartphone unit volume sales are forecast to increase by only 5% this year, MediaTek’s application processor shipments to the fast-growing China-based smartphone suppliers (e.g., Oppo and Vivo), helped drive its stellar 2Q’16/1Q’16 increase. Overall, IC Insights expects MediaTek to register about $8.8 billion in sales in 2016, which would represent a 31% surge over the $6.7 billion in sales the company had last year.

As expected, given the possible acquisitions and mergers that could/will occur over the next few years, the top-20 ranking is likely to undergo a significant amount of upheaval as the semiconductor industry continues along its path to maturity.


17.2% Sequential Increase in Mobile DRAM Revenue for Second Quarter due to Rising Shipments of Chinese Branded Smartphones (Charts 21 & 220)

The global mobile DRAM revenue grew 17.2% sequentially in the second quarter, benefitting all top three DRAM suppliers. Expanding Chinese branded smartphone shipments, driven by Huawei, OPPO and Vivo, as well as bit supply growth in the mobile DRAM market, attributed to this revenue increase. 

“Going into the third quarter, Apple and Samsung will increase their stock up activities as the former prepares the release of its next iPhone and the latter steps up shipments of its latest flagship Galaxy Note 7,” said Avril Wu, research director of DRAMeXchange. “At the same time, smartphone shipments from Chinese brands are expected to keep growing. The third quarter also heralds the arrival of the traditional peak season. All these factors will cause mobile DRAM demand to surge. According to DRAMeXchange’s analysis, the global average sales price of mobile DRAM will fall just 3% in the third quarter versus the prior quarter. If DRAM suppliers’ sales strategies for the period were successful, then the profitability of the entire DRAM industry will start to improve.”


Flat Panels in Short Supply

Flat panels in all sizes are in short supply for the first time in 20 years, amid production adjustments by panel makers and a surging demand in the market, Innolux Corp Chairman Wang Jyh-chao said.

“Panels for smartphones, notebook computers and televisions are all in shortage. The situation will extend to the end of next quarter,” Wang commented.

Wang said the industry in May saw short supply in panels for televisions and later witnessed a similar supply-demand dynamic for the small panels for smartphones and notebooks, after Samsung Display Inc, LG Display Co and Japan Display Inc (JDI) shut down their production lines.


White-box tablet shipments are expected to grow 30% h/h to 39 million units in 2H’16 - Digitimes Research

Shipments of white-box tablets are expected to reach 39 million units in the second half of 2016, a 30% increase compared to those shipped in the first half of the year, buoyed by to an easing in component supplies and pricing, according to Digitimes Research.


U.S. 2Q’16 GDP Growth 1.1% (Chart 23)

Gross domestic product expanded at a revised 1.1% annual rate in 2Q’16. That was slightly down from the 1.2% rate reported last month.


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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