Based upon “almost complete” results for August sales of Taiwan-listed companies, many of which manufacture in China:
- Electronic equipment sales in August 2016 were down 0.4% compared to August 2015 but up sequentially 5.6% compared to July 2016 (Chart 1).
- ODM sales in August 2016 were up 0.8% vs. August 2015 and up 5% sequentially from July 2016 (Chart 2).
- Wafer foundry sales surged to a record high (Chart 3).
- Passive component (Chart 4) and printed circuit board (Chart 5) August revenues were unseasonably strong.
- CCL rigid laminate sales rose significantly (Chart 6).
Source: Company financial reports
2016 & 2017 Supply Chain Forecasts
Charts 7 & 8 summarize recent supply chain global growth forecasts for GDP, electronic equipment, PCBs, semiconductors and semiconductor capital equipment.
Source: Henderson Ventures, Custer Consulting Group, www.wsts.org, www.SEMI.org
Global Semiconductor Sales Rebound in July (Charts 9-14)
Month-to-month increase of 3% is global markets largest in nearly three years; sales remain behind last year’s pace.
The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $27.1 billion for the month of July 2016, an increase of 2.6% compared to the previous month’s total of $26.4 billion. July marked the global market’s largest month-to-month sales increase since September 2013, though sales were down 2.8% compared to the July 2015 total of $27.9 billion. Underscoring the welcome uptick, month-to-month sales increased in all regional markets for the first time since October 2015. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.
“The modest increase in global semiconductor sales in July was the global market’s largest month-to-month growth in nearly three years, an encouraging sign of potentially stronger sales during the remainder of 2016 and beyond,” said John Neuffer, president and CEO, Semiconductor Industry Association. “After months of lagging sales, the Americas region was a bright spot in July, posting 3.3% growth to lead all regional markets. Meanwhile, most major semiconductor product categories saw increased sales in July compared to the previous month, with DRAM leading the way with 7.1% growth.”
“As Congress returns to Washington this week, we urge policymakers to work together to advance initiatives that promote growth and innovation in the semiconductor industry and throughout the U.S. economy,” Neuffer said. “One such measure is the Trans-Pacific Partnership (TPP), a landmark agreement that would tear down barriers to trade with Pacific-Rim countries. Congress should do what’s right for U.S. businesses, consumers, and our economy and approve the TPP.”
Custer Consulting Group growth estimate in Chart 11
Global Semiconductor Fab Equipment Spending expected to increase 4.1% y/y to $37.5 billion in 2016 and another 10.6% to $41.4 billion in 2017 (Chart 15)
Expect 4% growth (YoY) for 2016 and 11% for 2017
SEMI published its August update of the World Fab Forecast report, which shows increased equipment spending, reaching 4.1% year-over-year in 2016 and 10.6% in 2017. The report has served the industry for 24 years, observing and analyzing spending, capacity, and technology changes for all front-end facilities worldwide, from high-volume to R&D fabs.
The largest growth drivers for the industry are mobile devices (including devices using SSDs), automotive, and soon anticipated to be IoT, with these applications frequently requiring 3D NAND and Logic 10nm/7nm.
The SEMI World Fab Forecast report indicates that the two industry segments leading to the biggest increase in 2H16 are Foundry (29%) and Memory (21%). Growth in Memory is driven by a significant increase in 3D NAND spending in 2016. Comparing 2016 to 2017, Foundry growth remains steady, with a 14% increase in 2016 and 13% in 2017.
Comparing spending by region in 2016, SE Asia shows the largest growth, with 157% in 2016, driven mainly by 3D NAND. China, in second place for overall spending, shows 64% growth for 2016 primarily due to 3D NAND by non-Chinese companies, closely followed by Foundry companies. Although the largest spenders in China currently are overseas device companies, China-based chipmakers are starting to pick up investment activity.
By contrast, the largest growth rate in 2017 is in Europe/Mideast with about 60%, which is mainly due to ramping of 10nm facilities. Korea is in second place for total spending, mainly driven by Samsung’s investment in DRAM and Flash. Japan in third place driven by Flash Alliance (3D NAND).
Total IoT Semiconductor Sales expected to rise 19% in 2016 to $18.4 billion with a 19.9% CAGR between 2014 and 2019 (Chart 16)
- IC Insights updates semiconductor outlook for Internet of Things
- Lower sales projections for connected cities leads to reduced semiconductor IoT market forecast.
Global growth in the number of “things” connected to the Internet continues to significantly outpace the addition of human users to the World Wide Web. New connections to the “Internet of Things” are now increasing by more than 6x the number of people being added to the “Internet of Humans” each year. Despite the increasing number of connections, IC Insights has trimmed back its semiconductor forecast for Internet of Things system functions over the next four years by about $1.9 billion, mostly because of lower sales projections for connected cities applications (such as smart electric meters and infrastructure). Total IoT semiconductor sales are still expected to rise 19% in 2016 to $18.4 billion, as shown in Figure 1, but the updated forecast first presented in the Update to the 2016 IC Market Drivers Report reduces the market’s compound annual growth rate between 2014 and 2019 to 19.9% compared to the original CAGR of 21.1%. Semiconductor sales for IoT system functions are now expected to reach $29.6 billion in 2019 versus the previous projection of $31.1 billion in the final year of the forecast.
The most significant changes in the new outlook are that semiconductor revenues for connected cities applications are projected to grow by a CAGR of 12.9% between 2014 and 2019 (down from 15.5% in the original forecast) while the connected vehicles segment is expected to rise by a CAGR of 36.7% (up from 31.2% in the previous projection). IoT semiconductor sales for connected cities are now forecast to reach $15.7 billion in 2019 while the chip market for connected vehicle functions is expected to be $1.7 billion in 2019, up from the previous forecast of $1.4 billion.
For 2016, revenues of IoT semiconductors used in connected cities applications are expected to rise 15% to about $11.4 billion while the connected vehicle category is projected to climb 66% to $787 million this year.
Sales of IoT semiconductors for wearable systems have also increased slightly in the forecast period compared to the original projection. Sales of semiconductors for wearable IoT systems are now expected to grow 22% to about $2.2 billion in 2016 after surging 421% in 2015 to nearly $1.8 billion following Apple’s entry into the smartwatch market in 2Q’15. The semiconductor market for wearable IoT applications is expected to be nearly $3.9 billion in 2019. Meanwhile, the forecast for IoT semiconductors in connected homes and the Industrial Internet categories remains unchanged. The connected homes segment is still expected to grow 26% in 2016 to about $545 million, and the Industrial Internet chip market is forecast to increase 22% to nearly $3.5 billion. The semiconductor forecast for IoT connections in the Industrial Internet is still expected to grow by a CAGR of 25.7% to nearly $7.3 billion in 2019 from $2.3 billion in 2014.
Wearable Device Shipments grew 26.1% y/y to 22.5 million Wearable Devices in 2Q’16 (Chart 17)
Basic Wearables Soar and Smart Wearables Stall as Worldwide Wearables Market Climbs 26.1% in the Second Quarter, According to IDC
Shipments of wearable devices reached 22.5 million in the second quarter of 2016 (2Q’16) according to the International Data Corporation (IDC) Worldwide Quarterly Wearable Device Tracker. Despite a decline in shipments for one of the largest vendors, the overall market for wearable devices grew 26.1% year over year as new use cases are slowly starting to emerge.
“Fitness is the low-hanging fruit for wearables,” said Jitesh Ubrani, senior research analyst for IDC Mobile Device Trackers. “However, the market is evolving and we're starting to see consumers adopt new functionality, such as communication and mobile payments, while enterprises warm to wearables' productivity potential.”
While the overall wearables market grew during 2Q’16, its two categories traveled at different speeds and directions. Basic wearables (devices that do not support third party applications) grew 48.8% from 2Q’15 levels while smart wearables (devices that support third party applications) declined 27.2% year-over-year.
“Basic wearables, which include most fitness trackers, have benefited from a combination of factors: a clear value proposition for end-users, an abundant selection of devices from multiple vendors, and affordable price points,” said Ramon Llamas, research manager, Wearables. “Consequently, basic wearables accounted for 82.8% of all wearable devices shipped during the quarter, and more vendors continue to enter this space. The danger, however, is that most devices end up being copycats of others, making it increasingly difficult to differentiate themselves in a crowded market.”
“Smart wearables, meanwhile, are still struggling to find their place in the market,” added Llamas. "There is plenty of curiosity about what smart wearables – particularly smartwatches – can do, but they have yet to convince users that they are a must-have item. The good news is that smart wearables are still in their initial stages and vendors are slowly making strides to improve them. But this also means that it will be a slow transition from basic wearables to smart wearables.”
Fitbit's dominance remains unchallenged for now as the company's name is synonymous with fitness bands. The latest Charge 2 and Flex 2 are indicative that the company is growing up, giving form and function equal importance. Fitbit's recent acquisition in the mobile payments arena should also help ensure success in the longer term.
Xiaomi Mi Bands remain extremely popular in China. In every technology market, Xiaomi has focused on the value conscious consumers, and that trend continues. The recent launch of the Mi Band 2 includes heart rate tracking and still maintains a price below $20 USD. The challenge for Xiaomi, however, is growing beyond China's borders and onto the global stage.
Apple was the only vendor among the market leaders to post a year-over-year decrease in shipment volumes, primarily because it did not launch a new model on the anniversary of its first generation Watch. 2Q’16 was the first full quarter of Apple's reduced price strategy on the Sport model, which slightly helped the company rebound from its post-holiday slump.
Garmin's vertical integration and constant expansion of the ConnectIQ app store have allowed the company to slowly expand its channel presence and gain consumer mindshare. While it remains focused on fitness enthusiasts and athletes, the latest design of the Fenix Chronos will certainly help broaden its appeal to the masses.
This is the first time Lifesense has broken into the top five on the strength of by its low-cost Mambo fitness trackers shipping into China. It also connects with WeChat, an immensely popular messaging service in China, to share data with others without having to log into a separate application.
- Vendor shipments are branded device shipments and exclude OEM sales for all vendors.
- The "Vendor" represents the current parent company (or holding company) for all brands owned and operated as a subsidiary.
China Smartphone Vendors Face High Inventory Levels (Chart 18)
China-based smartphone vendors have become more conservative about placing orders for parts and components for the fourth quarter of 2016 due to concerns of rising inventory levels and uncertainty due to competition, according to Taiwan-based supply chain makers.
China's smartphone vendors have seen their inventory levels continue building up in the domestic and overseas markets as they have been striving to maintain market share under fierce competition said the sources.
Current inventories for entry-level smartphones are particularly higher in China as most vendors, including Huawei, Oppo, Vivo, Xiaomi Technology, Meizu, Gionee and LeEco have been introducing more entry-level models to ramp up sales as well as market share, said the sources.
Apple is expected to see its market share in China and other markets rebound in the fourth quarter thanks to the release of the iPhone 7-series, which in turn will add more pressure on China-based vendors, commented the sources.
China's Export Machine is Grabbing More of the Global Market
- Nation’s rising share risks fanning tensions over global trade
- China takes ‘drubbing’ at G-20 meet over steel exports
- China is eating up a larger chunk of the world’s shrinking trade pie
Brushing off rising wages, a shrinking workforce and intensifying competition from lower cost nations from Vietnam to Mexico, China’s global export share climbed to 14.6% last year from 12.9% a year earlier. That’s the highest proportion of world exports ever in International Monetary Fund data going back to 1980.
Yet even as its export share climbs globally, manufacturing’s slice of China’s economy is waning as services and consumption emerge as the new growth drivers. For the global economy, a slide in China’s exports this year isn’t proving any respite as an even sharper slump in its imports erodes a pillar of demand.
Those trends are likely to be replicated in August data due Thursday. Exports are estimated to fall 4% from a year earlier and imports are seen dropping 5.4%, leaving a trade surplus of $58.85 billion, according to a recent survey of economists by Bloomberg News.
While China’s advantage in low-end manufacturing has been seized upon by Donald Trump’s populist campaign for the U.S. presidency, the shift into higher value-added products from robots to computers is also pitting China against developed-market competitors from South Korea to Germany. A weaker yuan risks exacerbating global trade tensions, which became a hot button issue at the G-20 meeting in Hangzhou over cheap steel shipments.
“All the talk we have heard over the last few years about China losing its global competitive advantage is nonsense," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. "This will all further fuel increasing trade tensions as already evident in the U.K. with the Brexit vote and in the U.S. with the support for Trump's populist protectionist platform.”