Weekly Global Update for October 5, 2016

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

The U.S. Department just released its Durable Goods report for August:

• The August electronic equipment book/bill remained in growth territory at 1.025 on a 3-month average basis (Chart 1).
• Both the 3/12 growth of electronic equipment orders and shipments increased (Chart 2) although actual orders and shipments were sequentially flat from July (Chart 3).
• Electronic equipment inventories relative to orders continued to decline (Chart 4).
• Defense capital goods orders rose (Chart 5).
• Non-defense aircraft and parts shipments declined from July but defense-related aircraft shipments rose (Chart 6). Non-defense aircraft orders declined and defense aircraft orders rose (Chart 7).
• Communication equipment orders and shipments increased slightly (Chart 8) but demand for U.S. made computer gear continued to shrink (Chart 9).

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

Asian September PMI Data (Charts 10 & 11)

Chart 10 summarizes the PMI (leading indicator) values that ISM Markit Economics just released for September. Values greater than 50 indicate a manufacturing expansion.

The PMIs for China, Taiwan, Japan, Vietnam and Indonesia were improved while those for South Korea and Thailand dropped further into contraction territory.

China September Manufacturing PMI Signals Very Little Growth

China Manufacturing output expands only slightly in September

Key Points

• Total new business rises marginally, as new export work stabilizes
• Job shedding eases but remains marked
• Inflationary pressures show signs of picking up

Commenting on the China General Manufacturing PMI data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

“The Caixin China General Manufacturing PMI for September (Chart 11) edged up slightly from the August level to 50.1, above the neutral 50-point level separating expansion from contraction. The index readings for new orders and stocks of purchases improved from the previous month while the reading for output slipped, but remained in expansion territory.

The readings for the manufacturing PMI over the past three months seem to indicate that the economy has begun to stabilize. But given that the growth rate of fiscal income has slowed recently while expenditures have swung, there is insufficient momentum to drive future economic growth, and there is a risk that industrial output may decline.”

Source: www.markiteconomics.com

North America PCB Orders & Shipments in August 2016 (Charts 12-14)

IPC announced the August 2016 findings from its monthly North American Printed Circuit Board Statistical Program. Due to the month’s positive order growth and negative sales growth, the book-to-bill ratio returned to positive territory and stands at 1.02.

Total North American PCB shipments in August 2016 were 4.1% below the same month last year. Year-to-date as of August, however, shipment growth remains positive at 4.2%. Compared to the preceding month, August shipments declined 3.1%.

PCB bookings in August increased 2.4% year-on-year, but this growth was not enough to bring year-to-date bookings back to positive territory. Year-to-date bookings as of August registered -0.7% growth. Compared to the previous month, however, orders in August 2016 increased sharply, by 37.1%.

“A year-on-year decrease in August sales growth for the North American PCB industry, combined with a modest year-on-year increase in orders, contributed to a return to positive territory for the industry’s book-to-bill ratio,” said Sharon Starr, IPC’s director of market research. “Growth rates for different segments of the industry continue to be mixed,” she added, “with some extreme differences between rigid PCB and flexible circuit producers.”

Source: www.ipc.org

Custer comment: Per Chart 15 Custer Consulting Group’s North American PCB leading index (tailored for printed circuit boards) points to minimal domestic PCB shipment growth near term.

Connected Car Production forecast to reach 12.4 million in 2016 and increase to 61 million in 2020 (Chart 16)

Connected Cars to Introduce a New Era of Smart Mobility

Connected car production is growing rapidly in both mature and emerging automobile markets, according to the latest forecast by Gartner, Inc. The production of new automobiles equipped with data connectivity, either through a built-in communications module or by a tether to a mobile device, is forecast to reach 12.4 million in 2016 and increase to 61 million in 2020.

Gartner defines the connected car as an automobile that is capable of bidirectional wireless communication with an external network for the purpose of delivering digital content and services, transmitting telemetry data from the vehicle, enabling remote monitoring and control, or managing in-vehicle systems.

“The connected vehicle is the foundation for fundamental opportunities and disruptions in the automotive industry and many other vertical industries,” said James Hines, research director at Gartner. “Connected vehicles will continue to generate new product and service innovations, create new companies, enable new value propositions and business models, and introduce the new era of smart mobility, in which the focus of the automotive industry shifts from individual car ownership to a more service-centric view of personal mobility.”

Connected car technology will create opportunities for automakers to generate postsale profits through sales of additional services and feature upgrades, as well as enhance brand loyalty through a more personalized customer experience. It will also enable innovations in adjacent businesses, such as insurance, car rentals, car- and ride-sharing services, and electric vehicle charging.

Gartner predicts that future connected car applications will drive a 150% increase in demand for contextual information, such as image detection and geolocation, from 2016 through 2020.

“As cars become more automated, they are being equipped with an increasing array of sensing technologies, including cameras and radar systems,” said Hines. “Many automobiles will use image detection as the primary means to identify and classify objects in the vicinity of the vehicle so they can provide more sophisticated responses and even have autonomous control.”

To become more automated, and also cleaner, automobiles will require five percent more embedded processing functions, year-over-year, from 2016 through 2020. Automated driving functions, such as adaptive cruise control, collision avoidance and lane departure warning systems, necessitate real-time camera and sensor data processing and pattern recognition. Improving fuel efficiency and reducing emissions necessitate sophisticated engine and transmission control systems.

Source: www.gartner.com

Worldwide Converged Systems Revenue increased 12.1% y/y to $2.9 billion in 2Q’16; Generated 1,693 petabytes of new Storage Capacity Shipments (Charts 17-19)

According to the International Data Corporation (IDC) the worldwide converged systems market increased revenue 12.1% year-over-year to $2.9 billion during 2Q’16. The market generated 1,693 petabytes of new storage capacity shipments during the quarter, which was up 31.8% compared to the same period a year ago.

“More and more, we are seeing end users looking beyond the hardware specs and performance metrics; end users in this market are looking for vendors that are adept at building and maintaining deep customer relationships,” said Kevin M. Permenter, senior research analyst, Computing Platforms. “Converged system vendors that are able to build these deep relationships with their customers are positioned for growth.”

Converged Systems Segments
IDC distinguishes between four product categories: Integrated Systems, Certified Reference Systems, Integrated Platforms, and Hyperconverged Systems.

Integrated Systems are pre-integrated, vendor-certified systems containing server hardware, disk storage systems, networking equipment, and basic element/systems management software.

Like integrated systems, Certified Reference Systems are pre-integrated, vendor-certified systems containing server hardware, disk storage systems, networking equipment, and basic element/systems management software. Certified reference systems, however, are designed with systems from multiple technology vendors.

Integrated Platforms are integrated systems that are sold with additional pre-integrated packaged software and customized system engineering optimized to enable such functions as application development software, databases, testing, and integration tools.

Hyperconverged Systems collapse core storage and compute functionality into a single, highly virtualized solution. A key characteristic of hyperconverged systems that differentiate these solutions from other integrated systems is their ability to provide all compute and storage functions through the same server-based resources.

During the second quarter of 2016, the combined Integrated Infrastructure and Certified Reference Systems markets generated revenues of $1.6 billion, which represented a year-over-year increase of 4.7% and 54.8% of the total market revenue. EMC was the largest supplier of the combined Certified Reference Systems and Integrated Infrastructure categories with $699.58 million in revenue, or 43.0% share of this market segment. Please note that all VCE product brands, which became the EMC Converged Platforms Division, are reported under EMC starting with the first quarter of 2016 – all historical data from 2012 to 2015 will remain under the VCE vendor.

Note: VCE product brands became the EMC Converged Platforms Division and are reported under EMC starting with the Q1 2016 quarter.

Integrated Platform revenue declined 3.5% year-over-year during the second quarter of 2016, generating $864.09 million in revenues. This amounted to 29.1% of the total market revenue. Oracle was the top-ranked supplier of Integrated Platforms in the quarter, generating revenues of $481.97 million and capturing a 55.8% share of the category.

Hyperconverged sales grew 137.5% year-over-year during the second quarter of 2016, generating $480.62 million in revenue. This amounted to 16.2% of the total market revenue. Please note the above hyperconverged systems revenues, like the other product categories listed here, exclude revenue from support and maintenance contracts.

IDC defines converged and hyperconverged systems as pre-integrated, vendor-certified systems containing server hardware, disk storage systems, networking equipment, and basic element/systems management software. Systems not sold with all four of these components are not counted within this tracker. Specific to management software, IDC includes embedded or integrated management and control software optimized for the auto discovery, provisioning and pooling of physical and virtual compute, storage and networking resources shipped as part of the core, standard integrated system.

Source: www.idc.com

U.S. 2Q’16 GDP growth revised up to +1.4%, Consumer Confidence at Highest Level since 2008 (Charts 20 & 21)

GDP, a measure of goods and services produced, expanded at an inflation-adjusted 1.4% seasonally adjusted annual rate in the second quarter, the Commerce Department said.

Separately The Conference Board reported that U.S. consumer confidence was at an 8-year high in September.

Source: www.bea.gov/national/
www.conference-board.org/