Japan Update

The Japanese yen weakened slightly vs. the U.S. dollar in October (Chart 1).

Source: http://research.stlouisfed.org/fred2/series/TWEXBMTH

The Japanese purchasing managers index leading indicator returned to expansion territory (PMI>50) in September (Chart 2).

Source: www.markiteconomics.com

JEITA just released Japanese August domestic production data for electronic equipment, components and devices:

  • Electronic equipment production in yen increased 6.2% in August 2016 vs August 2015 but was down 5.6% on a 3-month basis (June-Aug 2016 versus Jun-Aug 2015) (Charts 3 & 4)
  • Semiconductor shipments to Japan and Japanese domestic electronic equipment production are both declining at a slower rate but have not yet moved into positive territory (Chart 5).
  • Integrated circuit production (in yen) rose sharply in August but discrete semiconductor was little changed (Chart 6).
  • Passive component production is again increasing (Chart 7).
  • Device and component production are both contracting (3/12 <1) but their rate of contraction is slowing (Chart 8).
  • Printed circuit board output was little changed from July to August (Chart 9) but its rate of contraction may have reached a low point (Chart 10).
  • The PMI leading indicator points to continued PCB contraction but at a slower rate in coming months (Chart 11).

Source: www.jeita.or.jp/

World PCB Market Decreased 2.7% y/y (but increased 2.0% in real terms) to an estimated $58.6 billion in value in 2015

The world market for printed circuit boards (PCBs) reached an estimated $58.6 billion in value in 2015 according to IPC's World PCB Production Report for the Year 2015. This represents a nominal decrease of 2.7% from 2014, but factoring out the effects of exchange rate fluctuations, the growth of PCB output was actually up 2.0% in real terms.

According to the report, real growth in the value of PCB production in 2015 was up in most regions of the world in 2015. In the Americas, the industry experienced a decline with real growth of -2.7%. Asia now accounts for 91% of world PCB production. The world PCB market in 2016 is expected to continue experiencing slow growth in real terms.

Developed by a team of the world's leading PCB industry analysts, the annual study is the definitive source of PCB production data. It includes estimates of the value of PCB production in 11 product categories in each of the world's major PCB-producing countries and regions. Data within the report show that the worldwide flexible circuit growth far outpaced rigid PCB production, which decreased. The report also contains commentary on regional industry trends and historical data on PCB production worldwide.

“Generally slow growth in the worldwide electronics market is expected for the next few years, but some segments of the industry are outpacing others,” says Sharon Starr, IPC director of market research. “The markets for mobile devices and automotive electronics are seen as high-growth segments. These markets, along with the growing demand for interconnected devices and wearable electronics, are expected to keep the PCB industry growing faster than the economy.”

World PCB Production Report for the Year 2015 is available to IPC members for $475; the price for nonmembers is $950. For more information or to purchase the report, visit www.ipc.org/2015WorldPCB. For information on IPC market research programs, visit www.ipc.org/IndustryData or contact IPC’s market research team at +1 847-597-2868 or marketresearch@ipc.org.

Source: www.ipc.org

IC Market Forecast raised to 1% growth from negative 2% in 2016; IC unit volume shipment growth rate forecast increased from 4% to 6% (Chart 12)

Rebound in DRAM market helps raise outlook for total IC market.

IC Insights will release its October Update to the 2016 McClean Report later this week. This Update includes a review of IC Insights’ latest 2016 IC market forecast, an update on the rebounding DRAM market, and an extensive analysis of the optoelectronics, sensor/actuator, and discrete (O-S-D) markets. An excerpt from the October Update, describing the upgraded 2016 IC market forecast, is shown below.

IC Insights has raised its IC market forecast for 2016 by three percentage points from a 2% decline to a 1% increase and its 2016 IC unit volume shipment growth rate forecast from 4% to 6%. A large portion of this revision is due to a strengthening DRAM market.

Although the average third quarter sequential increase in the worldwide IC market since 2002 has been 8%, last year’s 3Q growth rate was barely positive with a meager 1% increase. However, 3Q16 results were slightly above the past 15-year average and posted a strong 9% jump. Moreover, with an anticipated increase of 1% next quarter, the total 4Q16 IC market is forecast to climb to $76.9 billion, a new quarterly record high, surpassing the previous high of $76.7 billion posted in Q4’14.

It should be noted that the average second half versus first half of the year growth rate in the IC market since 1990, including the forecast for 2016, is 8.9% (Figure 1). However, IC Insights is forecasting that the 2H16 IC market will be up 12.3% as compared to 1H16, a strong turnaround from the extremely poor second half result of -1.2% posted last year and the highest second half growth rate since 2009.

With expectations for slightly better worldwide GDP growth in 2017 as compared to 2016 and continued firming of both DRAM and NAND memory prices, IC Insights believes that the worldwide IC market will grow by 4% next year (IC Insights’ detailed 2016-2020 IC market forecast by product type will be presented in the November Update).

Source: www.ICInsights.com

North American Semiconductor Equipment Industry September 2016 Book/Bill=1.05 (Charts 13 & 14)

North America-based manufacturers of semiconductor equipment posted $1.60 billion in orders worldwide in September 2016 (3-month average basis) and a book-to-bill ratio of 1.05, according to SEMI.

SEMI reported that the 3-month average of worldwide bookings in September 2016 was $1.60 billion, 8.5% lower than August 2016 and 3.2% higher than the September 2015. The 3-month average of worldwide billings in September 2016 was $1.53 billion, 10.2% lower than August 2016 and 2.6% higher than the September 2015.

“Semiconductor equipment bookings continue to outpace equipment billings,” said Denny McGuirk, president and CEO of SEMI. “Year-to-date bookings and billings data are on trend to surpass last year's levels.”

Source: http://www.semi.org

Worldwide Notebook Shipments increased 8.6% q/q in 3Q’16

Worldwide notebook shipments (not including 2-in-1 devices) increased 8.6% sequentially in the third quarter thanks to growing demand from the enterprise sector, vendors preparing for the year-end holidays, and increasing Chromebook shipments. The third-quarter shipments were down 4.1% on year.

Hewlett-Packard (HP) surpassed Lenovo and became the largest notebook vendor worldwide in the third quarter thanks to its strong product lineup for 2016, which allows the company to achieve better-than-expected sales in both consumer and enterprise sectors. HP's shipments grew a double-digit percentage on year in the third quarter, Digitimes Research's figures show.

Lenovo was busy digesting its inventory in early third quarter and did not start placing meaningful orders until September, which impacted its overall third-quarter notebook shipments.

Dell and Asustek Computer, ranked third and fourth, respectively in the third quarter, saw their shipments grow at rates weaker than expected. Dell was outperformed by competitors in the consumer market, while Asustek was impacted by Kaby Lake's delay.

Acer was the fifth largest in the third quarter, followed by Apple in number six. Apple saw a delay in new notebook product launches.

As for ODMs, Quanta Computer's shipments were down from a quarter ago in the third quarter as its orders from HP were weaker than expected and Apple also placed less orders with Quanta. Compal Electronics saw its shipments in the third quarter grow strongly from the second quarter thanks to increased orders from Lenovo and US-based clients for the year-end holidays.

Wistron also enjoyed growing shipments in the third quarter thanks to orders from its US-based clients and shipped over five million notebooks in the quarter. Pegatron's shipments grew the highest among the top-5 ODMs and surpassed two million units.

Source: http://www.digitimes.com

Global Smartphone Production increased 10.4% q/q to 350 million units in 3Q’16

Global production of smartphones increased 10.4% sequentially to 350 million units in the third quarter of 2016, according to data released by TrendForce. The sequential growth is the highest for the year so far.

Source: www.digitimes.com

Worldwide Notebook Shipments expected to drop 7.2% y/y to less than 150 million units in 2016 and then decline 0.2% y/y to 146 million units in 2017

Worldwide notebook shipments are expected to drop 7.2% on year to reach less than 150 million units in 2016 because Microsoft's free Windows 10 upgrade program caused many consumers to postpone their new PC purchasing plans, while Apple's late releases of its new MacBooks will be another reason for the decline. But in 2017, Digitimes Research expects the decline to be much smaller at only 0.2% with shipments coming to around 146 million units.

Although the notebook market will still be impacted by several negative factors including a lack of new innovations and the rescheduled launch of Intel's Cannonlake processors, notebook shipments in 2017 will remain flat mainly thanks to demand from the enterprise sector. Since Intel's new processors including ones using Kaby Lake architecture are no longer supporting Windows 7, more enterprises will begin adopting Windows 10 for their PC systems and will trigger replacement demand.

For 2018, Digitimes Research expects the consumer sector to continue shrinking, while the enterprise sector will only see limited growths. Notebook shipments are expected to drop over 2% on year in both 2018 and 2019; however, after worldwide notebook shipments arrive at the level of 140 million units, the annual volume is expected to stay at around that level in future unless a new innovative product is introduced to stimulate new demand. Digitimes Research expects CAGR for worldwide notebook shipments from 2017-2021 to reach negative 0.9%.

Source: www.digitimes.com

China Networking Market Grew 27% y/y to US$60 million in 1H’16 (Charts 15 & 16)

China’s networking market expanded by 27% year-on-year in the first half of 2016, with over 80% of the gain going to Huawei and H3C, leading to a further increase in market concentration, according to IDC PRC Networking Quarterly Tracker, 2016Q2, a quarterly report released today.

China’s networking market is now an oligopoly, with growth driven be a few players as strong vendors get stronger.

“Network Products” refers to Ethernet switches, routers and wireless network products. It includes telco and enterprise network markets, but not consumer market. Calculations are based on vendors’ sales revenues.

China’s networking market grew by US$ 60 million in 2016 H1, the report shows. Huawei’s growth mainly came from telco router and enterprise network data center switch markets, while H3C derived its growth from the enterprise network switch and wireless markets. Thanks to the construction of cloud data centers and investment in broadband networks, the Internet, government and telco segments all grew rapidly, while other sectors performed steadily.

Steven Hu, Networking Market Research Manager at IDC China, remarked, “In their migration to the cloud, users no longer need just hardware but total solutions. The business model in the networking market has also gradually changed from hardware sales to service provision. Cloud networks represent a positive exploration on the way to SDN and a major innovation in future network development.”

Source: www.idc.com

Global IT Spending to expand 2.9% y/y to $3.5 trillion in 2017 (Chart 17).

Driven by growth in software and IT services revenue, worldwide IT spending is forecast to reach $3.5 trillion in 2017, up 2.9% from 2016 estimated spending of $3.4 trillion, according to the latest forecast by Gartner, Inc.

The bright spot for the IT industry has been the software and IT services segments. Software spending is projected to grow 6% in 2016, and it will grow another 7.2% in 2017 to total $357 billion. IT services spending is on pace to grow 3.9% in 2016 to reach $900 billion, and increase 4.8% in 2017 to reach $943 billion.

“The immediate impact of Brexit has caused modest growth in IT spending to turn negative for 2016,” said John-David Lovelock, research vice president at Gartner. “Without the U.K., global IT spending growth would have been modestly positive at 0.2% in 2016, but with the U.K. included, IT spending is expected to decrease 0.3%. The immediate impact of the British pound will also cause the IT spending patterns to shift as prices for IT will increase.”

Companies will be monitoring negotiations closely, and there will be some changes in IT investment. For example, in financial services, analysts expect to see some countries in Europe put more investment in IT to offer a more viable option for EU countries than the U.K.

“We see software and IT services spending in Germany and France increasing, while U.K. services stay relatively flat,” Lovelock said. "There are other countries, such as the Netherlands, Luxembourg and Ireland that are also increasing their IT spend to contend as a viable alternative to banks in the U.K. We are seeing examples of many banks in talks with these countries to examine the possibility of moving their operations outside of the U.K.”

With the U.S. presidential election three weeks away, Gartner analysts did not believe the pending election, or the winning candidate, will effect IT spending trends.

“We have also taken into account the U.S. presidential race, as well as a potential rate cut by the Federal Reserve. Typically, there is a slight pause in IT spending leading into the election, and then a relief in spending, subsequently. However, trends have shown that IT spending in the U.S. is not dependent on presidential leadership, so neither candidate should have a significant impact on IT spending in the near-term.”

Source: www.gartner.com

U.S Industrial Production Improves; Global IP Growth Generally is Rising

U.S. industrial output improved slightly in September, rising a seasonally adjusted 0.1% (Chart 18).
Globally most countries are experiencing increase industrial output (Chart 19).

Source: www.federalreserve.gov/releases/g17/table1_2.htm

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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