2016 finished stronger than it began:
- Both the China (Chart 1) and Taiwan (Chart 2) Purchasing Managers Indices closed in expansion territory (PMI>50).
- A group of 101Taiwan-listed OEMs (many of which manufacture in China) saw sales decline 4% (in NT$) for total 2016 versus 2015 (Chart 3). However their combined December 2016 sales were up 5.3% compared to December 2015.
- Similarly a group of 11 Taiwan-listed ODMs (Chart 4) reported a 1.6% revenue decline in total 2016 versus total 2015 but a December 2016/December 2015 monthly sales increase of 2.5%.
- OEM growth has slowed significantly (Chart 5). Compare the large double digit percentage increases of a decade ago to an actual contraction in 2016.
- Chart 7 compares 2016 to 2015 sales for a group of large ODMs. In this chart the revenues have been converted from NT$ to US$ at the average 2016 exchange rate.
- Display revenues increased throughout 2016 (Chart 7).
- Semiconductor shipment growth to Asia (excluding Japan) was strong through November but in excess of electronic equipment growth suggesting that over ordering or inventory building was occurring (Chart 8).
- Wafer foundry sales dropped sharply in December (Chart 9) suggesting that semiconductor shipments will also soon drop.
- Package and test revenues were flat sequentially from November (Chart 10) as were passive component sales (Chart 11).
- Memory sales improved in December (Chart 12).
- Solar/photovoltaic suppliers revenues rebounded late in 2016 (Chart 13).
- Rigid and flex printed circuit board sales declined 0.9% in 2016 versus 2015 (Chart 14) as CCL (rigid laminate) sales mirrored rigid PCB sales (Chart 15).
- A composite PMI-based leading indicator points to further PCB growth (seasonally adjusted) in early 2017 (Chart 16).
Source: Company financials analyzed by Custer Consulting Group.
November European data have just been released:
- As noted last month Markit Economics’ Eurozone December PMI reached a 59-month high (Chart 17).
- Industrial production rose in the Eurozone as a whole as well as in Germany, France, Italy and the UK (Chart 18).
- Eurozone 28 electronic equipment production is at a record high although the strange January 2015 “blip” remains concerning (Chart 19).
- Motor vehicle production has been effectively flat since mid-2016 (Chart 20) however aerospace sales continue to rise (Chart 21), presumably helped by the weak euro.
- Instrument and appliance demand remains good (Chart 22) but medical electronics sales continue to be erratic (Chart 23).
- Semiconductor shipment growth to Europe is “in sync” with electronic equipment growth when both are denominated in euros (Chart 24).
- Electronic assembly (loaded board) production rose slightly from October to November (Chart 25) and wiring device (PCB) production remained strong (Chart 26).
- The European PMI leading indicator points to continued PCB growth ahead (Chart 27).
Chart 28 summarizes the annualized (12/12) and 3-month (3/12) growth of the European electronic supply chain through November 2016.
Source: Eurostat data analyzed by Custer Consulting Group.
Worldwide Semiconductor Capital Spending Forecast to Grow 2.9% in 2017 (Chart 29)
Worldwide semiconductor capital spending is projected to increase 2.9% in 2017, to $69.9 billion, according to Gartner, Inc. This is down from 5.1% growth in 2016.
"The stronger growth in 2016 was fueled by Increased spending in late 2016 which can be attributed to a NAND flash shortage which was more severe in late 2016 and will persist though most of 2017. This is due to a better-than-expected market for smartphones, which is driving an upgrade of NAND spending in our latest forecast," said David Christensen, senior research analyst at Gartner. "NAND spending increased by $3.1 billion in 2016 and several related wafer fab equipment segments showed stronger growth than our previous forecast. The thermal, track and implant segments in 2017 are expected to increase 2.5%, 5.6% and 8.4%, respectively.
Compared with early 2016, the semiconductor outlook has improved, particularly in memory, due to stronger pricing and a better-than-expected market for smartphones. An earlier-than-anticipated recovery in memory should lead to growth in 2017 and be slightly enhanced by changes in key applications.
Foundries continue to outgrow the overall semiconductor market with mobile processors from Apple, Qualcomm, MediaTek and HiSilicon as the demand driver on leading-node wafers. In particular, fast 4G migration and more-powerful processors have resulted in larger die sizes than previous-generation application processors, requiring more 28 nanometer (nm), 16/14 nm and 10 nm wafers from foundries. Non-leading technology will continue to be strong from the integrated display driver controllers and fingerprint ID chips and active-matrix organic light-emitting diode (AMOLED) display driver integrated circuits (ICs).
Memory Market Poised for Strongest Annual Growth through 2021 (Chart 30)
Solid upside potential for DRAM, flash memory markets in 2017 and much of forecast period.
Sales of memory ICs are expected to show the strongest growth rate among major integrated circuit market categories during the next five years, according to IC Insights which forecasts that revenues for memory products — including DRAMs and NAND flash ICs — will increase by a compound annual growth rate (CAGR) of 7.3% to $109.9 billion in 2021 from $77.3 billion in 2016.
The 2017 McClean Report separates the total IC market into four major product categories: analog, logic, memory, and microcomponents. Chart 30 shows the forecasted 2016-2021 CAGRs of the four major IC product categories compared to the projected total IC market annual growth rate of 4.9% during the five-year period. As shown, the memory IC category is forecast to show the strongest growth rate through 2021 while the weakest increase is expected to occur in the logic category, which includes general-purpose logic, ASICs, field-programmable logic, display drivers, and application-specific standard products.
The strong memory CAGR is driven by surging low-power memory requirements for DRAM and NAND flash in portable wireless devices like smartphones and by growing demand for solid-state drives (SSD) used in big-data storage applications and increasingly in notebook computers. Moreover, year-over-year DRAM bit volume growth is expected to increase throughout the forecast to support virtualization, graphics, and other complex, real-time workload applications.
Analog ICs, the second-fastest growing segment, are a necessity within both very advanced and low-budget systems. Power management analog devices are critical for helping extend battery life in portable and wireless systems and have demonstrated strong market growth in recent years. In 2017, the signal conversion market is forecast to be the fastest growing analog IC category, and the second-fastest growing IC product category overall, trailing only the market growth of 32-bit MCUs.
Total microcomponent sales have cooled significantly. Fortunately, marginal gains in the cellphone MPU market and strong gains in the 32-bit MCU market have helped offset weakness of standard PC and tablet microprocessor sales.
3D Printing spending is forecast to grow at 22.3% CAGR globally from $13.2 billion in 2016 to nearly $29 billion in 2020
Worldwide purchases of 3D printers, materials, software, and related services are expected to total $13.2 billion in 2016. According to International Data Corporation (IDC), global spending on 3D printing will experience a five-year compound annual growth rate (CAGR) of 22.3% with revenues reaching $28.9 billion in 2020.
Discrete Manufacturing is the dominant industry for 3D printing, delivering more than two thirds of all worldwide revenues through much of the forecast. And while all the industries examined in the Spending Guide will experience revenue growth of more than 100% over the forecast period, Healthcare will leap from the number five position in 2016 to the number two spot in 2020 with revenues growing to more than $3.1 billion. This move will be driven by strong investments from healthcare providers in both the United States and Western Europe.
"Thanks to the broader variety of 3D printers and materials that can be used, and also to lower prices, 3D printing is becoming more sophisticated and devoted to newer uses. In addition, existing use cases are increasing their market share." said Carla La Croce, research analyst, Customer Insights and Analysis. "For example: dental printing is growing rapidly with the prospect of reaching one of the highest market shares in the near future (around 15% in 2020), as well as 3D printing for medical implants and devices (nearly 13% in 2020). Moreover, the 3D revolution is discovering new market niches, and new uses will arise in the future. IDC identifies the healthcare sector as the one with the highest growth potential."
The use cases that will generate the largest revenues for 3D printing in 2016 are Automotive Design – Rapid Prototype Printing (more than $3.9 billion) and Aerospace and Defense Parts Printing (nearly $2.4 billion). Tools and Component Printing will also emerge as a significant market in 2016. By 2020, Dental Printing will become a strong challenger for the number 3 position in terms of worldwide revenues while Medical Implant and Device Printing, Product Creation and Prototype Printing, and Prosthetics Printing will each generate worldwide revenues of more than $1 billion.
Fifth Consecutive Year of Worldwide PC Shipment Decline (Charts 31-34)
Worldwide PC shipments totaled 72.6 million units in the fourth quarter of 2016, a 3.7% decline from the fourth quarter of 2015, according to preliminary results by Gartner, Inc. For the year, 2016 PC shipments totaled 269.7 million units, a 6.2% decline from 2015. PC shipments have declined annually since 2012.
"Stagnation in the PC market continued into the fourth quarter of 2016 as holiday sales were generally weak due to the fundamental change in PC buying behavior," said Mikako Kitagawa, principal analyst at Gartner. "The broad PC market has been static as technology improvements have not been sufficient to drive real market growth. There have been innovative form factors like 2-in-1s and thin and light notebooks, as well as technology improvements, such as longer battery life. This end of the market has grown fast, led by engaged PC users who put high priority on PCs. However, the market driven by PC enthusiasts is not big enough to drive overall market growth."
"There is the other side of the PC market, where PCs are infrequently used. Consumers in this segment have high dependency on smartphones, so they stretch PC life cycles longer. This side of the market is much bigger than the PC enthusiast segment; thus, steep declines in the infrequent PC user market offset the fast growth of the PC enthusiast market."
Kitagawa said that although the overall PC market will see stagnation, there are growth opportunities within the market, such as the engaged PC user market, the business market and gaming. However, these growth areas will not prevent the overall decline of the PC market, at least in the next year.
In the U.S., PC shipments totaled 16.5 million units in the fourth quarter of 2016, a 1.3% decline from the fourth quarter of 2016. Five of the top six vendors in the U.S. PC market experienced a shipment increase in the fourth quarter of 2016. However, this was offset by a 20.9% decline in the Others category, and a 48.3% decline in shipments by Asus.
"Similar to low-key back to school sales in 3Q’16, big sales events, such as Black Friday, Cyber Monday and holiday sales are no longer effective marketing opportunities for PCs since PC purchases are generally driven by a 'need,' rather than 'want,' motivation," Kitagawa said.
"PCs are not a preferred gift item any longer, as consumers gravitate toward other consumer electronics, such as virtual personal assistant (VPA) speakers, virtual reality (VR) head-mounted devices, and wearables. Vendors and channels did not have high expectations for the holiday PC sales, so the marketing campaigns remained relatively quiet."
PC shipments in EMEA surpassed 21.9 million units in the fourth quarter of 2016, a 3.4% decline year over year. PC shipments to the consumer market were driven by good Black Friday sales in Western European countries, such as the U.K. and France, especially on traditional notebooks, ultramobile clamshells, the hybrid form factor and gaming PCs. Gartner's early estimates also show PC shipment growth in the business segment, led by Windows 10 deployments during the fourth quarter.
The Asia/Pacific PC market totaled 24.8 million units in the fourth quarter of 2016, a 3.9% decline from the fourth quarter of 2015. The PC market was affected by two major events. First, the demonetization of the Indian currency in India led to weaker-than-expected consumer PC demand. Second, the success of China's 11.11 (Singles Day on 11 November) online shopping event gave a boost to consumer notebook sales.
For the year, worldwide PC shipments totaled 269.7 million units in 2016. 2016 shipment totals were at the same levels as shipments in 2007. Market consolidation escalated in 2016 as the top three vendors (Lenovo, HP and Dell) accounted for 54.7% of worldwide PC shipments in 2016, up from 51.5% in 2015.
Worldwide IT Spending Forecast to Grow 2.7% in 2017 (Chart 35)
Worldwide IT spending is projected to total $3.5 trillion in 2017, a 2.7% increase from 2016, according to Gartner, Inc. However, this growth rate is down from earlier projections of 3%.
"2017 was poised to be a rebound year in IT spending. Some major trends have converged, including cloud, blockchain, digital business and artificial intelligence. Normally, this would have pushed IT spending much higher than 2.7% growth," said John-David Lovelock, research vice president at Gartner. "However, some of the political uncertainty in global markets has fostered a wait-and-see approach causing many enterprises to forestall IT investments."
The Gartner Worldwide IT Spending Forecast is the leading indicator of major technology trends across the hardware, software, IT services and telecom markets. For more than a decade, global IT and business executives have been using these highly anticipated quarterly reports to recognize market opportunities and challenges, and base their critical business decisions on proven methodologies rather than guesswork.
Worldwide devices spending (PCs, tablets, ultramobiles and mobile phones) is projected to remain flat in 2017 at $589 billion). A replacement cycle in the PC market and strong pricing and functionality of premium ultramobiles will help drive growth in 2018. Emerging markets will drive the replacement cycle for mobile phones as smartphones in these markets are used as a main computing device and replaced more regularly than in mature markets.
The worldwide IT services market is forecast to grow 4.2% in 2017. Buyer investments in digital business, intelligent automation, and services optimization and innovation continue to drive growth in the market, but buyer caution, fueled by broad economic challenges, remains a "The range of spending growth from the high to low is much larger in 2017 than in past years. Normally, the economic environment causes some level of division, however, in 2017 this is compounded by the increased levels of uncertainty," said Mr. Lovelock. "The result of that uncertainty is a division between individuals and corporations that will spend more — due to opportunities arising — and those that will retract or pause IT spending."
For example, aggressive build-out of cloud computing platforms by companies such as Microsoft, Google and Amazon is pushing the global server forecast to reach 5.6% growth in 2017. This was revised up 3% from last quarter's forecast and is sufficient growth to overcome the expected 3% decline in external controller-based storage and allow the data center systems segment to grow 2.6% in 2017.
Worldwide Cloud IT infrastructure products for cloud IT grew 8.1% y/y to $8.4 billion in 3Q’16, Led by High Growth in Networking Equipment (Charts 36 & 37)
According to the International Data Corporation (IDC) vendor revenue from sales of infrastructure products (server, storage, and Ethernet switch) for cloud IT, including public and private cloud, grew by 8.1% year over year to $8.4 billion in the third quarter of 2016 (3Q’16). Ethernet switch continues to be the growth leader, as the market awaits new hyperscale datacenter builds to spur additional growth.
The overall share of cloud IT infrastructure sales climbed to 39.2% of all IT infrastructure spending in 3Q’16, up from 34.7% a year ago. Revenue from infrastructure sales to private cloud grew by 8.2% to $3.3 billion and to public cloud by 8.0% to $5.1 billion. In comparison, revenue in the traditional (non-cloud) IT infrastructure segment decreased 10.8% year-over-year in the third quarter. Private cloud infrastructure growth was led by Ethernet switch at 60.8% year-over-year growth, followed by storage at 9.0%, and server at 3.2%. Public cloud growth was also led by Ethernet switch at 46.2% year-over-year growth, followed by server at 6.8% storage at 3.0% year over year. In traditional IT deployments, server declined the most (12.9% year over year) with Ethernet switch and storage declining 1.6% and 8.6%, respectively.
"New cloud datacenters have begun to launch, but in the third quarter the effect on the cloud IT infrastructure market was minimal," said Kuba Stolarski, research director for Computing Platforms at IDC. "As network upgrades continue to prop up cloud growth overall, the hyperscale cloud datacenters are coming and they will drive new server and storage deployments over the next few quarters. Recently, there has been renewed strength in emerging markets and among smaller cloud service providers. As OpenStack has become easier to implement and maintain by a growing population of capable system administrators, private cloud options are becoming more viable in an increasing set of use cases and with a wider set of deployment parameters."
From a regional perspective, vendor revenue from cloud IT infrastructure sales grew fastest in Middle East & Africa at 36.7% year-over-year in 3Q’16, followed by Japan at 29.9%, Latin America at 21.7%, Western Europe at 16.8%, Asia/Pacific (excluding Japan) at 11.9%, Canada
Korea estimated to spend US$9.7 billion on semiconductor equipment in 2017; forecasted to spend almost US$7.3 billion on semiconductor fab and packaging materials (Chart 38)
Thirty years ago, Korea represented a small fraction of the global semiconductor manufacturing base. Today, Korea represents the most leading-edge memory and logic manufacturing, as well as advanced packaging, in the world. Some key facts and observations include:
- Companies in Korea are estimated to spend US$9.7 billion on equipment in 2017
- Companies are forecasted to spend almost US$7.3 billion on semiconductor fab and packaging materials
- Korea has almost 20% of the installed semiconductor fab manufacturing capacity worldwide (source: SEMI World Fab Forecast).
- Fab capacity in Korea is estimated to capture over 25% share of the global 300mm fab manufacturing capacity.
Over the past five years, more than US$70 billion has been spent in Korea on semiconductor equipment and materials with another US$17 billion in total forecasted to be spent in 2017.
With such spending and investment, Korea's position in semiconductor industry has been strengthening in terms of its size and quality, and this has extended to include the supply chain companies in Korea. According to the Korean Semiconductor Industry Association (KSIA), Korean equipment, material, and component/subsystem companies are important players in the global market supplying the semiconductor, FPD, PV and other related microelectronic industries. Based on the KSIA’s 2015 market analysis, the size of the Korea suppliers are estimated as follows: