Global Electronic Supply Chain Growth by Sector

Many of the companies in our electronic supply chain survey have now reported their calendar 4Q’16 financial results. While the data are not yet complete we have a decent estimate of fourth quarter growth by product sector.

  • Electronic equipment sales grew an estimated 3.5 percent in 4Q’16 versus 4Q’15 (Chart 1) with the overall growth rate still increasing based on the expanding 3/12 rate in the fourth quarter (Chart 2).
  • Growth by sector (Chart 3) varies (with a few surprises as noted below).
  • Automotive equipment growth was up 8.6 percent (Chart 4) but its rate of growth slowed a bit as it 3/12 declined in per Chart 5.
  • Military electronics sales continued to contract globally (Chart 6) and the 3/12 (Chart 7) indicates that this decline accelerated in 4Q’16.
  • Instruments and control equipment revenues were down 2.4 percent (Chart 8) with the 12/12 (annualized) and 3/12 (3-month) growth in contraction (values below 1 in Chart 9).
  • Medical equipment sales were up 3.8 percent (Chart 10) but growth is slowing (declining 3/12 in Chart 11).
  • Communication equipment (Chart 12) was a pleasant surprise with +6.2% 4Q’16 growth thanks to strong fourth quarter smartphone shipments by Apple and the surging Chinese brands (see below). 3/12 growth is increasing (Chart 13).
  • Computer equipment (Chart 14) rose 4.5 percent in the fourth quarter of 2016 versus 2015 but this is a very preliminary estimate awaiting the fourth quarter financial results of HP and Dell. However the rising 3/12 (Chart 15) suggests some rebound in the computer market.
  • Data storage finally returned to at least some quarterly growth (Chart 17).
  • SEMI fab, assembly and test equipment (Chart 18) is in the “boom” portion (up 29 percent in 4Q’16 versus 4Q’15) of its recurring, highly volatile business cycle. Growth was continuing to accelerate (expanding 3/12) in the fourth quarter Chart 19.
  • Global passive component sales rose 9.1 percent (Chart 20).
  • For printed circuit board related process equipment (Chart 21), materials excluding laminate (Chart 22) and CCL PCB laminate per Chart 23 results varied by product. Due to significant laminate supply concerns caused by widespread copper foil shortages the laminate growth in Chart 23 may be “increased price” driven. Chart 24 shows the historical 3/12 growth rates of these three product groups.

As noted earlier these growth estimates are still preliminary. A few very large companies (including Dell, HP and Medtronic) have not yet reported their calendar 4Q’16 financial results and these could impact their categories significantly. That said, our estimates at this point are probably pretty close but we’ll release firmer figures as the balance of the companies in our samples report. Keep watching!

Worldwide Smartphone Sales Grew 7% in 4Q’16 (Charts 25-28)

Fierce Battle between Apple and Samsung to Hold the Number One Global Smartphone Ranking

Global sales of smartphones to end users totaled 432 million units in the fourth quarter of 2016, a 7% increase over the fourth quarter of 2015, according to Gartner, Inc. The fourth quarter of 2016 saw Apple leapfrog past Samsung to secure the number one global smartphone vendor position.

In 2016 overall, smartphone sales to end users totaled nearly 1.5 billion units, an increase of 5% from 2015.

"This is the second consecutive quarter in which Samsung has delivered falling quarterly smartphone sales," said Anshul Gupta, research director at Gartner. "Samsung's smartphone sales declined 8 percent in the fourth quarter of 2016 and its share dropped by 2.9 percentage points year on year."

"Samsung's smartphone sales started to drop in the third quarter of 2016, and the decision to discontinue the Galaxy Note 7 slowed down sales of its smartphone portfolio in the fourth quarter," added Mr. Gupta. "The withdrawal of the Galaxy Note 7 left a gap in its large-screen phone range." Samsung also faced growing competition in the midtier and entry-level smartphone segments from Huawei, Oppo, BBK and Gionee, which all grew their sales each quarter.

Closest Quarter Ever Between Samsung and Apple

It has taken eight quarters for Apple to regain the number one global smartphone vendor ranking, but the positions of the two leaders have never been so close, with only 256,000 units difference.

"The last time Apple was in the leading position was in the fourth quarter of 2014, when its sales were driven by its first ever large-screen iPhone 6 and 6 Plus," said Gupta. "This time it achieved it thanks to strong sales of its flagship phones — the iPhone 7 and iPhone 7 Plus; it also benefited from the weakened demand for Samsung's smartphones in mature markets such as North America and Western Europe, and in some mature markets in Asia such as Australia and South Korea.

Top Chinese Smartphone Vendors Grew Share by 7 Percentage Points in Fourth Quarter of 2016

Huawei, Oppo and BBK accounted for 21.3% of smartphones sold to end users worldwide during the fourth quarter of 2016, an increase of 7.3 percentage points year on year. "Huawei introduced Mate 9 during the quarter — within a month of Samsung discontinuing the Galaxy Note 7 — which was good timing to position it as an alternative," said Gupta.

Huawei's premium smartphone offering has helped it to reduce the gap with Samsung during the fourth quarter of 2016, with a difference of 36 million units. In the same period last year, the gap between the two vendors was more than 50 million units. "Huawei is poised to reduce the gap further with the number two global smartphone vendor," said Gupta. "Mate 9 with Alexa will start shipping into the U.S. in the first quarter of 2017."

Offering high-performance, front-facing cameras and fast charging smartphones led Oppo to maintain the No. 1 positon in China during the fourth quarter of 2016. Its strong position in China and continued growth of sales in the markets outside China have helped Oppo position itself as the number four smartphone vendor worldwide.

BBK's focus on quality, design and strong branding initiatives has positioned it as a strong mobile phone brand in China and India. BBK continued its hold on the number two position in China and was marginally ahead of Huawei during the fourth quarter of 2016. BBK's strong performance in India, where its sales grew by 278 percent in the fourth quarter of 2016, and more than 363 percent in 2016 overall, allowed it to emerge as the number five smartphone vendor worldwide.

Top Chinese brands such as Oppo, BBK, Huawei, ZTE, Xiaomi and Lenovo are aggressively expanding into markets outside China, where they will continue to disrupt the top smartphone players in 2017. "Samsung needs to successfully launch the next Galaxy flagship phone in order to continue the momentum Galaxy S7 generated, and win back lost customers by launching a new large screen and stylus-equipped smartphone," said Gupta.


PC Prices will continue to increase due to SSD, DRAM, LCD Shortages - Lenovo

Higher chip prices and a shortage of memory and SSDs are among the culprits driving up PC prices.

PC prices are going up due to a shortage of a number of components, and the situation isn't expected to change in the coming quarters.

A shortage of DRAM, SSDs, batteries, and LCDs have conspired to drive up PC prices, Gianfranco Lanci, corporate president and chief operating officer at Lenovo, said during an earnings call. It's difficult to pin a number on the price increase because of the number of PC configurations available.

The cost of purchasing these components is going up, which is triggering PC prices to also rise, said Lanci, a PC industry veteran. The shortage of components like memory will continue, Lanci said.

As component supplies shrink, PC prices will rise, said Mikako Kitagawa, an analyst at Gartner. Moreover, PC makers are raising prices to squeeze more profits out of the shrinking PC market, Kitagawa said.

The PC buyer profile is also changing, with gamers and millennials willing to spend more money on PCs.

That's changing the mix of laptops, desktops, and 2-in-1s being shipped by PC makers, who are focused on selling higher-priced products that can deliver better margins.

But low-cost PCs won't go away, Kitagawa said. There will always be cheap laptops available, though those markets aren't growing and not attractive to PC makers.

Basic configurations of PCs remain affordable, but some PC makers are limiting customization, forcing users to buy additional components in certain configurations.

Take Dell's XPS 13, which is priced at US$799.99 with 128GB of storage, 4GB of memory, and a Kaby Lake Core i3 chip. Upgrading hurts the wallet. A base Core i3 model cannot be configured to 256GB of storage, but for that, you'd need a faster Core i5 chip and 8GB of memory, which drives the price of the PC up to $1099.99.

A 512GB SSD is available only with XPS 13 models with a Core i7 chip and touch screens that have a resolution of 3200 x 1800. That drags up the price to $1749.99.

A chart shown at an Intel investor conference last week showed PC selling prices reaching its highest since 2011, when a decline in PC shipments started.

Intel is also selling chips at higher prices, which is adding to PC costs. Intel PC chip prices went up by 7 percent in 2016, but the company also sold more Core i7 chips as sales of gaming and VR systems increased.

Analyst firm TrendForce predicted SSD prices would go up in the first quarter of this year, continuing a trend from the previous quarters. SSD adoption, as a replacement for hard drives, is growing, but the supply of NAND flash has tightened, which is driving up prices.

The price of DRAM is also going up because of shortages. Memory is a boom-or-bust market and extremely volatile with prices falling drastically when DRAM floods the market.

PC DRAM prices went up by 30 percent in the fourth quarter of 2016 compared to the third quarter, TrendForce said in a statement this week.

TrendForce is predicting that DRAM prices may increase by up to 40 percent in the first quarter, due to undersupply. The news isn't any better looking forward.

"Rising prices are expected for the second quarter as well," said Avril Wu, research director of DRAMeXchange, which is a part of TrendForce and tracks component pricing.

Lenovo's Lanci also expected the memory shortage and price rises to continue for the coming quarter.


Global Mobile DRAM Revenue Grew 20 Percent Sequentially in 4Q’16 on Robust Smartphone Shipments (Charts 29 & 30)

Smartphone shipments remained strong in the final quarter of 2016. The market withdrawal of Samsung flagship Galaxy Note 7 turned consumer demand toward devices from other brands such as Apple, Huawei and LG. Thus, prices of mobile DRAM continued to surge during the period on account of the worsening undersupply situation. The latest research from DRAMeXchange, a division of TrendForce, finds that the global mobile DRAM revenue for the fourth quarter increased by about 20% sequentially to reach around US$5.51 billion.

"In terms of mobile DRAM market share by fourth-quarter revenue results, leader Samsung still held on to more than half of the global market at 61.3 percent," noted Avril Wu, research director of DRAMeXchange. "Second-place SK Hynix and third-place Micron captured 24.2 percent and 12.3 percent, respectively. Together, the top three suppliers captured 97.8 percent of the global mobile DRAM market in the fourth quarter."

Wu added: "Looking at the revenue of the whole DRAM industry, mobile DRAM accounted for a share of 44.2 percent in the fourth quarter."

DRAM industry expected to be in profit for the entire 2017 as demand far outstrips supply

DRAMeXchange anticipates that the current capacity expansion efforts undertaken by suppliers will not have significant effects on the market until the second half of 2017. Therefore, the first half of this year will witness tight supply.

"In the smartphone market, the memory content for high-end smartphones this year is expected to start at 6GB," noted Wu. "For mid-range devices, their standard memory specifications will be in the 3GB to 4GB range. Using these memory specifications as references, DRAMeXchange estimates that the annual global bit demand growth for mobile DRAM this year will come to at least 30%. Under the market dynamics, the industry on the whole will stay in profit through the year."


Global DRAM Revenue Jumped 18.2 Percent sequentially in 4Q’16 Owing to Soaring Contract Prices for PC DRAM (Charts 31-33)

Peak season demand and surging prices for DRAM products across different applications resulted in an 18.2 percent sequential growth in the global DRAM revenue for the final quarter of 2016, reports DRAMeXchange, a division of TrendForce.

Smartphone shipments peaked in the fourth quarter on account of the traditional busy season. Chinese smartphone brands continued to post strong sales while Apple benefitted from the release of iPhone 7. "Rising demand for mobile DRAM kept squeezing the industry's production capacity for PC DRAM," said Avril Wu, research director of DRAMeXchange. "Contract prices of PC DRAM modules increased by more than 30 percent sequentially on average in the fourth quarter due to insufficient market supply. Server DRAM lagged behind PC and mobile DRAM in terms of price hike during the same period, but it is expected to catch up in the first quarter of this year."

Looking ahead, memory content for various devices will continue to increase. Also, the current capacity expansion efforts undertaken by suppliers will not start to affect the market until the second half of 2017. In the meantime, the general undersupply problem will worsen, and contract prices of PC DRAM modules in this first quarter may see an even larger sequential increase of nearly 40 percent on average. Rising prices are expected for the second quarter as well.


Global Tablet Shipments Fell by Just 6.6 Percent Annually in 2016 as Brands Registered Above Expected Results (Charts 34 & 35)

Market research firm TrendForce reports annual tablet shipments worldwide posted a decline for 2016, dropping 6.6 percent to 157.4 million units. However, total shipments from branded tablet vendors surpassed expectations because of the robust year-end holiday sales.

"Together, major tablet brands posted a marginal decline in their total shipments for 2016," said Anita Wang, TrendForce notebook analyst. "Chief shipment contributors included Apple and Amazon. The former enjoyed strong iPad sales in the fourth-quarter busy season, and the latter nearly doubled its annual shipments. Other brands such as Huawei, Lenovo and Acer also expanded their shipments despite market headwinds."

As for white-box (white brand) vendors, Wang pointed out that their shipments were impacted by limited panel supply. "Due to profit considerations, panel makers scaled back the supply of tablet panels," noted Wang. "As a result, global white-box tablet shipments for 2016 fell by more than 20 percent compared with the previous year."

Going into 2017, demand for tablets will continue to be curtailed by the increasing consumer preference for large-size smartphones. Furthermore, major brands and white-box vendors will be constrained by insufficient panel inventory as South Korean panel makers cut back on the production of LCD tablet panels. According to TrendForce's projection, this year's global tablet shipments will come to 147.8 million units, a drop of 6.1 percent from 2016.


U.S. Industrial Production Declined Slightly in January (Chart 36)

U.S. industrial production fell in January as unseasonably warm weather caused a major drop in utilities output, offsetting gains in manufacturing and mining, the Federal Reserve said.


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.
Search MarketEYE
Filter Articles By Category

View All Connector Articles

Select Contributor to view their article(s)

View All Passive Articles

Select Contributor to view their article(s)

View All Switches & Relays Articles

Select Contributor to view their article(s)

View All TTI Insights Articles

Select Contributor to view their article(s)

View All New Technology Articles

Select Contributor to view their article(s)

TTI Insights
Stay Updated

Enter your email address below to recieve email updates whenever we publish new content.