Weekly Global Update for May 9, 2018

Global Purchasing Manager Index Improves Slightly but Manufacturing Growth Varies by Country

April Purchasing Managers indices have now been released for most countries:

• Global PMI rose slightly from 53.3 in March to 53.5 in April (Chart 1).
• Japan’s and China’s rose but the USA, Europe, Taiwan and South Korea contracted, although all these key electronics producers except South Korea still remained in expansion territory (PMI>50) for their manufacturing sectors (Chart 2).
• USA had mixed results. The Institute for Supply Management reported a two point PMI decrease while IHS Markit showed an increase from 54.6 in April, up from 54.0 in March (Chart 3).
• The Eurozone continued its decline which began in February (Chart 4).
• China improved slightly (Chart 5) but Taiwan (Chart 6) and S. Korea (Chart 7) saw further PMI declines. South Korea is in a manufacturing contraction (PMI <50) for the second straight month.
• Japan had a modest PMI increase (Chart 8).

Source: www.markiteconomics.com
www.instituteforsupplymanagement.org/

First Quarter Global Electronic Supply Chain Growth (updated estimates)

Here is our second estimate of global electronic supply chain growth. While many companies in our database have reported their calendar 1Q’18 financials, our data set is still far from complete, so still treat this information as PRELIMINARY ESTIMATES.

• Chart 9 summarizes our estimated first growth of the global electronic supply chain.
• Total electronic equipment sales are estimated to have increased 9.9% in 1Q’18 vs. 1Q’17 (Chart 10) as overall growth continued to expand on both a 12/12 (annualized) and 3-month (3/12) basis (Chart 11).
• All sectors expanded with instruments and controls (Chart 12), automotive (Chart 13), military (Chart 14) and communication equipment (Chart 15) doing well. It should be noted that although mobile phone units declined, their average selling prices rose significantly.
• Semiconductor fab, test and measurement equipment shipment growth remained very strong in the first quarter but this growth will likely ebb throughout the balance of 2018.
• Passive component shipments rose 24.5% as severe shortages and long lead times are disrupting EMS, ODM and OEM production schedules and driving passive component price increases (Chart 16).
• Combined EMS and ODM sales were up over 12% in the first quarter (Chart 17).

Remember this is still a preliminary estimate until all the companies in our samples report their calendar first quarter financial results.

Source: Company financial reports analyzed by Custer Consulting Group

U.S. March “Factory Orders” Report

The U.S. Department of Commerce reported March Shipments, Orders and Inventories for domestically manufactured goods. This is a more detailed version of the “Durable Goods” report of a week earlier.

• Electronic equipment orders rose slightly from February while shipments were flat (Chart 18). 3/12 order growth improved to +7.2% and shipments rose 9.1% for 1Q’18 vs. 1Q’17 (Chart 19).
• Chart 20 shows how electromedical, measurement and control equipment has become the major domestic electronic equipment sector (Chart 21).
• Vehicle shipments continue to rise (Chart 22).
• Defense capital goods orders rebounded from February (Chart 23).
• Military electronics equipment orders are up sharply (Chart 24).
• Electromedical, measurement and control equipment demand continues to surge (Chart 25).

Charts 26 & 27 summarize the growth of the domestic electronic supply chain by sector.

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

Global Semiconductor Sales Up 20% Year-to-Year in Q1 (Charts 25-28)

Worldwide semiconductor sales reach $37 billion in March; year-to-year sales increase for 20th consecutive month

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $111.1 billion during the first quarter of 2018, an increase of 20% compared to the first quarter of 2017, but 2.5% less than the fourth quarter of 2017. Sales for the month of March 2018 came in at $37.0 billion, an increase of 20% compared to the March 2017 total of $30.8 billion and 0.7% more than the February 2018 total of $36.8 billion. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

“The global semiconductor market has demonstrated impressive growth through the first quarter of 2018, far exceeding sales through the same point in 2017, which was a record year for semiconductor revenues,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Sales in March increased year-to-year for the 20th consecutive month. All regional markets experienced double-digit growth compared to last year, and all major semiconductor product categories experienced year-to-year growth, with memory products continuing to lead the way.”

Year-to-year sales increased across all regions in March: the Americas (35.7%), Europe (20.6%), China (18.8%), Asia Pacific/All Other (13.3%), and Japan (12.4%). Month-to-month sales increased in Europe (3.9%), China (2.2%), Japan (0.5%), and Asia Pacific/All Other (0.2%), but decreased slightly in the Americas (-2.0%).

Source: www.semiconductors.org

China and Taiwan PCB industries Investing for 5G Market

The Chuanpu government's eyeing China's ZTE and Huawei Technologies for technical output control and investigation were interpreted as restricting the development of China's 5G communications, which is already ahead of schedule. It is obvious that this is important. The Taiwanese company's PCB industry is also actively investing in 5G applications.

The focus of Japanese investment in Taiwan is raw materials upstream from the PCB which includes CCL and fiberglass cloth industries. They are also mainly focusing on the PCB raw materials that are required for high-frequency, high-speed, and lossy signals in the upgrade of flex and rigid-board processes, including Hitachi Chemical, which announced that it
will invest approximately NT$2 billion in Taiwanese dollars to establish a subsidiary in Taiwan and build a high-performance laminated material (CCL) for PCBs in the plant mainly for 5G and advanced driver assistance systems (ADAS) and applications such as artificial intelligence (AI).

NITTO BOSEKI, a Japanese fiberglass manufacturer, will also acquire a 35.22%m stake in Jianrong Industrial at a premium of 10% due for the development of 5G communications. For example, the addition of Jianrong's largest corporate shareholder, Chuangyou Investment, will transfer 14.88% of Jianrong's shares to Nittofang to enable Nitto Sangto to hold 50.1% of the shares of Jianrong.

PCB industry sources pointed out that it is one thing for Nittotex to acquire management rights over more than half equity of Jianrong Industry. It is important to observe whether the company has introduced new equipment to help Jianrong produce new materials for 5G applications. For the original production of Japan, the secondary production base was moved out, while the 5G application product was still produced in Japan.

Source: www.cpca.org.cn/

Top 10 Analog IC Suppliers in 2017 (Chart 29)

• Texas Instruments Expands Lead Among Top Analog Suppliers in 2017
• Top 10 suppliers held 59% of analog market last year with ON Semi showing strongest growth.

The top 10 IC suppliers in the $54.5 billion analog market last year accounted for 59% of the category’s worldwide sales in 2017, according to a recent monthly update to IC Insights’ 2018 McClean Report. Collectively, the top 10 companies generated $32.3 billion in analog IC sales last year compared to $28.4 billion in 2016, which was a 14% increase and a gain of two percentage points in market share during 2017, said the 50-page April Update to The McClean Report. Eight of the top-10 suppliers exceeded the 10% growth rate of the total analog market in 2017, according to the update.

With analog sales of $9.9 billion and 18% market share, Texas Instruments was again the leading supplier of analog integrated circuits in 2017. In 2016, TI’s market share was 17% in analog ICs. The company’s analog sales increased by about $1.4 billion last year—rising 16%—compared to 2016 and were more than twice that of second-ranked Analog Devices (ADI). TI’s 2017 analog revenue represented 76% of its $13.0 billion in total IC sales and 71% of its $13.9 billion total semiconductor revenue, based on IC Insights’ estimates.

TI was among the first companies to manufacture analog semiconductors on 300mm wafers. TI has claimed that manufacturing analog ICs on 300mm wafers gives it a 40% cost advantage per unpackaged chip compared to using 200mm wafers. In 2017, about half of TI’s analog revenue was generated on devices built using 300mm wafers.

Second-place ADI registered a 14% increase in analog IC sales in 2017 to $4.3 billion, according to IC Insights’ supplier ranking. The 2016 and 2017 revenue numbers shown for ADI include sales from Linear Technology, which was acquired by the company in 1Q’17 for $15.8 billion.

NXP was the only supplier in the top 10 ranking that experienced a decline (-1%) in its analog sales last year. Some of NXP’s analog revenue decline can be attributed to the sale of its Standard Products business to a consortium of Chinese investors consisting of JAC Capital and Wise Road Capital. The $2.75 billion transaction was completed in February 2017. The Standard Products business was renamed Nexperia and headquartered in the Netherlands.

Among the top 10, ON Semiconductor showed the largest analog sales gain in 2017, with revenues increasing 35% to $1.8 billion, which represented a 3% share of the market. This follows a 16% rise in its analog sales in 2016. Some of the strong increases in sales during the last two years were a result of ON Semi’s acquisition of Fairchild Semiconductor in September 2016 for $2.4 billion. ON’s analog business was also boosted in 2017 by record sales of its power management products to the automotive market, specifically for active safety, powertrain, body electronics, and lighting applications.

Source: www.icinsights.com

Memory Chip Market Set for Tumble as China Moves In

Mega-producer of 3-D chips will have price-setting power.

China's state-backed investment in cutting-edge memory chips could set global prices tumbling if output is not carefully controlled, repeating the boom-and-bust pattern of markets such as display panels and solar cells.

Yangtze Memory Technologies, an affiliate of state-owned semiconductor maker Tsinghua Unigroup, is poised to become China's first mass-producer of 3-D NAND flash memory chips, which offer vastly higher capacity than their conventional counterparts. "Two or three years ago, I wouldn't have believed it," said a salesperson at Japan's Advantest, which makes chip-testing equipment. "It seems like they will get things up and running at the end of 2018 and into 2019."

Because 3-D chips can pack more memory into a small package, they are prized for their use in devices such as smartphones, as well as in the booming field of data centers. And though Yangtze Memory's technology lags behind the leading edge of the 3-D memory field, production yields have improved substantially as the company has turned out successive rounds of samples.

Semiconductors are a central part of the "Made in China 2025" plan the government unveiled three years ago to upgrade the country's manufacturing sector. Chips are currently China's top import, used to feed its powerful electronics manufacturing business. Producing more of those core components at home is essential if the country hopes to improve its trade balance with the rest of the world.

China's regional governments are offering generous subsidies and other incentives to attract foreign and domestic chipmakers. Japan's Ferrotec Holdings is building a plant for semiconductor wafers in the city of Hangzhou, but was courted by "city governments all around" while planning the facility, according to the company.

The Chinese market for semiconductor manufacturing equipment will grow 40% this year to $11.3 billion, predicts SEMI, a global electronics industry association. This includes demand from foreign companies' Chinese plants, and accounts for 20% of the global market, a share second only to that of South Korea.

China has already made itself indispensable as a supplier of slower but more reliable NOR flash memory that is used in appliances and automobiles. "China's contract manufacturers have become highly prized" as demand has surged for those chips in settings such as cars and display panels, according to a salesperson for a semiconductor trading company. Beijing hopes the country can do the same in the NAND business.

The NAND market is soft at present, amid a slump in smartphone demand. But this is normal for the beginning of the year, and the chips are widely expected to grow scarce once again this summer as procurement of smartphone parts kicks off in preparation for the end-of-year holiday shopping season.

How the market will shift in the longer term is less clear. "Starting in 2020, Yangtze Memory will determine the balance of the NAND market," according to Akira Minamikawa, principal analyst at IHS Markit. If all of the company's plans play out as written, supply of those chips could exceed demand as soon as 2021. The price of a 256-gigabit NAND chip could tumble to around $2.40 in 2021 from $7 or so in 2017.

When China has ramped up investment in steel, petrochemicals and solar panels, such market crashes have followed. But when it comes to semiconductors, some argue the country will take past experience into account. "China won't just keep selling semiconductors until the market falls out of balance," a source at a semiconductor materials maker predicted.

Chinese demand itself has the potential to absorb some new supply. Domestic internet companies such as Tencent Holdings and Alibaba Group Holding are increasingly investing in data centers, adding to substantial outlays in that field by American information technology providers.

At the outset, Yangtze Memory will primarily supply the lower end of the chip market, according to an official at a major semiconductor maker. The company is experiencing growing pains in the industry, including the challenge of finding enough engineers.

But China's liquid crystal display makers also got their start producing lower-end smartphone screens for domestic manufacturers, and now command a growing share of the world market for small-to-midsize panels. Even in high-resolution screens, where South Korean and Japanese makers have long reigned supreme, the price of Chinese offerings has come within 10% or so of market leaders' products.

Recent trade friction with the U.S. could serve as a countervailing force to China's growth in the chip market if it results in the Asian economic powerhouse importing more semiconductors. But absent any major changes, the country could soon dominate the market, setting prices from both the supply and demand sides.

Source: www.nikkei.com