Weekly Global Update for June 5, 2019

First Quarter Global Electronic Supply Chain Growth 

All of the major companies in our survey have now reported their calendar first quarter 2019 financials:

• Converted to U.S. dollars total world electronic equipment revenues increased 1.4% calculated at fluctuating currency exchange in 1Q’19 vs. 1Q’18 (Chart 1).
• Growth has clearly slowed. Chart 2 shows the annualized (12/12) and 3-month (3/12) dollar-denominated global electronic equipment growth from 2001 to present.
• Chart 3 gives the 1Q’19 vs 1Q’18 US$-denominated growth by sector of the electronic supply chain. Many groups’ sales contracted in the first quarter of 2019.

Source: Company financial reports consolidated and analyzed by Custer Consulting Group.

1Q’19 Passive Components Growth Slowdown and Inventory Buildup

• After strong growth in 2018 passive component shipments have slowed substantially (Chart 4). Revenues were up 39.9% in 3Q’18/3Q’17, 20.1% 4Q’18/4Q’17 but then were down 0.4% in 1Q’19/1Q’18.
• As sales slowed passive component inventories rose significantly (Chart 5), reaching their highest level of inventories/sales since mid-2008.

Source: Company financial reports consolidated and analyzed by Custer Consulting Group.

First Quarter PCB Process Equipment, Materials and CCL Laminate Growth

Looking at products that supply the global printed circuit board industry for the first quarter of 2019 vs. 2018

• Process equipment sales declined 4.5% (Chart 6).
• Materials other than laminate sales were flat (Chart 7).
• CCL (rigid and flex) laminate sales declined 6.4% (Chart 8).
• Chart 9 shows the historical business cycles of these three product groups

Source: Company financial reports consolidated and analyzed by Custer Consulting Group.

DRAM Quotes Continue to fall in 2Q, Further Compressing Suppliers' Profits (Charts 10-12)

Trendforce Press Release 5/28/2019

According to the latest investigations by DRAMeXchange, a division of TrendForce, DRAM prices have faced mounting pressure to trend down in 1Q, the traditional offseason. Not only was this due to the production capacities added in 2H18, which found full expression in 1Q, but also a compressed procurement momentum by a demand side busy clearing out their own inventories. This caused a pronounced double-decline effect: Both DRAM prices and volume fell in 1Q, causing overall production revenue to drop by 28.6 % QoQ.

Looking at 2Q19, ASP for 8GB modules have fallen to US$34 in April as seen from the final pricings by Tier-1 PC-OEMs, falling by 20% QoQ. Inventory levels kept rising for DRAM suppliers due to lukewarm trade. TrendForce predicts contract prices will keep plunging under as monthly deals are made in May and June and decline by nearly 25% for the whole 2Q. Server DRAMs, which contribute to over 30% of DRAM shipments, will face an even heavier price pressure.

Revenues show dramatic drops QoQ across the board. Market leader Samsung's reference revenue started low and performed better than expected in 1Q mobile DRAM shipments, bringing 1Q sales bit performance on a par with the previous quarter. Still, revenue was still impacted by declining quotes and dropped by 26.3% QoQ and arrived at US$6.97 billion, with market share recuperating to 42.7%. SK Hynix's sales bit performance slid by 8%, which was slightly better than what it had expected, and arrived at US$4.88 billion in revenue 1Q, a 31.7% decline QoQ, and took home a 29.9% market share.

Micron continued to hold third place and came to US$3.76 billion in revenue, sliding by 30.0% QoQ, while market share remained at about 23%. TrendForce predicts that the top three suppliers will continue utilizing aggressive quoting strategies in the coming months under pressure from mounting inventory levels.

Source: TrendForce

North American PCB Shipments in April 2019 increased 6.6% y/y as Bookings increased 9.4% y/y (Charts 13-15)

IPC Press Release

May 30, 2019 – IPC -- Association Connecting Electronics Industries® announced today the April 2019 findings from its North American Printed Circuit Board (PCB) Statistical Program. Year-over-year growth in April was positive for sales and orders, and the book-to-bill ratio strengthened to 1.02.

Total North American PCB shipments in April 2019 were up 6.6% compared to the same month last year. Year-to-date sales growth as of April was 14.0%. Compared to the preceding month, April shipments decreased 23.1%.

PCB bookings in April increased 9.4% year-over-year, bringing year-to-date order growth up to 4.0%. Bookings in April were down 14.0% from the previous month.

“A return to solid year-over-year order growth for the North American PCB industry in April moved the book-to-bill ratio from parity (1.00) to 1.02,” said Sharon Starr, IPC’s director of market research. “The ratio has been at or above parity for the last 28 months, which is an unusually long stretch for this leading indicator. Recent ratios indicate continued but slower growth in the coming months.” She added, “April’s negative month-to-month growth rates are not a cause for concern, as they reflect normal seasonal patterns.”

Source: IPC

Global Wearable Devices Shipments Increased 55.2% y/y to 49.6 Million Units During 1Q19 (Chart 14)

30 May 2019 IDC Press Release

Ongoing Demand Fuels a Strong Growth Trajectory for Wearable Devices in Q1 2019 with Wrist-Worn and Ear-Worn Leading the Market, According to IDC

Global shipments of wearable devices reached 49.6 million units during the first quarter of 2019 (1Q19), up 55.2% from the previous year according to data from the International Data Corporation (IDC) Worldwide Quarterly Wearable Device Tracker. While wrist-worn wearables accounted for the majority of the market with 63.2% share, ear-worn devices experienced the fastest growth (135.1% year over year) and accounted for 34.6% of all wearables shipped.

“The elimination of headphone jacks and the increased usage of smart assistants both inside and outside the home have been driving factors in the growth of ear-worn wearables,” said Jitesh Ubrani research manager for IDC Mobile Device Trackers. “Looking ahead, this will become an increasingly important category as major platform and device makers use ear-worn devices as an on-ramp to entice consumers into an ecosystem of wearable devices that complement the smartphone but also offer the ability to leave the phone behind when necessary.”

“Shipments of wristwear – including watches and wristbands – grew 31.6% year over year, and continue to dominate the wearables landscape,” said Ramon T. Llamas, research director for Wearables. “While the functionalities and capabilities have grown and changed, the one common thread is the relentless focus on health and fitness. This has resonated strongly with users and health insurance companies alike, and new health and fitness insights attract a larger audience.”

Company Highlights

Apple maintained the leading position as the company offers three product lines; Apple Watch, AirPods, and select Beats headphones. The Apple Watch in particular has proven to be highly successful at capturing unit share, but more importantly dollar share as the average selling price (ASP) of these watches has increased from $426 in 1Q18 to $455 in the latest quarter. Apple also seems to be employing a similar strategy in its wireless headphone lineup as the latest AirPods are now available with wireless charging and an increased ASP.

Xiaomi ranked second largely due to the popularity of its Mi Band, which accounted for roughly five million shipments. While the company remains focused on the Chinese market, recent investments in Europe and the Middle East have been paying off as the company has managed to gain share in those regions.

Huawei ended the quarter with market-beating growth of 282.2%. The company’s success in the wearables market has been directly tied to its success in smartphones as the two products are often bundled together. However, with the recent uncertainty surrounding the company’s future in smartphones, the outlook for the wearables side of the business will also remain in flux.

Samsung, like Apple, also offers multiple product lines including the Gear/Galaxy watches and bands, the Galaxy Buds, and select JBL headphones. The launch of Samsung’s Galaxy S10 lineup helped the company propel its wearables business through the use of bundling. Outside of that, the JBL lineup of headphones also performed well thanks to the wide variety of options at a low cost.

Fitbit rounded out the top five and maintained its positive growth trajectory. The recent launch of the Versa Lite as well as the Inspire series has helped the company reach new users as well as encouraged upgrades, although this has come at the expense of a lower ASP. However, the company remains highly focused on the healthcare/enterprise segment and has continued to make strides in that market, surpassing many of its competitors.

China Gives More Chip Design Firms Tax Break Amid Trade Tensions

MAY 22, 2019

BEIJING (Reuters) – China is making preferential tax treatment available to more chip design and software firms, in an effort to support domestic industries amid escalating trade tensions with the United States.

In line with a state council directive in early May, the finance ministry said on Wednesday that companies in integrated circuit design and software industries will be exempt from paying income taxes in the first two years if they became profitable before the end of 2018.

Until now, such tax relief was only available to firms that reported a profit by the end of 2017.

China’s continued support for the tech industry comes after U.S. President Donald Trump raised tariffs on $200 billion worth of Chinese imports to 25% from 10%.

The United States also added the telecoms giant Huawei Technologies Co Ltd to a trade blacklist last week, effectively banning U.S. companies from doing business with the Chinese firm.

But investors and analysts say Huawei’s troubles could accelerate a long-term campaign in China to replace imported technologies.

In a bid to raise China’s slowing economic growth rate, Beijing has announced a series of measures to reduce companies’ tax burdens.

The Finance Ministry’s move to give more chip design firms a tax holiday did not include any change in the tax. During their third to fifth years of operation, the rate remains 12.5%.

Reporting by Stella Qiu, Min Zhang and Beijing Monitoring Desk; Editing by Richard Borsuk

Source: Reuters (Custer Consulting Group is an authorized Reuters news distributor)

Global Smartphone Sales to end users fell 2.7% in 1Q19 to 373 million units (Chart 16)

Huawei held on to number two smartphone spot

Gartner Press Release

May 28, 2019

Global sales of smartphones to end users declined 2.7% in the first quarter of 2019, totaling 373 million units, according to Gartner, Inc. Despite its absence from the U.S., Huawei maintained its ranking as the No. 2 smartphone vendor worldwide and continued to reduce the gap with Samsung.

“Demand for premium smartphones remained lower than for basic smartphones*, which affected brands such as Samsung and Apple that have significant stakes in high-end smartphones,” said Anshul Gupta, senior research director at Gartner. “In addition, demand for utility smartphones* declined as the rate of upgrading from feature phones to smartphones has slowed, given that 4G feature phones give users great advantages at a lower cost.”

Slowing innovation in flagship smartphones and rising prices continued to extend replacement cycles. The two countries that sell the most smartphones, namely the U.S. and China, saw sales decline by 15.8% and 3.2%, respectively, in the first quarter of 2019.

In the first quarter of 2019, Samsung retained the top spot in worldwide smartphone sales achieving 19.2% market share. Huawei achieved the highest year-over-year growth among the world’s top five, growing 44.5% and smartphone sales totaling 58.4 million units.

Sales of Huawei smartphones grew in all regions. “Huawei did particularly well in two of its biggest regions, Europe and Greater China, where its smartphone sales grew by 69% and 33%, respectively,” said Gupta. Huawei’s continued dominance in Greater China, where it commanded a 29.5% market share, helped it secure the number two global smartphone vendor ranking in the first quarter of 2019.

Source: Gartner

Worldwide Ethernet Switch Market (Layer 2/3) Increase of 7.8% y/y to $6.8 Billion in Revenue in 1Q19 (Charts 19-21)

IDC Press Release

May 31, 2019 -- The worldwide Ethernet switch market (Layer 2/3) recorded $6.8 billion in revenue in the first quarter of 2019 (1Q19), an increase of 7.8% year over year. Meanwhile, the worldwide total enterprise and service provider (SP) router market revenues grew 8.2% year over year 1Q19 to $3.6 billion. These growth rates are according to results published in the International Data Corporation (IDC) Quarterly Ethernet Switch Tracker and IDC Quarterly Router Tracker.

Sensors/Actuators Reach Record Sales on Slower Growth (Chart 22)

IC Insights Press Release

May 30, 2019

After two strong years, the sensor and actuator market has cooled off as a result of inventory drawdowns, slowing unit shipments, and economic uncertainty, says report.

Inventory corrections, slowing smartphone shipments, and pullbacks in purchase orders throttled sales growth in semiconductor sensors and actuators last year, resulting in a subpar 6% increase in 2018 to a record-high $14.7 billion after double-digit percentage gains in 2017 and 2016, according to IC Insights’ 2019 O-S-D Report-A Market Analysis and Forecast for Optoelectronics, Sensors/Actuators, and Discretes.

The downtrend in sensor/actuator growth carried into the first quarter this year with worldwide sales rising by just 2% compared to the same three-month period in 2018, but this semiconductor market segment is expected to reclaim some strength in the next six months and increase 5% in 2019 to a new record-high $15.4 billion, says the 350-page O-S-D Report. After slowing to 3% growth in 2020 because of global economic weakness, sensor/actuator sales are expected to gradually regain stronger momentum between 2021 and 2023 to reach $21.1 billion in the next four years.

Source: IC Insights

Worldwide consumer and enterprise worldwide WLAN market increased 6.9% y/y to $2.4 billion in 1Q19 (Chart 23)

IDC Press Release

May 30, 2019 - The combined consumer and enterprise worldwide wireless local area network (WLAN) market segments increased 6.9% year-over-year in the first quarter of 2019 (1Q19), finishing at $2.4 billion. According to results published in the International Data Corporation (IDC) Worldwide Quarterly WLAN Tracker, the enterprise segment grew 7.1% year-over-year in 1Q19 to reach $1.4 billion while consumer WLAN market revenue increased 6.6%, finishing at $1.0 billion. The market is being driven by enterprises continuing to upgrade their wireless infrastructure as users and devices rely on an increasing array of bandwidth-heavy applications.

The enterprise WLAN is now dominated by the 802.11ac standard, which makes up 86.4% of dependent access point (AP) shipments and 93.1% of enterprise WLAN dependent AP revenues. The next iteration of the standard, 802.11ax also known as WiFi 6, will increase in the market throughout the rest of 2019 and into 2020.In the consumer WLAN market, the 802.11ac standard accounted for 58.0% of shipments and 79.2% of revenue in 1Q19.

“The WLAN market continues to see steady, moderate growth as enterprises invest in wireless connectivity to support the continued demand for access technology,” said Brandon Butler, senior research analyst, Network Infrastructure at IDC. “Meanwhile, the coming WiFi 6 standard will be a major driver of growth in the WLAN market in the coming years, especially in the advanced enterprise segments of the market.”

Source: IDC