Weekly Global Update for May 29, 2013

1Q'13 Supply Chain Growth (update)

Chart 1 updates our estimates of global sector growth in the electronics' supply chain. Most companies in our database have now reported their first quarter 2013 financials.

Source: Company financials and Custer Consulting Group

U.S. Electronics Demand – Still Stagnant in April

Based upon the U.S. Commerce Department's April "Durable Goods" report:

• Electronic equipment book/bill ratio improved slightly from March to April (Chart 2) but still remained below 1.0 on a 3-month average basis.
• Electronic equipment orders rose slightly while shipments declined (Chart 3).
• 3/12 growth rates for both electronic equipment orders and shipments remained well below 1 (the dividing line between growth and contraction). Chart 4
• The ratio of electronic equipment inventories/orders edged down (improved) slightly (Chart 5).
• U.S. aircraft and parts shipments increased thanks to growth in the commercial sector (Chart 6).
• Defense capital goods orders recovered slightly from March but still remained weak (Chart 7).
• Communication (Chart 8) and computer equipment (Chart 9) orders and shipments remained flat.

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

China-based Taiwan Exporters Hurt by Rising Yuan (Chart 10)

The Chinese yuan has strengthened 20% against the U.S. dollar since 2005, seriously hurting Chinese exporters, including export-reliant Taiwanese companies operating in China.

In addition to fast rising raw material and labor costs and a general global economic weakness limiting export demand, the forecasted 1.5% strengthening of the yuan in the next two months could make Taiwanese exporters in China suffer a loss.

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

Korean PCB Market – Dr. Hayao Nakahara's Comments

"I just came back from Korea. Thanks to Samsung Electronics, Korea's total PCB output seems to have grown about 20%, with some companies growing more than 40%, in 2012. Samsung Electro Mechanics recorded sales revenue of $2,002 million. Young Poong Group had almost $2,000 million.

"Korea's PCB output is now greater than Japan's domestic production, although adding offshore production by Japanese companies gives Japan 22-23% of the world's PCB production."

Source: Dr. Hayao Nakahara, N.T. Information Ltd.

China's Manufacturing Activity Shrank for the First Time in Seven Months
in May (Chart 11)

The flash HSBC Purchasing Managers' Index (PMI) for China for May fell to 49.6, signaling contraction for the first since October.

"The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds," said Qu Hongbin, chief China economist at HSBC.

Source: www.hsbc.com

Custer comment: Although the China and U.S. May "flash" PMIs weakened in May, notice that Europe improved - although still remaining in contraction territory (Chart 12).

U.S. Factory Activity at 7-Month Low in May (Chart 13)

U.S. manufacturing slowed for a second straight month in May as weak overseas demand and contracted government domestic spending resulted in U.S. manufacturing's most sluggish growth since October.

Markit Economics' "flash," or preliminary, U.S. Manufacturing Purchasing Managers Index fell to a seven-month low of 51.9 in May from 52.1 the previous month. A reading above 50 indicates expansion.

"Slower growth could be linked to a combination of fiscal drag hurting demand at home while at the same time many export markets remain in fragile states. The latter led to a renewed decline in export orders in May," said Chris Williamson, chief economist at Markit. That, he added, suggested manufacturing's boost to U.S. growth in the second quarter would be modest at best.

Source: www.markiteconomics.com

North America Semiconductor Equipment Industry Book/Bill=1.08
in April (Charts 14 & 15)

North America-based manufacturers of semiconductor equipment posted $1.17 billion in orders worldwide in April 2013 (3-month average basis) and a book-to-bill ratio of 1.08, according to SEMI.

The 3-month average of worldwide bookings in April 2013 was $1.17 billion, 6.4% higher than March 2013 and 26.8% lower than the April 2012.

The 3-month average of worldwide billings in April 2013 was $1.08 billion, 9.3% higher than March 2013 and is 25.7% lower than April 2012.

"Both bookings and billings trends have been improving over the last four months, with the book-to-bill ratio remaining above parity over the same period," said Denny McGuirk, president and CEO of SEMI. "While orders remain well below last year's numbers, the current order and spending activity is aligned with 2012 capex plans."

Source: www.semi.org

Top 10 MPU Suppliers: Qualcomm and Samsung Pass AMD in MPU Ranking (Chart 16)

Slow notebook and desktop PC sales and strong growth in mobile processors for smartphones and tablet PCs continues to lower Intel's MPU market share.

A slowdown in notebook and desktop personal computer purchases coupled with strong growth in smartphones and tablet PCs knocked Advanced Micro Devices down to fourth place in microprocessor sales in 2012 from second, where AMD had been perched behind Intel since the 1990s, according to a new ranking of MPU suppliers by IC Insights. The new top 10 MPU list shows most leading suppliers of mobile processors based on ARM technology moving higher in the ranking while PC-dependent x86 MPU companies—Intel and AMD—continued to lose market share in 2012 (see Figure).

Among the MPU leaders only top-ranked Intel and fourth-place AMD sell central processors built with x86 microarchitectures for standard notebook and desktop PCs running Windows operating system software from Microsoft. The remaining top 10 suppliers develop and sell mobile MPUs with RISC processor cores licensed from ARM in the U.K.

The $56.5 billion microprocessor market continued to be the largest single semiconductor product category in 2012, accounting for 22% of total IC sales. However, microprocessor sales growth slowed to 2% in 2012 following a strong 19% increase in 2011. IC Insights is forecasting a 10% increase in total MPU sales in 2013 to $62.0 billion. During 2012, strong increases in mobile application processors used in cellphones and tablet PCs offset a 6% decline in MPU sales for desktop and notebook PCs, servers, and embedded-processor applications. Between 2012 and 2017, total MPU sales are projected to grow at a compound annual growth rate (CAGR) of 12%, reaching $97.7 billion in the final year of the forecast.

Source: www.icinsights.com

Global Smartphone Shipments Expected to Reach 937 Million Units in 2013 (Chart 17)

Smartphone screen sizes and LTE-enabled devices on the rise

Global smartphone shipments will surpass shipments of basic and feature phones for the first time in 2013. According to DisplaySearch, global smartphone shipments are expected to reach 937 million units in 2013, compared to just 889 million units for basic phones and feature phones. Between 2011 and 2016, smartphone shipments will grow at a compounded annual growth rate of 26%, to 1.45 billion units, which will account for two-thirds of the mobile phone market.

"The global smartphone market is expected to continue growing rapidly over the next two years," said Shawn Lee research director at NPD DisplaySearch. "With larger, higher-resolution displays, faster processors, and higher-capacity cellular systems being built, the smartphone is not only becoming a must-have device, but is satisfying many needs that formerly required other computing and consumer electronics devices."

Emerging markets are driving most of the smartphone growth, due in large part to better download speeds as networks are upgraded to 3G and 4G. In these markets, entry-level smartphones priced below $200 are gaining momentum. China leads in the entry-level smartphone category, comprising 55% of shipments. China is also the largest market for smartphones as a whole, and the Asia-Pacific region will account for over 50% of smartphone shipments in 2013.

At the high end of the market, LTE-enabled smartphones will reach 23% market share in 2013, according to NPD DisplaySearch. As this segment of the global smartphone market grows, demand for several key features will increase as well. Shipments of AMOLED and LTPS LCD panels for full high-definition (FHD) resolution smartphones are forecast to increase significantly, from 1.7 million units in 2012 to 113 million units in 2013.

"To increase revenue share and gain margin in the smartphone market, a variety of new handsets, as well as new products launched by service and content providers, will enter the market," Lee said. "As smartphone specifications and features become more advanced, and as device replacement rates increase, we can expect further investment in the industry by manufacturers, carriers, and governments."

Screen sizes are also changing with the market. In 2013, more than half (57%) of smartphone displays will range between 4" to 5", while screens larger than 5" will grow to 16% of the market. Panel makers are increasing production of smartphone displays in larger-generation LCD factories to meet the demand for these larger panels.

Source: www.displaysearch.com