General Business Conditions

Based on the May versus April PMI leading indicator data (Chart 1) released last week:

  1. Global manufacturing activity is just barely expanding
  2. The U.S. contracted into negative territory in May
  3. Europe, although still contracting, improved for all countries surveyed.
  4. China, Taiwan and S Korea declined – hurt by weak exports and Japan’s more competitive (weaker) currency.
  5. Japan expanded driven by government stimulus programs including a weaker yen.

More details are given below for world, European and U.S. manufacturing activity.

U.S. April Electronic Equipment and Component Shipments, Orders and Inventories

Based on last week’s U.S. "Factory Orders" report:

  • Electronic equipment 3-month average book/bill ratio rose to just above parity (Chart 2).
  • On a sequential basis (from April to May 2013) electronic equipment orders rose and shipments declined (Chart 3) while both their 3/12 growth rates weakened (Chart 4).
  • Electronic equipment inventory levels were relatively steady except for electromedical, measurement and control equipment which has been increasing (Chart 5).
  • The ratio of electronic equipment inventories/orders declined slightly (Chart 6).
  • U.S. vehicle shipments improved (Chart 7)
  • Military electronics orders continued to plunge (Chart 8) while electromedical, measurement and control orders have recently recovered (Chart 9).
  • Communication equipment orders improved slightly (Chart 10) but computer demand continued to decline (Chart 12)
  • Passive component book/bill rose to 1.03 on a 3-month average basis (Chart 13) as both orders and shipments increased in April (Chart 14). However 3/12 growth rates (comparing Feb-Apr 2013 to 2012) declined (Chart 14).
  • The ratio of passive component inventories/electronic equipment orders edged downwards (Chart 15).

Chart 16 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronic supply chain. Values in yellow indicate contraction. The 3/12 "leads" the 12/12.

Global Semiconductor Sales: Slight Uptick in April; Moderate Growth Projected for 2013 and 2014 (Charts 17-21)

Year-to-date sales remain narrowly ahead of last year’s pace; WSTS forecast projects growth of 2.1% in 2013 and 5.1% in 2014

The Semiconductor Industry Association (SIA) announced that worldwide sales of semiconductors reached $23.62 billion for the month of April 2013, a 0.6% increase from the previous month when sales were $23.48 billion, but down slightly from the April 2012 total of 24.06 billion. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average. Additionally, a new WSTS industry forecast projects moderate growth for the remainder of 2013 and 2014.

"With modest but steady gains in semiconductor sales in recent months and stronger growth projected for the remainder of this year and 2014, the global semiconductor industry is heading in the right direction as summer approaches, despite a stubbornly sluggish macroeconomic environment," said Brian Toohey, president and CEO, Semiconductor Industry Association. "Industry sales continue to narrowly outpace 2012 totals thanks largely to strong demand for memory and logic products, and we expect to expand this growth as the year progresses. Congress and the Administration can help enable the industry to take the next step forward by enacting policies that promote growth and innovation."

Regionally, sequential monthly sales increased in Asia Pacific (2%), but decreased in the Americas (-0.6%), Europe (-0.6%) and Japan (-2.9%). Compared to April 2012, sales increased in Asia Pacific (3%) and Europe (0.4%), but fell in the Americas (-4.4%) and Japan (-19.4%), in part due to the devaluation of the Japanese yen.

Additionally, SIA today endorsed the WSTS Spring 2013 global semiconductor sales forecast, which projects the industry’s worldwide sales will reach $297.8 billion in 2013, a 2.1% increase from the 2012 sales total. WSTS predicts year-over-year increases for 2013 in Asia Pacific (5.7%), Europe (5.3%) and the Americas (1.6%), but a sharp decline in Japan (-13.8%).

Beyond 2013, the industry is expected to grow steadily and moderately across all regions, according to the WSTS forecast. WSTS predicts 5.1% growth globally for 2014 ($312.9 billion in total sales) and 3.8% growth for 2015 ($324.9 billion). WSTS tabulates its semi-annual industry forecast by convening an extensive group of global semiconductor companies that provide accurate and timely indicators of semiconductor trends.


WSTS Forecasts Semiconductor Market Recovery in 2013 after Slight Decline in 2012 (Charts 22-24)

The World Semiconductor Trade Statistics (WSTS) has released its updated semiconductor market forecast that the world semiconductor market in 2013 will be US$298 billion, up 2.1% from 2012. The market is expected to recover gradually throughout 2013, with estimates of slight recovery of global economy and stable growth of product categories related to smart phones, tablets and automotive. On the other hand, product categories which are related to PCs are forecasted to decline from 2012. By region, only Japan market is forecast to decline from 2012. Steep JPY depreciation compared to 2012 is another negative factor for the market.

Worldwide semiconductor market is forecast to be up 5.1% to US$313 billion in 2014 surpassing historical high of 2011 which registered US$300 billion. For 2015, the market is forecast to be US$325 billion, up 3.8%. All product categories and regions are forecasted to grow positively in each year, with assumption of continuing recovery of global economy throughout the forecast period.


Fab Equipment Spending Will Grow 2% Year-Over-Year (US$ 32.5 Billion) for 2013 and 23-27% in 2014 ($41 Billion) (Chart 25)

Strong second half pulls 2013 finally into positive territory, 2014 growth in double digits

Fab equipment spending will grow 2% year-over-year (US$ 32.5 billion) for 2013 and 23 to 27% in 2014 ($41 billion) according to the May edition of the SEMI World Fab Forecast. Fab construction spending, which can be a strong indicator for future equipment spending, is expected to grow 6.5% ($6.6 billion) in 2013, followed by a decline of 18% ($5.4 billion) in 2014. The new World Fab Forecast report covers fab information on over 1,100 facilities, including such details as capacities, technology nodes, product types, and spending for construction and equipment for any cleanroom wafer facility by quarter. Reported spending reported includes new, used and in-house equipment for volume fabs to R&D, for product types such as IC facilities, Discretes, and LEDs.

Fab Equipment Spending Growth Reaches into Positive Territory

The second half of 2013 is expected to be much stronger with a 32% growth rate or $18.5 billion compared to 1st half of 2013 ($13.9 billion). The equipment spending increase in the second half is attributed to growing semiconductor demand and improving average selling price for chips. 2014 is expected to have 23 to 27% growth of $41 billion year-over-year (YoY), which would be an all-time record.

Looking at product types, the largest amounts of spending on fab equipment in 2013 will come from the foundry sector, which increases by about 21%. This is driven mainly by capex increases by TSMC. The memory sector is also expected to have an increase of only one percent, which is still impressive after a 35% decline in the previous year. The MPU sector is expected to grow by about five percent. A double-digit increase in the Analog sector in 2013 will still translate into low absolute dollar amounts, compared to the other sectors mentioned.

Fab Equipment Spending by Product Type over Time

2014 is expected to be a growth year for fab equipment spending for almost all major product segments. For example, spending for memory is expected to increase over 40%, but spending amounts are not expected to exceed what was seen in 2010 or 2011. MPU is expected to increase by over 50%, driven mainly by the ramp of 14nm facilities. The foundry sector is still expected to have the highest spending for fab equipment on 2014, but growth rate may slow to about 15%.

Construction Projects: Indicator for more Future Equipment Spending

Typically construction spending is a good indicator for more equipment spending in the future, because any fab built will need to be equipped.

Fab construction spending in 2013 has improved to almost 15% growth YoY growth ($6.6 billion) with 38 known construction projects. Last year (2012), the number of projects was higher, but the total dollar amount much less with $5.8 billion. This year fewer but much larger projects are under way.

2014 shows a decline of about 18% ($5.4 billion) in construction spending with only 21 construction projects expected to be on-going. However, these construction projects include large fabs and some are 450mm-ready. If only a couple of new fabs start construction soon, fab construction spending will improve a lot for 2014.

Top spenders for fab construction in 2013 are TSMC and Samsung, who plan to spend between $1.5 and $2 billion each, followed by Intel, Globalfoundries and UMC. Details in the World Fab Forecast report may hint at some surprises.

Fab Forecast: Cautious but more Optimistic

Compared to other published forecasts in the industry, the SEMI World Fab Forecast shows the same trends for fab equipment in 2014; however, SEMI’s projections about 2013 differ. Two prior fab database reports predicted 0% growth in equipment spending, but SEMI now expects two percent growth YoY. Capital expenditure for semiconductor companies is expected to grow three percent in 2013 and 12% for 2014. Demand keeps increasing such as media tablets and smart phones, ASP for chips are expected to improve and many revenue predictions for 2013 are in the strong single digits. Overall, the scenario remains cautious but more optimistic than in prior forecasts.


JPMorgan Global PMI=50.6 in May

Global manufacturing growth remains marginal in May

The global manufacturing sector eked out further marginal expansions of production and new business during May, with rates of growth ticking higher for both.

At 50.6 in May, up from 50.4 in April, the JPMorgan Global Manufacturing PMIT - a composite index* produced by JPMorgan and Markit in association with ISM and IFPSM - was only marginally above its key mark of 50.0 that separates expansion from contraction.

Manufacturing production increased for the seventh successive month in May. The rate of expansion was modest and in line with the average for the current sequence of increase.

Incoming new orders rose for the fifth consecutive month in May. The rate of increase picked up slightly compared to April, but was nonetheless only moderate. The trend in new export business also remained near-stagnant.

The US, Japan, Germany, the UK and Brazil all reported higher levels of new business. Demand continued to weaken in the eurozone, extending the current period of decrease to two years. However, the rate of contraction at euro area manufacturers eased sharply.

Manufacturers in Asia showed further signs of slowdown, as levels of new business received in China, Taiwan and Vietnam all fell back into contraction and India registered only a slight increase.

Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said: "Although the global manufacturing sector recorded further growth of output in May, the rate of expansion remains sluggish. The good news is that the survey's leading indicators of new orders and finished goods inventory are moving in a constructive fashion, hinting that output growth might pick up into midyear. These indicators need to be watched carefully in the next few months’ higher levels of new business.


U.S. May 2013 Manufacturing PMI at 49 (Chart 26)

  • New Orders, Production and Inventories Contracting
  • Employment Growing
  • Supplier Deliveries Faster

Economic activity in the manufacturing sector contracted in May for the first time since November 2012, and the overall economy grew for the 48th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

Bradley Holcomb, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee stated. "The PMI registered 49%, a decrease of 1.7 percentage points from April's reading of 50.7%, indicating contraction in manufacturing for the first time since November 2012 and only the second time since July 2009. This month's PMI™ reading is at its lowest level since June 2009, when it registered 45.8%. The New Orders Index decreased in May by 3.5 percentage points to 48.8%, and the Production Index decreased by 4.9 percentage points to 48.6%. The Employment Index registered 50.1%, a slight decrease of 0.1 percentage point compared to April's reading of 50.2%. The Prices Index registered 49.5%, decreasing 0.5 percentage point from April, indicating that overall raw materials prices decreased from last month. Several comments from the panel indicate a flattening or softening in demand due to a sluggish economy, both domestically and globally."

What respondents are saying …

  • "Government spending has tightened which has moved out program awards and caused some reduction in force." (Computer & Electronic Products)
  • "Market outlook is relatively flat, with some promise of raw materials inflation relaxing." (Electrical Equipment, Appliances & Components)
  • "General economy seems sluggish and pensive. Buyers are not buying much beyond lead times." (Fabricated Metal Products)
  • "Downturn in European and Chinese markets is having a negative effect on our business." (Machinery)
  • "Decline in sales for FYQ2 over same period a year ago due to softer demand [in] both domestic and exports." (Chemical Products)


Eurozone Manufacturing PMI - Downturns Ease in all Nations Covered

  • Eurozone manufacturing downturn mildest in 15 months in May
  • Final Eurozone Manufacturing PMI at 48.3 in May
  • Downturns ease in all nations covered
  • Price deflationary pressures remain, as input costs and output prices fall further

Manufacturing PMI (overall business conditions)

The Eurozone manufacturing downturn eased for the first time in four months in May. Moreover, all sub-indices from the latest survey improved on the earlier flash estimates except suppliers' delivery times. At a 15-month high of 48.3 in May, up from April's four-month low of 46.7, the seasonally adjusted Markit Eurozone Manufacturing PMI indicated the slowest pace of contraction since February 2012. Business conditions still deteriorated overall, however, with the current downturn extended to a twenty-second month.

PMIs for all of the nations covered by the survey signaled weaker rates of contraction in May. The German PMI signaled the slowest rate of contraction overall and moved close to the stabilization level as output and new orders both rose for the first time in three months. Downturns in the Netherlands and Austria were also only moderate.

Countries ranked by Manufacturing PMI:

Germany 49.4     3-month high
Netherlands    48.7 3-month high
Austria 48.2 3-month high
Spain 48.1 24-month high
Italy 47.3 4-month high
France 46.4 13-month high
Greece 45.3 23-month high

The outlook for the sector remained mixed in May. On the positive side, the cyclically sensitive new orders to-finished goods inventory ratio surged to its joint - highest level in the past two years. However, there remained some downside risk to the outlook, as companies' cautious approaches to stock holding and purchasing decisions led to further declines in input buying and holdings of both raw materials and finished goods.


Chris Williamson, Chief Economist at Markit said: "Although the euro area manufacturing economy continued to contract in May, it is reassuring to see the rate of decline ease to such a marked extent. The sector still seems some way off stabilizing, however, and therefore remains a drag on the economy."

Despite the final PMI coming in above the flash reading, the surveys still suggest that GDP is likely to have fallen 0.2% in the second quarter, extending the region's recession into a seventh successive quarter."

Policymakers will nevertheless be pleased to see the downturn not getting any worse, suggesting the ECB will see no immediate need for further action at its June meeting. In particular, the surveys brought good news in terms of signs of stabilization in Germany and export-led growth in Italy and Spain, the latter suggesting structural reforms are boosting competitiveness.

"France remains a key concern, having contracted at a steeper rate than Spain and Italy throughout the year so far.

The ongoing marked fall in employment and the steepest drop in factory gate prices for three- and-a-half year also act as sobering reminders that the region faces the twin problems of unemployment rising to new record highs and underlying deflationary pressures."


Global NAND Flash Memory Industry Output Value Will Climb 27.2% to US$25.7 Billion in 2013

DRAMeXchange raises outlook for 2013 NAND flash output value

Output value for the global NAND flash memory industry will climb 27.2% to US$25.7 billion in 2013, buoyed by growth in end-market demand and stable chip prices, according to DRAMeXchange.

DRAMeXchange previously predicted that the industry output value would rise 25.5% in 2013. The growth was originally estimated at 15%.

Along with its better outlook for the global NAND flash output value in 2013, the overall NAND flash bit demand growth is now forecast to reach 48.8% in 2013, DRAMeXchange said. It previously estimated demand growth at 47.7%.

Brisk smartphone and tablet sales will spur demand for NAND flash chips in 2013. The global smartphone market for the year will total about 935 million units, representing a 38% increase, while tablet shipments will top 200 million units in 2013 to exceed the number of notebooks that will be shipped, DRAMeXchange said.

On the supply side, chipmakers continue to adopt a cautious attitude toward fab expansion, and produce new output through transitions to a newer process, DRAMeXchange observed. Growth in NAND flash bit supply will stand at only 41.5% in 2013, DRAMeXchange said.


AMOLED demand to grow from 263,000 square meters in Q1'13 to 557,000 square meters in Q1'14 (Chart 27)

Tight Supply of AMOLED Mobile Phone Panels Expected in 2H’13

Rapidly growing demand for smartphones with larger displays is one of the most positive drivers of the FPD industry in 2013. AMOLED phone panel shipments are projected to reach more than 217 million units this year, up from 134 million units in 2012, which, along with increasing screen sizes, will lead AMOLED demand to grow from 263,000 square meters in Q1’13 to 557,000 square meters in Q1’14.

According to the latest NPD DisplaySearch Quarterly FPD Supply/Demand and Capital Spending Report, the supply of AMOLED panels is expected to tighten in the second half of this year, with the supply/demand ratio expected to fall to 1% in Q4’13. This level means there will be no slack for any supply disruptions, and could lead to shortages.

"Samsung Display still produces the vast majority of commercially available AMOLEDs, and these are mainly used in smartphones. With the recent release of the Galaxy S4 with a 5" full HD AMOLED display, Samsung will need to run its AMOLED fabs at maximum capacity to keep up with expected high demand," stated Charles Annis, Vice President of Manufacturing Research at NPD DisplaySearch.

"As the supply/demand ratio is expected to tighten dramatically, Samsung is moving to significantly extend capacity at its A2 Gen 5.5 fab this year and next. Additionally, the company may also accelerate its plan for A3, another new AMOLED production line," added Annis.

Availability of large-area FPDs (mostly TFT LCD) is also expected to tighten throughout 2013. As prices for TVs continue to fall, consumers are moving to larger sets, helping to drive an increase in area demand. Large-area supply/demand is forecast to decline from 21.9% in Q1’13 to 11.8% in Q3’13. As a result, average fab utilization will likely rise above 85%. With TFT capacity forecasted to grow only 4% in 2014 and demand likely to increase 10%, the tightening is forecast to continue to Q3’14, when large area FPD supply/demand is projected to fall to a very tight 6%.

"Rapid growth of smartphones and tablets, in conjunction with the continued shift towards larger average TV sizes, are driving a recovery of the FPD industry. In Q4’12, average operating margins for FPD manufacturers turned positive for the first time since Q3’10, and this trend is forecast to continue. Additionally, the outlook for fab utilization, equipment spending and technology upgrades is improving this year and potentially will continue into 2014," added Annis.


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.
搜索 MarketEYE
TTI Insights