World Industrial Production Growth

Chart 1 summarizes industrial production growth for key countries for the most recent month that this information is available compared to the same month in 2012.

Global Economy Has Probably Bottomed (Charts 2-5)

Thanks to my colleague Ed Henderson, below is the economic update section of his June "Henderson Electronic Market Forecast."

Saw-toothed results continue

During the last eight quarters there have not been two successive quarters of accelerating economic growth. That is, each upward expansionary thrust has been followed by a disappointing reversal. The first quarter of 2013 was no different, as shown below. Global GDP expanded at an annualized rate of 2.3% after a 2.0 percent gain in the fourth quarter of last year. On a 4-quarter moving average basis, world GDP decelerated again during the first quarter to 2.4% after a 2.6% gain during the prior period.

The ups and downs of world economic performance are personified by the U.S. statistics. GDP grew by 2.5% during the first quarter after a 0.4% gain during the fourth quarter of last year. Similarly, Japan saw its economic output jump from 0.2%in the fourth quarter to 3.5%in the first quarter of this year. Conversely, China decelerated sharply from 8.9% to 6.6%. West European growth actually strengthened, but output still declined by 0.4% during the first quarter. Eurozone statistics were considerably worse than West Europe overall. GDP fell at a 0.9% pace, thereby marking the sixth successive quarter that the single-currency region has been in recession. Economic output is still below levels reached prior to the financial crisis of 2008.

Eurozone’s core economies continue to struggle

Several EU members, including Switzerland, Poland and Hungary, posted positive growth during the first quarter. But within the Eurozone there was little good news. France slid at a 0.7% annualized rate while the German powerhouse managed only a stunted 0.3% increase.

The European Central Bank (ECB) loosened monetary policy further, but fiscal policies remain restrictive. Consequently, the economic outlook for West Europe is decidedly lackluster. GDP is predicted to slip by 0.4% this year after a 0.3% dip in 2012. And the rebound will be weak. A 0.6% rise in 2014 will be followed by only a 1.7% 2015 gain.

Abenomics propels Japan at a 3.5% rate

Prime Minister Abe celebrated his first full quarter of political leadership with a 3.5% GDP burst during the opening three months of 2013. Mr.Abe has promised a revitalization of the Japanese economy through liberalized monetary policy, deficit spending and structural reform. Looser monetary policy is certainly having its effect. The Bank of Japan (BOJ) has flooded the land with yen, thereby driving down the value of the Japanese currency to levels not seen in almost five years. The value of the yen has fallen from 78 per dollar in August 2012 to a May 22nd 2013 value of 103. As a result, exports have begun to recover. The resultant Nikkei 225 stock-market boom, up 80% since October 2012, has helped to loosen consumer purse strings. Unfortunately, business investment has not followed suit, as corporations take a wait-and-see attitude. Still, the Japanese economy is expected to grow by a modest 2.0% average during 2014 and 2015.

Downbeat Chinese economic news

As noted earlier, the Chinese economy decelerated dramatically during the first quarter. The 6.6% gain compares to 8.9% in the final quarter of 2012. Moreover, a less-buoyant longer-term trajectory is coming into view. That is, a growth rate of 9.3% was registered in 2011, but only a 7.8% advance was turned in last year. The Chinese economy has greatly benefited from foreign direct investment (FDI) and residential property speculation. But now, excess capacity in both sectors is tamping down potential investment gains. With the exception of strong automobile sales, consumer spending has been relatively weak. Inventory accumulations have adversely impacted manufacturing output, as evidenced by a preliminary Purchasing Manager Index of 49.6 for May. And inflated property values may be foreshadowing a speculative bust with significant fallout for the wider economy because real estate investment accounts for 8.8% of Chinese GDP.

Moreover, export markets are now threatened by the reduced competitiveness of manufacturing wages. The average wage paid by private companies was up 17.1% last year after an 18.3% jump in 2011. And although GDP is expected to accelerate after a 7.7% gain this year, forecast gains of 8.0% and 8.2% in 2014 and 2015, respectively, strongly suggest that the era of double-digit growth rates has permanently closed. But given the increasing magnitude of the Chinese economy, those growth rates will help prop up global performance during the next few years. By 2015, the world economy should be firing on most cylinders.

If you wish to get Ed’s complete 23 page Market Forecast on a monthly basis you can contact him at 1 650 961-2900 or

Worldwide Semiconductor Manufacturing Equipment Spending to Decline 5.5% in 2013 (Chart 6)

Outlook for Semiconductor Equipment Market Improves, but Remains Soft in Short Term

Worldwide semiconductor manufacturing equipment spending is projected to total $35.8 billion in 2013, a 5.5% decline from 2012 spending of $37.8 billion, according to Gartner, Inc. Gartner said that capital spending will decrease 3.5% in 2013, as major producers remain cautious in the face of market weakness.

"Weak semiconductor market conditions, which continued into the first quarter of 2013, generated downward pressure on new equipment purchases," said Bob Johnson, research vice president at Gartner. "However, semiconductor equipment quarterly revenues are beginning to improve and positive movement in the book-to-bill ratio indicates that spending for equipment will pick up later in the year. Looking beyond 2013, we expect that the current economic malaise will have worked its way through the industry and spending will follow a generally increasing pattern in all sectors throughout the rest of the forecast period."

Gartner predicts that 2014 semiconductor capital spending will increase 14.2%, followed by 10.1% growth in 2015. The next cyclical decline will be a mild drop of 3.5% in 2016, followed by a return to growth in 2017.

Although capital spending for all products will decline in 2013, logic spending will be the strongest segment, declining only 2% compared with a 3.5% decline for the total market. This is driven by aggressive investment of the few top players, which are ramping up production at the sub-30-nanometer (nm) nodes. Memory will continue to be weak through 2013, with maintenance-level investments for DRAM and a slightly down NAND market until supply and demand balance returns. For 2014, Gartner sees capital expenditure (capex) returning to growth with an increase of 14.2% over 2013. The foundry segment will see an increase in spending of about 14.3% this year, while both integrated device manufacturers (IDMs), and semiconductor assembly and test services (SATS) providers will show spending declines. Beyond 2013, (the forecast assumes) memory surges in 2014 and 2015 and a cyclical decline in 2016, while logic returns to a steady growth pattern.

The wafer fab equipment (WFE) market is seeing continuous quarter-over-quarter growth in 2013, as major manufacturers come out of a period of high inventories and a generally weak semiconductor market. Early in the year the book-to-bill ratio passed 1:1 for the first time in months, signaling that the need for new equipment is strengthening as demand for leading-edge devices is improving. Looking beyond 2013, Gartner sees growth returning to the WFE market with double-digit growth in 2014 and 2015, before a modest cyclical downturn in 2016.

The capital spending forecast estimates total capital spending from all forms of semiconductor manufacturers, including foundries and back-end assembly and test services companies. This is based on the industry's requirements for new and upgraded facilities to meet the forecast demand for semiconductor production. Capital spending represents the total amount spent by the industry for equipment and new facilities.

North American Semiconductor Equipment Industry Posts May 2013 Book-to-Bill Ratio of 1.08 (Charts 7 & 8)

North America-based manufacturers of semiconductor equipment posted $1.32 billion in orders worldwide in May 2013 (three-month average basis) and a book-to-bill ratio of 1.08, according to the May EMDS Book-to-Bill Report published by SEMI.

The three-month average of worldwide bookings in May 2013 was $1.32 billion. The bookings figure is 12.5% higher than the final April 2013 level of $1.17 billion, and is 18.1% lower than the May 2012 order level of $1.61 billion.

The three-month average of worldwide billings in May 2013 was $1.22 billion. The billings figure is 12.6% higher than the final April 2013 level of $1.09 billion, and is 20.5% lower than the May 2012 billings level of $1.54 billion.

"The SEMI Book-to-Bill continues to show steady improvement as the ratio remains at or above parity for the fifth consecutive month," said Daniel P. Tracy, senior director of Industry Research and Statistics at SEMI. "The spending outlook for the year is improving as foundries continue to invest in advanced technologies and NAND manufacturers plan to increase spending on equipment."

Worldwide External Controller-Based (ECB) Disk Storage Vendor Revenue Totaled $5.5 Billion in 1Q’13, up 0.6% in 1Q’12 (Charts 9 & 10)

"The first quarter 2013 results represent the 14th consecutive quarter of revenue growth," said Roger Cox, research vice president at Gartner. "However, facing the strong headwinds of a morose global macro-economy, the 0.6% increase is the slowest year-over-year growth rate since the fourth quarter 2009."

EMC, Fujitsu, Hitachi/Hitachi Data Systems (HDS) and NetApp beat the year-over-year market growth rate in the first quarter (see Table 1). Despite a negative revenue performance by EMC's midrange portfolio, EMC gained share based on the strength of its high-end VMAX, which grew 11.5% annually. Leveraging its year-end fiscal quarter, Fujitsu's focus on its Eternus-branded ECB disk storage products in EMEA beat market growth in all segments of the block-access market. In a reversal of historic patterns, Hitachi/Hitachi Data Systems gained share in the first quarter of 2013 based on the performance of its mid-range offerings, in particular the HUS Series and Hitachi Content Active Platform, while its high-end VSP fell short. Noting that clustered Data Ontap is gaining increased traction within its installed base and as a competitive alternative, NetApp displaced IBM as the second-largest ECB disk storage vendor in the first quarter of 2013.

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.

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