Global PMI Flat; U.S. and Europe Up, Asia Down

JPMorgan’s Global PMI leading indicator was little changed in July versus June as it hovered slightly above the "no growth" mark of PMI=50 (Chart 1).

The PMI results varied significantly by geography with Europe and the U.S. improving and the key Asia countries all declining (Chart 2).


2Q’Global Electronic Equipment Growth by Sector

Based on still incomplete financial data from 115 large, global OEMs, electronic equipment shipments rose 0.6% in 2Q’13 versus 2Q’12 (Chart 3). We modified our methodology to include all vendors’ media tablet shipments. This added about 4% to Q2’13 computer growth and about 1% to total electronic equipment growth.

Chart 4 shows historical quarterly equipment growth and Chart 5 compares electronic equipment to semiconductor shipment growth on a global basis.

Chart 6 summarizes growth by sector. Note that financial information supporting these charts is still incomplete because many companies either report their financials late or close their quarter at the end of July rather than June.

Source: Custer Consulting Group analysis of company financial data

June Semiconductor Shipments up 2.1% with SE Asia and North America Up, Europe Flat and Japan Down Significantly

Global semiconductor shipments rebounded in June (Chart 7) with Charts 8, 9 & 10 summarizing growth by region.

Shipments of semiconductors to North America (Chart 11) rose strongly (10.6%) signaling either optimism for future electronic assembly or over ordering/inventory building of chips. Of concern is that domestic electronic equipment shipments were down 6% for the same period (Chart 12).

Custer Consulting Group’s global semiconductor leading indicator still points to only modest growth in the near term (Chart 13).


June U.S. Electronics Demand

The U.S. "Factory Orders" report was just released providing more information (than last week’s Durable Goods report) regarding domestic electronic equipment and component shipments, orders & inventories.

  • Defense and Search and Navigation equipment orders were the only equipment groups that rose significantly (Charts 14 & 15).
  • Inventories rose for all equipment groups except Search and Navigation (Chart 16).
  • Vehicle shipments were flat (Chart 17).
  • Aircraft shipments declined due to a decline in non-military sales (Chart 18).
  • Defense capital goods (Chart 19) and military electronics (Chart 20) orders improved.
  • Electromedical, Measurement and Control Equipment orders dipped slightly (Chart 21).
  • Passive component demand remained stagnant (Charts 22 to 24) however passive component orders appear in balance with electronic equipment demand (Chart 25).


Worldwide Semiconductor Revenue Will Grow 6.9% and Reach $320 Billion in 2013 - IDC

Semiconductor revenue worldwide will see improved growth this year of 6.9% and reaching $320 billion according to the mid-year 2013 update of the Semiconductor Applications Forecaster (SAF) from International Data Corporation (IDC). The SAF also forecasts that semiconductor revenues will grow 2.9% year-over-year in 2014 to $329 billion and log a compound annual growth rate (CAGR) of 4.2% from 2012-2017, reaching $366 billion in 2017.

Continued global macroeconomic uncertainty from a slowdown in China, Eurozone debt crisis and recession, Japan recession, and the U.S. sequester’s impact on corporate IT spending are factors that could affect global semiconductor demand this year. Mobile phones and tablets will drive a significant portion of the growth in the semiconductor market this year.

The industry continued to see weakness in PC demand, but strong memory growth and higher average selling prices (ASPs) in DRAM and NAND will have a positive impact on the semiconductor market. For the first half of 2013, IDC believes semiconductor inventories decreased and have come into balance with demand, with growth to resume in the second half of the year.

"Semiconductors for smartphones will see healthy revenue growth as demand for increased speeds and additional features continue to drive high-end smartphone demand in developed countries and low-cost smartphones in developing countries. Lower cost smartphones in developing countries will make up an increasing portion of the mix and moderate future mobile wireless communication semiconductor growth. PC semiconductor demand will remain weak for 2013 as the market continues to be affected by the worldwide macroeconomic environment and the encroachment of tablets," said Nina Turner, Research Manager for semiconductors at IDC.

According to Abhi Dugar, research manager for semiconductors, embedded system solutions, and associated software in the cloud, mobile, and security infrastructure markets, "Communications infrastructure across enterprise, data centers, and service provider networks will experience a significant upgrade over the next five years to support the enormous growth in the amount of data and information that must be managed more efficiently, intelligently, and securely. This growth is being driven by continued adoption of rich media capable mobile devices, movement of increasingly virtualized server workloads within and between datacenters, and the emergence of new networking paradigms such as software defined networking (SDN) to support the new requirements."

Regionally, Japan will be the weakest region for 2013, but IDC forecasts an improvement over the contraction in 2012. Growth rates in all regions will improve for 2013 over 2012, as demand for smartphones and tablets remain strong and automotive electronics and semiconductors for the industrial market segment improve in 2013.

Other key findings from IDC's Semiconductor Application Forecaster include: Semiconductor revenue for the computing industry segment will log year-over-year growth of 2.0% for 2013 and will show a slow CAGR of only 0.9% for the 2012-2017 forecast period. Semiconductor revenue from mobile PC demand will register year-over-year growth of -0.6% in 2013, only returning to positive growth in 2015.

Semiconductor revenue for the mobile wireless communications segment will grow 10.3% year over year in 2013 with a CAGR of 5.2% for 2012-2017. Semiconductor revenue for 4G phones will experience an annual growth rate of 121.8% in 2013 and a CAGR of 37.9% for 2012-2017.

Media tablets, e-Readers, blu-ray DVD players, and set-top boxes will continue to drive above average semiconductor revenue growth. Sales of CRT and rear projection TVs, HD receivers, digital video and still cameras, and DVD recorders and players will continue to erode. Overall, semiconductor revenue for the consumer segment will record year-over-year growth of 15.0% in 2013 and a 2012-2017 CAGR of 7.5%.

The 4.3% year-over-year growth in 2013 in wired communications infrastructure semiconductors will be driven primarily by enterprise switches and routers, security appliances, and service provider switches and routers. Optical transport equipment, TDM and VoIP IMS, service provider head-end access equipment, and consumer network will also grow in 2013 over 2012, but to a lesser extent.

Driven by the increase in semiconductor content in automobiles (i.e. applications such as in-vehicle infotainment, automobile body electronics, and driver safety systems), semiconductor revenue for the automotive segment is expected to grow 5.3% in 2013.

Regionally, Asia/Pacific will experience year-over-year growth of 6.9% in 2013 and a CAGR of 4.9% for 2012-2017.


North America PCB Industry Results for June 2013; Revised 2013 PCB Forecast Lowered but Still Positive

IPC — Association Connecting Electronics Industries® announced today the June findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Based on the market's slow response to order growth this year, IPC has revised downward its 2013 PCB sales forecast.

June Results are Mixed

Total North American PCB shipments decreased 3.4% in June 2013 from June 2012, and bookings decreased 6.1% year over year. Year to date, PCB industry shipments were down 4.7% and bookings were down 1.3%. Compared to the previous month, PCB shipments in June were up by 12.0%, but bookings were down 3.6%. Shipments outpaced bookings in June for the first time in seven months, causing the PCB book-to-bill ratio to slip to 1.05, which is still a positive result.

Flexible circuit sales continued their year-on-year growth in June, but flex bookings growth remained below last year's levels. Rigid PCB sales and order both underperformed last year's levels, but the negative margin has been improving in recent months.

"Until this June, monthly PCB orders outpaced sales every month since January, which has produced positive book-to-bill ratios for the past six months," said Sharon Starr, IPC director of market research. "A turnaround in sales growth this year still seems likely, but is not happening as quickly as the leading indicators suggested. Based on the market's unusually slow response to order growth, and the industry slowdown worldwide, we are revising our outlook for 2013 North American PCB sales growth," she explained. "We expect to see sales strengthening in the second half of this year, resulting in 2013 sales growth of less than 1%."


PC and Tablet Combined Shipments to Grow 7% y/y to 493.1 Million Units in 2013

Research firm Canalys' latest forecasts for the PC market (desktops, notebooks and tablets) predict that 493.1 million units will ship in 2013, representing 7% on-year growth. The key driver behind the growth will be tablets, which will account for 37% of the market, up from around 25% in 2012. Looking ahead to 2017, Canalys expects that 713.8 million PCs will ship worldwide (a CAGR of 9.7%), with 64% being tablets and 25% notebooks.

The firm said that worldwide demand for tablets has gone from strength to strength, while that for desktops and notebooks has waned. In the first quarter of 2013, the desktop market fell 10.3% and the notebook market declined 13.1%. The size of the tablet market, however, more than doubled in the first quarter of 2013, with a 106.1% increase in shipments to 41.9 million units. Shipments show no sign of slowing and Canalys forecasts that in 2013 tablet shipments will reach 182.5 million units, with global tablet shipments surpassing those of notebooks in the final quarter of the year.

The reception to Windows 8 has not reinvigorated demand for Microsoft-based PCs but there is a glimmer of hope for OEMs with Microsoft's plan to release Windows 8.1 as a free upgrade. "Microsoft will continue to innovate. New versions will come and its OS release cycle will gain speed. But it must address some of the criticisms that have been directed at the OS's user interface or it risks losing even more ground to iOS and Android in the PC space," said Tim Coulling, senior analyst at Canalys.

A plethora of PC vendors have now come to market with cheaper Android devices, notably Acer, Asustek Computer and Hewlett-Packard (HP), but these vendors are joining a crowded market. "Shipment numbers can be high but absolute margins on these products are expected to be small. Low-price tablets will not be lucrative but it is necessary to compete or a vendor will simply lose relevance and scale. In fact, accessories, particularly cases, as well as the new generation of high-tech app-enabled accessories will likely provide higher margins than the products themselves," said Pin-Chen Tang, research analyst at Canalys. "This new influx of Android devices will provide a boost to the platform and Canalys therefore expects Android to take a 45% share in 2013, behind Apple at 49%. The iPad mini is expected to continue selling well, becoming more significant in terms of the product mix and spawning a further increase in consumer demand for smaller tablets.'

The great hope for Windows 8 was that it would unleash new PC form factors, combining the best of both PCs and tablets. But James Wang, an analyst at Canalys, noted, "These [2-in-1] convertible products have disappointed so far. Convertibles are too heavy in tablet form and too expensive when compared with clamshell products. Canalys therefore expects that, for at least the next 18 months, consumers will buy separate products, rather than compromise on a Windows 8 convertible or hybrid PC. Even for Android products, alternative form factors are not expected to grow rapidly due to the category being sandwiched between low-priced slates and more familiar Windows-based clamshell notebooks."

Another ray of light for PC vendors is that PC sales to businesses are, and will continue to be, far stronger than those to consumers. This trend favors the likes of HP and Lenovo, though competition will increase as others shift resources toward the commercial channels to maximize their opportunity.


Notebook Shipments were 39.4 Million Units during 2Q’13, up 0.4% on quarter

Notebook shipments attained 39.4 million in shipments during the second quarter of 2013, up 0.4% on quarter, while shipments of the top nine vendors in the market declined 0.7% on quarter, according to research firm WitsView.

Hewlett Packard's (HP) notebook shipments attained seven million units in the second quarter, up 10% on quarter, while Lenovo followed closely, attaining shipments of 6.1 million units for a 0.3% on-quarter increase. Acer and Asustek Computer meanwhile saw shipments rise 0.2% and 1%, respectively, during the second quarter, but Toshiba saw shipments decline 12.6% on quarter.

Based on WitsView's observations, vendors' shipments have faced turbulence since June 2013 and are being revised down for the following quarter, which should limit notebook shipment growth to 7-9% in the third quarter.


Shipments of Tablet PCs Expected to More Than Double Those of Notebook PCs in 2014

Shipments of tablet PCs are expected to reach nearly 364 million worldwide in 2014, more than doubling the projected 177 million shipments of standard notebook PC and ultra-slim PCs, according to the NPD DisplaySearch Quarterly Mobile PC Shipment and Forecast Report. In January, NPD DisplaySearch forecast that tablet PC shipments would exceed notebook PC shipments in 2013, and our latest research reveals that tablet PC shipments will continue to increase across all regions, particularly in emerging markets, as notebook PC shipments decline through 2017. Tablet PC shipments are projected to reach 589 million by 2017, while notebook PC and ultra-slim PC are forecast at 176 million.

"The PC market is clearly shifting away from notebooks and toward tablets," said Richard Shim, senior analyst with NPD DisplaySearch. "Supply chain indications reveal that previously planned production of notebook PCs is being pulled back due to declining adoption and that brands are gradually increasing the number of tablet PC models in their product mixes. Panel and finished goods suppliers are also increasing production of displays and other components for tablets in order to keep up with the market changes."

Tablet PC growth is fueled by increased adoption in emerging regions, where it is stifling notebook PC growth. PC penetration is low in emerging regions, and first-time PC buyers typically prefer a notebook PC. However, tablet PCs with lower prices, longer battery life, and more convenient usage models are replacing notebook PCs, which is leading to direct cannibalization.

The tablet PC market is also quickly evolving, offering more choices to a growing audience of potential buyers. Consumers can expect to see greater choice in screen sizes, as brands look to differentiate their products and exploit new market opportunities. Tablet PCs with screens smaller than 8" will account for 59% of the market (166 million units) in 2013, but they will account for 63% (277 million units) in 2015. New tablet PC screen sizes will include both 8" and 7.5" sizes, and manufacturers are expected to focus on tablets with prices that are attractive to middle-income buyers.

"Smaller tablets are important, because they will encourage adoption in emerging regions," Shim said. "Smaller screen sizes translate to lower priced tablet-PC options, since display panels tend to comprise just over a third of the total cost of a tablet, which makes them attractive in price-sensitive markets."


Global digital camera shipments for 2013 to contract 28% to 71 million units in 2013; Taiwan's shipments to fall 39.4% to 24 million units in 2013

Digital still camera shipments by Taiwanese contract makers will fall significantly in 2013 due to the popularity of smartphone cameras, according to a local market research firm.

Shipments of Taiwan-made digital still cameras are expected to drop by an annual 39.4% to some 24 million units this year, Digitimes Research said in a recent research note.

"The rise of smartphones has continued to reduce global demand for digital cameras," the research firm said, adding that sales are poor even in high season.

Global DSC shipments for 2013 will total 71 million units, down 28% annually, Digitimes forecast.

Major camera brands are shifting to more high-end products, such as 18-megapixel and 20-megapixel models and adding features such as 30x optical zoom lenses, in an effort to stand out from smartphone cameras, Digitimes said.


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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