November "Flash" PMI Results

Markit Economics "Flash" PMIs for November rose in the USA, Europe and Germany but declined in China and France (Chart 1). These are the only countries for which "flash" data are reported.


Japan Update

JEITA recently released September shipments of electronic equipment, components and devices that were made in Japan.

  • September electronic equipment shipments were unseasonably strong (Charts 2 & 3).
  • PCB shipments rose (Chart 4) as their 3/12 growth rate (Chart 5) headed to a value of 1.0 (real growth vs. same period a year earlier).
  • Component and device growth rates (Chart 6) are now in positive territory (3/12>1).


N America-based Manufacturers of Semiconductor Equipment Posted $1.12 billion in Orders Worldwide in October 2013 (3-mon avg. basis) and a Book/Bill of 1.05 (Charts 7 & 8)

North America-based manufacturers of semiconductor equipment posted $1.12 billion in orders worldwide in October 2013 (3-month average basis) and a book-to-bill ratio of 1.05, according to SEMI.

The 3-month average of worldwide bookings in October 2013 was $1.12 billion, 13.3% higher than September 2013 and 51.4% higher than the October 2012.

The 3-month average of worldwide billings in October 2013 was $1.07 billion, 4.9% higher than September 2013 and is 8.7% higher than the October 2012.

"Both equipment orders and billings improved in the October data, resulting in a book-to-bill ratio returning above parity," said Denny McGuirk, president and CEO of SEMI. "Order activity is well above the figures reported one year ago and point towards on-going investments in advanced process technologies for NAND Flash, microprocessor, and foundry."


Smartphone Sales were 55% of Overall Mobile Phone Sales in 3Q'13 (Charts 9-13)

  • Western Europe Grew for the First Time this Year
  • Lenovo Became the No. 3 Worldwide Smartphone Vendor for the First Time

Worldwide mobile phone sales to end users totaled 455.6 million units in the third quarter of 2013, an increase of 5.7% from the same period last year, according to Gartner, Inc. Sales of smartphones accounted for 55% of overall mobile phone sales in the third quarter of 2013, and reached their highest share to date.

Worldwide smartphone sales to end users reached 250.2 million units, up 45.8% from the third quarter of 2012. Asia/Pacific led the growth in both markets - the smartphone segment with 77.3% increase and the mobile phone segment with 11.9% growth. The other regions to show an increase in the overall mobile phone market were Western Europe, which returned to growth for the first time this year, and the Americas.

"Sales of feature phones continued to decline and the decrease was more pronounced in markets where the average selling price (ASP) for feature phones was much closer to the ASP affordable smartphones," said Anshul Gupta, principal research analyst at Gartner. "In markets such as China and Latin America, demand for feature phones fell significantly as users rushed to replace their old models with smartphones."

Gartner analysts said global mobile phone sales are on pace to reach 1.81 billion units in 2013, a 3.4% increase from 2012. "We will see several new tablets enter the market for the holiday season, and we expect consumers in mature markets will favor the purchase of smaller-sized tablets over the replacement of their older smartphones" said Mr. Gupta.

While Samsung's share was flat in the third quarter of 2013, Samsung increased its lead over Apple in the global smartphone market. The launch of the Samsung Note 3 helped reaffirm Samsung as the clear leader in the large display smartphone market, which it pioneered.

Lenovo's sales of smartphones grew to 12.9 million units, up 84.5% year-on-year. It constantly raised share in the Chinese smartphone market.

Apple's smartphone sales reached 30.3 million units in the third quarter of 2013, up 23.2% from a year ago. "While the arrival of the new iPhones 5s and 5c had a positive impact on overall sales, such impact could have been greater had they not started shipping late in the quarter. While we saw some inventory built up for the iPhone 5c, there was good demand for iPhone 5s with stock out in many markets," said Mr. Gupta.

In the smartphone operating system (OS) market, Android surpassed 80% market share in the third quarter of 2013, which helped extend its leading position. "However, the winner of this quarter is Microsoft which grew 123%. Microsoft announced the intent to acquire Nokia's devices and services business, which we believe will unify effort and help drive appeal of Windows ecosystem," said Mr. Gupta. Forty-one per cent of all Android sales were in mainland China, compared to 34% a year ago. Samsung is the only non-Chinese vendor in the top 10 Android players ranking in China. Whitebox Yulong is the third largest Android vendor in China with a 9.7% market share in the third quarter of 2013. Xiaomi represented 4.3% of Android sales in the third quarter of 2013, up from 1.4% a year ago.


3Q'13 global DRAM revenue rises by 9% (Charts 14-17)

According to DRAMeXchange, a research division of TrendForce, the Q3 worldwide DRAM revenues showed a 9% QoQ increase despite the price growth in 3Q'13 being slower than that of 1H'13.

The Q3 revenue growth is mostly attributable to the improvements in the structure of the DRAM industry, and is likely to enable various DRAM vendors to sustain their profitability. On average, all three of the biggest DRAM manufacturers were able to enjoy an estimated 2% QoQ increase in their operating margins, with the output of PC DRAM being a key differentiating factor.

TrendForce's assistant vice president, Avril Wu, indicates that SK Hynix was able to enjoy an operating income growth of approximately 34% --beating Samsung for the second straight quarter-- thanks to the relatively larger output proportion of PC DRAM.

While the 2H'13 DRAM prices were originally expected to drop amid weak market demand, the fire accident experienced by SK Hynix's Wuxi plant in September helped turned things around by allowing the ASP uptrend to continue. In 2013, the total worldwide DRAM revenue is likely to experience an estimated growth of 40% compared to the previous year, with the three major DRAM manufacturers in the industry likely to enjoy the most significant profit momentum.

Looking at the branded DRAM manufacturer ranking for Q3, Samsung and SK Hynix each account for approximately 37% and 29% of the market, respectively. A part of the reason for the increased difference between the two manufacturers' revenue shares is that Samsung has raised the proportion of its PC DRAM as a means to reclaim territory in the market and to improve its profitability.

In the long run, the Korean company's capacity adjustments are likely to become increasingly more flexible as it seeks out other potential vendors to supply mobile DRAM components for its smartphones and increases the DRAM capacity in its Line 16 plant.

The added DRAM production is expected to be approximately 30K per month by the end of this year, and is likely to be enough to make up for the yield losses resulting from the company's 25nm process migrations. In the future, even if mobile DRAM components continue to account for the largest proportion of its product mix, Samsung's PC DRAM output is still likely to expand from 20% to around 25%. A noticeable impact on the future pricing movements can be expected should such an expansion occur.

With regard to SK Hynix, given that the Q3 PC DRAM price increase is lower than that of previous quarter, its revenue growth in 3Q'13 ended up being only 3.7% (compared to the 40.7% growth from 2Q'13). Regardless, the Korean company still managed to maintain respectable profit momentum, and saw a 34% increase in its operating margins, the highest among the DRAM manufacturers.

Looking ahead to 4Q'13, with SK Hynix's PC DRAM output shrinking from 35% to 25%, following the Wuxi plant fire accident, it is predicted that Samsung will eventually be able to reclaim its profit lead. The recovery period of the Wuxi plant, which remains unclear at the moment, will likely play a crucial role in determining 2014's pricing momentum.

When added together, Micron's and Elpida's revenue represents approximately 26.2% of the market, and is only 2% less than that of SK Hynix. The new Micron group's monthly output level has become the second largest in the industry following the markets transformation into an oligopoly in 3Q'13.

With the new company group's 30nm manufacturing process still relatively behind those of its major competitors and Elpida's average selling price being somewhere below the industry standard, the entire company's ability to profit in the short term is slightly impacted.

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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