Global PMI Leading Indicator Up Slightly in May

The global business outlook improved slightly in May as the JPMorgan Purchasing Manager's Index increased slightly from April (Chart 1). However PMI growth varied significantly by region (Chart 2) with the world, the U.S., China, Japan and Taiwan improving while Europe and South Korea declining. Keep in mind that of PMI=50 is the dividing line between expansion and contraction and for example China's May PMI of 49.4 still indicates contraction but at a slower pace than in April. By the same reasoning Europe is still expanding but at a slightly slower pace.

Global Semiconductor Sales Increase in April; Sustained Growth Projected for 2014 & 2015 (Charts 3-6)

  • Year-to-date sales remain well ahead of last year's pace
  • WSTS forecast projects growth of 6.5% in 2014 and 3.3% in 2015

The Semiconductor Industry Association (SIA) announced that worldwide sales of semiconductors reached $26.34 billion for the month of April 2014, an increase of 11.5% from the April 2013 total of $23.62 billion and a slight uptick of 0.7% compared to last month's total of $26.15 billion. Sales in the Americas increased 14.7% year-over-year in April, leading all regions. 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 continued growth for 2014 and 2015.

"The global semiconductor market maintained its strong momentum in April, with year-over-year sales increasing across every region and product category," said Brian Toohey, president and CEO, Semiconductor Industry Association. "The market remains well ahead of the pace set in 2013, which was a record year for semiconductor revenues. April marked the twelfth consecutive month that year-over-year sales have increased, and we expect that trend to continue during the remainder of 2014 and into 2015."

Beyond 2014, the industry is expected to grow steadily and moderately across all regions, according to the WSTS forecast. WSTS predicts 3.3% growth globally for 2015 ($336.1 billion in total sales) and 4.3% growth for 2016 ($350.5 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 to Keep Steady Growth until 2015 (Charts 7&8)

The World Semiconductor Trade Statistics (WSTS) has released its updated semiconductor market forecast. WSTS predicts that the world semiconductor market will reach US$325 billion in 2014, up 6.5% from 2013. All major product categories will show a high single digit growth rate, except microprocessors which will show a soft decline. The growth will be largely driven by smartphones, tablets and automotive. The highest growth rates are shown for the Analog (9.1%) and Sensor (9.1%) category. By region, all regions except Japan will grow from 2013. Japan market is forecasted to decline from 2013 in U.S. dollar basis due to JPY depreciation compared to 2013.

Solid growth for all product categories is expected to continue over the next two years, under the assumption of macro economy recovery throughout the entire forecast period. Worldwide semiconductor market is forecasted to be up 3.3% to US$336 billion in 2015. For 2016, the market is forecasted to be US$350 billion, up 4.3%.

By end market, automotive and communications (especially wireless) are expected to grow stronger than the total market, whereas consumer and computer are assumed to remain almost flat.

By region, Asia-Pacific will be the fastest growing region and expected to reach US$207 billion in 2016, which is almost a 60% share of the total semiconductor market.

European Semiconductor Distribution Market (DMASS) Sees a Good Start into 2014 (Charts 9&10)

  • Q1/CY14 grew by 7.7% over Q1/CY13
  • Germany recovered from unusual weakness
  • Discretes & Power outshine other technologies

The European semiconductor distribution industry seems to be back on its track of slowly strengthening its position in the European high-tech industry. According to DMASS (Distributors' and Manufacturers' Association of Semiconductor Specialists) semiconductor distribution sales in Q1/CY14 grew by 7.7% to 1.6 billion euro. Specifically core markets in Western Europe have stabilized.

Georg Steinberger, chairman of DMASS, reviewed the results: "The weak forces of 2012 and 2013 are behind us. In most of the major regions, the market enjoyed high single- digit or even double-digit growth. The continued average selling price pressure notwithstanding, distribution shows a good performance. Order books are full, we are looking ahead to a very positive 2014."

From a regional perspective, the main message is that Germany is slowly recovering from its lackluster performance over the last two years. Germany grew by 6.6% to 511 million euro, representing now 32% of the total market. Similarly, the Italian market is recovering from its macro-economic crisis and grew by 12.7% to 157 million euro. UK sales increased by 10.6% to 136 million euro, France grew by 7.6% to 124 million euro and Eastern Europe (w/o Russia) by 12.5% to 178 million euro. Structural reasons in the Nordic region resulted in a decline of sales by 4.6% to 146 million euro.

Georg Steinberger: "It seems that the crisis mode in some Western European countries is over - Italy and Spain have reported double-digit growth rates, catching up with their old strength. Germany slowly regains its old position although the last quarter still was under-average."

Looking at product categories, commodities did surprisingly well -Discretes grew by 16.9% (90 million euro), Power Discretes by 14.5% (166 million euro), Standard Logic by 9.7% (30 million euro) and Standard Analog by 7.1% (377 million euro). Optoelectronics grew by 9.1% (158 million euro), here first and foremost LEDs, which increased by double digits. While most Memories suffered from price weakness and stayed flat (+1% to 123 million euro), MOS Micro enjoyed a 10.7% growth, to 334 million euro. Programmable Logic again proved disappointing, with a decline of 3.8% to 124 million euro.

Georg Steinberger: "The clearest trend in semiconductor distribution at the moment seems to be the shift from low-end MCUs and Stand-Alone DSPs to 32-Bit architectures, predominantly ARM. Also very positive is the development of High-Power LEDs for the various lighting market segments. Programmable Logic on the other hand still waits for its final recovery - after six consecutive quarters of below-average performance."

Smartphone Component Makers Have Conservative Shipment Outlooks for June & July 2014 Due to High Inventories in the End Market

Vendors such as Samsung Electronics and first-tier vendors in China have all decreased their orders to supply chains amid high reserves for products as well as to adjustments in product mixes.

Taiwan smartphone supply chains in particular are reliant on orders from China vendors so the decreased orders may affect panel makers' and touch panel makers' performances during the period.

The supply chains are optimistic, however, about the potential business opportunities from China vendors in the second half of 2014 due to 4G developments, the sources said.

Fab Equipment Spending: 24% in 2014 with Possible Record in 2015 (Charts 11&12)

According to the IMF and predictions by many other market research firms, 2014 and 2015 are expected to be growth years, comparable to or even better than the past few years. After years of decline, even the Euro area will show positive GDP growth in 2014 and 2015, signaling a strengthening recovery.

SEMI now predicts about 24% growth (to about US$35.7 billion) for fab equipment spending (new, used, in-house) for Front End facilities in 2014 and about 11% growth (to about US$39.5 billion) in 2015. In terms of equipment spending, 2015 may surpass all-time record year 2011.

In 2014, the three largest regions for fab equipment spending will be Taiwan with over US$10.3 billion, the Americas with over US$6.8 billion, and Korea with over US$6.3 billion. In 2015, these same regions will lead in spending: Taiwan will spend over US$11 billion, Korea over US$8 billion, and the Americas almost US$7 billion. Although in sixth place in 2014 for the total amount projected to be spent on fab equipment, the Europe/Mideast region will show the strongest rate of growth.

According to SEMI, 2013 was an all-time record year for construction projects for semiconductor Front End facilities (new and refurbish existing fabs) with over US$9 billion spent. Although less construction projects will occur during 2014 and 2015, there are still a few significant new fabs being constructed or in planning stages, in regions such as Europe/Mideast, Japan, U.S., and Taiwan. Thirty facilities (including Discretes and LEDs) will begin volume production in 2014 and 2015.

Excluding foundries, existing and known, currently planned IC volume fabs will reach full capacity by 2018. Considering the diminishing prospect for high volume 450mm fabs in the immediate future and that overall capacity is lost when upgrading facilities to leading-edge nodes, the industry must add more 300mm fabs to meet demand. The timeline to build and equip these new complex facilities, about 1.5 years, suggest that new 300mm fab plans will need to start by next year.

PC Outlook Remains Subdued Despite Some Gains in Mature Markets (Chart 13)

Worldwide PC shipments are expected to fall 6.0% in 2014, a slight adjustment from the previous forecast of -6.1%, according to the International Data Corporation (IDC). Mature regions benefitted primarily from a recovery surge in Western Europe while other mature regions performed modestly above expectations in the first quarter of 2014 (1Q'14). Emerging regions continued to see weak demand and difficult conditions, although the economic environment in Latin America had the largest impact. The impact to emerging regions ‐ a cornerstone of long-term market stability ‐ outweighed the short-term boost seen in mature regions. As a result, longer-term growth was lowered slightly (by less than a percent for 2015-2017), with 2015 at -1.6% year on year with subsequent years still between 0 and -1% growth.

Positive factors for the PC market include slowing tablet demand and steadying economic indicators that are contributing to more stable PC shipments in mature markets. The Windows XP replacement activity that boosted shipments in the past several quarters is also expected to remain a positive factor for a few more quarters.

Despite the pockets of opportunity, weakening growth in emerging regions and continuing pressure from other devices ‐ primarily smartphones and tablets ‐ continue to push down the long-term outlook. Consumer interest in PCs remains constrained and price-sensitive, as evidenced by overall market declines and still modest ultraslim notebook results, even as Chromebook vendors and channels expand and boost volume in this low-end segment.

"PC shipments are currently benefitting from a lull in tablet demand due to rising tablet penetration in mature regions and competitive pressure on smaller tablets from large-size smartphones (sometimes referred to as Phablets)," said Loren Loverde, Vice President, Worldwide PC Trackers. "However, the transition toward mobile and cloud-based computing is unstoppable. PCs continue a slow transition toward touch and slim designs, even as tablet volume is expected to pass total PC volume in the fourth quarter of 2014 and on an annual basis in 2016. To return to growth, the PC industry is going to need to accelerate the shift to lower-cost, thin, and touch-based designs, despite the challenges it has faced with these designs in the past."

Weak High-End Demand Results in Worldwide External Disk Storage Systems Revenue Falling at Rates Not Seen Since 2009 (Charts 14 & 15)

Worldwide external disk storage systems factory revenues fell 5.2% year-over-year to $5.6 billion during the first quarter of 2014 according to the International Data Corporation (IDC). For the quarter, the total (internal plus external) disk storage systems market generated $7.3 billion in revenue, representing a decrease of 6.9% from the prior year's first quarter and a sequential decline of 17% compared to the seasonally stronger 4Q'13. Total disk storage systems capacity shipped was 9.9 exabytes, growing just 19.9% year-over-year.

Worldwide external disk storage systems factory revenues fell 5.2% year-over-year to $5.6 billion during the first quarter of 2014 according to the International Data Corporation (IDC). For the quarter, the total (internal plus external) disk storage systems market generated $7.3 billion in revenue, representing a decrease of 6.9% from the prior year's first quarter and a sequential decline of 17% compared to the seasonally stronger 4Q'13. Total disk storage systems capacity shipped was 9.9 exabytes, growing just 19.9% year-over-year.

Worldwide Hardcopy Peripheral Shipments Grew 2.1% y/y to 26.4 Million Units in 1Q'14 (Charts 16 & 17)

The worldwide hardcopy peripherals (HCP) market grew for the third quarter in a row to 26.4 million units shipped in the first quarter of 2014 (1Q'14) resulting in 2.1% year-over-year growth, according to the International Data Corporation (IDC). The two biggest regions, Asia/Pacific (excluding Japan) and Western Europe, recorded year-over-year increases of 5.5% and 7.1% to 7.7 and 5.4 million units shipped, respectively.

Three of the global top five vendors ‐ HP, Epson, and Brother ‐ recorded year-over-year growth in 1Q'14. HP benefited from the Ink Advantage program for end customers and promotions to channels and end-users. Epson's year-over-year increase was due to the vendor's multifunction printer (MFP) expansion. The Expression series continued to lead the way as Epson renewed its instant rebate program ranging from $20 to $150 on most of the models in this series.

Other notable results include Ricoh's making the worldwide top five list for laser printers for the first time ever. The vendor achieved outstanding results in both EMEA and Asia/Pacific (excluding Japan). Year-over-year growth of 9.8% was helped by the vendor's recent ramp up in color MFPs. Ricoh has also been pushing its "Services-Led Approach" among its channel partners, which is slowly beginning to pay off.

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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