Weekly Global Update for October 8, 2014

PMI Leading Indicators

Global PMI leading indicators are still in an expansion mode but they are weakening.

• The world electronic supply chain is experiencing low single-digit growth with the exception of semiconductors which are expanding at a +9% rate (Chart 1).
• PMI leading indicators weakened or were flat for all major regions in September (Chart 2).
• The global PMI remained in growth mode (PMI>50) but declined sequentially from August (Chart 3).
• The U.S. PMI which had been surging softened in September but still remained in solid growth territory (Chart 4).
• Asia’s PMI rate of expansion has plateaued (Chart 5) as has the major world regions (Chart 6).

U.S. August Electronics Related Shipments, Orders and Inventories

The U.S. Department of Census just released its August "Factory Orders" report. This is a more detailed version of the "Durable Goods" report released a week earlier.

• Electronic equipment orders remained well above shipments (Chart 7).
• Electromedical, instruments and control and communication equipment are driving the orders’ increase (Chart 8).
• Aircraft shipments remain strong (Chart 9). Non-defense aircraft orders have been VERY volatile – with a huge spike in July followed by a downward correction in September (Chart 10). This extreme volatility played havoc with overall Durable Goods order results.
• Military electronics orders rose (Chart 11).
• Electromedical, instrument and control bookings continue to surge (Chart 12).
• Passive component orders and shipments weakened sequentially (Chart 13) however their growth versus a year ago is positive (Chart 14).

Chart 15 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronics supply chain. The 3/12 "leads" the 12/12.

Source: www.census.gov/indicator/www/m3/

Worldwide Semiconductor Sales $28.4 Billion in August (Chart 16)

Sales increase 9.4% compared to last year and 1.3% over the previous month.

The Semiconductor Industry Association announced that worldwide sales of semiconductors reached $28.4 billion for the month of August 2014, an increase of 9.4% from August 2013 and an uptick of 1.3% over the July 2014. Year-to-date sales through August are 10.1% higher than they were at the same point in 2013. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a 3-month moving average.

"The global semiconductor market continued to demonstrate broad and sustained strength in August, and sales remain well ahead of last year’s pace," said Brian Toohey, president and CEO, Semiconductor Industry Association. "Demand is strong across nearly all semiconductor product categories, and the industry has now posted sequential monthly growth for six consecutive months, thanks in part to continued strength in the Americas market."

Toohey also noted that continued U.S. semiconductor industry strength bodes well for the overall U.S. economy. He cited an SIA whitepaper released this week that found that the U.S. semiconductor industry is one of the top contributors to U.S. economic growth of any domestic manufacturing industry.

Regionally, year-to-year sales increased in Asia Pacific (12.3%), Europe (10.9%), and the Americas (7%), but decreased slightly in Japan (-1.7%). Sales were up compared to the previous month in the Americas (2.3%) and Asia Pacific (1.7%), held flat in Japan and decreased slightly in Europe (-1.3%). Sales increased across all regions for the 3-month period from June to August compared to the previous three-month period from March to May.

Source: www.sia-online.org

Custer Consulting Group Comments:

• Despite expanding at 9.4% globally in August, semiconductor growth appears to have peaked for the present business cycle (Chart 17).
• Only North American and Asia/Pacific semiconductor shipments grew sequentially from July to August (Chart 18). September performance will be key to the strength of this year’s seasonal recovery.
• Shipments to North America has been quite strong (Chart 20) as semiconductor and electronic equipment growth are now in balance on a 3/12 basis (Chart 21).
• Asia/Pacific appears to be building chip inventories (semiconductors out-growing electronic equipment) in anticipation of the normal seasonal fall demand increase (Chart 22).
• European semiconductor growth is easing (Chart 23) and Japan is plunging (Chart 24).

Wearable Computer Device Forecast (Chart 25)

ABI Research predicted that 455 million wearable devices will be sold by 2019, generating $46.5 billion of revenue worldwide. Healthcare devices will account for the largest portion, with 121 million smart watches accounting for $21 billion in sales.

Source: www.abiresearch.com

Industrial Robot Installations to Grow 15% y/y to 200,000 in 2014 (Chart 26)

"More than 200,000 industrial robots will be installed in 2014 worldwide, 15% more than in 2013" announced Arturo Baroncelli, IFR President, on the occasion of the publication of the study "World Robotics 2014 - Industrial Robots", in Frankfurt. "The accelerating demand for industrial robots will continue. Between 2015 and 2017, growth will likely continue at about 12% on average per year," stated Baroncelli.

Automotive and electronics industry - the main growth drivers

The high volume of industrial robot orders will continue to come from the automotive industry. Usually, investments of the automotive industry are cyclical. However, since 2010, investments have been on the rise without a considerable cyclical effect. This outstanding development will continue also in 2014 and beyond. However, robot supply may slow down in certain markets. The electrical/electronics industry is increasing robot investments in production automation as well as in retooling for new production processes. A further increase of robot orders from other industries is also likely, particularly from the rubber and plastics industry, pharmaceutical industry, the food and beverage industry, and the metal and machinery industry.

Major growth in Asia in 2014

Major growth of about 21% is expected in Asia in 2014, particularly in China and Taiwan, in Korea and in most of the other Southeast Asian markets. Robot sales to the Americas will increase by 11% in 2014 driven by the increasing demand in North America and Brazil. Robot installations in Europe are estimated to rise by 6% (particularly the German market is expected to have further growth). Sales in other Western European countries are expected to stagnate, or even increase in 2014 despite the worsening economic conditions in various countries.

Source: www.ifr.org

Converged Data Center Network Adapter Market (Chart 27)

QLogic moves into #3 spot; SAN woes continue

Infonetics Research released vendor market share and preliminary analysis from its 2nd quarter 2014 SAN and Converged Data Center Network Equipment report, which tracks storage area network (SAN) Fiber Channel switches and host bus adapters (HBAs) and converged data center network adapters and switch ports-in-use for storage.

"Having completed its acquisition of Brocade's adapter business and Broadcom's Ethernet controller business, QLogic moved just ahead of Cisco to take the number-three market revenue share slot in converged data center network adapters in the second quarter of 2014," said Cliff Grossner, Ph.D., directing analyst for data center, cloud, and SDN at Infonetics Research. "With the addition of Broadcom's controllers to its product mix, QLogic intends to focus on increased CPU off-loading."

Market Highlights

• The global converged data center network adapter market-including internet small computer system interface (iSCSI) network adapters, converged network adapters (CNAs), and universal network adapters-grew 3% sequentially in 2Q14, to $87.7 million, with CNAs in the lead
• Intel's data center network adapter revenue was up 17% quarter-over-quarter in 2Q14
• Worldwide storage area network (SAN) Fiber Channel switch and adapter equipment revenue totaled $593 million in 2Q14, a 0.2% increase from 1Q14, and a 4% decrease from 2Q13
• Though 16G accounted for nearly half of overall Fiber Channel revenue in 2Q14, the downward trend in the Fiber Channel market continues
• Brocade remains the unchallenged leader in the Fiber Channel SAN market, and 69% of its Fiber Channel SAN revenue comes from 16G
• Cisco's Fiber Channel SAN revenue is getting a push from recently added 16G on its fixed switches

Source: www.infonetics.com