3Q’14 Supply Chain Update
Most of the companies in Custer Consulting Group’s electronic equipment, component, EMS/ODM, materials and process equipment sectors have now reported their 3Q’14 financials. With few exceptions these companies had good 3Q’14 revenue growth versus the same quarter in 2013. Chart 1 is impressive!
Custer Consulting Group tracks many sectors of the electronic supply chain. Examples are:
- PCB process equipment (Chart 2)
- Rigid and flexible laminate used as PCB base materials (Chart 3)
- PCB materials other than laminate (Chart 4)
Chart 5 shows the 3-month growth of the above three categories since 2003. In 3Q’14 all had single-digit positive growth rates but their current business cycles appear likely to soon peak.
Similar data are available for all the sector categories in Chart 1. Contact firstname.lastname@example.org for details.
November “Flash” PMI Leading Indicators Weaken
Markit Economics just released its “flash” November PMI results for China, Japan, U.S. and Europe (Chart 6). PMI values greater than 50 indicate an expansion in manufacturing activity. Unfortunately all the November flash PMIs reported contracted indicating a broad, global slowing of growth.
As reported earlier these PMI results are good indicators of future manufacturing activity. They “lead” electronic equipment, components and material shipments by 1-3 months and capital equipment spending by 6-9 months. Therefore these November PMIs are predicting a weaker business climate for late 2014 and early 2015.
European Semiconductor Distribution Market Grew 7.3% y/y to 1.57 Billion Euros in 3Q’14 (Charts 7 & 8)
The European semiconductor distribution industry is looking forward to a healthy growth in 2014. According to DMASS (Distributors' and Manufacturers' Association of Semiconductor Specialists) semiconductor distribution sales in Q3/CY14 grew by 7.3% to 1.57 billion euro. The regional performance remained mixed between double-digit decline and double-digit growth.
Georg Steinberger, chairman of DMASS, commented: "We were happy to see Q3 turning out better than expected. The 7.3% has set us on a growth course for 2014 of 6 to 7% for DMASS Total, which is remarkable after the 2-year spluttering of 2012 and 2013. The results were positive across the regional board, with some selected negative exceptions. In the first nine months, DMASS members reported semiconductor distribution sales of almost 4.8 billion euro. 2014 will end up a little short of the record year 2011."
Regionally, only Nordic, Benelux and Switzerland came in negatively in Q3/CY14, with France and Italy reporting positive although under-proportional growth. On the positive side, Turkey, Russia, UK, Iberia, Austria, Israel and Germany showed above-average sales increase. The major regions reported the following quarterly sales numbers: Germany 510 million furo, Eastern Europe 177 million euro, Nordic 146 million euro, Italy 136 million euro, UK 135 million euro and France 121 million euro. Over nine months the regional split of DMASS shows a share of 32% for Germany, 9.8% for Italy, 8.5 for the UK, 7.7% for France, 9% for Nordic and 11.2% for Eastern Europe.
Georg Steinberger: "No big surprises occurred over the last 9 months, apart from: Nordic lost more ground in its manufacturing base, losing electronics production to Eastern Europe or Asia. And the impact of sanctions on the Russian business did not yet materialize in Q3. In general, considering the macro-economic environment for Europe at the moment, the outlook for 2015 is only moderate. However, Europeans tend to see the glass half-full far too often for my taste. Let us be hopeful that 2015 will have some positive surprises for our industry."
Product-wise, the growth leaders in Q3 were again Optoelectronics (15.7% to 165 million euro), driven by LEDs and Fiber-Optics, Discretes (15.1% to 91 million euro) and Analog (10.1% to 459 million euro). On MOS Micro DMASS reported sales of 322 million euro (+5.5%). Memories grew by 2.8% to 119 million euro, Programmable Logic remained flat at 124 million euro and Other Logic (ASSPs, ASICs etc.) declined by 10.5% to 71 million euro.
Georg Steinberger: "Over a period of nine quarters the sweet spots of growth were clearly LEDs, Flash-Memories, High-End MCUs and Advanced Analog. This shows that the growth is actually more driven by a verticalization of the market rather than the broadline distribution model of the past. Technical expertise on the system side is more important than ever for distributors to participate in growth trends."
Japan September Electronics Related Production
JEITA just released September production data for domestic electronic equipment, components and devices:
- Although there was a seasonal upturn in September (Chart 9), electronic equipment production was down 15% in 3Q’14 vs. 3Q’13.
- Semiconductor shipments to Japan mirrored electronic equipment production on a 3/12 growth basis (Chart 10).
- PCB production has rebounded in the last few months (Chart 11) but it was down in 3Q’14 vs. 3Q’13 (Chart 12).
- Electronic component and device production growth is low single digits (Chart 13).
Separately the Semiconductor Equipment Association of Japan reported October SEMI (Chart 14) and Flat Panel Display (Chart 15) orders and shipments. Demand has weakened for both categories.
North American Semiconductor Equipment Industry October Book/Bill = 0.93 (Charts 16 & 17)
North America-based manufacturers of semiconductor equipment posted $1.10 billion in orders worldwide in October 2014 (3-month average basis) and a book-to-bill ratio of 0.93, according to SEMI.
The 3-month average of worldwide bookings in October 2014 was $1.10 billion, 7.0% lower than September 2014 and 1.9% lower than October 2013.
The 3-month average of worldwide billings in October 2014 was $1.18 billion, 5.8% lower than September 2014 and 10.6% higher than the October 2013.
"While the global semiconductor equipment industry will see strong double-digit growth this year and is slated for further growth in 2015, order activity posted by North American suppliers has moderated, resulting in a book-to-bill ratio below parity for two consecutive months," said SEMI president and CEO Denny McGuirk.
LED Chip Makers to Suffer Significant On-quarter Shipment decreases in 4Q’14, According to LED Supply Chain Makers
Due to inventory adjustments at lighting makers and weak demand for TV backlighting applications, LED chip makers are expected to suffer significant on-quarter decreases in shipments in the fourth quarter of 2014, according to LED supply chain makers.
In view of strong demand in the first half of 2014, clients took delivery of large volumes of LED chips in the second quarter, only to find that inventories were building up too fast. They drastically reduced orders in the third quarter, the sources said.
Demand from the backlighting segment has become weak because the average number of LED chips used in TV backlight units (BLUs) has dropped due to increasing brightness of the chips, the sources indicated.
Epistar, the largest Taiwan-based LED epitaxial wafer and chip maker, is expected to see utilization of production capacity for blue-light LED chips drop below 60% in the fourth quarter and fourth-quarter consolidated revenues will slip 20-30% sequentially, the sources said.
However, Epistar's capacity utilization for AlGaInP LED chips will remain at 80-90% in the fourth quarter due to strong demand from China-based LED display vendors, the sources indicated.
Notebook PC Shipments Grew 10% Y/Y in Q3'14 to 49.4 Million Units (Chart 18)
Notebook market growth supported by low-priced, Windows-based notebook PCs and Chromebooks.
According to preliminary results from DisplaySearch, the global notebook PC market grew 10% Y/Y in Q3'14 to 49.4 million units. Global shipments of tablet PCs, by comparison, fell 8%. Notebook PC growth was primarily driven by the developed regions of North America and Western Europe, which increased shipments by more than 20% Y/Y in Q3'14.
"The slump in tablet PC demand contributed to the growth in notebook PCs," said Hisakazu Torii, vice president of smart application research at DisplaySearch, now part of IHS Inc. (NYSE: IHS).
"Back-to-school sales were quite good, and this growth was supported by low-priced, Windows-based notebook PCs and Chromebooks. Chromebook sales were especially strong in the United States, especially in the commercial and education markets, due to easier IT management and volume-discount offers."
Chromebooks are forecast to reach 5% (8 million units) of total global notebook PC shipments by the end of this year; however, if 2015 demand reaches the 20 million units planned by PC brands and OEMs, it is possible that the Chromebook share would rise to 12%. "Early Black Friday newspaper advertisements show some Windows-based notebook PCs and Chromebooks priced under $200," Torii said.
The top five notebook PC brands collectively grew 23% in Q3'14, reaching 69% of total notebook units shipped. With strong sales in North America and Western Europe, the Lenovo Group and HP continued to lead the market, with shares of 20% and 19%, respectively. Lenovo Group led unit share in Western Europe and China, while HP took the leading position in North America, Eastern Europe, and rest of the world. Shipments of Apple's iPad declined 13% Y/Y, although Apple still ranked number five globally, mainly due to increasing market share in North America.
U.S. Industrial Production Down 0.1% in October (Chart 19)
Industrial production edged down 0.1% in October after having advanced 0.8% in September. It was weighed down by declines at utilities, mines and automakers.