Weekly Global Update for April 22, 2015

European Update

February European electronic supply chain data were recently released by Eurostat. The results were encouraging:

• Supply chain growth appears to be improving following reaching a low point in late 2014 (Chart 1).
• Electronic equipment production reached its highest level since 2010 (Chart 2) as both annualized (12/12) and 3-month (3/12) growth are improving (Chart 3).
• Automobile production has rebounded (Chart 4) and aerospace production is near its all-time high (Chart 5).
• Instrument and control equipment demand remained strong (Chart 6) while medical electronics production continued to fluctuate (Chart 7).
• Component and board production has been climbing (Chart 8) and wiring device output remains near its 4-year high (Chart 9).
• The European PCB leading indicator is improving. It points to a near term slowing followed by renewed growth (Chart 10).

Chart 11 summarizes the annualized (12/12) and 3-month (3/12) growth of the European electronic supply chain by sector. The key categories are all expanding (values >100).

Source: Eurostat with Custer Consulting Group interpretation

Japan Update

February domestic Japanese electronics production by product type was just released:

• Electronic equipment production rose 5% in February 2015 vs. February 2014 (Charts 12 & 13).
• PCB shipments continued to deteriorate sequentially (Chart 14) although they improved vs. the same 3-month period a year earlier (Chart 15).
• Both component and device production are enjoying decent growth (Chart 16).

Source: www.jeita.or.jp/

South Korea Update

Although relatively slow to be released 4Q’14 financials are now available for key South Korean listed companies:

• Electronic equipment revenues reached a low point in 3Q’14 and rebounded seasonally in the fourth quarter but remained 4.7% below the same quarter in 2013 (Chart 17).
• PCB shipments by contrast rose 6.2% in 4Q’14 vs. 4Q’13 (Chart 18). This caused a modest upward revision in our 2015 global PCB forecast (Chart 19).

Source: Company financials with Custer Consulting Group analysis

Solar/Photovoltaic Update

Most companies in the solar/photovoltaic supply chain have now released their 4Q’14 financial data:

• For the 90 companies in our global sample revenues rose 4.4% in 4Q’14 vs. 4Q.13 and 3.3% sequentially from 3Q’14 (Chart 20).
• Annualized (12/12) and 3-month (3/12) growth remains positive (Chart 21) and inventories relative to sales have declined (Chart 22).
• Most sectors of the supply chain reported 4Q’14 vs. 4Q’13 growth (Chart 23). Note that due to the small sample size of some sectors (batteries) these growth rates should not be considered as highly reliable for the industry as a whole. They only apply to the sample companies as groups.

Source: Company financials with Custer Consulting Group analysis

Global Notebook Shipments Fell 4.7% y/y in 1Q’15

Global notebook shipments not including detachable models reached less than 38 million units in the first quarter of 2015, down 4.7% on year and 19.4% sequentially, according to Digitimes.

The shipment drop was due to seasonality plus inventory left over from the fourth quarter of 2014. Microsoft's frequent adjustments in licensing fee subsidies also made the inventory issues worse in first-quarter 2015 compared to previous years.

Among the global top-10 brand vendors, Hewlett-Packard (HP) had the sharpest sequential shipment drop in the quarter, down three million units from the fourth quarter of 2014. Meanwhile, Lenovo suffered an about two million unit drop; Apple and Asustek Computer both had about one million.

However, compared to the same quarter a year ago, HP, Lenovo and Apple still enjoyed shipment growths. Lenovo had the highest growth at 16.2% thanks to demand from non-China markets.

On the other hand, Asustek saw its shipments drop 20.8% on year because of inventory problems, while the fierce fluctuations in the Euro exchange rate also prompted the Taiwan-based vendor to change its business strategy, to start raising product prices, stop pushing shipments, and focus on profitability. The strategy change is expected to have a significant influence to orders placed in the future.

Taiwan ODMs saw their combined notebook shipments drop 21.4% sequentially in the first quarter, while compared to the same quarter a year ago, the volume also dropped 12.9%. Because of the decline, Taiwan's share in global notebook shipments fell to 78.1%.

Source: www.digitimes.com

Worldwide semiconductor foundry market grew 16.1% y/y to $46.9 billion in 2014 (Charts 24 & 25)

The worldwide semiconductor foundry market grew 16.1% in 2014 to achieve $46.9 billion in revenue, according to final results by Gartner, Inc.

"2014 has been the third consecutive year when foundries have achieved impressive 16% revenue growth," said Samuel Wang, research vice president at Gartner. "A number of factors have made 2014 a robust year for foundries — inventory stocking in the second quarter by customers, increase of units sold in ultramobiles, the strength of the Apple's supply chain riding the success of the iPhone 6 and 6 Plus in the second half of the year, a conversion of integrated device manufacturer (IDM) revenue to foundry revenue and wafer demand from the early adoption of wearables."

Among the top players, the leader, TSMC, gained market share to reach 53.7%, up from 49.8% in 2013. TSMC increased its revenue by $5 billion in just one year due to the success of advanced technologies of 28 nanometers (nm) and 20 nm. Returning to the number two position, United Microelectronics Corp. (UMC) had $4.62 billion revenue in 2014, representing 9.9% of the foundry market share, thanks to its recent catch-up of 28-nm technology. The number three position went to GlobalFoundries with $4.4 billion revenue, representing 9.4% of the market.

The foundry market will remain a seasonal industry due to the scheduled introduction of electronics equipment, and therefore the second and third quarters will be the strongest quarters each year. The only difference in 2014 was that the fourth quarter turned out to be stronger due to good momentum from the Apple supply chain. The wafer demand from touchscreen controllers, display driver chips and power management integrated circuits (ICs) made with legacy technology nodes has caused a tight supply of 200-millimeter (mm) wafers at foundries and the situation will not be much improved in 2015. As a result, foundries are now looking to expand 200-mm capacity.

Significant wafer fab purchasing momentum in the first half of the year resulted in strong recovery of semiconductor production demand throughout 2014. While traditional notebook and desk-based PC unit production declined and mobile phone unit production grew at low single digits, ultramobile unit production grew faster in 2014. In addition, the hype surrounding the Internet of Things, including wearable and smart watches, prompted some players to stockpile off-the-shelf chips as early as the second quarter of 2014, in order to prepare for new product announcements.

2014 saw a big increase in foundry revenue from fabless customers while revenue from integrated device manufacturer customers remained flat. System manufacturer customers provided a boost to foundry revenue, mostly due to Apple's 20-nm business at TSMC.

Source: www.gartner.com

Worldwide Semiconductor Photomask Market will grow from $3.2 Billion in 2014 to $3.4 Billion in 2016 (Chart 26).

SEMI reports that the worldwide semiconductor photomask market was $3.2 billion in 2014 and is forecasted to reach $3.4 billion in 2016. After increasing 1% in 2013, the photomask market increased 3% in 2014. The mask market is expected to grow 4 and 3% in 2015 and 2016, respectively. Key drivers in this market continue to be advanced technology feature sizes (less than 45 nm) and increased manufacturing in Asia-Pacific. Taiwan remains the largest photomask regional market for the fifth year in a row and is expected to be the largest market for the duration of the forecast.

Revenues of $3.2 billion place photomasks at 13% of the total wafer fabrication materials market, behind silicon and semiconductor gases. By comparison, photomasks represented 18% of the total wafer fabrication materials market in 2003. Another trend highlighted in the report is the increasing importance of captive mask shops. Captive mask shops, aided by intense capital expenditures in 2011 and 2012 and a weakening Yen in 2013 and 2014, gained market share at merchant suppliers' expense, with captive mask suppliers accounting for 53% of the total photomask market last year, up from 49% in 2013. Captive mask shops represented 31% of the photomask market in 2003.

Source: www.semi.org

Stronger Dollar Boosting Europe and Japan as U.S. Slows

The strengthening U.S. dollar is increasing growth in the euro area and Japan while slowing the U.S. recovery.

The International Monetary Fund left its projection for global growth in 2015 unchanged from three months ago at 3.5%. Underneath the stable forecast, however, the IMF depicts a global economy being reshaped by swings in currency markets and the drop in oil prices.

The IMF reduced its U.S. growth forecast by 0.5% point to 3.1%, still the fastest among major developed economies. The Japan growth outlook increased to 1% from 0.6% and the euro area is projected to expand 1.5% as weakening currencies provide a “welcome boost,” the IMF said.

Source: www.imf.org

U.S. Industrial Production Falls 0.6% in March (Chart 27)

U.S. Industrial production declined the most in over 2-1/2 years in March, hurt by a decline in mining and utilities output said the Federal Reserve.

Manufacturing output rose 0.1% but utilities production dropped 5.9%. A 17.7% drop in oil and gas well drilling drove mining production down 0.7% in March.

Source: www.federalreserve.gov