Weekly Global Update for May 13, 2015

Although still very preliminary and based on a combination of actual and estimated 1Q’15 financials, here are our initial estimates of first quarter growth:

• Electronic equipment sales grew 1% in in 1Q’15 vs. 1Q’14 (Chart 1), down from 4% in the 4Q’14 vs. 4Q’13 (Chart 2).
• Growth varied significantly by sector (Chart 3) driven by strong communication (smartphone) demand and average pricing but offset by weaker computer/media tablet, HDD storage, instruments and controls, military and SEMI equipment sectors.
• Apple’s total revenues (Chart 4) comprised 69.4% iPhones in the first quarter. iPhone pricing ($654/unit) far exceeds that of Apple’s smartphone competitors. This higher iPhone pricing and substantial but volatile volumes has caused large swings in quarterly communication equipment revenue growth.
• By comparison personal computer sales dropped 5% in 1Q’15 vs 1Q’14 (Charts 5 & 6). Media tablet demand has been throttled as large screen smartphones and a general lack of impetus to upgrade tablets have hurts sales.
• Large EMS companies (if Foxconn is included) reported almost a 7% increase in first quarter revenues (Chart 7) but with Foxconn omitted this growth was only 0.6% (Chart 8). By comparison a group of 10 ODM companies reported a 10.8% increase in first quarter 2015 sales (Chart 9).

We will continue to update these 1Q’15 sector growth rates as more companies report their calendar first quarter financials. Some large ones (HP, Applied Materials, Medtronic) are “off cycle” with their quarters ending in April rather than March.

Source: Company financial reports with Custer Consulting Group analysis

Leading Indicators

Markit Economics and the Institute of Supply Management have now reported April PMI leading indicators for most key countries. Slower growth is predicted in many areas.

• Although still in expansion territory (PMI>50) the global PMI declined to its lowest level since early 2013 (Chart 10).
• The US PMI was unchanged from March to April but remained near a 2-year low (Chart 11). Civilian unemployment has continued to drop (Chart 12) but a weaker PMI could threaten future job creation.
• China dropped into contraction territory (Chart 13). Annabel Fiddes, Economist at Markit said: “China’s manufacturing sector had a weak start to Q2, with total new business declining at the quickest rate in a year while production stagnated. Fewer new orders appeared to stem from weaker domestic demand, as new business from abroad showed tentative signs of improvement. Nonetheless, further job cuts and reduced purchasing activity suggest that the sector may struggle to expand in the near-term. Furthermore, the PMI data indicate that more stimulus measures may be required to ensure the economy doesn’t slow from the7% annual growth rate seen in Q1.”
• Most Asian countries with the exception of Vietnam and Indonesia saw PMI declines in April (Chart 14).
• The Eurozone performed better (Chart 15) although results varied by country (Chart 16).

Worldwide semiconductors sales increased 6% y/y to $83.1 billion in 1Q’15 (Charts 17 & 18)

Global industry posts 23rd consecutive month of year-to-year sales increases; March sales in Americas increase 14.2% year-to-year to lead all regions

Global sales for the month of March 2015 were $27.7 billion, 6.0% higher than the March 2014 total of $26.1 billion and 0.1% lower than last month’s total. 

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $83.1 billion during the first quarter of 2015, an increase of 6.0% compared to the first quarter of 2014. Global sales for the month of March 2015 were $27.7 billion, 6.0% higher than the March 2014 total of $26.1 billion and 0.1% lower than last month’s total. All monthly sales numbers represent a three-month moving average.

“Despite macroeconomic challenges, first quarter global semiconductor sales are higher than they were last year, which was a record year for semiconductor revenue,” said John Neuffer, president and CEO, Semiconductor Industry Association. “The Americas region posted its sixth straight month of double-digit, year-to-year growth to lead all regional markets, and DRAM and analog products continue to be key drivers of global sales growth.”

“Congress is considering a legislative initiative called Trade Promotion Authority (TPA) that would help promote continued growth in the semiconductor sector and throughout the U.S. economy,” Neuffer continued. “Free trade is vital to the U.S. semiconductor industry. In 2014, U.S. semiconductor company sales totaled $173 billion, representing over half the global market, and 82% of those sales were to customers outside the United States. TPA paves the way for free trade, and Congress should swiftly enact it.”

Source: www.sia-online.org

Custer comment: The global PMI leading indicator points to slower semiconductor shipment growth ahead (when overlaid on normal seasonality) (Chart 19).

PC demand slow in 2Q’15, say Taiwan IC design firms

IC demand for PCs is unlikely to pick up until the second half of 2015, when new Intel processors and Windows 10 will be available, according to sources at Taiwan-based IC design houses.

IC orders for PCs have been slower-than-expected after the Lunar New Year, sources at PC-related IC suppliers noted. Demand prior to China's May 1 holiday has also been a disappointment, the sources said.

Sources at IC suppliers observed that demand for notebooks has relied on low-cost Chromebook devices and Apple's new MacBook Air in the second quarter. Orders for other notebooks, 2-in-1s and ultrabook devices have all reduced compared to the prior quarter, the sources said.

The arrival of the new Intel CPU and Windows 10 is likely to stimulate replacement demand for PCs, sources in Taiwan's IC design industry generally believe. Before the availability of the new chips and OS, demand for PCs and notebooks will remain sluggish, negatively affecting shipments of related chips, the sources said.

Source: www.digitimes.com

Global Fab Capacity and Wafer Fab Materials Market (Charts 21 & 22)

As the fabless business model has transformed the semiconductor manufacturing landscape, Taiwan and South Korea have undeniably grown into key semiconductor producing regions. However, it should be noted that North America is home to Intel, Texas Instruments, Micron, GLOBALFOUNDRIES, Freescale, Fairchild, Microchip, ON Semiconductor, significant operations of Samsung, and other manufacturers. As a result, North America accounts for 15% (without discretes) of the global total installed fab capacity in 2014.

Due to the presence of leading device manufacturers, North America represents a significant portion of the new equipment market; for the last two years, North America was the second largest market for semiconductor manufacturing equipment. In 2011, North America was the largest market for new equipment. While spending is expected to decline in the region this year, it is anticipated that device manufacturers in North America will still spend about $7 billion on new equipment this year. 

With such a large installed fab base, North America also claims a significant portion of the wafer fab materials market. Comparing global fab capacity to global wafer fab market share, North America represents 18% of the Wafer Fab Materials market compared to 15% of global fab capacity. This is due to the advanced device manufacturing that occurs in the region, which requires more advanced materials which fetch higher average selling prices. The same phenomenon occurs in Taiwan and Europe as well.

Even though the equipment market is expected to decline in North America this year, the Wafer Fab Materials Market is expected to increase a modest 3%. This is due to equipment purchased and installed last year becoming operational. The semiconductor manufacturing market in North America is still very much alive and innovating, whether it be for advanced manufacturing or chip design, companies in North America have proven adept at evolving with the industry.

Plan to attend the SEMI/Gartner Market Symposium at SEMICON West on Monday, July 13 for an update on the semiconductor market outlook. In addition to presentations by SEMI and Gartner analysts, Ian Ferguson, Vice President, Segment Marketing, will present on “The Electronics Industry of 2020: How the Future Ecosystem will change within the Supply Chain.”

Source: www.semi.org