August U.S. Electronic Equipment Orders and Shipments

The U.S. Department of Commerce just released its August “Durable Goods” report with preliminary data on shipments, orders and inventories.

  • The 3-month average electronic equipment book/bill was 1.03 (Chart 1) and 1.02 for August alone.
  • Orders remained above shipments (Chart 2) but the rate of order growth has slipped to near “no growth” territory (Chart 3).
  • Defense capital goods orders declined from July (Chart 4).
  • Aircraft and parts shipments reached a record high driven by the commercial sector (Chart 5).
  • Communication (Chart 6) and computer (Chart 7) orders and shipments remained flat.


September “Flash” Purchasing Managers Indices

Markit Economics just released its flash PMIs for the U.S., China, Japan, the Eurozone, Germany and France:

  • Chart 8 compares the August actual versus September “flash” PMI results. The U.S.held steady at 53 (modest growth territory), France improved and the other countries shrank. Note that a PMI> 50 indicates expansion and below 50 a contracting manufacturing sector.
  • China’s PMI has been closely watched. In September it dropped to its lowest level since the 2008/2009 financial crisis (Chart 9).
  • Eurozone’s PMI (Chart 10) indicated continued expansion but at a slower rate as did Japan’s (Chart 11).


Taiwan Top foundries' Sales to Decrease 0.8% Sequentially and 3.7% on Year in 3Q’15

Taiwan's top-three IC foundries are experiencing a particularly weak third quarter with their combined revenues set to decrease 0.8% sequentially and 3.7% on year, according to Digitimes Research.

Combined revenues of Taiwan's major foundries including TSMC, UMC and VIS (Vanguard) are forecast to reach US$8.03 billion in the third quarter of 2015, down from US$8.09 billion in the prior quarter and US$8.33 billion a year earlier, said Digitimes Research.

Mobile chip suppliers started to slow down the pace of orders in the second quarter due to disappointing end-market demand, and have been engaged in inventory adjustments, Digitimes Research indicated. The unfavorable situation led to the lower combined revenues from Taiwan's top foundries in the third quarter despite the period being the traditionally peak season, Digitimes Research said.

Despite the revenue fall, Taiwan's top foundries will see their combined ASPs rise in the third quarter thanks to an increase in the revenue ratio for advanced 45/40nm and below processes, Digitimes Research said.

In addition, TSMC's 16nm process technology has started generating revenues in the third quarter of 2015, Digitimes Research noted. The foundry set to enjoy robust growth in revenues from its 16nm node manufacturing in the fourth quarter.


North American Semiconductor Equipment Industry August Book/Bill = 1.06 (Charts 12 & 13)

North America-based manufacturers of semiconductor equipment posted $1.67 billion in orders worldwide in August 2015 (3-month average) and a book-to-bill ratio of 1.06, according to SEMI.

August 2015 bookings were 5.0% higher than the July 2015 and 23.8% higher than the August 2014.

The 3-month average of worldwide billings in August 2015 was $1.58 billion, 1.3% higher than July 2015 and 21.9% higher than August 2014.

"Given the trends through the year so far, the book-to-bill ratio stayed above parity on a three-month average basis,” said Denny McGuirk, president and CEO of SEMI. “An adjustment in the trends is anticipated for the rest of the year due to the near-term economic outlook and lower demand for electronics in some sectors.”


PC IC Sales expected to decline by 3% y/y in 2015 to $57.7 billion; Tablet IC sales to decline 5% y/y in 2015 to $16.6 billion

  • Large-Screen Smartphones Erode Total Personal Computing Unit Growth
  • IC market for personal computing devices forecast to decline in 2015 as a result

Five years ago, touchscreen tablets began pouring into the personal computing marketplace, stealing growth from standard personal computers and signaling the start of what has been widely described as the “post-PC” era (Chart 14).

Led by Apple’s iPad systems, tablet shipments overtook notebook PCs in 2013, and it appeared as if they would surpass total personal computer units (counting both desktop and portable systems) by 2016. However, that scenario no longer seems possible after tablet growth lost significant momentum in 2014 and then nearly stalled out in the first half of 2015 due to the rise in popularity of large-screen smartphones and the lack of interest in new tablets that do not add enough features or capabilities to convince existing users to buy replacements. Consequently, IC Insights has downgraded its forecast for the overall personal computing market, including much lower growth in tablets and continued weakness in standard PCs.

Chart 15 shows IC Insights’ forecast for integrated circuits used in standard PCs, tablet systems, and Internet-centric/cloud-computing systems. PC and tablet IC sales are expected to decline in 2015 because of downward revisions to system shipments in both of those categories this year. PC integrated circuit sales are now expected to decline by 3% in 2015 to $57.7 billion from $59.4 billion in 2014, when revenues grew 5%. IC sales for tablets are now expected to decline 5% in 2015, dropping to $16.6 billion from $17.4 billion in 2014, which experienced an 18% increase. Sales of ICs for Internet/cloud-computing laptops are now expected to rise 38% in 2015 to $931 million from about $675 million in 2014, which was an 83% increase.

The compound annual growth rate of IC revenues for standard PCs is now expected to grow by a CAGR of 0.7% in the 2013-2018 time period, reaching $58.8 billion in the final year of the forecast. The reduction in tablet sales growth has also significantly lowered the projection of IC revenues in this category to a CAGR of 2.9% between 2013 and 2018. The outlook for integrated circuit sales used in Internet/cloud-computing systems is forecast to grow by a CAGR of 23.4% in the forecast period, reaching $1.1 billion in 2018.


Global Installed Base of Branded Tablets will Peak at 373 Million Units at Year End 2015

The global installed base of tablets will become the next unexpected victim as shipments of larger slate devices continue their decline. Early tablet sales in 2010 and 2011 enjoyed several good years of consumer usage with both iOS and Android devices actively used for three to four years. ABI Research predicts the installed base of tablets will decrease for the first time in 2016 as growth from first-time buyers’ shifts to replacement purchases.

"The global installed base of branded tablets will peak around 373 million units at the close of 2015," says Research Director Jeff Orr. "Led by North America at 48% of the installed base, the operating system mix is expected to be more balanced with 50% powered by Android, while 42% will use iOS."

With a slowdown in first-time tablet purchases, there are several reasons for change in the tablet installed base figures:

  • Replacing tablets with tablets: The experiences with first-generation tablets greatly influence what audiences will purchase the second time around. Unique apps and content, usability, and durability all play a role in the decision-making process.
  • Replacing tablets with phablets: A converged solution that marries the best of the smartphone (mobility and cellular voice service) with the larger display of a tablet. Phablets are an increasing percentage of smartphone shipments and are a mobile alternative to replacing a tablet.
  • Replacing tablets with 2-in-1 ultraportable PCs: For small business owners looking to maintain the productivity of a PC with the mobility of a tablet, choices for 2-in-1 systems are increasing and now available with Windows 10 OS.
  • No replacement purchase: Not all tablets will be replaced. Some get handed down or resold while others stop working or go unused in favor of performing activities on some other device.

"The change is an opportunity for incumbent tablet vendors as well as challenger brands and form-factors," adds Orr.


Replacement Indecision Will Cause Device Shipments to Decline 1% in 2015 (Chart 16)

Forty-Four Percent of Current Tablet Users Are Planning for Alternative Options

Worldwide combined shipments of devices (PCs, tablets, ultramobiles and mobile phones) are expected to reach 2.4 billion units in 2015, a 1% decline from 2014 and down from the previous quarter's forecast of 1.5% growth, according to Gartner, Inc.

"Replacement activity across all types of devices has decreased," said Ranjit Atwal, research director at Gartner. "Users are extending the lifetime of their devices, or deciding not to replace their devices at all."

Gartner's latest device forecast also showed that shipments in all categories will contract in 2015, except for mobile phone shipments, which are on pace to increase 1.4% in 2015. Smartphone shipments are estimated to increase 14% in 2015. Emerging Asia/Pacific, including India and Indonesia, is on pace to show the strongest growth (43%) in 2015, while Greater China will grow 3%.

"By 2017, we estimate mobile phone shipments will reach the 2 billion mark, and smartphones will represent 89% of the market," said Annette Zimmerman, research director at Gartner.

The global PC shipment market is expected to total 291 million units in 2015, a decline of 7.3% year over year, and to show flat growth in 2016.

"Until the end of 2015, currency devaluation and subsequent price increases will continue to restrain the replacement of ultramobiles premium and notebooks by businesses in particular," said Atwal. "In 2016, we expect currency impacts will negate and while Windows 10 products on the Intel Skylake platform will increase in volumes throughout the year, Windows 10 adoption among businesses will ramp sharply in 2017, where we expect the PC market to return to a 4% growth."

The ultramobile segment (tablets and clamshells) is also on pace to contract in 2015. Ultramobile shipments are estimated to total 199 million units in 2015, a decline of 12% year over year. Tablet shipments are on pace to reach 192 million units in 2015, down 13% from 2014.

"The tablet market is coming under increasing pressure," said Zimmermann. "Users of tablets with a screen size between 7 and 8 inches are increasingly not replacing their devices." In addition, Gartner's new user survey conducted in June 2015 across six countries* found that 44% of current tablet users are planning to substitute their tablets with a different device. It is potentially even higher for laptop users, as 54% of them are intending to opt for an alternative device, including the highest percentage of undecided consumers.


Wearables Equipment Shipments by Type and End Market (Charts 17 & 18)

Speaking at the European MEMS Summit, Eric Mounier, senior technology and market analyst for Yole Developpement said that 213 million sensors would be shipped in 2015 contained in 83 million pieces of wearable equipment with a system value off $23 billion

Mounier also detailed the wearables by how they are worn.


U.S. GDP Increased at 3.9% Rate in 2Q’15 (Chart 19)

The U.S. Commerce Department reported gross domestic product rose at a 3.9% annual pace in the April-June quarter, up from the 3.7% pace reported last month.


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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