Leading Indicators Show Signs of Growth

October PMI (Purchasing Managers Indices) were released by Markit Economics and the Institute of Supply Management

  • The global PMI climbed further into modest expansion territory (Chart 1) as most major countries/regions improved versus September (Chart 2)
  • The U.S. had mixed results as Markit Economics October PMI increased while ISM’s declined to near zero growth territory (Chart 3).
  • The Eurozone improved slightly (Chart 4) while remaining in an expansion mode (PMI>50). However Germany, Spain and the Czech Republic, although still expanding, did so at a slower pace (Chart 5).
  • China remained in contraction (Chart 6) although its rate of decline eased (Chart 6).
  • Japan’s growth accelerated (Chart 7).
  • Chart 8 summarizes the PMIs for Asian countries for October versus September.
Source: www.markiteconomics.com

Updated 3Q’15 Supply Chain Global Growth by Sector

With more companies now having reported their 3Q’15 financial results we have tightened our estimates of third quarter performance.

  • Our sample of 175 OEMs saw revenues decline 4.2% in 3Q’15 versus 3Q’14 (Chart 9). Note that this decline is based on actual (fluctuating) quarterly exchange rates. At fixed 2014 exchange the growth was slightly positive. The conversion of weaker 2015 non-dollar currencies to dollars during the dollar-denominated consolidation caused the large fluctuating rate based decline.
  • Chart (Chart 10) shows quarterly revenue growth of these 175 OEMs while Chart 11 compares electronic equipment growth (based on regional data) when the calculation is done at fixed versus fluctuating exchange. Note the substantial differences for the first three quarters of 2015.
  • Chart 12 summarizes our current estimate of the growth of the components of electronic supply chain in 3Q’15 versus 3Q’14. These growth rates are at fluctuating exchange as that is the way companies report their financial results. Some large electronic equipment manufacturers such as Hewlett Packard (now split into two firms), Cisco, Medtronic and Applied Materials won’t report until mid-to-late November.

Note that these numbers are still preliminary as not all companies have yet reported their third quarter financials. Also some closed their quarter in October versus September.

Source: Company financial reports with Custer Consulting Group analysis.

U.S. September Electronic Equipment and Component Shipments, Orders and Inventories

The U.S. Department just released its September “Factory Orders” report. Here are some key findings.

  • Electronic equipment orders declined slightly from August to September (Chart 13).
  • Vehicle shipments increased to near record levels (Chart 14).
  • Military electronics orders and shipments declined from August (Chart 15).
  • Electromedical, measurement and control equipment demand remained strong as the largest domestic electronic equipment sector (Chart 16)
  • Passive component orders and shipments have peaked following an unusually strong

1-year run up (Chart 17).

  • Chart 18 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronic supply chain. Chart 19 displays the third quarter growth in a bar chart.

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

Global Semiconductor Sales Increased 1.5% in 3Q’15 (Chart 20)

September sales up slightly compared to last month, down compared to last year

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $85.2 billion during the third quarter of 2015. This total marks an increase of 1.5% compared to the previous quarter, but is 2.8% lower than the third quarter of last year. Global sales for the month of September 2015 were $28.4 billion, 1.9% more than last month’s sales, but 2.8% less than sales from September 2014. All monthly sales numbers represent a three-month moving average.

“Global semiconductor sales showed signs of resilience in September, increasing compared to the previous month across all regional markets for the first time in more than a year,” said John Neuffer, president and CEO, Semiconductor Industry Association. “However, softening demand and currency devaluation caused year-to-year sales to dip for the third straight month.”
Regionally, sales were up compared to last month in the Americas (4.0%), China (2.6%), Europe (2.2%), Japan (0.5%), and Asia Pacific/All Other (0.1%). Year-to-year sales increased in China (5.0%), but decreased in Asia Pacific/All Other (-3.5%), the Americas (-3.9%), Europe 
(-10.6%), and Japan (-11.4%).

“One thing proven to spur semiconductor sales globally is maintaining free and open markets,” Neuffer continued. “In June, SIA successfully encouraged policymakers to approve legislation to facilitate free trade agreements. In July, a major deal was struck in Geneva at the World Trade Organization to expand the Information Technology Agreement to eliminate tariffs on next-generation semiconductors called MCOs and a wide range of tech products. And in October, negotiators from around the Asia-Pacific region reached an agreement on a massive trade agreement called the Trans-Pacific Partnership (TPP). The TPP would spur growth and promote innovation in our industry and throughout the U.S. economy, and Congress should approve it.” 

Source: www.sia-online.org

Custer comments:

  • Chart 21 shows global semiconductor shipments on both an actual monthly and 3=month average basis. The SIA typically reports 3-month average values but the monthly data are available in the World Semiconductor Trade Statistics report. Note the 4-4-5 seasonality of the monthly data with peaks in March, June, September and December. It appears to not be seasonally adjusted.
  • Chart 22 shows the 3/12 growth of global semiconductor shipments vs Custer Consulting Group’s semiconductor leading indicator. This suggests that semiconductor shipments will continue to shrink near term.
  • Chart 23 shows monthly (not 3-month average) semiconductor shipments by region. The September peaks were likely seasonal with likely declines coming in October.
  • Chart 24 shows this same data on a 3-month average basis (as SIA reports it)
  • Chart 25 shows semiconductor shipments to North America. They have been strong in the last few years but with clear seasonal peaks.


Custer “Business Outlook” Presentations @ Productronica

Custer will present his “Business Outlook for the Global Electronics Industry” at the Productronica tradeshow in Munich. Speaking times and locations are:

SMT Speakers Corner (Hall A1 stand 411) 
Tuesday, November 10, 3:30 - 4:30 p.m. 
Thursday, November 12, 3:30 - 4:30 p.m.

Innovation Forum (Hall B3 stand 451) 
Wednesday, November 11, 3:30 - 4:30 p.m.

PCB and EMS Marketplace (Hall B1 stand 360) 
Friday, November 13, 1:00 - 1:45 p.m.

All attendees will receive his complete set of charts.

During the show you can contact Walt at the EIPC and co-exhibitors stand B1-529 or by mobile phone +1 7074942495.

See you in Munich!

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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