China/Taiwan Update

March monthly sales were just released for Taiwan-listed companies, many of which manufacture in China:

  • March 2016 electronic equipment shipments rebounded from their February seasonal low point but were 2.4% down compared to March 2015 (Chart 1).
  • ODM March revenues performed similarly (Chart 2).
  • Semiconductor shipments to SE Asia remained in balance with electronic equipment shipments on a 3/12 growth basis (Chart 3).
  • Wafer foundry sales rebounded but were slightly below the March 2015 level (Chart 4).
  • Package and test sales in March 2016 were identical to March 2015 (Chart 5).
  • March 2016 memory sales were 14% March 2015 (Chart 6)
  • Passive component shipments in March were up 2.4% compared to March 2015 (Chart 7).
  • Sales by solar/photovoltaic suppliers were near their December 2015 all-time high (Chart 8).
  • Rigid and flex PCB shipments were down 1.8% in March 2016 versus March 2015 (Chart 9).
  • Rigid CCL laminate shipments mirror Rigid PCB sales (Chart 10).
  • Custer Consulting Group’s Asia/Pacific PCB leading indicator points to printed circuit board declines versus the same months in 2015 at least until early summer (Chart 11).

Source: Company financials with Custer Consulting Group analysis.

Europe Update

Eurostat just released its February electronic supply chain results:

  • Industrial production declined for the EU27 as a whole as well as Germany, France, Italy and the UK (Chart 12).
  • Electronic equipment production declined versus January (Chart 13) as its 3/12 growth rate dropped to +3.3% (Chart 14).
  • Semiconductor shipments to Europe are equivalent to electronic equipment production on a 3/12 growth basis when semiconductors are denominated in euros (Chart 15).
  • Motor vehicle production remained strong but slipped from its January record high (Chart 16).
  • Aircraft production also was strong but below its January 2016 record (Chart 17).
  • Instrument equipment production remained robust (Chart 18) but the very volatile medical electronics sector saw production decline 5% from January (Chart 19).
  • Electronic assembly activity rebounded from its recent declines (Chart 20).
  • Electronic wiring device production eased slightly (Chart 21) however our leading indicator points to slower PCB growth ahead (Chart 22).

Chart 23 summarizes the annualized (12/12) and 3-month (3/12) growth of the European electronic supply chain.

Source: Company financials with Custer Consulting Group analysis.

Worldwide Semiconductor Revenue Expected to Decline 0.6% in 2016 (Chart 24)

Worldwide semiconductor revenue is forecast to total $333 billion in 2016, a decrease of 0.6% from 2015, according to Gartner, Inc. This is following a decline of 2.3% in 2015 due to weakened demand for key electronic equipment, elevated inventory levels and the continuing impact of the strong dollar in some regions.

"For only the second time in its history, the worldwide semiconductor market is expected to have two consecutive years of revenue decline," said James Hines, research director at Gartner. "We expect a decline of 0.6% in 2016 as the industry waits for the next demand driver to emerge."

Lowered estimates for production of PCs, ultramobiles and smartphones is reducing the demand for semiconductors in 2016, and no significant near-term driver has appeared to offset the reduction in demand in these key semiconductor markets. While there are emerging opportunities for semiconductors in the Internet of Things (IoT) and wearable electronics, these markets are still in the early stages of development and are too small to have a significant impact on overall semiconductor revenue growth in 2016.


Worldwide Semiconductor Foundry Revenues up 4.4% y/y in 2015 (Chart 25)

Breaking a three-year double-digit-growth streak, the worldwide semiconductor foundry market grew 4.4% in 2015 to achieve $48.8 billion in revenue, according to final results by Gartner, Inc.

"In 2015, semiconductor device market revenue declined due to excess IC inventory, poor demand for mobile products and PCs, and slowing tablet sales," said Samuel Wang, research vice president at Gartner. "The slowdown in the device market has driven semiconductor producers to be conservative in placing wafer orders to foundries. Foundry growth was only possible from the high wafer demand by Apple and the revenue conversion of a few integrated device manufacturers (IDMs) to foundries."

Among the top players, the leader, TSMC, grew 5.5% in 2015, driven by the success of 20 nm planar and 16 nm Fin field-effect transistor (FinFET) technologies serving the need of application processors and baseband modem chips. Global foundries moved into the number two position with 9.6% of the market. The number three position went to UMC with $4.5 billion revenue, representing 9.3% of the market.

Price competition in advanced process technologies in 2015 was exceptionally strong, not only on the 28 nm node, as more foundry suppliers have started the production volume of 28 nm polySiON technology, but also on 65 nm and 40 nm. In contrast to the highly utilized 200 mm fabs from fingerprint ID chips and power management ICs, the low 300 mm fab utilization rates at some large foundries have triggered their willingness to run more 0.18-micron wafers in the 300 mm fabs.

"On a quarterly basis, foundry revenue changed quarter to quarter in 2015. The normal seasonal pattern of a very strong second quarter was not obvious, while most foundries continued to revise their business outlook during each quarter's earnings release," said Wang. "The peak inventory level for the semiconductor industry continued to push out during 2015, from the second quarter to the third quarter, and through the rest of the year."


2015 Global Semiconductor Materials Sales $43.4B (Chart 26)

The global semiconductor materials market decreased 1.5% in 2015 compared to 2014 while worldwide semiconductor revenues decreased 0.2%. The impact of exchange rate changes, coupled with lower overall semiconductor unit growth, contributed to the year-over-year revenue decline.

According to the SEMI Material Market Data Subscription, Total wafer fabrication materials and packaging materials were $24.1 billion and $19.3 billion, respectively. Comparable revenues for these segments in 2014 were $24.2 billion for wafer fabrication materials and $19.8 billion for packaging materials. The wafer fabrication materials segment decreased 1% year-over-year, while the packaging materials segment decreased 2%. However, if bonding wire were excluded from the packaging materials segment, the segment would have remained flat relative to last year. The continuing transition to copper-based bonding wire from gold is negatively impacting overall packaging materials revenues. The depreciation of the yen further impacted the total materials market due to the importance of materials suppliers based in Japan.

For the sixth consecutive year, Taiwan was the largest consumer of semiconductor materials due to its large foundry and advanced packaging base, totaling $9.4 billion. Korea rose in the rankings to claim the second spot during the same time. Annual revenue growth was the strongest in the Korean and Chinese markets. The materials market in North America and Europe experienced nominal growth of 1%, while the materials markets in Taiwan, Rest of World and Japan contracted. (The ROW region is defined as Singapore, Malaysia, Philippines, other areas of Southeast Asia and smaller global markets.)


Worldwide IT Infrastructure Products (server, storage, and Ethernet switch) Spending for Deployment in Cloud Environments will increase 18.9% to $38.2 billion in 2016 (Chart 27)

Cloud Environments Will Drive IT Infrastructure Spending Growth across All Regional Markets in 2016

According to the International Data Corporation (IDC) total spending on IT infrastructure products (server, storage, and Ethernet switch) for deployment in cloud environments will increase by 18.9% in 2016 to reach $38.2 billion. This amount excludes double counting between storage and server. In comparison, spending on enterprise IT infrastructure deployed in traditional, non-cloud, environments will decline by 4% in 2016, but will still account for the largest share, 62.8%, of end user spending. Spending on private cloud IT infrastructure will grow by 11.1% year-over-year to $13.9 billion geared toward on-premises private cloud deployments. Spending on public cloud IT infrastructure will increase by 14.1% in 2016 to $24.4 billion.

From a geographic perspective, investments in cloud IT infrastructure will grow across all regions. As cloud service providers continue to expand their portfolio of offerings and customer reach, the public cloud segment will deliver the highest rate of IT spending growth in a majority of regions compared to private cloud and non-cloud environments.

Looking at total cloud IT infrastructure spending, Ethernet switches are forecast to grow at the highest rate, 26.8%, while spending on servers and storage will grow at 12.4% and 11.3%, respectively.

In the long-term forecast, IDC expects that spending on IT infrastructure for cloud environments will grow at a 12.5% five-year compound annual growth rate (CAGR) to $57.8 billion in 2020. This will represent 47.9% of the total spending on enterprise IT infrastructure in 2020. Spending on non-cloud IT infrastructure will decline at a 1.3% CAGR during the same period. Within the cloud segment, spending on public and private cloud IT infrastructure will experience CAGRs of 13.8% and 10.2%, respectively. In 2020, IDC expects service providers will spend $37.5 billion on IT infrastructure for delivering public cloud services, while spending on private cloud IT infrastructure will reach $20.3 billion.

"For the majority of corporate and public organizations, IT is not a core business but rather an enabler for their core businesses and operations," said Natalya Yezhkova, Research Director, Storage Systems. "Expansion of cloud offerings creates new opportunities for these businesses to focus efforts on core competences while leveraging the flexibility of service-based IT."


Worldwide PC Shipments Declined 9.6% in 1Q’16 (Charts 28-31)

Currency Issues Continued to Impact the PC Industry

Worldwide PC shipments totaled 64.8 million units in the first quarter of 2016, a 9.6% decline from the first quarter of 2015, according to preliminary results by Gartner, Inc. This was the sixth consecutive quarter of PC shipment declines, and the first time since 2007 that shipment volume fell below 65 million units.

"The deterioration of local currencies against the U.S. dollar continued to play a major role in PC shipment declines. Our early results also show there was an inventory buildup from holiday sales in the fourth quarter of 2015," saidMikako Kitagawa, principal analyst at Gartner.

"All major regions showed year-over-year shipment declines, with Latin America showing the steepest drop, where PC shipments declined 32.4%. The Latin American PC market was intensely impacted by Brazil, where the problematic economy and political instability adversely affected the market, Kitagawa said. "The ongoing decline in U.S. PC shipments showed that the installed base is still shrinking, a factor that played across developed economies. Low oil prices drove economic contraction in Latin America and Russia, changing them from drivers of growth to market laggards."

PCs are not being adopted in new households as they were in the past, especially in emerging markets. In these markets, smartphones are the priority. In the business segment, Gartner analysts said the Windows 10 refresh is expected to start toward the end of 2016.

Lenovo maintained the number one position in worldwide PC shipments in the first quarter of 2016 despite a 7.2% decline in shipments. Lenovo experienced a shipment decline in all regions except North America, where the company's PC units increased 14.6% from the same period last year. In the last four quarters, Lenovo has showed double-digit shipment growth in the U.S., while the overall market has declined.

HP was split into Hewlett Packard Enterprise and HP Inc. at the end of 2015, and HP Inc.'s first quarter indicates the challenges the company faces in the PC market. HP Inc. has said it wants to stay away from low-profit segments, and the first quarter of 2016 results reflect its efforts to emphasize high-end sales, which cost it shipments.

Dell's worldwide PC shipments declined 0.4% in the first quarter, which was much better than the global industry average. Dell shipments increased in North America and Japan, but shipments declined in EMEA, Asia/Pacific and Latin America.

In the U.S., PC shipments totaled 13.1 million units in the first quarter of 2016, a 6.6% decline from the first quarter of 2015. U.S. PC shipment volume was the lowest in three years.

"Vendors that had a strong consumer focus struggled to increase sell in shipments," Kitagawa said. "There was no particular motivation for U.S. consumers to purchase PCs in the first quarter of 2016. There have been increased sales of two-in-one PCs, but not enough to offset the decline in desktop and traditional notebook sales."

Dell surpassed HP Inc. to become the number one vendor in the U.S. market based on shipments. Dell's PC shipments grew 3.1% in the U.S., while HP Inc.'s shipments declined 17.3%. Dell benefited from focusing on the business segment instead of the consumer market.

Notes: Data includes desk-based PCs, notebook PCs and ultramobile premium. All data is estimated based on a preliminary study. Final estimates will be subject to change. The statistics are based on shipments selling into channels.

Source: Gartner (April 2016)

Asia/Pacific PC shipments reached 23.3 million units in the first quarter of 2016, a 5.1% decline from the first quarter of 2015. The ongoing fragile Chinese economy and weak global demand continued to dampen consumer sentiment in the region. With high PC penetration in the major cities, it was a challenge to invoke PC replacements on the appeal of new technology. The PC life cycle is lengthening as many consumers are waiting until their PC breaks down before purchasing a new one.

PC shipments in EMEA totaled 19.5 million units in the first quarter of 2016, a decline of 10% year over year. In Western Europe, consumer demand remained stable in Germany and the U.K., while in France, the PC segment was impacted by the transition to high-definition TV. Consumers preferred to buy new TVs or a specific box for the TV reception. In the business segment, large organizations are testing and evaluating Windows 10, and major deployment will start at the end of 2016.


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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