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Weekly Global Update for August 21, 2014

08.21.2014 // Walt D. Custer // Industry Conditions

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Taiwan/China Update

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

  • Electronic equipment revenues (Chart 1) dropped 9.2% from June 2014 and declined 2.5% from July 2013. Analysts partially blamed the decline on Apple’s order reductions in preparation for new model ramp ups.
  • ODM (Chart 2), motherboard (Chart 3) and display (Chart 4) revenues were also unimpressive in July.
  • By contrast wafer foundry sales (Chart 5) increased, mirroring the recent rise in global semiconductor shipments.
  • Package and test (Chart 6), memory (Chart 7) and passive component (Chart 8) all saw modest sales increases from June to July.
  • Solar/photovoltaic sales weakened for the third straight month (Chart 9).
  • A combination of 46 Taiwan-listed rigid and flex printed circuit manufactures reported a moderate July sales increase (Chart 10) and rigid (CCL) laminate revenues mirrored an increase in rigid PCB sales (Chart 11).

Presumably the low July electronic equipment demand was due to delayed orders in anticipation of new models, as by contrast, most component categories saw increases.

The Asia/Pacific leading indicator forecasts near term growth (Chart 12).

Global Business Environment: Stronger Growth but with Greater Risks

Thanks to our colleague Ed Henderson here is the “global economy” section of his 17 page August Henderson Electronic Market Forecast. For details on Ed’s monthly forecast see www.hendersonventures.com

Modest Manufacturing Growth Continues (Chart 13)

The global manufacturing industry has achieved only sluggish growth since the 2010 subsidies have worn off. The Purchasing Managers Index (PMI) perked up during the second half of 2013, only to subside during the first half of 2014. The July reading of 52.5 was marginally lower than the 52.6 posting in June. Unsurprisingly, there was a wide range of results. Among the 27 countries tracked by J.P. Morgan/Markit the Czech Republic came in with the highest measure of factory activity in July. Unexpectedly, the U.S. posted the second-strongest reading of 57.1. China managed only a continuation of weak factory growth as indicated by a 51.7 index. The Eurozone traveled the same trajectory largely because France weighed on the results. French manufacturing activity continued to contract as evidenced by a 47.8 pace in July.

Uneven Second-quarter GDP Results

Only a sprinkling of economic statistics has been published thus far for the second quarter. Most notably, the US chalked up a 4.0% annualized gain between the first and the second quarter. Much of the progress can be traced to a rebound from the revised 2.1% retreat posted for the first quarter. South Korea and Taiwan turned in gains of 2.4% and 5.9%, respectively, as their exports rebounded along with the revival of the Chinese economy. China’s second-quarter gain came in at 8.2%, the strongest advance since the third quarter of 2012.

See Charts 14 & 15 as reference for the following sections.

Modest Gains Projected for Europe

Thus far only two West European countries have reported second-quarter results. The United Kingdom was up 3.2% and, surprisingly, Spain was ahead by 2.4%. That said, generally weaker PMI readings for the Continent are expected to be a harbinger of sluggish Eurozone results. The European economies continue to be retarded by deleveraging at financial institutions. That is, stricter lending rules in the wake of the financial crisis have constrained bank lending. And given that European corporations depend on bank lending to a much greater extent than their U.S. counterparts, which have greater reliance on bond markets, corporate liquidity has suffered. That is particularly true of small companies which might otherwise help pump up economic results. However, with the more forceful help from the European Central Bank (ECB), West European GDP is predicted to accelerate from a meager 0.1% gain in 2013 to 1.4% in 2014. Stronger gains are predicted for 2015 and 2016, but they will not reach 2.0% during the forecast period.

China in Transition

The recent slowdown in global economic activity can be partially traced to a strategic shift in Chinese economic policy. The country has begun to wean itself from an outsized dependence on investment for its GDP flywheel. Increasing excess manufacturing capacity, along with higher vacancy rates in residential housing, have exposed the country to a potential investment bubble. Consequently, liquidity has been squeezed in the commercial, industrial and real estate investment sectors by monetary authorities. Policy makers are now encouraging consumer spending as the engine of growth. The ongoing transition has resulted in slower economic gains for a country previously accustomed to double-digit rates of growth. And although second-quarter GDP growth came in at an annualized rate of 8.2%, expansion rates are expected to be in the 7.5-8.0% range during the next few years.

Accelerated Global Economic Growth still Expected

Although our forecast calls for an increasing economic rate of gains through 2016, the journey may prove to be quite bumpy. Wars in the Middle East and Africa are already impacting oil production and, therefore, energy prices. Moreover, the Ukrainian standoff between Kiev and Moscow has the potential of sapping European economic health if sanctions against Russia are elevated or a major war breaks out. And while Islamic radicals are capturing territory in Iraq, Syria and, now, Lebanon, the squeeze on oil supplies is far less threatening than they would have been several years ago because US output has expanded greatly. But the picture could change quickly if production in Nigeria and/or Venezuela is significantly constricted. Economic risks notwithstanding, world economic growth is predicted to accelerate from a 2.5% rate in 2013 to 3.8% in 2016.

Europe Update

The Eurostat data for June were just released:

  • EU27 Industrial production was flat from May to June with France and Italy weighing the European total down (Chart 16)
  • Electronic equipment production edged up sequentially from May (Chart 17) as its 3/12 rate of growth finally broke into positive territory (3/12>1) (Chart 18)
  • Motor vehicle production declined slightly (Chart 19) but aerospace output increased (Chart 20)
  • Instrument and control (Chart 21) and medical equipment (Chart 22) improved marginally.
  • Loaded boards (electronic assembly continued to decline (Chart 23) as did wiring devices (PCBs) (Chart 24).
  • The European PCB leading indicator points to slower PCB growth (Chart 25)

Chart 26 summarizes 2Q’14/2Q’13 growth of the European electronic supply chain.

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Statements of fact and or opinions expressed in MarketEYE by its contributors are the responsibility of the authors alone and do not imply an opinion of the officers or the representatives of TTI, Inc.

Featured Contributor:
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.

Custer Consulting Group

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