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Weekly Global Update for August 27, 2014

08.27.2014 // Walt D. Custer // Industry Conditions

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Global Electronic Equipment Growth by Sector

Now that almost all companies have reported their calendar 2Q’14 financial results here are composite historical revenue, net income and inventory results by sector:

  • Total electronic equipment sales rose 4.1% in the 2014’s second quarter versus the same quarter in 2013 (Chart 1).
  • Automotive suppliers continued their steady growth (Chart 2).
  • Military equipment revenues continued to shrink (Chart 3) but when combined with commercial aircraft suppliers (Chart 4) the group expanded 2.3%.
  • Instrument and control (Chart 5) and medical (Chart 6) equipment achieved mid-single digit growth.
  • Communication equipment sales rose thanks to smart phones (Chart 7) while datacom revenues (Chart 8) grew only 1%.
  • Computer sales increased 4.7% with notebook demand improving. Media tablet growth is slowing and pricing is under pressure (Chart 9).
  • Data storage sales were flat (Chart 10).
  • Business and office equipment revenues shrank (Chart 11) as did consumer electronics revenues (Chart 12).
  • SEMI fab, test and measurement equipment sales rose 18% in the second quarter (Chart 13) although there are signs that this growth is slowing

Chart 14 summarizes the 2Q’14 growth of the global electronic supply chain.

Source: Company financial reports with consolidation and analysis by Custer Consulting Group

August PMI Leading Indicator "Flash" Results

Markit Economics released "flash" August PMI leading indicator results for select countries. The U.S. and Japan improved while Europe and China contracted (Chart 15).

Source: www.markiteconomics.com

European Semiconductor Distribution Market - Solid Growth for Q2’14 (Charts 16 & 17)

Q2/CY14 increased 5.3% over Q2/CY13. Germany sticks out with 11% growth. Discretes & Opto show highest increases.

The European semiconductor distribution industry continues on its growth path. According to DMASS (Distributors’ and Manufacturers’ Association of Semiconductor Specialists) semiconductor distribution sales in Q2/CY14 grew by 5.3% to 1.6 Billion Euro. Except for France, Benelux, Nordic and Switzerland, all the major regions increased.

Georg Steinberger, chairman of DMASS, commented: "Our market seems to have reached a solid growth level in the 5+% range. Particularly encouraging was the fact that Germany, after a few weak quarters, is back on track and brought in a very healthy 11% increase over CY13. For DMASS in total, the first half of CY14 ended at 6.6% growth, to 3.2 billion euro. We are pretty certain that the full year will end positive."

Regionally, Germany and Eastern Europe led the growth with 11% and 10.2% respectively. German sales climbed to 514 million euro, Eastern Europe (excl. Russia) to 183 million Eeuro. While the UK added a solid 7.3% to 131 million euro, Italy grew by 3.7% to 161 million. France on the other hand declined by 2.6% to 122 million euro, while the Nordic region with 141 million euro sales lost 8.7% over Q2/CY13.

Georg Steinberger: "Nordic and Benelux were certainly the weak spots last quarter while Germany regained some of its old strength. Over the course of six months, the picture has stabilized somewhat, but some risks remain: France develops below average, Benelux, too, and we do not know yet the impact of the sanctions against Russia in our market, although Russia only contributes 4% to the DMASS Total."

Product-wise, Optoelectronics grew over-proportionally (13.5% to 164 million euro), driven by LEDs, as did Discrete components (13.6% to 89 million euro). Power grew by 8.2% to 162 million euro, Analog components by 9.5% to 472 million euro and MOS Micro by 6.4% to 336 million euro. Behind the curve remained Memories with -1.8% to 122 million euro and Programmable Logic with -6.9% to 118 million euro.

Georg Steinberger: "We observe for some time now clear growth spots like High-end-MCUs, High-end Analog and LEDs, while other mainstream technologies – former shooting stars like Programmable Logic, Other Logic, DSPs or Memories seem to go through a weak period; arguably, an interesting development that has to be watched more closely."

Source: www.dmass.com

Global DRAM Industry Value was US$10.8 Billion in 2Q’14, up 9% vs. Prior Quarter (Charts 18-20)

For 2Q’14, global DRAM industry value reached US$10.8 billion, an increase of 9% compared to the previous quarter, according to DRAMeXchange, the memory and storage research division of TrendForce. The impressive scale of the industry’s value, along with the market’s improved profitability, is the result of the DRAM manufacturers' effective product mix adjustments.

Of the three major DRAM suppliers, Samsung had the most impressive 2Q’14 performance with an operating margin of 39%. SK Hynix trailed close behind its Korean rival with a 38% operating margin. Inotera, a subsidiary of Micron, ended up with the industry’s largest operating margin at 54.6%. In the second quarter, Samsung's and SK Hynix's market shares were 39% and 27%, respectively.

Considering how the Korean manufacturers represent almost 70% of the entire DRAM market, their influences in the industry should not be underestimated. US based Micron, also a key player with influence over the market’s pricing movements, ended up with approximately 26% of the market by the end of 2Q’14. With the DRAM industry's oligopoly structure becoming more apparent and supply continuously tightening, price drops have become relatively uncommon in the market. The DRAM industry value for 2014, as such, is projected to grow by an estimated 36% YoY to US$46.8 billion.

Source: www.trendforce.com

Silicon Wafer Shipments - Strong Growth in 2Q’14 (Chart 21)

Worldwide silicon wafer area shipments increased during the second quarter 2014 when compared to first quarter area shipments according to the SEMI Silicon Manufacturers Group.

Total silicon wafer area shipments were 2,587 million square inches during the most recent quarter, a 9.5% increase from the 2,363 million square inches shipped during the previous quarter. New quarterly total area shipments are 8.2% higher than second quarter 2013 shipments.

"For two consecutive quarters, strong silicon shipment growth has been recorded by the Silicon Manufacturers Group," said Hiroshi Sumiya, chairman of SEMI SMG and general manager of the Corporate Planning Department of Shin-Etsu Handotai Co., Ltd. "Silicon wafer shipments reached an all-time high in the second quarter, surpassing the previous peak of 2,489 million square inches shipped in the third quarter of 2010."

Source: www.semi.org

North America SEMI Equipment July Book/Bill=1.07 (Charts 22 & 23)

North America-based manufacturers of semiconductor equipment posted $1.41 billion in orders worldwide in July 2014 (3-month average basis) and a book-to-bill ratio of 1.07, according to SEMI.

The 3-month average of worldwide bookings in July 2014 was $1.41 billion, 2.8% lower than June 2014 and 17.1% higher than the July 2013. The 3-month average of worldwide billings in July 2014 was $1.32 billion, 0.7% lower than June 2014 and is 9.4% higher than July 2013.

"Order activity for semiconductor equipment has held at a steady level so far for 2014," said Denny McGuirk, president and CEO of SEMI. "This trend, along with improvements in semiconductor device sales and unit shipments, is consistent with our outlook for strong equipment sales growth this year."

www.semi.org

Notebook PC Shipment Improve after Seven Consecutive Quarters of Decline (Chart 24)

After seven consecutive quarters of shipment declines, the global notebook PC market improved in Q2’14. According to preliminary results from the NPD DisplaySearch Quarterly Mobile PC Shipment and Forecast Report, notebook PC shipments reached 45.1 million units, up 1% Y/Y.

"North America and Western Europe have improved to positive double-digit growth, due to a combination of commercial PC replacement cycles and Windows XP migration in 2014," said Hisakazu Torii, vice president, smart application research at NPD DisplaySearch. "The notebook PC market also has benefited from the launch of Chromebooks and other low-priced notebook PCs."

After declining 20% last year, year-over-year growth for the top five notebook PC brands collectively reached 16% in Q2’14. With strong sales in Europe, China, and Latin America, the Lenovo Group overtook HP to lead the market with an 18% shipment share. Asus claimed the #3 position from Dell, due to increased shipments in Europe, China, and Asia. In contrast, shipments of tablet PCs continued to fall in Q2’14, down 12% Y/Y with shipments down for the top five brands.

Source: www.displaysearch.com

Large-Area TFT Panel Shipments Reached Record High of 37.7 Million M² in Q2'14 (Chart 25)

TFT LCD growth was led by LCD TV panel shipments, which reached a record high of 64 million.

According to the latest NPD DisplaySearch Quarterly Large-Area TFT Panel Shipment Report, total large-area TFT panel shipments reached a record high of 37.7 million m² in Q2’14, driven by the shift to larger sizes in all applications. Shipments of 9.1" and larger TFT panels rose 3% Y/Y to 181 million, in Q2. TFT unit growth was led by LCD TV panel shipments, which reached a record high of 64 million. The large-area TFT panels covered in the statistics include a-Si TFT LCD, oxide TFT LCD, and AMOLED panels.

"Panel makers are now taking the opportunity to boost their capacity utilization, clean out their panel inventories, and complete shifts in the product mix," said Peter Su, large-area display analyst for NPD DisplaySearch. "Although panel shipments and prices both rose in the second quarter, supply and demand will gradually come into balance,"

The display panel manufacturer market share rankings shifted in Q2’14. LG Display maintained its lead with 25% of units shipped, but for the first time Innolux surpassed Samsung Display, while AUO ranked fourth, followed by BOE. However, on a shipment area basis, LG Display ranked first in Q2 (25%), followed by Samsung Display (22%), Innolux (19%), AUO (15%), and Sharp (6%).

According to panel makers’ future business plans, nearly all TFT applications are expected to experience a Q/Q decline in Q3’14, except for 9" and larger tablet-PC panels and public display panels. Due to increased demand for larger tablet PCs from consumers and aggressive marketing efforts of tablet PC brands, shipments of large-area AMOLED panels for tablet PCs will grow substantially in Q3’14, passing 1 million. The overall TFT LCD market, however, will experience a 3% Q/Q decrease, as manufacturers plan to ship just 174.6 million TFT LCD panels in Q3. "With many TV brands beginning to see their inventories pile up, panel manufacturers are being careful not to overload the pipeline," Su noted.

Fabrication (fab) loading rates are also expected to be lower in Q3 than in Q2. However, as pipeline shortages disappear, the most critical job that panel makers have is to prevent panel prices from falling. "In the third quarter, demand will decline gradually and come into balance with supply, and fab loadings will be adjusted downward," Su indicated. "Even so, the risk of the panel inventory adjustments in the fourth quarter cannot be ignored."

Source: www.displaysearch.com

U.S. Industrial Production Up 0.4% in July (Chart 26)

U.S. industrial production rose in July, as production of auto parts and motor vehicles increased 10.1%.

Source: www.federalreserve.gov/releases/g17/table1_2.htm

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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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