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.
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.
The SIA just released its February semiconductor shipment data. World shipments (3-month average basis) continued to decline sequentially (Chart 1) although their 3/12 growth may have reached bottom and should soon begin to improve (Chart 2).
Chart 3 shows 3-month growth rates by region. Europe is now suffering much more than the other regions.
All regional growth rates are in negative territory but they appear to have already, or soon will reach their turning points (Chart 4). Real growth will not occur until 3/12 exceeds 1.0.
Chart 5 shows actually monthly semiconductor shipments by region and Chart 6 presents the same information on a 3-month average basis. Chart 7 shows shifts in regional chip consumption share over time.
Charts 8 to 11 compare regional electronic equipment to semiconductor shipments on a 3/12 basis. Ideally the equipment and semiconductor growth rates should be coincident but North America and Europe have shown periods of large imbalance (excess ordering and inventory building followed by downward corrections). In SE Asia electronic equipment growth has resumed with chip growth likely to soon follow.
Passive component and semiconductor shipment growth rates are similar on a global basis (Chart 12) where in the U.S. semiconductor shipments have “led” passive growth (Chart 13).
Domestic electronics demand rose in February as the U.S. electronic equipment book-to-bill ratio increased to 1.03 on a 1-month basis (Chart 14). The 3/12 growth of both orders and shipments improved (Chart 15) as did the actual electronic equipment bookings and sales (Chart 16).
Inventories remained in control as the ratio of inventories to orders declined (Chart 17).
The defense capital goods book-to-bill rose slightly (Chart 18) due to a sharp increase in orders (Chart 19) and both communication (Chart 20) and computer equipment (Chart 21) orders improved.
Media Tablet and Mobile Phone Sales Ensure Positive Market Growth
The worldwide semiconductor foundry market totaled $29.8 billion in 2011; a 5.1% increase from 2010, according to Gartner, Inc. Analysts said the semiconductor supply chain experienced some impact from the Japanese disasters and Thailand flooding. However, without the steep depreciation of U.S. currency, analysts said that foundry growth in 2011 would have been 0.7%.
"Thanks to stable media tablet and mobile phone sales, a slide of the semiconductor and foundry revenue in 2011 was prevented," said Samuel Tuan Wang, research director at Gartner. "After 40.5% growth from 2009 to 2010, the foundry market maintained relatively flat business in 2011 due to the weakness in PC production and an overall consumer demand hit, as well as a leaner inventory practice by customers that started in mid-2011."
Consolidation and domination of business continued. The top five foundry players accounted for almost 80% of the foundry market share, with the top player, TSMC, expanding its revenue over 2010 and reaching 48.8% share in 2011.
Samsung's foundry, with $470 million in revenue, ranked ninth. However, Samsung Electronics had been aggressively expanding its LSI business in 2011. Had the estimated $1 billion Apple wafer business been included in its foundry revenue, Samsung would rank as high as fourth in the foundry ranking. Powerchip increased in foundry revenue in one year due to the strategic decision to shift from the commodity DRAM business to foundry in early 2011.
Communications, consumer and data processing continued to be the three key applications driving the foundry business; they accounted for 42.7%, 20.9% and 20.3% of the foundry revenue, respectively, in 2011. Fabless customers contributed 77.8% of the foundry business, integrated device manufacturers contributed 20.2%, and the remaining came from system companies. By region, America's customers generated 62.8% of the foundry revenue, Asia/Pacific 22.2%, Europe 10% and Japan 4.9%.
"Given the aggressive capital spending by large foundries during 2010 and 2011, the oversupply of foundry capacity was inevitable," said Mr. Wang. "The utilization rate for foundries continued to decline quarter to quarter in 2011, causing the annual average utilization rate to drop to 81% from 91% in 2010. Advanced technology for mobile applications was the driver for the growth of foundry business in 2011, and the demand is expected to remain high during the next few years."
Rigid PCB shipments were down 1.9% in February 2012 from February 2011, but bookings increased 6.9% year over year. Year-to-date, rigid PCB shipments decreased 2.5% and bookings increased 8.8%. Compared to the previous month, rigid PCB shipments increased 5.9% and rigid bookings increased 4.3%. The book-to-bill ratio for the North America rigid PCB industry in February 2012 climbed to 1.04.
Flexible circuit shipments in February 2012 were down 6.4% and bookings were up 1.8% compared to February 2011. Year-to-date, flexible circuit shipments decreased 7.1% and bookings decreased 14.9%. Compared to the previous month, flexible circuit shipments increased 7.4% and flex bookings were up 26.0%. The North America flexible circuit book-to-bill ratio rose to 1.10.
For rigid PCBs and flexible circuits combined, industry shipments in February 2012 decreased 2.3% from February 2011, while orders booked increased 6.5% from February 2011. Year to date, combined industry shipments were down 2.9% and bookings were up 6.3%. Compared to the previous month, combined industry shipments for February 2012 increased 6.0% and bookings also increased 6.0%. The combined (rigid and flex) PCB industry book-to-bill ratio in February 2012 improved markedly to 1.04.
“Growth rates for both rigid PCB and flexible circuit sales in North America are improving,” said Sharon Starr, IPC director of market research. “Although year-on-year sales growth rates are still negative, they are moving up and nearing positive territory,” she added. “Order growth was especially strong in February and it pushed the book-to-bill ratio up to 1.04, indicating that sales are likely to continue strengthening for the next several months.”
The book-to-bill ratios are calculated by dividing the value of orders booked over the past three months by the value of sales billed during the same period from companies in IPC’s survey sample. A ratio of more than 1.00 suggests that current demand is ahead of supply, which is a positive indicator for sales growth over the next two to three months.
Book-to-bill ratios and growth rates for rigid PCBs and flexible circuits combined are heavily affected by the rigid PCB segment. Rigid PCBs represent an estimated 89% of the current PCB industry in North America, according to IPC’s World PCB Production Report.
The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), nonresidential fixed investment, exports, and residential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in PCE and in residential fixed investment that were partly offset by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an acceleration in imports, and a deceleration in exports.
With chipmakers slowing down their capacity expansions as well as delaying the transition to newer process technologies due to company mergers and acquisitions, the global bit growth of DRAM in 2012 will decelerate significantly in 2012, according to Brady Wang, an analyst with Gartner.
Worldwide DRAM bit shipments are forecast to grow only 26.9% in 2012, said Wang. Even without considering Elpida Memory's bankruptcy, the bit growth will decelerate to 30-35%, Wang indicated.
Elpida's fall will likely cause the global supply for DRAM memory to decline, Wang pointed out. Meanwhile, the firm's present bankruptcy proceedings will inevitably put off its partners' transitions to next-generation node technologies, Wang said.
With supply growth slowing, the DRAM industry may face shortage problems in the second half of 2012, Wang stated. But prices are unlikely to rise significantly as a result of lower costs, Wang added.
As for NAND flash, since the memory's targeted applications are more diversified, this will boost its market size to outpace that of DRAM memory in 2013, according to Gartner. The NAND flash market is forecast to reach US$35.6 billion in 2013, compared to US$34 billion for the DRAM sector, said the research firm.
IDTechEx forecasts the touch screen market to reach $14 billion in 2012. The biggest application for touch screens in general, and projected capacitive screens in particular, is mobile phones and, right behind, tablets.
The biggest market opportunity in terms of shipped units is for mobile phones. IDTechEx projects touch penetration in mobile phones to reach over 40% in 2012 and to rise to almost total coverage in the next decade.
Shipment of tablets with touch screen technology is expected to reach 100 million units in 2012.
Ending 2011 as the top chip supplier, Intel carved out 15.6% of the market, a gain of 2.5 points from 2010, research firm IHS said.
The latest figure proved to the highest at least since 2001 when the company took home a 13.9% share. Over the last five years, Intel's share has varied from 11.9% to 13.9%.
Strong sales growth and a major acquisition contributed to the surge in market share.
"The company's rise was spurred by soaring demand for its PC-oriented microprocessors, and for its NAND flash memory used in consumer and wireless products," Dale Ford, head of electronics and semiconductor research for IHS, said in a statement. "Intel's revenue also was boosted by its acquisition of Infineon's wireless business unit."
For the full year, Intel saw sales of $54 billion, a 20.6% jump over 2010. That proved to be the third highest level of growth among the top 20 chip suppliers, surpassed only by Qualcomm and ON Semiconductor.
Intel's record year also helped it stay ahead of the number two supplier Samsung, which "had been whittling away at Intel's lead in recent years," according to IHS. Samsung's share of the market nestled in at 9.2% in 2011, unchanged from the previous year.
Overall, the global chip market grew only 1.3% last year, trailing IHS's December forecast of 1.9%. A weak fourth quarter hurt the annual results, though the industry still managed to end the year on the plus side.
Only around half of the 302 chip suppliers tracked by IHS saw a boost in revenue last year. Companies located in North America witnessed the highest gains, averaging 7.5% sales growth. But those in Japan saw a 7.2% decline in revenue as a result of the impact from the 2011 earthquake.