Positive End to 2016 … but Watch Chip Foundries, Seasonality and the Strong Dollar

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Positive End to 2016 . . . but Watch Chip Foundries, Seasonality and the Strong Dollar

CUSTER AND CUSTER

Positive End to 2016 … but Watch Chip Foundries, Seasonality andthe Strong Dollar

WALT CUSTER AND JONATHAN CUSTER

1Global "Purchasing Managers" IndexDiffusion Index, >50 = GrowthMarkit Purchasing Managers' Indices December 2016 vs. November 2016Markit2016 ended with some positive data. The Global Purchasing Managers Index finished the year on a 35 month high (Chart 1) as all major regions (Chart 2) saw late year manufacturing expansions (PMI>50). This suggests continued growth in early 2017 on a seasonally adjusted basis.

Consumer driven volume electronic equipment production continues to be dominated by China –which had a relatively strong December but is now likely to have begun its normal winter seasonal downturn (Chart 3).


As we enter 2017 the U.S. dollar has strengthened significantly, rising to its highest level since 2001 (Chart 4). One result is of course cheaper imports and more expensive exports for U.S. based companies. However the strong dollar also affects dollar-denominated global growth rate calculations as weaker foreign currencies are consolidated into stronger dollars (Chart 5).


3World Electronic Equipment Monthly ShipmentsConverted @ Fluctuating Exchange

While dollar denominated global electronic equipment growth rates are near breakeven when calculated at constant 2016 exchange, they dropped to a preliminary estimate of minus 3.6% at fluctuating exchange in the fourth quarter of 2016 vs. the same quarter of 2015. Since company financials are calculated at fluctuating exchange, expect multinational companies who report in dollars to show a currency-related negative impact on fourth quarter revenue growth.


In Asia, the Taiwan-listed ODM companies saw revenues decline 1.6% in local currency for total 2016, but had a 2.5% sales increase in December 2016 vs. December 2015. In the longer view ODM growth has slowed dramatically from its strong double-digit increases a decade ago to an actual decline in 2016. Electronic equipment growth in general has flattened and the ODMs are feeling the impact. Until another volume end market product rivaling PCs, media tablets and smartphones develops, global electronics growth will be modest. Automotive is the best near term hope.


5Exchange Rate Impact on US$ Denominated Consolidated World Electronic Equipment SalesQuarterly Revenue GrowthConverted to US$ @ Fixed 2015 vs Fluctuating ExchangeGlobalWhile total electronic equipment growth is flat, thanks to increased semiconductor content (and some over ordering) chip shipments grew in late in 2016. However, wafer foundry sales (a leading indicator of global semiconductor shipments) dropped in December so chip growth may also soon slow.

Business conditions are not bad but they certainly require care monitoring!

End Markets

REGIONAL

• Worldwide IT spending will increase 2.7% y/y to $3.5 trillion in 2017. –Gartner

• Consumer Electronics market forecast to rise at a 15.4% CAGR from US$ 1,710 billion by 2016 to US$ 2.9 trillion by 2020. –Persistence Market Research

• Flexible electronics market will grow at slightly above 21% CAGR from USD 5.13 billion in 2015 to USD 16.5 billion by end of 2021. –Zion Market Research

• India’s electronics and telecom equipment imports grew from USD 33 billion in 2013-14 to USD 41 billion in 2015-16. –Minister of State for Electronics

COMPUTERS & PERIPHERALS

• PC shipments declined 3.7% y/y to 72.6 million units in 4Q’16; FY’16 PC shipments fell 6.2% to 269.7 million units. –Gartner

• Traditional PC (Desktop, Notebook, and Workstation) shipments declined 1.5% y/y to 70.2 million units in 4Q’16. –IDC

• All-in-one PC shipments decreased 4.8% y/y to about 12 million units in 2016 and volume is expected to stay flat in 2017. –Digitimes Research

7Large ODM Companies Composite of 11 Taiwan-listed ManufacturersQuarterly Revenue Growth in NT$• Gaming simulator market is expected to expand at more than 17% CAGR to USD 7.8 billion by 2021. –Technavio

• High performance computing (HPC) technical server market factory revenue grew by 3.9% y/y to $2.8 billion in 3Q’16. –IDC

• Enterprise storage market is growing at a CAGR of 16% from USD 28 billion in 2015 to more than USD 58 billion by 2020. –ReportsnReports

• Infrastructure products for cloud IT grew 8.1% y/y to $8.4 billion in 3Q’16. –IDC

MOBILE COMMUNICATIONS

PCs, tablets, ultramobiles and mobile phones combined shipments are projected to total 2.3 billion units in 2017. –Gartner

AUTOMOTIVE

• Automotive electronics market will grow from $185 billion in 2015 to $353 billion by 2023. –Global Market Insights

• U.S. auto sales increased 0.4% y/y to 17.6 million vehicles in 2016.

• China’s vehicle sales are expected to grow 5% y/y in 2017 to 29.4 million vehicles after expanding 13.7% y/y in 2016 to 28 million vehicles. –China Association of Automobile Manufacturers

• Advanced driver assistance system component shipments will increase from 218 million units in 2016 to 1.2 billion units by 2025. –Tractica

• In-vehicle networking market will reach $1,366 million in value for 1.38 billion units by 2022. –RnRMarketResearch

CONSUMER ELECTRONICS

• Camera module market will rise at a 19.7% CAGR from US$12 billion in 2012 to US$43 billion by 2019. –Transparency Market Research

• USB 3.0 flash drive market is expected to grow at a 23.5% CAGR from US$1,120 million in 2015 to US$3,120 million by the end of 2020. –Transparency Market Research

• U.S. consumer technology industry will reach $292 billion in retail revenues ($228 billion wholesale) in 2017 driven by increasing consumer enthusiasm for IoT and adoption of emerging technology. –CTA

PANELS/ MONITORS/ TOUCH SCREENS

• China’s panel makers shipped over 1 million smartphone-use AMOLED displays in 3Q’16. –IHS

• Curved-surface LCD TV sales grew 2.25 times over 2015 to about 9 million units in 2016. –AU Optronics

• Flexible display panel shipments will increase 135% to 139 million units in 2017 from 59 million units in 2016. –IHS Markit

• LCD TV panel shipments decreased 2.5% y/y to 258 million in 2016. –Sigmaintell

2016 to 5 million in 2017 and total market revenue will grow from $1.9 billion in 2016 to $22 billion in 2020. –TrendForce

• Mobile virtual reality headsets will represent more than 75% of total VR head-mounted display shipments through 2021 and total market for mobile VR hardware and content will reach $11 billion worldwide. –Tractica

WEARABLES

• Enterprise wearable shipments will grow from 30 million shipments in 2016 to nearly 147 million in 2021 with wrist-worn wearable shipments projected to triple by 2021 to reach 30 million units. –ABI Research

• Wearable medical device market is projected to grow at 18% CAGR over the next five years to $12 billion by 2021. –Research and Markets

EMS, ODM & Related Assembly Activity

European electronic manufacturing services industry is forecasted to reach €27.4 billion in 2016. –Reed Electronics Research

India established 40 new mobile phone manufacturing centers in 2016.

Medtech contract manufacturing sector will rise at a 14% CAGR to $246 billion by 2019. –Transparency Market Research

Aimtron acquired Target Corp.

aPriori introduced a new software module that automates the cost calculation of Printed Circuit Board Assembly.

C. R. International is celebrating 35 Years in business as an electronics contract manufacturing facility.

Ci March Electronics installed FactoryLogix R3 from Aegis in Veenendaal, the Netherlands.

Cogiscan hired Yogesha S.K. as an Applications Engineer in India.

Compal moved its tablet and smart wearable device production to Chongqing, China.

Computrol installed five Europlacer LZero3 component storage systems at its Meridian, Idaho facility.

Darekon expanded its facilities in Haapavesi, Finland by 1,400 M2.

DFI completed audit based on IPC J-STD-001 and IPC-A-610 and earned certification as an IPC Qualified Manufacturer.

Ducommun appointed Stephen Oswald President & CEO.

• Smartphones’ flexible AMOLED panel shipments are on track to triple y/y to 150 million units in 2017. –Digitimes

3D PRINTING

3D Printing spending is forecast to grow at a 22% CAGR from $13.2 billion in 2016 to nearly $29 billion in 2020. –IDC

INTERNET OF THINGS

• Connectivity components and services market will grow from €30 billion in 2016 to €170 billion by 2020. –Cemtrex

• Internet of Things spending is forecast to grow at a 16% CAGR from $737 billion in 2016 to $1.29 trillion in 2020. –IDC

MILITARY

Global arms industry top 100 totaled USD 371 billion in 2015; U.S. dominated top 100 with total arms sales amounting to USD 210 billion for 2015. –SIPRI

ROBOTS/ AUTOMATION/ ARTIFICIAL INTELLIGENCE

• Robotics spending will grow from $92 billion in 2016 to more than $188 billion in 2020. –IDC

• Asia Pacific robotics and related services spending will grow at 22% CAGR from $60 billion in 2016 to over $133 billion in 2020. –IDC

• China’s industrial robot sales grew 20% y/y to about 80,000 robots in 2016. –GG Robotics Research Institute and the China Artificial Intelligence Robot Industry Alliance

• Collaborative robot hardware market is expected to reach $1,960 million by 2021. –Research and Markets

• Agricultural robot shipments will grow from 32,000 units in 2016 to 594,000 units in 2024 with revenue of $74 billion. –Tractica

• Artificial intelligence market is estimated to expand at a 45% CAGR to USD 16,274 million by 2022. –Research and Markets

• Drone market is forecast to grow an average 32% per year over the next decade to $30 billion. –ABI Research

• Robotics end-of-arm tooling will expand at a 9% CAGR to USD 9.2 billion by 2020. –Technavio

• Smart home hardware and services market will grow from $83 billion in 2017 to $195 billion by 2021. –Juniper Research

VIRTUAL AND AUGMENTED REALITY

• Virtual reality units shipments are expected to row from 2.9 million in 2016 to 5 million in 2017 and total market revenue will grow from $1.9 billion in 2016 to $22 billion in 2020. –TrendForce

• Mobile virtual reality headsets will represent more than 75% of total VR head-mounted display shipments through 2021 and total market for mobile VR hardware and content will reach $11 billion worldwide. –Tractica

WEARABLES

• Enterprise wearable shipments will grow from 30 million shipments in 2016 to nearly 147 million in 2021 with wrist-worn wearable shipments projected to triple by 2021 to reach 30 million units. –ABI Research

• Wearable medical device market is projected to grow at 18% CAGR over the next five years to $12 billion by 2021. –Research and Markets

EMS, ODM & Related Assembly Activity

European electronic manufacturing services industry is forecasted to reach €27.4 billion in 2016. –Reed Electronics Research

India established 40 new mobile phone manufacturing centers in 2016.

Medtech contract manufacturing sector will rise at a 14% CAGR to $246 billion by 2019. –Transparency Market Research

Aimtron acquired Target Corp.

aPriori introduced a new software module that automates the cost calculation of Printed Circuit Board Assembly.

C. R. International is celebrating 35 Years in business as an electronics contract manufacturing facility.

Ci March Electronics installed FactoryLogix R3 from Aegis in Veenendaal, the Netherlands.

Cogiscan hired Yogesha S.K. as an Applications Engineer in India.

Compal moved its tablet and smart wearable device production to Chongqing, China.

Computrol installed five Europlacer LZero3 component storage systems at its Meridian, Idaho facility.

Darekon expanded its facilities in Haapavesi, Finland by 1,400 M2.

DFI completed audit based on IPC J-STD-001 and IPC-A-610 and earned certification as an IPC Qualified Manufacturer.

Ducommun appointed Stephen Oswald President & CEO.

Enics Lohja’s business unit in Lohja, Finland received the International Railway Industry Standard (IRIS) certification.

EPE purchased a Nordson ASYMTEK Spectrum S-920 automated fluid dispenser system.

Foxconn/ Hon Hai

• and Sharp jv plans to build a $8.8 billion LCD plant in China.

• asked nearly a fourth of its 8,000 Sri City, India factory workers to go on paid leave for two weeks after country’s demonetization of high value notes sparked a severe cash crunch.

• named Freddie Yuan, CMO.

• plans to automate production at its factories in China in three phases, aiming to fully automate entire factories eventually. –GM

• moved into European TV business with Sharp’s acquisition of Skytec UMC.

• Singapore invested US$60 million in Smart Technologies for 84.2% stake.

• subsidiary FIH Mobile appointed CEO Calvin Chih acting Chairman.

• established 1.4 billion yuan ($201.6 million) jv capital fund with IDG Capital and Huafa Group.

• was the largest contract tablet assembler worldwide with 17.8% global market share of slate tablet shipments in the 3-month period and a 31.1% share of detachable tablet shipments. –IDC

Industrial Company of Informatics, Communications and Electronics Computer opened a tablet and laptop assembly shop in Cuba with 120K units per year capacity.

Jabil installed first production units of HP’s 3D printers in North America.

Kimchuk added an ACE KISS-103 selective soldering system in Connecticut.

Kinpo Electronics and Cal-Comp Electronics set up jv subsidiary to develop automated guided vehicles, robotic arms and automation software.

Kinpo increased its workforce from 400 workers to between 1,000 and 1,500 in Indiana to accommodate more orders for its XYZprinting 3D printers and Dyson vacuum cleaners.

Leoni sold its electrical appliance assemblies business to BizLink.

Libra Industries 

• completed advanced SPI training with Omron.

• Glenn Watson completed AS9100 Lead Auditor Training.

NEO Tech added multiple new high-speed surface mount pick & place machines at its Otay Mesa manufacturing site in Tijuana Mexico.

Pegatron’s Chairman TH Tung was re-elected as TCA president.

Salcomp bought the factory inside Nokia SEZ near Chennai, India.

Saline Lectronics installed a Nikon Metrology XT V 160 Varian 1313Dx X.Tract PCB inspection system with Advanced Service Kit, AutoTransformer, and Inspect-X Software.

Stadium Group acquired Cable Power.

Variosystems installed a Siplace SX-SMD line at its HQ in Steinach, Switzerland.

Vexos appointed Greg Collins, SVP & GM of Asia.

Webasto acquired Schaidt Innovations.

Wistron

• applied for permission to expand its plant in Bengaluru, India.

• is expanding ODM handset production capacity at its existing plant in the suburb of New Delhi from 600,000-700,000 units to two million a month.

• purchased US$195 million in equipment for Kunshan subsidiary for the next-generation iPhone manufacturing.

PCB Fabrication

FPCB industry will grow at a 10.4% CAGR to $27 billion by 2022 on IoT, automotive electronics growth. –Allied Market Research

PCB design software market is expected to grow at a 13% CAGR from US$ 1,400 million in 2016 to US$ 4,800 million by 2026. –Future Market Insights

India’s annual PCB production was $280 million in 2016, with AT&S leading with $70 million annual output, followed by Ascent Circuit with $32 million revenue. –Dr. Hayao Nakahara

North America PCB production grew 2.5% y/y in 2016; military and aerospace sector remains the largest vertical market for PCB manufacturers. –IPC

Electronic design automation industry revenue increased 7% y/y to $2090 million in 3Q’16; PCB & MCM revenue decreased 0.1% y/y to $162 million. –ESD Alliance

E-scrap and printed circuit board e-Scrap market is expected to grow from 43.7 million units in 2015 to 70 million units by the end of 2026. –Transparency Market Research

PCB market share for automotive was about 9% of total PCB usage in 2016, but in a few years, it may reach 12% as ADAS (adaptive driver assistance system) is being adopted and many more EVs and Plug-Ins are being sold. –Dr. Hayao Nakahara

ACDi received AS9100 certification.

Advanced Circuits/ Compass Diversified Holdings appointed Sally McCoy to Board of Directors.

All Flex added a library of videos about flexible circuitry at http://www.allflexinc.com

Apple’s bareboard purchases are estimated to be $5 billion/year, about 8% of the world’s yearly PCB consumption. –Dr. Hayao Nakahara

Branded motherboard shipments are forecast to drop 5-10% in 2017 due to weak demand from China. –Digitimes

DYCONEX received EN 9100:2009 certification.

Dynamic & Proto Circuits terminated operations.

Eltek sold all of its Kubatronik-Leiterplatten shares to Alois Kubat, Kubatronik’s only other shareholder and founder.

Epec is celebrating 65 years of manufacturing in 2017.

Eucon sold its entire stake in Eucon Investment Holding (which includes mechanical drilling, laser drilling, routing and manufacturing of integrated PCBs) to former group chairman and CEO, Wen Yao-Long for a nominal S$1.

GCL New Energy sold its entire issued share capital of Same Time International to former Executive Director, Yip Sum Yin for HK$250 million.

GSPK Circuits bought an extra acre of land in Boroughbridge to accommodate future development of its PCB manufacturing business.

Hofstetter PCB added a new tin stripping unit from TSK Schill in Küssnacht, Switzerland.

I-3 Electronics in Endicott received permit to treat industrial waste products.

Mentor Graphics appointed Martin O’Brien, VP for Integrated Electrical Systems.

Micropack invested in a Nuvogo 800 Direct Imaging solution from Orbotech.

Nano Dimension successfully 3D printed a series of multilayer rigid PCBs.

NCAB Group purchased Quicktronics Scandinavias PCB business in Denmark.

Printed Circuits, Inc. (PCi) purchased a Keyence IM-6225 instant dimensional measurement system.

Ruwel had a fire that destroyed its innerlayer building in Geldern, Germany.

Samsung Electro-Mechanics plans to invest more than $83 million (100 billion KRW) to build additional factories for FPCBs in Vietnam to supply Apple’s OLED iPhone.

Tramonto Circuits achieved 94% overall on-time delivery in 2016.

Yip Sum Yin purchased Gcl New Energy Holdings’ PCB business.

Zhen Ding began development of substrate-like PCB (SLP) products to cope with demand from smartphone vendors.

Materials & Process Equipment

3D printing materials and services market will grow at a 40% CAGR from USD 5.5 billion in 2015 to $30 billion through 2020. –Wiseguyreports

Adhesive dispensing equipment revenue is expected to reach USD 3.4 billion by 2024, primarily driven by high demand across electronics, automotive, construction, medical devices production. –Grand View Research

Electronic adhesives market will grow at close to 10% CAGR through 2021, driven by miniaturization in electronics industry. –Technavio

Electronics based conformal coatings market revenue is expected to grow from more than USD 1.6 billion in 2014 to above USD2.5 billion by 2023. –Global Market Insights

Fluid dispensing equipment market is expected to reach USD 10.3 billion by 2024, driven by rising high demand for epoxy underfill dispensers in PCB industry. –Grand View Research

Industrial control and factory automation market is expected to rise at a 5.1% CAGR from $200 billion in 2016 to $257 billion by 2022. –wiseguyreports

Printed electronics market is expected to grow at a 20% CAGR from $3.6 billion in 2015 to $13 billion by 2022. –Stratistics MRC

Superhydrophobic coating market demand will grow at a 9.4% CAGR from over 50 tons in 2015 to over 110 tons by 2024. –Grand View Research

3M Business Group joined the Electronic Industry Citizenship Coalition (EICC).

AIM Solder’s Technical Marketing Manager, Timothy O’Neill obtained IPC-A-610 certification.

Alpha Assembly Solutions facility in Altoona, Pennsylvania received ITAR certification.

Blakell Europlacer appointed Steve Giffen to New Business Sales Manager.

CCI Eurolam named Detlev Kübler, Sales Manager in Germany.

CVD Equipment purchased certain assets (including all of the IP) formerly owned by Tantaline A/S of Nordborg, Denmark.

DKL Metals is celebrating 30 years of solder manufacturing in the UK.

Dow Chemical CEO, Andrew Liveris was named head of U.S. Manufacturing Council by President-elect Donald Trump.

DowDuPont named Howard Ungerleider, CFO; Stacy Fox, General Counsel; Charles Kalil, Special Counselor to Executive Chairman; Jim Fitterling, COO for Material Science business and Marc Doyle, COO for Specialty Products business.

Eramet sold Erachem (manganese chemicals) to PMHC II for $193 million.

Europlacer promoted Andy Jones to Business Development and UK Sales Manager.

GOEPEL electronic co-founder, Manfred Schneider handed over the office to his son Jörg.

Graco Advanced Fluid Dispense opened a 10,000 SF applications laboratory and learning center in North Canton, Ohio.

Illinois Tool Works integrated its electronics assembly equipment businesses: Speedline Technologies, Vitronics Soltec and Despatch Industries into new ITW EAE division.

Indium Corporation’s VP of Technology, Dr. Ning-Cheng Lee, was named Fellow of the Institute of Electrical & Electronics Engineers.

Keysight Technologies acquired Anite.

KIC is celebrating 40th year anniversary in the thermal processing business.

Lackwerke Peters’ founder, Werner Peters died January 1st, 2017.

Linde and Praxair entered 50-50 merger for $65 billion industrial gases group.

Mekoprint merged Graphics and Electronics divisions into newly created, Mekoprint Graphic Electronics.

Nathan Trotter acquired Henkel Electronics’ LOCTITE Solder Bar division.

National Instruments

• appointed John Roiko as interim CFO.

• released its Automated Test Outlook 2017.

Nordson acquired ACE Production Technologies.

Panasonic commercialized its high heat resistance halogen-free multilayer circuit board material for automotive electronic control unit circuit boards.

Park Electrochemical appointed Frank Alberto, President of Asian Business Unit.

Seica set up a new competence center in Karlsruhe, Germany.

Teledyne Technologies acquired E2V Technologies.

Virtual Industries is celebrating its 30 year anniversary.

ZESTRON appointed Sal Sparacino, Sales and Marketing Manager.

Semiconductors & Other Components

New semiconductor manufacturing equipment sales increased 8.7% y/y to $39.7 billion in 2016. –SEMI

Worldwide semiconductor capital spending is projected to increase 2.9% y/y in 2017 to $69.9 billion. –Gartner

China added over US$70 billion in semiconductor equipment and materials from 2004 through 2014. –SEMI

South Korea is estimated to spend  US$9.7 billion on semiconductor equipment and almost US$7.3 billion on semiconductor fab and packaging materials in 2017.

Taiwan’s IC output topped NT$1.2 trillion (US$37.5 billion) in 2016. –MOEA

3D IC and 2.5D IC packaging market will grow at a 38% CAGR to 170 billion USD by 2022. –MarketsandMarkets

Electronic sensors market for the consumer industry is expected to grow at a 12.3% CAGR from USD 11.9 billion in 2015 to USD 27 billion by 2022. –RnR Market Research

Graphic processing unit (GPU) market will grow at a 35.6% CAGR to $157 billion by 2022. –Allied Market Research

High-brightness LED chip production value will increase 2.8% y/y to US$13.2 billion in 2017. –Digitimes Research

Insulated gate bipolar transistor and super junction metal-oxide semiconductor field effect transistor market is expanding at 11.6% CAGR from US$4,780 million in 2012 to US$10,100 million by 2019. –Transparency Market Research

LED Market is expected to expand at a 13.5% CAGR to $42.7 Billion globally, by 2020. –Allied Market Research

Memory IC market (including DRAM and NAND flash) is forecast to grow at a 7.3% CAGR from $77.3 billion in 2016 to $110 billion in 2021. –IC Insights

Micro server IC market is expected to grow at a 44% CAGR to USD 1.35 billion by 2022. –Markets and Markets

Photonics market value is expected to grow at an 8.4% CAGR to 724 billion USD by 2021. –Markets and Markets

Pure-pure IC foundry market increased 11% y/y to US$50 billion in 2016 and is forecast to continue to increase at 7.6% CAGR through 2021. –IC Insights

Semiconductor ceramics materials market will expand 8% y/y over next 3 to 5 years after declining 2% y/y to ~USD1.16 billion in 2016. –TECHCET CA

Semiconductor wafer cleaning equipment market is expected to grow at a 7.7% CAGR from US$4 billion in 2016 to US$7.3 billion by 2024. –Transparency Market Research

Bio-electronics and biosensors market size is forecast to grow at over 10% CAGR from USD 11.4 billion in 2013 to over USD 25 billion by 2023. –Global Market Insights

Flexible battery market will grow at a 47% CAGR from USD 70 million in 2015 to 960 million USD by 2022. –Markets and Markets