Global electronics trending upward

Global electronics production is on a generally positive trend. The chart below shows three-month-average change versus a year ago (3/12 change) for electronics production by country or region in local currency. Total industrial production is shown for Europe and South Korea since electronics production data is not available.

ee may15

China electronics production growth has remained strong, with April 2015 3/12 change up 11.4% from a year ago. China growth has been 10% or higher since December 2009. Taiwan electronics production has been volatile over the last few years, with 3/12 change ranging from increases over 40% in late 2010/early 2011 to declines approaching 30% in late 2012. Taiwan 3/12 change has been positive for the last eight months, with March 2015 up 7.3%.

Japan electronics production has been on a downward trend for about 14 years as production has shifted to China and other countries in Southeast Asia. Current production (in Japanese yen) is only about one third of year 2000 levels. However Japan is currently undergoing a short term recovery, with March 2015 three-month-average production of 449 billion yen up 44% from the recent low in June 2014. March 3/12 change was 1.7% compared to a 17% decline in November 2014.

Electronics production in the United States and industrial production in Europe and South Korea have demonstrated steady but slow growth. 3/12 change turned positive in Europe in October 2013, in South Korea in December 2013, and in the U.S. in January 2014. The March 2015 3/12 change was about 1% for each region.

We at Semiconductor Intelligence (SC-IQ) have developed a Global Electronics Index based on data from individual countries and regions. The chart below shows three-month-average change versus a year ago for the Global Electronics Index compared to global semiconductor shipment data from World Semiconductor Trade Statistics (WSTS). In 2011 both electronics and semiconductor growth were decelerating following the strong growth of 2010. Semiconductors decelerated more quickly and went more negative than electronics. Semiconductors and electronics both turned positive in mid-2013. Semiconductor growth in 2014 (averaging 10%) outran electronics growth (averaging 5%). In February and March 2015 3/12 change for both semiconductors and electronics were in the range of 5% to 6%.

global may15

Semiconductor Intelligence projects the Global Electronics Index will continue to show moderate acceleration for at least the next several months, with year 2015 growth of about 6% to 7%. In the long term, semiconductor growth is a few points higher than electronics growth due to increasing semiconductor content in electronics. Our March 2015 forecast was 8% growth for the global semiconductor market in 2015. The current electronics production data still supports this forecast.

2015 Semiconductor Capex led by Memory & Foundry

Semiconductor industry capital expenditures (capex) in 2015 are expected to be $69 billion in 2015, up 6% from $65 billion in 2014 according to IC Insights. We at Semiconductor Intelligence have compiled 2015 capex outlook by company. The major memory companies account for 38% of 2015 capex and the major foundries account for 27%.

 

capex pie

 

Memory and foundry companies combined account for almost two-thirds of 2015 capex. The three largest spenders (Samsung, TSMC and Intel) add up to half of total capex. The table below shows capex for 2014 and projections for 2015. The projections are from the companies, Digitimes, and Semiconductor Intelligence (SC IQ). Digitimes forecast Samsung Semiconductor will spend $15.1 billion in 2015, up 13% from 2014. The midpoint of TSMC’s April guidance for 2015 is $10.8 billion, up 13%. This is down from TSMC’s January guidance of $11.5 billion to $12.0 billion, up 23% at the midpoint. Intel also reduced its guidance for 2015 capex from $11 billion in January (up 9%) to $8.7 billion in April (down 14%).

 

Semiconductor Capital Spending, US$ Billion

Company

2014

2015

Change

Notes on 2015 forecast

Samsung SC

13.3

15.1

13%

Digitimes, April 2015

TSMC

9.5

10.8

13%

down from $11.8 B in Jan. 2015

Intel

10.1

8.7

-14%

down from $11B in Jan. 2015

SK Hynix

4.6

5.1

12%

Digitimes, April 2015

Global Foundries

4.8

4.8

0%

$9B-10B in 2014 through 2015

Micron Technology

1.3

3.8

186%

Fiscal year ending August

Flash Ventures

1.4

2.0

43%

SC IQ, Apr. 2015

UMC

1.4

1.8

29%

SMIC

1.0

1.4

38%

Infineon

0.9

0.9

4%

SC IQ, Apr. 2015

STMicroelectronics

0.5

0.5

7%

SC IQ, Apr. 2015

Texas Instruments

0.4

0.5

30%

SC IQ, Apr. 2015

NXP Semiconductors

0.3

0.4

6%

SC IQ, Apr. 2015

  Total of above

49.5

55.7

12%

Total Industry

65.0

69.0

6%

IC Insights, Jan. 2015

  Others

15.5

13.3

-14%

 

Overall the listed companies are expected to total $55.7 billion in 2015 capex, up 12% from 2014. Based on IC Insights forecast of $69.0 billion for the total semiconductor industry, this leaves $13.3 billion for other companies, down 14%. Eight of the nine biggest spenders are either memory companies or foundries. Flash Ventures is a combination of manufacturing joint ventures between Toshiba and SanDisk which account for most of their memory supply. Four of the companies on the list (Infineon Technologies, STMicroelectronics, Texas Instruments and NXP Semiconductor) are top 15 semiconductor suppliers which once depended primarily on internal wafer fabs. These companies are increasing their reliance on foundries and thus their capex is now rather small relative to their sales. The “others” category largely consists of small to medium size companies producing analog and discrete semiconductors.

Do current industry conditions justify the strong increase in capex by the foundry companies? TSMC, UMC and SMIC combined are expected to increase their capex 17% in 2015. Global Foundries expects $9 billion to $10 billion in capex in 2014 and 2015 combined, but did not indicate the amount each year. The capacity utilization trends of TSMC, SMIC and UMC show high utilization rates since second quarter 2014 after dips in late 2013. TSMC does not report a utilization rate. The TSMC utilization calculated by dividing wafers shipped by wafer capacity results in unrealistic rates above 100%. However the calculated number provides a general trend in TSMC’s utilization.

 

foundry 1Q15

 

Bookings and billings for semiconductor manufacturing equipment show a relatively healthy market, based on data from SEMI and SEAJ. Although billings have been relatively flat for the last four quarters, the book-to-bill ratio has been above 1.0 for the last two quarters indicating near term growth.

 

SEMI 1Q15

 

2014 semiconductor manufacturing equipment shipments were $37.5 billion, up 18% from 2013. Shipments were still well below the $43.5 billion in 2011 and the $42.8 billion in 2007, before the last major semiconductor downturn. The chart below shows shipments by region for 2007 and 2014. Shipments in 2014 were $5.3 billion lower than 2007. The difference is primarily in Japan, which was $5.1 billion lower. Shipments were higher in 2014 in North America (up 25%) and China (up 50%). Shipments were lower in South Korea, Taiwan, and the rest of the world (ROW).

 

region 2014

 

2015 should be a good year for semiconductor capital expenditures and semiconductor manufacturing equipment. However it is dependent on continuing healthy demand for semiconductors. Our latest forecast at Semiconductor Intelligence is for 8% semiconductor market growth in 2015, enough to support the current capex outlook.

Semiconductors off to slow start in 2015

A weak first quarter outlook for the semiconductor market is indicating a slow start to 2015. Intel recently lowered the midpoint of its 1Q 2015 revenue guidance from $13.7 billion (down 7% from 4Q 2014) to $12.8 billion (down 13%). The table below shows the estimated top 25 semiconductor companies revenue change for 4Q 2014 versus 3Q14 and revenue guidance for 1Q 2015 versus 4Q 2014. Of the 23 companies providing guidance for 1Q 2015, only four (Infineon, Freescale, Analog Devices and Maxim) expect positive change from 4Q 2014. Five companies expect double digit declines (Intel, MediaTek, SanDisk, AMD and ROHM). Some of the reasons cited for the sluggish outlook are weak business PC demand (Intel), excess inventory in the channel (AMD and SanDisk), limited supply due to technology transitions (Micron), a smartphone market transition (MediaTek), and uncertainty in electronic markets and exchange rates (ROHM).

Mar 2015

The average guidance is a 5.1% decline. The revenue-weighted average is minus 7.5%. Using the high end of each company’s revenue guidance for 1Q 2015 results in a revenue-weighted average minus 5.0%. Over the last five years, the semiconductor market 1st quarter change from the prior 4th quarter has ranged from a 3.7% increase to a 5.1% decline, averaging minus 1.0%. The market could potentially experience the worst 1st quarter decline since minus 16% in 1Q 2009 during the last major semiconductor downturn.

The outlook for the full year 2015 is varied. Forecasts since January fall into two general ranges: 3.4% to 5.4% (Gartner, IDC, GMR Data, and WSTS) and 7.0% to 9.5% (VLSI Research, IC Insights, Future Horizons, Mike Cowan and SC-IQ). The announced forecasts for 2016 range from 3.1% (WSTS) to 7% (our Semiconductor Intelligence or SC-IQ forecast). In December 2014, our SC-IQ forecast was 11% for 2015 and 7% for 2016. We have revised downward our expected growth for 2015 to 8% based on the projected weak 1Q 2015. We are keeping the 7% forecast for 2016.

Fcst Mar 2015

Key assumptions are supporting healthy growth in 2015 and 2016 as shown in the table below. The International Monetary Fund (IMF) projects accelerating World GDP growth in 2015 and 2016. Gartner is forecasting accelerating growth in the combination of PC and tablet units. One area of concern is slowing growth rates for mobile phones and smartphones. Gartner expects total mobile phone unit shipment growth to pick up to 3.7% in 2015 from 1.7% in 2014, but slow to 3.3% in 2016. eMarketer projects slowing growth rates in smartphone users, from 25% in 2014 to 17% in 2015 and 13% in 2014.

 

Annual Change

2014

2015

2016

Source

World GDP

3.3%

3.5%

3.7%

IMF, Jan.

PC + Tablet units

1.8%

3.7%

6.9%

Gartner, Jan.

Total mobile phone units

1.7%

3.7%

3.3%

Gartner, Jan.

Smartphone users

25%

17%

13%

eMarketer, Dec. 2014

 

Our forecast assumes solid growth for the key drivers of the semiconductor industry over the next few years. The trend from 9.9% in 2014 to 8% in 2015 and 7% in 2016 assumes moderating growth of some key drivers such as smartphones. Barring an economic downturn, the semiconductor market should experience average growth around 6% annually through the end of the decade.