Walt Custer

Forecast SummariesCharts 1 and 2 are the recent world growth forecasts for this year and next for GDP (World Bank), Electronic Equipment and Printed Wiring Boards (Custer Consulting Group), Semiconductors (SIA/WSTSI and new Semiconductor Capital Equipment (SEMI). The semiconductor-related sectors are clearly outgrowing the rest of the supply chain. These forecasts require regular review considering the current global political uncertainty and potential industry output and trade disruptions.Updates to these forecasts are regularly available.Taiwan Wafer Fab SalesComposite sales of 14 Taiwan-listed wafer fabs including TSMC and UMC dipped sharply in June. This sales composite has been historically a useful leading indicator for global semiconductor shipments (Chart 3). If wafer fab sales remain weak, they may signal an imminent chip slowdown. These data are updated monthly.Wafer Fab, Semiconductor and SEMI Capital Equipment Business CyclesChart 4 compares the 3/12 growth of global semiconductor and semiconductor capital equipment to Taiwan-listed wafer fabs. Watch this information over the next few months to see if the wafer fab dip is temporary or leads semiconductor and SEMI equipment down to slower growth. Walt Custer of Custer Consulting Group is an analyst focused on the global electronics [email protected]

Updated Global GDP ForecastThe World Bank just updated its multiyear forecast for GDP growth both globally and by country (Chart 1).It noted: “Despite recent softening, global economic growth will remain robust at 3.1 percent in 2018 before slowing gradually over the next two years, as advanced-economy growth decelerates and the recovery in major commodity-exporting emerging market and developing economies levels off.“This outlook is subject to considerable downside risks. The possibility of disorderly financial market volatility has increased, and the vulnerability of some emerging market and developing economies to such disruption has risen. Trade protectionist sentiment has also mounted, while policy uncertainty and geopolitical risks remain elevated.”www.worldbank.orgSemiconductor Growth Outlook Strong (Chart 2)The WSTS updated its world semiconductor shipment forecast. This new forecast (endorsed by SIA) projects worldwide semiconductor sales will be a record $463 billion in 2018, a 12.4 percent increase from 2017. WSTS projects year-to-year increases across all regional markets for 2018.This revised semiconductor forecast coupled with very robust global semiconductor capital equipment sales (Chart 3) paint a positive outlook for 2018.www.semiconductors.orgwww.semi.orgVery Strong End Market Growth in First Quarter (Chart 4)Based upon the combined 1Q’18 financial reports of 213 large, global OEMs, electronic equipment sales (consolidated into U.S. dollars) increased globally an estimated (and very robust) 10.6 percent in 1Q’18 vs. 1Q’17. While this world growth result is very heartening it was significantly inflated by exchange rate effects as stronger non-dollar currencies were converted into weaker dollars. Looking at world electronic equipment sales consolidated into both dollars and euros, 1Q’18 growth rates are MUCH different (Chart 5). 1Q’18 vs.1Q’17 electronic equipment sales grew 10.6 percent in dollars but declined 4.3 percent in euros! Certainly the first quarter was strong globally but the currency chosen for analysis can have a BIG effect.U.S. Supply Chain Expansion ContinuesLooking at the U.S. market (in dollars - therefore not distorted by exchange rates) domestic electronic equipment orders rose 6.7 percent in February-April 2018 versus the same three-month period in 2017. The U.S. electronic industry is doing reasonably well at present.www.census.gov/manufacturing/m3/Expect the recent exchange rate based amplification of dollar denominated global growth to taper off quickly.Keep a careful watch on the geopolitical situation.Walt Custer of Custer Consulting Group is an analyst focused on the global electronics [email protected]

Broad Global U.S. Electronic Supply Chain GrowthThe first quarter of this year was very strong globally, with growth across the entire electronics supply chain. Although Chart 1 is based on preliminary data, every electronics sector expanded – with many in double digits. The U.S. dollar-denominated growth estimates in Chart 1 have effectively been amplified by about 5 percent by exchange rates (as stronger non-dollar currencies were consolidated to weaker U.S. dollars), but the first quarter global rates are very impressive nonetheless. U.S. growth was also good (Chart 2) with Quarter 1 2018 total electronics equipment shipments up 7.2 percent over the same period last year. Since all the Chart 2 values are based on domestic (US$) sales, there is no growth amplification due to exchange rates.We expect continued growth in Quarter 2 but not at the robust pace as the first quarter.Chip Foundry Growth ResumesTaiwan-listed companies report their monthly revenues on a timely basis – about 10 days after month end. We track a composite of 14 Taiwan Stock Exchange listed chip foundries to maintain a “pulse” of this industry (Chart 3).Chip foundry sales have been a leading indicator for global semiconductor and semiconductor capital equipment shipments. After dropping to near zero in mid-2017, foundry growth is now rebounding.Chart 4 compares 3/12 (3-month) growth rates of global semiconductor and semiconductor equipment sales to chip foundry sales. The foundry 3/12 has historically led semiconductors and SEMI equipment and is pointing to a coming cyclical upturn. It will be interesting to see how China’s semiconductor industry buildup impacts this historical foundry leading indicator’s performance. Passive Component Shortages and Price IncreasesPassive component availability and pricing are currently major issues. Per Chart 5, Quarter 1 2018 passive component revenues increased almost 25 percent over the same period last year. Inadequate component supplies are hampering many board assemblers with no short-term relief in sight.Peeking into the FutureLooking forward, the global purchasing managers index (a broad leading indicator) has moderated but is still well in growth territory.The world business outlook remains positive but requires continuous watching!Walt Custer of Custer Consulting Group is an analyst focused on the global electronics industry.

After a record January, Taiwan-listed electronics companies, many of which manufacture in China, reported significant drops in February sales. A number of events likely contributed: Far fewer working days in February due to Lunar New Year factory shutdowns Inflated January production and shipments in anticipation of the February holiday shutdowns Downward adjustment in Apple iPhone X forecasted demand Normal seasonality and traditionally lower post-Christmas consumer products demand – including PCs and mobile phones Results (based upon composite revenues of large groups of Taiwan-listed companies): OEM sales dropped 28 percent from December to January (normal seasonality) and then an additional 24 percent from January to February. This 101-company OEM group saw record high sales in December 2017 followed by a two-year low in February 2018 (Chart 1). ODM sales dropped in sync with OEM sales, with Foxconn/Hon Hai sales declining from 675 billion NT$ (US$22.9 billion) in December to 401 billion NT$ in January and to 278 billion NT$ in February. Chip foundry sales (historically a leading indicator for global semiconductor shipments) also registered a large January to February decline (Chart 2). Other electronics firms (package and test, passive components, printed circuit boards) saw the same type of February declines. We await March results as the sharp February decline is very likely due to multiple causes. Historically, the annual recovery begins in spring.Walt Custer, Custer Consulting Group