“Flash” August Purchasing Managers Indices

IHS Markit has released its flash PMIs for August:

  • Results vary by country, with USA, the eurozone, Germany and the UK showing large increases (chart 1)
  • USA rose from 50.9 to 53.6 (chart 2), the eurozone from 47.4 to 51.8 (chart 3) and Germany from 51 to 53 (chart 4)
  • France declined slightly (chart 5) and Japan remained in contraction (below 50) despite a higher PMI than July (chart 6)

Source: www.markiteconomics.com

Japan Update

(Charts 7-14)

JEITA has released Japanese domestic production data for May:

  • A combined economic and seasonal downturn negatively impacted Japanese electronic equipment production in May (charts 7 and 8)
  • Passive component production dropped sharply (chart 9)
  • PCB production declined from April (chart 10) as the PMI points to further weakness ahead in the short term (chart 11)
  • Discrete and integrated semiconductor production declined in May (chart 12)
  • Semiconductor shipments to Japan declined on a 3/12 basis, in balance with slower electronic equipment production growth (chart 13)
  • Electronic component and device production growth also slowed (chart 14)
  • Semiconductors are Outperforming Most Industries – but Watch the Second Half of 2020
  • Electronic component and device production growth also slowed (chart 14)

Semiconductors are Outperforming Most Industries – but Watch the Second Half of 2020

Click the link below to read my latest article for SEMI, where I discuss signs of recovery as well as lingering challenges in the third quarter and beyond.

https://blog.semi.org

European Semiconductor Distribution Market Fell 20.7% in Q2 due to COVID-19 and Lockdown

(Charts 15 & 16)

What was still a mix of market- and pandemic-driven uncertainties in Q1, turned out to be a real, directly COVID-19 and lockdown-related downturn for the European Semiconductor Distribution in the second quarter of 2020. According to DMASS Ltd., sales in the European Semiconductor Distribution Market fell by 20.7 percent to 1.82 billion euro.

Georg Steinberger, chairman of DMASS, said in a press release: “As feared in our Q1 PR, the COVID-19 pandemic and its economic aftermath, starting across Europe in February and March, hit the electronics industry with full force in the second quarter. Manufacturing shutdowns, economic uncertainties among consumers and companies, and lack of supply chain visibility drove many customers to step on the ordering brake and led to a lot of pushouts on existing orders.” He expressed concern about the second half of the year ahead.

At a country or regional level, the situation was equally bad across the board and major regions and markets ended with double-digit declines, except Ireland, the Netherlands, Austria and Russia.

Germany went down by 21.6 percent to 528 million euro; Italy ended down 19.3 percent and 161 million euro; France declined 21.4 percent and 121 million euro; the UK declined 23.6 percent and 119 million euro; Eastern Europe fell a staggering 30.6 percent and 279 million euro; and the Nordic countries fell 33.2 percent and 138 million euro.

“It is almost impossible to find anything positive or less negative in Q2, but clearly countries that are predominantly contract manufacturing-driven suffered most,” Steinberger said.

Bad News in Product

More design-oriented and exclusive products saw less of a decline than standard products. Of the major product groups, Standard discretes went down by 31.4 percent to 87 million Euro; discrete power fell by 23.5 percent to 196 million euro; optoelectronics by “only” 17.1 percent to 164 million euro; analog fell by 22 percent to 534 million euro; memory declined by 32.4 percent to 141 million; MOS micro by 15.3 percent to 383 million euro; programmable logic by 12.8 percent to 128 million euro; standard logic fell 18.2 percent to 27 million euro; and finally, other logic declined 14.5 percent to 112 million euro.

“Besides Covid-19, you also see some special effects of product categories slowly deteriorating,” Steinberger said, “arguably legacy technologies like SRAMs and EEPROMs, or disappearing from distribution as an effect of suppliers taking some business direct, like digital signal processors (DSPs).”

“But none of those have a major effect on the totals,” Steinberger added. “However, the fact that standard products are suffering more than expensive specialties is strange, as the financial risk on the customer side is rather low. We will see how this pushback on standard products develops, once the market turns around.”

2020 will be a year of significant double-digit decline, “whether we like it or not”, said Steinberger. “And it could, no, should be the beginning of a reassessment of how we operate as an industry and at a larger scale, as society in general. It is clear that resources become scarcer and the throwaway mentality of the last 50 years will lead to disaster. Technology can play a major part in recreating a sustainable world, but as we can see by its interrupted supply chain, it is also part of the current problem. The big question is: how can the significant influence of technology be used to make changes to a sustainable better world? Can it?”

Source: https://dmass.com

North America-based SEMI Equipment Manufacturers Billings Fell in July

(Chart 17)

North America-based manufacturers of semiconductor equipment posted $2.6 billion in billings worldwide in July 2020 (three-month average basis), according to the July Equipment Market Data Subscription (EMDS) Billings Report published by SEMI.

Billings were 11.8 percent higher than the final June 2020 level of $2.32 billion, and 27.6 percent higher than the July 2019 billings level of $2.03 billion.

“The second half of 2020 has started strong, with double-digit billings growth for North America-based semiconductor equipment manufacturers,” said Ajit Manocha, SEMI president and CEO. “The strength reflects the semiconductor industry’s criticality in today’s world and the driving forces in place for long-term industry growth.”

Source: www.semi.org

Quarterly Server Shipment Decline Projected to Widen in Q3 as Enterprises Defer Server Procurement Plans

TrendForce previously reported that many enterprises had transitioned CAPEX in server procurement to OPEX in managed cloud services early this year in the face of economic and other uncertainties from the COVID-19 pandemic.

According to their latest report, enterprises have subsequently slowed down their server procurement orders, resulting in enterprise server suppliers (led by Dell and HPE) to revise down their yearly shipment targets starting in Q3, according to the latest TrendForce information.

TrendForce has thereby also revised the forecasted 0.8 percent quarter-over-quarter decline in Q3 server shipment to a 4.9 percent decline, noting that “Server OEMs are actively adjusting their operating strategies in response to looming trend of enterprise cloud adoption.”

TrendForce now reports that the shipment performances of the enterprise server OEMs made an expected rebound in 2Q20 after the cyclical downturn of the first quarter.

Although third quarters are traditionally peak seasons, the pandemic has induced enterprises to lower their CAPEX this year, with a noticeable lack of growth momentum in the server market, resulting in quarter-over-quarter declines in server shipments across the board in Q3.

Major server OEMs (including Dell, HPE, Huawei and Inspur) are expected to each show a near-double digit QoQ decrease in server shipments.

China Infrastructure Growth Slows

In the Chinese market, Trendforce notes that the fact that most hyperscale data centers and CSPs based in China opt for servers made by Chinese manufacturers has led to increased server shipments from Inspur and Huawei.

However, under the influence of the economic downturn in 3Q20, infrastructure build-out in China has not taken place on schedule, leading to lower-than-expected levels of server procurement by enterprise clients compared to forecasts made in early 2020. As such, Inspur and Huawei are likely to face imminent declines in server shipment as well.

Source: www.trendforce.com

World Public Cloud Services Market Grew 26% in 2019

(Charts 18-20)

IDC reports that the worldwide public cloud services market, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS), grew 26 percent year-over-year in 2019 with revenues totaling $233.4 billion according to that agency’s Worldwide Semiannual Public Cloud Services Tracker.

Spending continued to consolidate in 2019 with the combined revenue of the top 5 public cloud service providers (Amazon Web Services, Microsoft, Salesforce.com, Google, and Oracle) capturing more than one third of the worldwide total and growing 35 percent year-over-year.

“Cloud is expanding far beyond niche e-commerce and online ad-sponsored searches. It underpins all the digital activities that individuals and enterprises depend upon as we navigate and move beyond the pandemic,” said Rick Villars, group vice president, Worldwide Research at IDC. “Enterprises talked about cloud journeys of up to ten years. Now they are looking to complete the shift in less than half that time.”

The public cloud services market has more than doubled since 2016. During this same period, the combined spending on IaaS and PaaS has nearly tripled. This highlights the increasing reliance on cloud infrastructure and platforms for application deployment for enterprise IT internal applications as well as SaaS and digital application delivery. IDC expects spending on IaaS and PaaS to continue growing at a higher rate than the overall cloud market over the next several years as resilience, flexibility, and agility guide IT platform decisions.

“Today’s economic uncertainty draws fresh attention to the core benefits of IaaS – low financial commitment, flexibility to support business agility, and operational resilience,” said Deepak Mohan, research director, Cloud Infrastructure Services. “Cost optimization and business resilience have emerged as top drivers of IT investment decisions and IaaS offerings are designed to enable both. The COVID-19 disruption has accelerated cloud adoption with both traditional enterprise IT organizations and digital service providers increasing use of IaaS for their technology platforms.”

“Digitizing processes is being prioritized by enterprises in every industry segment and that is accelerating the demand for new applications as well as repurposing existing applications,” said Larry Carvalho, research director, Platform as a Service.

“Modern application platforms powered by containers and the serverless approach are providing the necessary tools for developers in meeting these needs,” Carvalho said. “The growth in PaaS revenue reflects the need by enterprises for tools to accelerate and automate the development lifecycle.”

“The SaaS applications segment remains the largest segment of public cloud spending with revenues of more than $122 billion in 2019,” said Frank Della Rosa, research director, SaaS and cloud software. “Although growth has slowed somewhat in recent years, the current crisis serves as an accelerator for SaaS adoption across primary and functional markets to address the exponential growth of remote workers.”

Source: www.idc.com

DRAM Revenue Up 15.4% in Q2; Possible Price Decline for Q3

(Charts 21-23)

The last cyclical upturn in DRAM contract prices began at the start of 2020 and was led by server DRAM, according to TrendForce’s latest investigations.

In 2Q20, the emergence of the COVID-19 pandemic shocked the global economy, but OEMs maintained or even stepped up procurement of components because they feared disruptions in the supply chain. As a result, DRAM suppliers’ bit shipments surpassed expectations for the quarter, in turn widening the overall increase in DRAM ASP and raising the global DRAM revenue by 15.4 percent QoQ in 2Q20 to US$17.1 billion.

Nevertheless, TrendForce reports that server OEMs are now carrying a rather high level of DRAM inventory after aggressively stocking up for two consecutive quarters. At the same time, customers of enterprise servers are holding back on procurement because the economic outlook is getting bleaker and more uncertain.

Since server DRAM has the unique role of leading cyclical changes, this category is going to be first to experience price drop in the next downturn and thereby pull prices down for other types of DRAM products. As such, TrendForce forecasts at best a flattening of product shipments and decrease in DRAM prices in Q3, with DRAM suppliers suffering a decline in profitability.

Dominant Suppliers See Revenue Growth

All three leading DRAM suppliers, including Samsung, SK Hynix, and Micron, posted strong revenue results for Q2, while their respective market shares remained largely unchanged.

The DRAM market saw an increase in both prices and bit shipments, leading to a double-digit rise in revenue for the three suppliers. On the other hand, the collective market share of suppliers outside the group of the top three came to just 5 percent.

In Q3, TrendForce forecasts that Micron may be able to slightly raise its market share because it will adopt a more aggressive pricing policy in order to reach the targets for its fiscal year. However, the existing oligopoly in the DRAM market is expected to remain as is without undergoing any significant changes.

On the matter of profitability, all three leading suppliers posted an increase in their operating margins in 2Q20 as the overall ASP rose by around 10 percent. (TrendForce notes that there are discrepancies in calculations of the leading suppliers’ performance since the suppliers have different product mixes, as well as different start and end dates for fiscal quarters.) Samsung’s operating margin surpassed the 40 percent threshold in 2Q20, reaching 41 percent from 32 percent in Q1.

Looking ahead to Q3, the leading suppliers are expected to struggle with profitability. Although they have been optimizing their cost structures, their progress in this area will unlikely be sufficient to compensate for the decline in their ASPs.

Suppliers Remain Cautious

Regarding the leading suppliers’ technology plans, Samsung kept transferring the wafer capacity of Line 13 away from DRAM and toward CMOS image sensors in 2Q20. At the same time, Samsung was preparing for the activation of P2L in the Pyeongtaek campus. This fab will begin DRAM production in the second half of 2020 to compensate for the production cut at Line 13.

On the technology front, Samsung is raising the share of the 1Znm production in its output. SK Hynix reallocated more of the wafer capacity of M10 from DRAM to CMOS image sensors in Q2. It also raised DRAM output from M14. Moving into the second half of the year, SK Hynix will increase the production capacity of the Wuxi base by a modest amount. The growth in its annual total bit output will be primarily driven by the 1Ynm migration.

Micron’s main focus this year is on achieving mass production and raising output share for the 1Znm process. Currently, Micron has advanced its 1Znm products to the early part of mass production with a few OEMs still testing samples. Once sample testing is fully completed, Micron is expected to make the 1Znm process its main technology for DRAM production.

As for capacity planning, Micron’s total DRAM production capacity at the end of 2020 will be relatively the same as at the end of 2019. On the whole, the three leading suppliers have taken a more conservative approach to capacity expansion for the rest of this year since the COVID-19 pandemic continues to sap demand. TrendForce currently estimates that 70 percent of the increase in the DRAM industry’s annual total bit output for 2021 will be attributed to the 1Ynm and 1Znm migrations, whereas capacity expansions will account for only 30 percent.

Taiwanese suppliers saw an increase in both prices and bit shipments as they continue to focus on advanced process technology development and product improvements

Nanya Tech posted a QoQ rise of around 7 percent for both its ASP and bit shipments. As a result, its revenue grew by 15 percent QoQ in Q2. Nanya’s operating margin went up further on the back of the rising ASP, climbing to 19.6 percent in Q2. The hike in Winbond’s DRAM ASP in 2Q20 was limited to 0.5 percent because a significant portion of the suppliers’ sales is realized through long-term contracts.

In contrast to its DRAM products, however, Winbond’s revenue from Flash products registered a notable growth for the second quarter. As for Powerchip, the calculation of its revenue in this press release covers only the sales of the company’s own branded, in-house manufactured PC DRAM products. Powerchip’s strategy of focusing on foundry orders for logic products such as PMICs (power management IC) and Driver ICs continued to constrain its DRAM production. Hence, its DRAM revenue for 2Q20 was generally on par with 1Q20.

Despite their varying revenue performances for the second quarter of this year, the three Taiwanese suppliers will be concentrating on their next-generation processes. Nanya is working to have its 1Anm and 1Bnm processes enter pilot run as soon as possible. Winbond is raising the yield rate of its new 25nm process, but its capacity expansion is mainly for raising Flash production. Lastly, Powerchip continues to improve the manufacturing of its 25nm DDR4 chips. Nevertheless, foundry orders for logic products remain the core part of its operational strategy.

Source: www.trendforce.com

DRAM Suppliers’ CapEx Spending Expected to Fall 20%

(Chart 24)

IC Insights reports that the DRAM market is poised for a modest recovery in 2020, but suppliers are being very cautious, strategic and thorough in their analysis of market conditions before they consider any further upgrades or decide to move ahead with any new DRAM wafer fab plans.

The three major DRAM suppliers are each expected to make further cuts in its DRAM capital spending in 2020 as most new facilities and upgrades to current fabs are in place to handle near-term demand.

Among the three big DRAM players, IC Insights forecasts that Samsung’s DRAM capital expenditure budget will decline 21 percent to $4.9 billion this year, SK Hynix is expected to trim its DRAM capex budget 38 percent to $4.0 billion, and Micron is forecast to trim its DRAM capex by 16 percent this year to $3.6 billion.

New fabs, once built, must run at very high or full capacity given the high levels of capital expenditures required to build and equip them. Investing $6 billion to $10 billion in a wafer fab only to see it operate at partial capacity would have a destructive financial impact on any supplier. 

Consequently, DRAM makers will continue to closely monitor capacity and expansion plans in the coming months in order to limit potential damage from another supply/demand imbalance.

Samsung, SK Hynix and Micron are wrapping up their significant DRAM capacity expansions in 2020, and each has made it clear that they will be restrained about how fast they progress with building and ramping their new manufacturing lines.

Even smaller niche DRAM suppliers like Winbond are being guarded.  Winbond is building a new fab in Kaohsiung, southern Taiwan.  It was originally scheduled for completion at the end of 2020 with commercial production slated for 2021.  However, the company has now rescheduled equipment move-in for January 2022.

Collectively, suppliers are expected to allocate $15.1 billion to DRAM capex spending this year, a 20 percent decline from $19.1 billion in 2019 and down from the record high of $23.2 billion spent for DRAM in 2018.

Even with elevated capital spending levels the past few years, DRAM capex as a percent of DRAM sales was not terribly out of line with what the industry has seen since 2015. It is interesting to note, however, that with the 37 percent DRAM market collapse in 2019, DRAM capex spending as a percent of sales jumped to 30.5 percent, the highest level since 30.5 percent in 2011.

Source: www.icinsights.com

Statements of fact and opinions expressed in posts by contributors are the responsibility of the authors alone and do not imply an opinion of the officers or the representatives of TTI, Inc. or the TTI Family of Companies.

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