Forecasts Expect Ongoing Recovery in Q1 2021 | Weekly Global Update for Dec. 16, 2020

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Third-Quarter Global Electronic Supply Chain Growth

(Charts 1-4)

• Here are our “final” results for third-quarter global growth by sector:
• Composite of 213 global OEMs had sales decrease 0.3 percent in Q3 2020 versus Q3 2019 (chart 1)
• Growth by sector is given in chart 2
• Monthly world electronic equipment sales peaked seasonally at a record high in November (chart 3)
• Printed circuit shipments are likely to be near their seasonal peak (chart 4)

Source: Company financial reports analyzed by Custer Consulting Group

Taiwan/China Monthly Sales Data

(Charts 5-12)

November monthly sales were released by Taiwan listed companies, many of which manufacture in China:

• OEM sales had a record high in November (chart 5)
• ODM sales also set a record (chart 6)
• Wafer foundry sales have likely peaked for this season (chart 7)
• Package and test revenues were flat versus October (chart 8)
• Memory sales declined (chart 9)
• Passive component sales improved slightly (chart 10)
• Solar/photovoltaic revenues dropped (chart 11)
• PCB shipments reached a 15 year high (chart 12)
• CCL laminate revenues rebounded from October

Source: Company financial reports analyzed by Custer Consulting Group

IDC: Worldwide Server Market Revenue Up 2.2% in Q3

(Charts 14-17)

According to International Data Corporation (IDC), vendor revenue in the worldwide server market grew 2.2 percent year-over-year to $22.6 billion during the third quarter of 2020.

Worldwide server shipments declined 0.2 percent year-over-year to nearly 3.1 million units in Q3 2020. Volume server revenue was up 5.8 percent to $19 billion, while midrange server revenue declined 13.9 percent to $2.6 billion and high-end servers declined by 12.6 percent to $937 million.

"Global demand for enterprise servers was a bit muted during the third quarter of 2020 although we did see areas of strong demand," said Paul Maguranis, senior research analyst at IDC.

"From a regional perspective, server revenue within China grew 14.2 percent year over year, and worldwide revenues for servers running AMD CPUs were up 112.4 percent year-over-year while ARM-based servers grew revenues 430.5 percent year-over-year, albeit on a very small base of revenue."

Top Server Market Standings

Dell Technologies and HPE/New H3C Group were tied for the top position in the Q3 2020 worldwide server market with 16.7 percent and 15.9 percent revenue share, respectively. Inspur/Inspur Power Systems finished third with a 9.4 percent share of revenue. Lenovo was fourth with a 5.9 percent share and Huawei was fifth with a 4.9 percent share. The ODM Direct group of vendors accounted for 28 percent of total server revenue, up 8.4 percent year-over- year.

On a geographic basis, China was the fastest growing region at 14.2 percent year-over-year. Asia/Pacific (excluding China and Japan) increased 3 percent, while Latin America and North America grew 1.5 percent and 1.8 percent year-over-year, respectively (Canada at 13.1 percent and the United States at 1.5 percent). Both EMEA and Japan declined during the quarter at rates of 4.9 percent and 21.4 percent, respectively.

Revenue generated from x86 servers increased 1.6 percent in 3Q20 to just below $21 billion. Non-x86 server revenue grew 10.4 percent year-over-year to around $1.6 billion.

Source: www.idc.com

Digitimes Research: Global Server Shipments to rise 5.6% Year-over-Year in 2021

According to a Digitimes Research report, global server shipments are set to resume year-on-year growth in 2020 driven by rising demand for cloud computing services and work-from-home solutions.

Related demand will continue rising in 2021, driving up shipments by another 5.6 percent year-over-year in the coming year, according to Digitimes Research’s Server Tracker.

Server shipments were seriously disrupted in the first quarter of 2020 due to lockdowns in China that stalled the upstream supply chain. The supply chain resumed growth in the second quarter, with orders pushing shipments to their peak for the year.

Although server shipments have slowed during the second half of the year, Digitimes Research reports that global volumes are still expected to pick up 7 percent year-over-year to surpass 16 million units in 2020, driven by first-tier cloud computing service providers’ orders; Chinese server brands’ shipments in response to government policies of expanding local cloud computing infrastructure; and a low comparison base in 2019.

According to Digitimes Research, the continuing coronavirus pandemic is likely to continue impacting the global economy and, in turn, spending on servers is expected to weaken in 2021. However, remote work and online shopping are expected to drive demand for cloud computing services upward in 2021.

With Intel and AMD set to make mass deployments of their new-generation CPUs in the first half of 2021, Digitimes Research expects a small wave of server replacement trend to take place, helping the global server shipments to achieve an annual growth of nearly 6% in 2021.

Source: www.digitimes.com

DRAM Prices to Recover in Q1 2021, With Potential for Growth

TrendForce reports that the DRAM market will see a healthier, more balanced supply and demand relationship compared with the NAND Flash market because of its oligopolistic structure.

The percentage distribution of DRAM supply bits by application currently shows that PC DRAM accounts for 13 percent; server DRAM, 34 percent; mobile DRAM, 40 percent; graphics DRAM, 5 percent; and consumer DRAM (or specialty DRAM), 8 percent. Looking ahead to Q1, the DRAM market is expected to have gone through an inventory adjustment period of slightly more than two quarters. According to TrendForce, memory buyers will also be more willing to stock up to reduce the risk of future price hikes. Therefore, DRAM prices on the whole will be constrained from falling further. The overall ASP of DRAM products is now forecasted to stay generally flat or slightly up for Q1 2021.

PC DRAM prices will be mostly constant as notebook manufacturers increase procurement activities in response to soaring NB shipments. Total notebook production is expected to decline by 9 percent QoQ to reach 52.7 million units in Q1 due to the traditional off-season and the reduction of workdays caused by the Lunar New year, as well as the fact that Q4 2020 was a relatively high base period for comparison.

On the other hand, 2020 has been a decent year for PC OEMs with the annual total NB shipments projected to grow by 20 percent. This means that PC OEMs will be holding a relatively low level of DRAM inventory in Q1 (i.e., four to five weeks). To meet and sustain the demand for NBs, PC OEMs will probably continue with their inventory building in the short term. Regarding the supply of PC DRAM, the three dominant DRAM suppliers (Samsung, SK Hynix, and Micron) have not significantly raised bit output for nearly two quarters. Furthermore, they have been allocating more production capacity to mobile DRAM since the end of 3Q20 due to the recent demand upswing in that application segment. Hence, production capacity has tightened for both PC DRAM and server DRAM. Moving to 1Q21, PC DRAM supply is not expected to grow noticeably, while DRAM demand from PC OEMs will remain healthy. TrendForce therefore believes that the downward trajectory of the ASP of PC DRAM products will be increasingly difficult to maintain.

Owing to the power outage at Micron’s Taiwan-based fab and the overall constrained production capacity, server DRAM price forecast for 1Q21 has been revised from relatively flat to slightly increasing

Demand-wise, the first quarter is the traditional off-season for OEMs of electronic products. As such, server procurement tends to be at its lowest level in the first quarter as well, compared with the following three quarters of the year. However, there is the distinct possibility that customers in the data center segment will build up their inventories ahead of time during Q1 2021 because they anticipate a general price rally later on.

Supply-wise, the three dominant suppliers have been assigning more production capacity to mobile DRAM since this September as this application segment has recently experienced a demand recovery. The shift in their product mixes is having the same effect on the supply of both server DRAM and PC DRAM, so the supply bit growth of server DRAM will be very limited in Q1.

There is a growing consensus among memory buyers that stocking up early is the best strategy as prices are close to bottoming out and the DRAM industry’s production capacity has become more limited. In Q1 2021, TrendForce expects that seasonal headwinds will affect shipments for OEMs of electronic products. However, the demand side of the DRAM market is expected to be very active.

Memory buyers will likely stock up ahead of time because the price rebound could happen at any moment, especially after the power outage at MTTW (Micron’s Taiwan-based DRAM fab). The downtrend in DRAM prices are now led by a few product lines. With the recent demand recovery for mobile DRAM and the continuation of strong demand for PC DRAM, the decline in prices of server DRAM products will probably taper off sooner than previously anticipated. Hence, DRAM prices are now projected to formally begin their next cyclical upturn in Q1.

Mobile DRAM prices will for the most part trend flat, but smaller smartphone brands may see a slight increase in contract prices.

On the matter of demand, smartphone brands that are competing with Huawei in Greater China will continue to aggressively extend their component inventories and ramp up device production in Q1 as they intend to capitalize on the latest round of US sanctions against Huawei.

Therefore, the quarterly total smartphone production for Q1 will not register a QoQ drop that exceeds 10 percent as typically happened for the first quarters of the past years due to the effect of the traditional off-season. Instead, the QoQ decline is now forecasted to come to just around 6 percent with the total volume coming to nearly 330 million units. On the matter of supply, as mentioned above, the three dominant suppliers have not noticeably increased bit output and will remain passive in this respect during Q1 2021.

Furthermore, some mobile DRAM orders intended for Q4 will not be fulfilled until Q1 2021. Consequently, supply is going to be rather tight for mobile DRAM products.

On the whole, TrendForce forecasts that contract prices of mobile DRAM products in Q1 2021 will stay around the same level as in Q4 2020. The major smartphone brands that can secure special deals and procure in large quantities should be able to keep prices relatively stable when negotiating contracts for Q1. For the smaller smartphone brands, they could experience slight QoQ hikes in prices (i.e., within 3 percent) since they are competing with the major brands for the tightening supply.

Also, DRAM suppliers tend to give a lower priority to the smaller brands. This is because they do not provide the same kind of demand as the major brands in terms of quantity, and the memory solutions that they need are relatively low in density.

Graphics DRAM Prices Expected to Trend Upward Slightly

The release of new graphics cards, game consoles and ASIC miners remain the three major drivers of graphics DRAM demand, leading to an uptrend in graphics DRAM ASP ahead of other DRAM products. TrendForce expects prices of mainstream GDDR6 memory will increase by 5 to 10 percent QoQ in Q1 on account of high demand.

Most suppliers currently manufacture graphics DRAM with the 20nm or 1Xnm processes, which are relatively mature processes. However, rising demand for mobile DRAM, which is also mass-produced with the 1Xnm process, has resulted in constricted production capacities for graphics DRAM. As a result, TrendForce stated, “suppliers’ fulfillment rate for graphics DRAM will remain subpar even in Q1, and the price hike of graphics DRAM will be the most prominent out of all DRAM product categories.”

Consumer DRAM Prices Expected to Remain Stable

Gradual recovery of demand for TVs, set-top boxes and networking products has galvanized a corresponding increase in the demand for low-density DDR3 products (DDR3 1/2/4Gb and below). Although consumer or specialty DRAM quotes for many small and medium clients with short-term procurement contracts have already risen ahead of time, quotes for tier-one clients are still mostly trending flat.

In terms of supply, SK Hynix has officially ceased DDR3 2GB production, while Samsung is gradually shifting the old DRAM manufacturing processes at its Line 13 fab to CIS manufacturing instead.

As Korean suppliers continue to lower their DDR3 output, DDR3 prices are likely to show an early uptick compared to other consumer DRAM products. Likewise, DDR4 consumer DRAMs are somewhat resilient to price drops since they are closely linked with mainstream DDR4 PC and server DRAMs and thereby share the same pricing trend.

Source: www.trendforce.com

Semiconductor Capital Spending Set to Grow 6% This Year

Following spending of $106.1 billion in 2018 and $102.5 billion in 2019, worldwide semiconductor capital spending is expected to grow 6 percent to $108.1 billion in 2020, according to IC Insights.

The foundry segment is forecast to represent 34 percent of semiconductor capital spending in 2020, the largest portion of all product/segment types. Foundry also held the largest share of spending in 2014, 2015, 2016 and 2019. 

With a focus on being the leading provider of 7/5nm process technology, TSMC accounted for essentially all of the increase in foundry capital expenditures in 2019.

In 2020, IC Insights expects SMIC to represent 39 percent of the foundry segment’s forecast $10.1 billion increase in spending, with TSMC representing 20 percent of the increase.

Foundry is also expected to post the largest percentage increase in capital spending at 38 percent this year, with the next highest rate expected to be registered by the logic segment with only a 4 percent increase.

The segment with the second-most spending in 2020 is forecast to be the flash/non-volatile memory category. The vast majority of this spending is for 3D NAND technology advancement. Spending for the flash/non-volatile segment is forecast to be flat at $22.7 billion this year, which is 18 percent less than the $27.8 billion spent in 2018 – the peak year for expenditures in this product category. Spending for flash memory is expected to be 37 percent greater than the outlays forecast for the DRAM segment in 2020.

In 2017 and 2018, DRAM suppliers invested heavily in new fabs and equipment for sub-20nm process technology needed to manufacture next-generation devices. DRAM CAPEX increased 79 percent in 2017 and 44 percent in 2018. With the buildout largely completed, DRAM capital spending fell 17 percent in 2019 and is expected to decline another 13 percent in 2020. Despite the reduced spending on DRAM this year, Samsung, SK Hynix and Micron are still expected to be ranked among the top five largest CAPEX spenders for 2020.

The IC industry has been one of the most resilient markets a turbulent year, IC Insights reports. Although causing a deep global recession in 2020, the COVID-19 pandemic accelerated a global digital transformation resulting in 21 of 33 IC product categories that survived, and even thrived, with positive growth this year and a 6 percent boost in semiconductor capital spending.  With the promise of a vaccine being developed and administered worldwide next year, IC Insights forecasts “a strong global GDP rebound and double-digit IC market increase” for 2021.

Source: www.icinsights.com

Global PC Monitor Market Volume Grew 15.9% in Q3 to an 8-Year High

(Charts 18 & 19)

IDC reports that “Tremendous demand fueled by working and learning from home led the global PC monitor market to impressive heights during the back-to-school quarter,” Q3 2020, with volume up 15.9 percent compared to the same quarter last year

Global shipments far surpassed expectations at more than 37.5 million units, a number last exceeded during the third quarter of 2012. Earlier projections had expected modest growth following a solid 2019 performance led by commercial PC migrations to Windows 10 that also helped displays.

However, the swiftness and urgency with which businesses and schools had to move toward virtual modes led to a scramble for PCs, with a corollary demand for monitors. Both the second and third quarter of 2020 have produced solid year-on-year growth PC monitor shipments, according to IDC.

Even as the overall volume expanded significantly, long-held determinants of the market flipped. Consumer demand drove much of the recent upswing with nearly half of the market coming from consumer shipments, a sizable reversal from recent years when businesses took a little over 60 percent of volume. The top five players commanded a smaller share of the market in the third quarter versus a year ago as IT budgets shifted, and office occupancy remained low. Notably, commercially focused Dell and HP experienced contractions while online and consumer-facing channels grew, which favored smaller and more consumer-focused vendors.

“The tough conditions wrought by COVID-19 have led to an unexpected reassessment of the PC monitor for the home,” said Jay Chou, research manager for IDC’s Quarterly PC Monitor Tracker. “Whether it is studying, working, or gaming, many consumers have a newfound consideration for their long-neglected monitors as uncertainty about office and school attendance persist.”

“With inventory still at healthy levels and enticing promotions for gaming as well as bigger displays, IDC believes the solid momentum should last well into the first half of 2021,” Chou said.

In addition to upward demand pressures, the monitor ecosystem has wrestled with other constraints. While Chinese manufacturing and logistics have largely recovered, a shortage of some monitor components as well as consolidation among panel makers have led to fears of fulfillment issues and price hikes, causing monitor vendors to boost production, and leading to spiked shipments for the short term.

However, looking past 2021, IDC expects a market wind down as consumer demand cools with gradual declines persisting through the forecast horizon of 2024 and settling at a flat five-year compound annual growth rate (CAGR) from 2019.

* Forecast figures.

Source: www.idc.com

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