Electronics Industry Update
Staff -- Semiconductor International, 1/1/2003
| Worldwide Sales of Semiconductor Devices | Manufacturers' Shipments of Electronic Components |
 |
 |
| Historical Data: World Semiconductor Trade
Statistics (WSTS) Forecast: Semiconductor International |
Historical Data: U.S. Department of
Commerce Forecast: Semiconductor International |
| Manufacturers' Shipments of computers | Manufacturers' Shipments of Communications Equipment |
 |
 |
| Historical Data: U.S. Department of
Commerce Forecast: Semiconductor International |
Historical Data: U.S. Department of
Commerce Forecast: Semiconductor International |
Semiconductors
The steady and slowly building recovery in semiconductor markets continued to gather momentum during September 2002. According to preliminary data released by the Semiconductor Industry Association (SIA), the value of worldwide chip sales rose by a solid 3.0% between August and September to a level of $12.29B. Despite very weak consumer confidence, tepid gains in capital spending, and a tumultuous ride on Wall Street, September semiconductor shipments to all parts of the world increased from their already-improved levels of August. And September 2002 semiconductor sales moved above the levels of the same month during 2001 for all regions of the world, as well. Bottom line: with the 3% September increase, worldwide chip sales were worth 20.6% more this past September than during September 2001.
With another full quarter's worth of chip sales data to analyze, we can take great encouragement away from the fact that July-September semiconductor sales growth (8.2%) was half again as strong as the 5.6% average annualized gain realized over the first half of 2002. And there's good reason to believe that this kind of growth was sustained into the fall and winter of this year. Demand for many categories of IT/electronics products improved during September as well, as measured in the government's survey of shipments from — and orders to — U.S. manufacturing firms. Computer shipments were up about 2% between August and September, while the value of computer storage equipment shipped rose by almost 12%. So end-market demand (with the notable exception of the communications equipment sector) really does appear to be picking up — a necessary condition if the recent gains in semiconductor sales are to be sustained beyond this past summer.
In their analysis of the details (which we don't see) underlying the September aggregate sales report, the SIA identified the wireless communications subsector as being the single strongest growth market for chips. The SIA attributed this strength to the fact that record numbers of new consumer users are coming online in Asian markets, at the same time that existing subscribers to wireless services are upgrading for the new video messaging and Internet access features of 2.5G/3G technologies. Consequently, flash memory, DSP, and wireless ASSP chip sales on a global basis all increased at double-digit rates between the second and third quarters of last year.
In addition, the SIA identified a gain of 21% in sales of standard cells and 15% in optoelectronics between the second quarter and the July-September period of 2002. They attributed this to demand for these chips in increasingly popular consumer products like video game systems, DVD players, and digital cameras.
Sales of DRAM chips (+4.9% over the quarter) and microprocessors (+4.6%) also increased from their second-quarter totals. But the gains were less than those usually realized during the quarter — traditionally heavy on back-to-school and early-holiday purchases — as personal computer sales continued to lag hopes/expectations.
Between August and September of last year, semiconductor sales values rose in all four of the broad regions of the world. The August-to-September semiconductor sales trends by major geographic region looked like this (with the 3.0% increase in global sales being the relevant point of comparison):
- The Americas: +1.9%
- Europe: +5.0%
- Japan: +2.9%
- Asia-Pacific (excluding Japan): +3.0%
Sales to Europe — which had been running well behind year-earlier totals through the first half of last year — were worth an estimated 11.0% more this past September than during September 2001. And sales during the third quarter of last year were up 7.9% from the second-quarter total — largely because of strong demand from a wireless market that continues to grow at a healthy rate in the region.
Chip sales to Japan improved even more substantially between the second and third quarters of last year, after recording steep over-the-year declines throughout the second half of 2001 and the early months of 2002. The estimated dollar value of sales to Japan was 17.4% greater this past September than during September 2001 — not quite as positive as the 20.6% global-average trend, but quite a turnabout from the first couple months of last year when the over-the-year monthly trend for Japan averaged a 47.1% decline. Sales during July-September 2002 were worth 15.3% more than during the second quarter of 2002.
And it's clear that recovery is even more firmly established in the other parts of Asia. September 2002 chip sales to the Asia-Pacific market (all nations of the region, save Japan) were valued at a level 39.2% above their September 2001 total. And semiconductor sales to the market encompassing Taiwan, China, South Korea, Singapore, and other (non-Japan) nations in the Asia-Pacific region rose by 8.2% between the second and third quarters of last year — actually a slight slowdown from the gains recorded during the first half of 2002. But there's little question that the migration of semiconductor customers (end-market and component manufacturers alike) to lower-cost contract manufacturing facilities throughout much of the region will continue into 2003.
The 32% decline in global sales volume during 2001 represented the sharpest annual contraction in the more-than-half-century history of the semiconductor industry. Through the first three-quarters of 2002, the value of worldwide semiconductor sales was still running 4.9% behind the total for January-September 2001. But there's little question that market conditions during the final quarter of last year continued to improve.
Consequently, for 2002 as a whole, global chip sales were likely to be little changed from the 2001 total — up or down a couple of percentage points, depending upon how quickly average prices recover and hold their marks (our precise forecast now showed sales volume increasing by a slight 0.5% last year, based on our current best guess concerning unit demand and pricing trends over the final three months of 2002).
Nevertheless, although total semiconductor sales to Asia-Pacific were clearly higher during 2002 than during 2001 by something on the order of 25-30%, declines still seemed unavoidable for the other regions of the world. But during 2003 we're expecting to see solid growth in all regions of the global market — although this solid recovery (about 26% for the world as a whole) would still leave 2003's dollar value of semiconductor chip sales almost 15% below the robust $204.4B level achieved during 2000.
End-Market Demand
Estimates from the Federal Reserve Board's monthly industrial production survey show that computer/peripherals industry output rose for the fourth straight month during October 2002. After increasing by 1.8% during July, 1.7% in August, and 1.5% during September, computer/peripherals industry output rose by another 1.7% during both the month of October. At the same time, overall manufacturing sector production declined by a steep 0.7% during October after contracting by a cumulative 0.5% over the prior two months. So market conditions have certainly improved for the industry — and production is trending much healthier than for most of the rest of the nation's manufacturing sector.
Production (measured in a way approximating the unit-count vs. dollar-value of output) of computers, storage devices, disk drives, printers, and the whole range of other computer-related peripheral hardware was 7.4% greater through the first 10 months of last year than during January-October 2001. This past October's production level — by itself — was 18.1% above the level for the same month a year earlier. This October-to-October over-the-year performance was the strongest turned in by the industry during any single month since February 2001. And — after a period when year-over-year output trends had run negative for seven consecutive months beginning in July 2001 — over-the-year trends have now been positive for nine consecutive months.
In addition, the manufacturing capacity utilization rate in the industry moved up again during October. After averaging 66.2% during the first nine months of 2002, the utilization rate for U.S. computer/peripherals manufacturing potential was estimated at 67.1% during October of last year. Modest gains have now been recorded for four consecutive months.
It's likely that we'll continue to see at least modest month-to-month improvement in U.S. computer/peripherals equipment output during the final two months of 2002. And there's no reason to think that annualized production gains won't remain in solid double-digit territory throughout most, if not all, of this year.
Our current estimate pegs full-year 2002 industry output growth at about 9%, followed by an increase of about 17% this year.
Output from the nation's communications equipment industry fell by another 1.8% between September and October of last year. This followed losses of only about half this magnitude during August and September of 2002. Output from U.S. communications equipment manufacturers has declined during 23 of the past 25 months, and was 15.5% lower this past October than in October 2001. Total unit production from U.S. communications equipment manufacturers during the first 10 months of last year was 20.5% below the total recorded over January-October 2001.
Even worse, the industry's manufacturing capacity utilization rate was an abysmally low 49.2% during October of 2002. The long-term (1967-2001) industry average capacity utilization is 80.1%. No other industry sector tracked by the Federal Reserve recorded a utilization rate below 50% this past October. And only one — commercial aircraft production — registered capacity utilization below even 60%. So the communications equipment industry's sub-50% utilization level is a mark of dubious distinction, indeed.
Despite this, though, we continue to see evidence that communications equipment production is in the process of bottoming out, and is likely to move (slowly) higher in the months ahead. On a three-month-average basis of measure, industry production through October 2002 was contracting at its slowest rate of the past 14 months.
So we remain cautiously optimistic that market conditions will finally begin to show some marginal recovery on a sustained basis by this year's initial quarter. Nevertheless, overall industry output during the second half of last year looks like it came in about 17% lower than over the final six months of 2001. And industry output over the first half of 2003 will probably still be about 2% lower than over the none-too-healthy level of the first six months of last year.
But following output contraction of another 20% or so in 2002 (on the heels of last year's 10% drop), our tentative forecasts look for production to eke out a gain of something on the order of 2% during 2003 from the severely depressed level of current output.
The modest, if still halting, upturn in electronics end-market production (concentrated primarily in computers and peripheral equipment) that we evidenced over the first 10 months of 2002 has stimulated demand for new electronic components. Not dramatically, to be sure, but enough to keep industry output moving steadily and consistently in a positive direction.
Unit output from the nation's electronic components industry group (dominated by semiconductors) rose for the 13th consecutive month during September 2002. Production at U.S. firms rose by 1.9% between August and September of last year. This followed gains that averaged about 1.1% over the previous three months, but was still well below the stellar 3.1% average monthly output increase recorded between January and May of 2002.
Of continued concern, however, is the fact that the industry's capacity utilization rate remained very low at 67.8% during September 2002. This was up a bit from the 66.0% average recorded for the first two-thirds of the year — but the rate has stagnated over the past three months. And the September 2002 capacity utilization rate was also dramatically lower than the industry's long-term (1967-2001) average of 79.6%.
All the same, total U.S. industry production of electronic components during the first three-quarters of 2002 was 11.1% greater than over the first nine months of 2001. This represents quite an improvement from the nearly 15% contraction in electronic components industry output experienced during the second half of 2001.
With all but one quarter's worth of 2002's data now in, it looks like overall electronic components' output during 2002 probably grew by something on the order of 12% — recovering all of the previous year's 4.4% production loss, and then some. And despite the fits and starts of global economic recovery and uneven demand from electronics end markets during the year ahead, we'll likely see U.S. electronics components output grow by about the same magnitude during 2003.
