Some Potential Positive Signs in the Economy from TTI’s MarketEye

Compiled by Walt Custer for TTI MarketEye

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May “Flash” Purchasing Managers Indices – A Positive Turning Point?

(Charts 1-6)

Walt Custer wMarkit Economics released flash PMIs for select countries:

  • In general, the manufacturing contraction continues, but at a slower rate (chart 1)
  • U.S. PMI rebounded from 36.1 in April to 39.8 in May, still well below PMI=50, the breakeven point between manufacturing growth and contraction (chart 2)
  • Eurozone PMI rose from 33.4 to 39.5 (chart 3) as Germany increased from 34.5 to 36.8 (chart 4) and France rose from 31.5 to 40.3 (chart 5)
  • Japan declined (chart 6), but the Flash PMI was given for “manufacturing output” rather than the historical “manufacturing” PMI value, so we will have to wait until about June 1 for a comparable “manufacturing” number

These improved PMIs are encouraging, but keep in mind that manufacturing is still contracting – just at a slower rate. Not until PMIs are greater than 50 will there be actual expansion.


1Q’20 Global Electronic Supply Chain Growth

(Charts 7-16)

Custer Consulting Group’s survey of first quarter growth by sector of the electronic supply chain is almost complete. Only a few large companies have yet to report their calendar first quarter financials. Here are our results so far:

  • Global electronic equipment sales declined 6.6 percent in 1Q’20 vs. 1Q’19, consolidated into U.S. dollars (charts 7-8)
  • Chart 9 shows 1Q’20 vs 1Q’19 USD growth by sector of the electronic supply chain
  • Passive component sales declined 6 percent globally (chart 10)
  • PCB related process equipment declined 1.7 percent (chart 11); PCB materials declined 6.9 percent (chart 12) but CCL (PCB laminate) sales increased 3 percent (chart 13); chart 14 compares the 3/12 growth of these three series
  • A combination of 52 global EMS and ODM companies saw sales decline 10.2 percent in 1Q’20 vs 1Q’19 (chart 15)
  • Seven large U.S. EMS companies reported a combined 8.4 percent global first-quarter sales decline (chart 16)

Note that these results are still preliminary based upon combined actual and Custer estimates but they should be fairly close to final figures.

Source: Company data analyzed by Custer Consulting Group

FBDi: German Distribution Market drops 15% in Q1

(Chart 17)

The market for electronic components in Germany cannot expect any short-term prospect of improvement, especially as the coronavirus crisis is currently causing considerable uncertainty, according to a report from the Fachverband Bauelemente-Distribution (FBDi e.V.).

This also applies to distribution: sales of the FBDi distribution companies fell by 15 percent to 818 million euros. While this represents a sequential improvement over the fourth quarter of 2019, it remains considerably below Q1/2019. In comparison, orders fell by 2 percent, which achieves a noticeable improvement in the book-to-bill rate to 1.03, albeit at a low level.

However, there were differences between the product groups: semiconductors, sensors, electromechanics and power supplies were affected below average, but passive components, displays and assemblies in particular suffered losses, some of them significant.

Semiconductor sales shrank by 13.2 percent to 562 million euros; passive components by 28 percent to 95 million euros; and electromechanics by 12.4 percent to 101 million euros. Sensors (excluding semiconductor sensors) declined by 0.3 percent; power supplies declined 9.2 percent; display sales fell by 15.1 percent; and assemblies and tools by 17.7 percent. This results in a slight shift in market weight: semiconductors fell to 69 percent share of the total market and passives fell to 11.6 percent, while electromechanics rose to 12.4 percent (overtaking passives for the first time) and power supplies to 3.5 percent, the highest value since the 2003 survey. All other product groups together account for 3.7 percent.

“While in February we were still concerned with the question of how COVID-19 would influence production in China and what possible bottlenecks this might cause in the supply chain […] the European and American industry are challenged for recovery,” said FBDi Chairman Georg Steinberger.

“As a result of the partial plant closures in Europe and the U.S., the overview in the supply chain is rather lost – who needs what when will probably not be clear until autumn 2020,” Steinberger said. “The presumed bottlenecks will most likely come later, but then with more force.”


ECIA: CY19 Global Passives Sales Declined 13% in Dollars, 27% in Units

(Charts 18 & 19)

ECIA reports CY19 global passive sales (capacitors, inductors, and resistors) declined 13.7 percent in dollars and down 27.7 percent in units. Average selling price improved 19.3 percent. Unit sales were 5.4 trillion units totaling $27.7 billion.

Key changes between 2018 and 2019 for the major categories were:

  • Capacitors: sales were down 18.6 percent in units and 12.6 percent in dollars; average selling price increased 7.4 percent
  • Inductors: sales were up 10.2 percent in units and down 6.8 percent in dollars; average selling price decreased 15.4 percent
  • Resistors: sales were down 42.2 percent in units and 28.7 percent in dollars; average selling price increased 23.4 percent

Sales from the past three years show 2018 to be a surge year for sales, with levels retreating in 2019. Capacitor sales were able to retain a significant share of the gains from 2018, while resistor sales were roughly equal to 2017 and inductor sales declined slightly compared to 2017 levels.  Revenues by region continue to be driven by the strong electronics production base in China and the Asia region.


North American Semiconductor Equipment Manufacturers Posted $2.26 Billion Global Billings in April

(Chart 20)

North America-based manufacturers of semiconductor equipment posted $2.26 billion in billings worldwide in April 2020 (three-month average basis), according to the April Equipment Market Data Subscription (EMDS) Billings Report published today by SEMI.

This billings figure is 2.2 percent higher than the final March 2020 level of $2.21 billion, and is 17.2 percent higher than the April 2019 billings level of $1.93 billion.

“April billings of North America-based semiconductor equipment manufacturers reflect healthy equipment demand,” said Ajit Manocha, SEMI president and CEO. “The industry is performing well under extraordinary conditions, though uncertainty persists due to COVID-19 concerns and rising geopolitical tensions.”

The SEMI Billings report uses three-month moving averages of worldwide billings for North American-based semiconductor equipment manufacturers.


China-to-U.S. Freight Prices Spike as COVID-19 Impacts Capacity

Air and sea cargo fares have surged due to the coronavirus pandemic, with air freight prices from Shanghai to U.S. and Europe quadrupling since the outbreak started, according to a report from the Nikkei Asian Review.

Aviation companies have massively cut back on air cargo operations as passenger demand for flights has plunged in the wake of travel bans and quarantines. Cargo compartments of passenger flights typically carry 55 percent of all goods sent by air.

Since the outbreak, aviation companies have been prioritizing the transportation of medical supplies, cutting availability for ordinary goods and causing prices to spike.

A sender now has to pay 70 yuan ($9.87) to send 1 kilogram of goods from Shanghai to the U.S. or Europe, more than four times the pre-coronavirus fare.

Japanese carrier All Nippon Airways said its freight services, which have been reduced by 30 percent due to the suspension of many passenger flights, are running at full capacity. It stores face masks and other medical supplies on seats and in overhead baggage compartments in passenger planes leaving from Narita Airport near Tokyo.

Air cargo leaving Japan totaled 69,320 tons in March, down 25 percent from a year earlier, according to the Japan Aircargo Forwarders Association. A fall in demand alongside an even bigger decrease in capacity are the reasons for the decline.


IMF: Pre-Existing Financial Vulnerabilities Worsened by Coronavirus

The IMF reports that the pandemic-triggered economic crisis “is exposing and worsening financial vulnerabilities that have built up during a decade of extremely low rates and volatility.”

According to the IMF’s recent Global Financial Stability Report, if the ongoing economic contraction lasts longer or goes deeper than currently expected, the resulting tightening of financial conditions may be amplified by these vulnerabilities leading to more instability or a financial crisis.

In particular, risky segments of credit markets have expanded rapidly since the global financial crisis. Potential fragilities include borrowers’ weaker credit quality, looser underwriting standards, liquidity risks at investment funds and increased interconnectedness.

One positive change, according to the IMF report, is that use of borrowed funds to finance investments in high-risk markets is less prevalent, while banks are not as heavily exposed to leveraged loans and high-yield bonds as they were in the past. Both factors contributed to the global financial crisis of 2008.

The risk of investor runs has also lessened in some segments because of a prevalence of long-term, locked-in capital in the private debt and collateralized loan obligation markets.

“In a severely-adverse scenario, overall bank losses in risky corporate credit markets should be manageable, although they could be substantial at a few large banks,” the IMF stated. “Losses at nonbank financial institutions, however, could be more significant. Given that nonbank lenders have taken a more prominent role in these markets, this could hurt credit provision and lead to a longer and more severe recession.”


Global Smartphone Shipments to Reach 1.15 Billion Units in 2020, Down 15.4% from 2019 Due to Coronavirus Pandemic: Digitimes

Digitimes Research has lowered its global smartphone shipment forecast for 2020 to 1.15 billion units, down 15.4 percent from 2019’s 1.36 billion because of the impacts from the coronavirus pandemic.

Weak end-market demand will undermine smartphone brands’ orders to ODMs in the year with overall smartphone ODM shipments in 2020 to slip 13.6 percent on year to arrive at only 260 million units, according to Digitimes Research’s new smartphone report.

The worldwide top-3 smartphone ODMs are China-based Wingtech, Huaqin and Longcheer, and the three manufacturers are expected to continue expanding production capacities in China, Southeast Asia and India in 2020.

The three ODMs’ combined share of global smartphone shipments in 2020 is expected to rise to a new record, but each of them will see shipments in the year slip over 10 percent on year because of the pandemic’s impact on end-market demand for smartphones, Digitimes Research’s figures show.

At the moment, Apple and Vivo are still developing their smartphones completely in house, and therefore, ODMs have been striving keenly for 4G and 5G smartphones orders from brands such as Samsung Electronics, Huawei, Oppos, Xiaomi and Lenovo.


Handset Lens Sensor Shipments to drop in 2Q’20

Digitimes reports that sensor shipments for handset camera lenses are expected to drop further in the second quarter of 2020, due to a plunge in end-market demand and excess inventory in the supply chain, according to industry sources.

The COVID-19 pandemic has had an adverse impact on end-market demand, said the sources. Channel distributors had significantly built up their inventory levels, judging from the previously-anticipated demand boom. The commercialization of 5G networks was supposed to trigger a new wave of prosperity in the global smartphone sector.

However, smartphone sales worldwide have been hit hard by the pandemic so far this year. Demand for related chips and components, including lens sensors, has been affected as well and is under further downward pressure due to the uncertainty surrounding the COVID-19 outbreak, the sources indicated.

Handset camera lens suppliers and assemblers have started experiencing cutbacks in customer orders in April, the sources noted. Shipments of handset-use lens sensors are set to disappoint in the second quarter, but should still register an on-year increase in all of 2020.

According to Sigmaintell, worldwide shipments of handset lens sensors are forecast to increase about 5 percent to five billion units in 2020. Shipments totaled around 1.41 billion units in the first quarter, with those for smartphones reaching 1.29 billion units.