Walt Custer’s Global Market Outlook

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With 2016 winding down, Walt Custer shared his end-of-the-year market research data with me at the recent electronica trade show in Munich, Germany. In our interview, Walt breaks down his findings and offers insight into the changing trends as we head into 2017.

Barry Matties: Walt, it's coming up to the end of the year. It's crazy how fast this year has gone by. Let’s hear about the show, and then get into the Walt Report.

Walt Custer: First, the show has been great this year. It's been very busy. Yesterday was jumping and there are halls that are open that have been closed for a long time, so it appears that Europe is optimistic and this is confirmed  by the recent data we're seeing saying is that Europe is actually outperforming a lot of the world right now. Not in volume, because that’s all in Asia, but as far as the growth rates of its local end markets.

Matties: Was that a surprise to you or was this something you predicted?

eurozone.jpgCuster: Well, a couple of months ago the European leading indicators went down, but then they came way up again. Then October PMI leading indicators for the Eurozone  showed virtually every European country was up, and as a result the composite Eurozone PMI was also up. Most of the world’s manufacturing leading indicators are in expansion territory again. I would say there's a smile on a lot of people's faces. A couple of places aren't doing well. South Korea is still struggling a little bit, but in October China moved to positive growth and Japan and the U.S. were also positive. So right now leading indicator results for almost every area of the world are looking a lot better.

Matties: It's been a long time since we've seen that, hasn't it?

Custer: Yeah. However, they're not booming.

Matties: No, but at least we are moving in the right direction.

electronic_equipment.jpgCuster: Sure, going up rather than down is encouraging. We know electronic equipment production is seasonal and China and Taiwan hit their seasonal peak either in October or November. That's right before the Christmas season.  And after that normal late autumn seasonal surge electronic manufacturing in Asia will decline through the late autumn peak first quarter of next year. So we've hit our peak, and the 2016 peak actually wasn't as high as it was the year before.

In 2016 vs. 2015 global electronic equipment, dollar-denominated revenues were  down about 2% when calculated at fixed 2015 exchange rates and down 5% when calculated at fluctuating exchange.  This was due to weaker non-dollar currencies being converted  to stronger dollars this year.

However we just saw our normal autumn seasonal growth and that helped. China was positive, the iPhone 7 intro jacked up Asian production a little bit, and who knows what the effect of the Samsung Note 7 will have on 4Q16 numbers. The Note issues will spread the mobile phone wealth to other companies until Samsung gets things under control again.

Europe’s market drivers are automotive, the instruments & control equipment, and medical, and they're all doing reasonably well.

electronic_equipment_monthly.jpgWe've got our initial  results on 3Q2016 vs. 3Q2015 growth rates for electronic equipment by category globally. Total electronic equipment was up about 1.5% (weighed down by computers, military, datacom, data storage and consumer) but automotive was up 16%, medical was up 8% and semiconductor capital equipment rose 15%. There are a lot of the sides to the upturn and the things that influence Europe, in particular automotive, medical, instruments and controls; those are all encouraging and some of these end-markets are starting to show some real growth again.

Looking forward, things like autonomous cars are going to be very interesting. There's a lot of work going on in the transition from 4G to 5G mobile devices and people like Ericsson and the like are not going to commercialize them yet; but they're looking a couple of years out. Mobile communication base station sales are slow right now because the 4G market is saturated. But the 5G market is going to come on and is going to be a big market once it does. So there's a lot to look for.

semicon_shipments.jpgSemiconductor sales were at their highest level  in September and they came up in all areas. China was up strongly and the U.S. was rebounding. Think of semiconductor shipments as a measure of electronic assembly activity. The only downside of judging electronic health by chip shipments is that they tend to cycle around real demand. First there is over ordering and inventory building and then there is a cut of orders  to correct for over exuberant purchases.  Last year and in early 2016 we under ordered chips to correct excessive purchase the year before. But recently semiconductor orders have rebounded and now they have yielded the highest semiconductor shipments in September that we've seen. That was encouraging.

EMS.jpgAs far as EMS and ODM companies, sales are still pretty flat. The combined dollar-denominated sales of six large publicly traded U.S. EMS companies were down 3% in 3Q2016 vs. 3Q2015, and the Taiwan-listed ODM companies were also down about 3% in NT$.

ODM.jpgAs far as PCBs, our model shows it's going to grow 1.8% worldwide in 2016. Dr. [Hayao] Nakahara thinks it's flat. Naka and I are still discussing the situation and I very much respect him. We use different methodology to estimate growth of the printed circuit industry—he goes out and talks to people and I track the financials of groups of companies.

For 2016, I expect somewhere between zero and +2% growth for PCBs and a little more next year. Semiconductors should be up in positive territory next year.

PCB-related materials and processes are just coming back. PCB process equipment growth was nearly 8% this past quarter. Laminate was down a bit and PCB chemistry sales were down over 8%. These growth rates are estimates based upon publicly available sales data for companies supplying these products. All suppliers are definitely not included but the estimate is useful.

Certainly we're going into a more promising 2017. I don’t think we’ll be jumping up and down and bragging, but the leading indicators are generally pointing positive and the markets seemed to have recovered from the depths of the last downturn and are coming back out again.

Matties: Sounds like there are bright spots and some good news then.

Custer: I gave a talk here and if anybody wants a copy of it, I'd be happy to send it to them. Send a message to askwalt@custerconsulting.com and request my talk from electronica.

Matties: Walt, to put things in context for our readers, maybe you could give us a brief overview of what your group does.

electronic_supply.jpgCuster: We do two things. We do market research, so we have a database of the whole electronic supply chain that we track. We try to get very timely data on what's happening at each level of the supply chain, both geographically and time-wise, and that gives us an idea of what's growing and where. Then we have a couple of news services in the industry, one on the electronics industry and one in solar photovoltaic, and we sell these on a subscription basis.

Matties: Your subscribers get access to the information?

Custer: We email directly to our subscribers and also have a private website where they get a password to download large-sized items (primarily our charts and supportive data).

Matties: Walt, I appreciate your time today and thank you for sharing it with us.

Custer: Thank you.


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