“Subdued but Positive Beginning for 2020”

Global Economy
World manufacturing activity was flat as we began 2020 but the trend appears to be one of slow but steadying improvement (Chart 1). 

The recent global (country composite) Purchasing Managers index was in “Zero Growth” territory (PMI=50) however the various country components of this world index varied significantly.  Using the IHS Markit PMI data as a gauge of manufacturing activity (where values greater than 50 indicate expansion) here is how some key electronics producing countries and regions finished 2019.

To quote IHS Markit’s chief economist Chris Williamson.

• Global PMI rises to eight-month high in December
• Growth led by services, trade drag eases
• Employment, new orders and business expectations all lift higher
• US leads rich-world growth, UK and Japan contract, Eurozone ekes out modest growth
• Broad-based emerging market expansion led by India

Electronic Equipment Growth (Year-on-Year and Seasonal)
Third-quarter 2019 world electronic equipment sales were up 4.4% sequentially from 2Q’19 and up 0.5% year-on-year in the third quarter of 2019 vs. the same quarter in 2018.  There was late 2019 growth but it was minimal.

World electronic equipment sales are traditionally seasonal and driven by consumer demand.  This seasonality is most pronounced in Asia for PCs, mobile phones and other consumer electronics.  Chart 2 shows this very predictable this seasonality where growth begins its upturn in late summer peak to then peak in November or December and then plunge in the first quarter.  The entire electronic supply chain is impacted by this annual business cycle as material and component suppliers must build capacity (and inventories) for the autumn peak and then withstand the winter drought.

Semiconductors and Semiconductor Capital Equipment
2018 was a boom year for semiconductors thanks to robust end market growth, strong memory chip demand and also excess (panic) ordering and inventory building.  This chip “over ordering” was especially pronounced in N. America which is sill “correcting” for excess orders in 2018 & 2019 (Chart 3).

The SIA/WSTS recent forecast (Chart 4) shows the robust demand (and excess inventory-building) for semiconductor in 2018, the downward “correction” in 2019 and then the modest (5.9%) growth forecast for 2020.

Semiconductor capital equipment (SEMI) spending mirrors semiconductors – although it is even more volatile.  SEMI equipment world sales rose 25% in 2017 followed by a 14% growth in 2018 before plunging an estimated 8-10% in 2019.  2020 will again likely see modest SEMI equipment growth.

EMS and ODM Activity
World EMS and ODM sales slowed in late 2019, mirroring reduced electronic equipment demand (Chart 5).  We estimate that global growth (based on 52 global publicly traded EMS and ODM companies sales converted to US dollars) dropped from over 10%+ in 3Q 2018 to minus 2% in 3Q 2019.  This growth will undoubtedly again rebound in 2020.

Materials and PCB Process Equipment
Based upon a sampling of publicly traded companies supplying process equipment, materials and CCL laminate to the global PCB industry we estimate growth (US $ denominated) as follows:

We expect 2020 to see improved growth numbers in all categories.

Printed Circuit Boards
Dr. Hayao Nakahara kindly provided his most recent global PCB forecast (US$):

Global PCB production is also very seasonal (Chart 6) mirroring monthly electronic equipment sales.

Global Electronic Supply Chain Growth
Chart 7 summarizes the growth of the world electronic supply chain in 3Q’19 vs 3Q’18.  This information is based on composite quarterly revenues of groups of publicly traded companies supplying similar products.  The sales are aggregated by product type and converted to US dollars at fluctuating exchange rates.  The 4Q’19 data will be available in about March 2020.  Contact Jon (joncusterconsulting.com) or Walt (walt@custerconsulting.com) for an update.