On the Horizon: Modest Recovery Helped by Normal Seasonality

C U ST E R A N D C U S T E R -TOPA I

Screen Shot 2016-08-15 at 8.51.22 AMBased upon recent monthly data electronic equipment data, industry growth remained minimal in the first half of 2016:

• A composite of 101 Taiwan-listed OEMs, many of which produce in China, reported their June 2016 revenues down 6.8% below June of 2015 (Chart 1). A seasonal upturn is imminent but year/year growth is nil.

• Europe is still expanding but at a slower rate and any Brexit impact is not yet shown in Chart 2.

• In the USA the book/bill has been encouraging (1.04 in May) but both electronic equipment orders and shipments are quite flat (Chart 3). Hopefully the June uptick in U.S. industrial production (Chart 4) and a recently improving PMI leading indicator foretell improved domestic electronic demand ahead.

Chart 5 summarizes the recent growth of the U.S. electronics industry on both an annualized (12/12) and 3-month (3/12) basis. Values (in white) greater than 100 indicate growth vs. the same period a year earlier. When the 3/12 is less than the 12/12 growth is normally slowing. Growth varies significantly by sector but total electronic equipment orders were down 0.3% in the 3-month period of March-May 2016 vs. 2015.

Global semiconductor shipments (a measure of electronic assembly activity) were still contracting in May (down 7.7% in U.S. dollars) comparing March-May 2016 vs. March- May 2015 but per Chart 6 chip shipments (blue line) appear to be on the verge of recovery as Custer Consulting Group’s semiconductor leading indicator points to recovery later this summer.

Regionally (Chart 7) semiconductor shipments appear to have reached a cyclical low in Asia/Pacific and N. America but are still contracting in Europe and Japan.

We are in “flat times” but the leading indicators are pointing to modest growth, the semiconductor outlook is improving and the normal late summer/autumn consumer driven seasonality will soon boost Asia/Pacific demand.

Don’t expect a robust recovery but the second half of 2016 should be modestly better than the first.

End Markets

WORLD

• IT spending is forecast to be flat in 2016, totaling $3.41 trillion. –Gartner

• Connected smartphones, tablets, personal computers, TVs, TV-attached devices and audio devices reached 8.1 billion units in 2015. –IHS

COMPUTERS & PERIPHERALS

• Desktop PC shipments are forecast to slip 2.4% y/y to 119 million units in 2016 while notebook computers decline 1.2% y/y to 160 million units. –IC Insights

• India PC shipments declined 7.4% to nearly 2 million units in 1Q’16. –Gartner

• Purpose-built backup appliance revenues grew 6.2% y/y to $762 million in 1’Q16; total worldwide PBBA capacity shipments increased 39.7% y/y to 886 petabytes. –IDC

NETWORK EQUIPMENT

• Cloud IT infrastructure revenue grew 3.9% y/y to $6.6 billion in 1Q’16. –IDC

• Wireless LAN equipment sales increased 5% y/y to $1.2 billion in 1Q’16. –IHS

AUDIO/VIDEO & DISPLAYS

• TV shipments fell 2% y/y to 49 million units in 1Q’16. –IHS

• LCD TV shipments will increase 1.5% y/y to 219 million units in 2016. –WitsView

• Flexible display market revenue is expected to increase more than 300% from $3.7 billion in 2016 to $15.5 billion in 2022. –IHS

• Head-up display market shipments will increase at a 29.6% CAGR from 2.7 million units in 2015 to 36.0 million by 2025. –Tractica

• LED packaging equipment market is expected to reach over USD 656 million in revenue by 2020. –Technavio

• Mobile device OLED panel shipments will increase from 353 million units in 2016 to 799 million units in 2020. –Applied Materials GM

• PC monitor market shipments increased 0.5% y/y to 29.3 million units in 1Q’16 –IDC

• Wide color gamut display shipment area is expected to reach 32 million M2 in 2018, representing 17% of total display shipment area. –IHS

AUTOMOTIVE

• Automotive telematics revenue will grow at more than 19% CAGR to $4.2 billion in 2021. –IHS

• Automotive under the hood electronics market is expected to grow at over 10% CAGR until 2020. –Technavio

• Military land vehicle electronics (Vetronics) revenue will reach $3.4 billion in 2016. –Visiongain

• Power electronics market will reach $27 billion by 2030, driven by electric vehicles. –Yole Développement

• Transportation IoT market is expected to grow at almost 17% CAGR to USD 195 billion by 2020. –Technavio

ROBOTS/ AUTOMATION

• Collaborative robot market is set to grow from $116 million in 2015 to $11.5 billion by 2025. –Barclays

• Industrial robot sales slowed to 12% y/y growth to 248,000 robots in 2015. –International Federation of Robotics

WEARABLES

Wearables shipments will grow 29% y/y to 102 million units in 2016 and continue to expand at a 20.3% CAGR to 214 million units by 2020. –IDC

Screen Shot 2016-08-15 at 8.51.32 AMEMS, ODM & Related Assembly Activity

Electronic Design Automation industry revenue increased 4.5% y/y to $1962 million for 1Q’16; PCB & MCM design revenue increased 2.8% y/y to $166 million. –ESD Alliance

U.S. PCBA import value fell 3% y/y to 15,375 million USD in 2015. –IndexBox Marketing

AirBorn Electronics added a KISS-103IL in-line selective soldering system in Akron, Ohio.

Altest added a Seica V8 double-sided flying-probe PCBA tester in San Jose, California.

Averna purchased Nexjen Systems.

C-LED added two Yamaha Z:LEX YSM20 dual-stage two-beam mounters and a Yamaha YSi-V 3D AOI system.

Computer Simulation Technology acquired IdemWorks.

Computrol

• installed an Assembléon iFlex T2 and two iFlex H1s in Meridian, Idaho.

• purchased three KY-8030-3 in-line, fully automated SPI systems from Koh Young Technology.

Datest renewed its dual ISO/AS9100 certification and ITAR registration.

Elite Manufacturing Services acquired Multi-Lab.

Firstronic installed its third CX Model inline vapor phase reflow system from IBL Technologies.

Flex

• acquired and assumed current and planned Bose production in San Luis, Mexico and Penang, Malaysia.

• partnered with Aito to integrate haptic touch sensors into surfaces for automotive interiors.

Foxconn/ Hon Hai

• and Actility launched ThingPark China to deliver a comprehensive suite of Internet of Things solutions to the Chinese market.

• began assembling Sharp’s LCD TVs, refrigerators, air cleaners and dehumidifiers in Taiwan.

• closed some of Sharp’s high-cost, overseas joint ventures to reduce operational costs.

• cut 7,000 employees after Sharp acquisition.

• dedicated a capacity of 500,000 units per month at its Andhra Pradesh facility for OnePlus smartphones.

• established six financial service firms in China to provide guarantee, leasing and factoring services to suppliers.

subsidiary Foxconn Interconnect Technology conducted an IPO in Hong Kong.

• subsidiary Ennoconn bought 60% stake in American Industrial Systems.

• acquired a mobile phone factory from Microsoft in Vietnam’s Bac Ninh Province.

• subsidiary Asia Pacific Telecom established “LoRa” IoT in Taiwan.

Hallmark Electronics invested more than £80,000 in new equipment in Chesterton, UK, which includes an X Ray machine and new copper plating rectifiers

HANDERA added a KISS-102 selective soldering machine in Des Moines, Iowa.

Screen Shot 2016-08-15 at 8.51.42 AMHANZA Holding added 1,500 M2 to its manufacturing cluster in the Czech Republic.

Inventec made its newly acquired plants and offices in Taoyuan, Taiwan from High Tech Computer, into its R&D base for IoT and cloud computing infrastructure business groups.

Kitron invested close to NOK 50 million to upgrade its facility in Arendal, Norway.

Libra Industries renewed its ITAR registration for its Dallas, Texas and Ohio facilities.

MC Assembly reduced its annual water consumption by 74% at its new Melbourne manufacturing facility with addition of a closed loop process water recycling system.

Melecs EWS opened a 3,500 M2 production plant in Wuxi, China.

Mentor Graphics elected Cheryl Shavers to its Board of Directors.

Million Club Manufacturing

• invested Rs 150 crore to expand its Tirupati, India facility to 12 assembly lines.

• is planning to add a third facility at e-city of Hyderabad in fiscal 2017.

Natel Engineering acquired Flex’s high-mix microelectronics unit in Valencia, California.

Oppo Electronics invested HK$115 million to build a handset factory with capacity to produce 10 million units annually in Greater Noida, India.

Pegatron

• entered into car electronics business.

• is building a plant in Suzhou, China and another in Kunshan.

Power Design Services completed 5,000 SF expansion in San Jose, California and added a Juki Pick-n-Place PCB assembly line.

Qisda adopted 4.0-based smart factory solution at its factory in Taoyuan City, Taiwan.

Scanfil

• added 8,500 M2 to its operations in Sieradz, Poland.

• Sweden’s subsidiary, PartnerTech Electronics discontinued production in Dongguan, China in 3Q’16.

SMTC completed ITAR registration and compliance at its manufacturing facility in San Jose, California.

Sony ended smartphone production manufacturing deals with Foxconn and Arima in Brazil due to lack of fiscal incentives and country’s current economic scenario.

STI Electronics added a Nordson YESTECH FX-940 ULTRA 3D AOI system.

Syncro promoted Larry Fleming to President and CEO.

Test Research, Inc. relocated its North America branch office to San Jose, California.

Trojan purchased a meteor semi-automatic screen printer and a 2D camera with laser view to add to its existing AOI Mirtec MV-3L machine in Swansea, Wales.

PCB Fabrication

China’s Huangxi, Hubei Province is expected to have $1 billion in annual PCB output after Wus, Unimicron and Dynamics Electronics begin operations at newly constructed plants. –Dr. Hayao Nakahara comments

Ampel received UL listing for Aismalibar’s full range of insulated metal substrate materials.

Amphenol Invotec added Ledia 3-wavelength DI equipment from Ucamco to its Tamworth, UK facility.

AT&S

• is investing half a billion euros in Chongqing, China to produce intercircuit substrates.

• re-elected Georg Riedl, Regina Prehofer and Karin Schaupp to Supervisory Board.

Beta LAYOUT successfully harnessed EOS technology to manufacture and test prototypes for three-dimensional circuit carriers.

Dongguan Shengyi Electronics became first Chinese company to receive IPC’s validation services IPC-6012/IPC-A-600 QML.

Elco Group added Orbotech’s Nuvogo 1000XL DI equipment to its production facility near Rome, Italy.

Firan Technology Group licensed EarthOne Circuit Technologies’ eSurface technology.

FTG Circuits closed the acquisition of Teledyne Technologies’ printed circuit technology business.

GUH PCB is developing a light industrial park in Sungai Bakap, Penang, Malaysia. –Group Managing Director

Hans Brockstedt was acquired by American Industrial Acquisition Corporation.

Screen Shot 2016-08-15 at 8.51.49 AMHard-Line Solutions received $308,000 through Northern Ontario Heritage Fund to acquire new space for an automated assembly line to expand PCB production.

IPC introduced an automotive applications addendum to IPC-6012D qualification and performance specification for rigid printed boards.

Lab Circuits deployed an ISO 7 certified 150 MS clean room.

Nippon Avionics sold its Yamanashi-located land to Central Japan Railway.

OKI acquired most of Avio’s printed circuit board business from Nippon Avionics.

Rayming Technology extended production output capabilities to support LED manufacturing industry.

RayPCB.com began offering flexible PCB manufacturing solutions.

Schoeller-Electronics was acquired by AIAC; became Schoeller Electronics Systems.

Schweizer Electronic elected Infineon Technologies’ VP and GM Business Line Automotive Power, Stephan Zizala to its Supervisory Board.

Sunstone Circuits installed a Mycronic Mach-2 Nano series drilling machine.

Unimicron Technology added a new HDI board plant in Dayuan, Taiwan.

Zubelzu Printed Circuit Boards installed ATG A7/A testing unit from ATG/Lm in Irún, Spain.

Materials & Process Equipment

Chip mounter market is expected to expand at more than 8% CAGR through 2020 propelled by growing focus on IoT. –Technavio

Conductive polymer market is expected to grow at a 10.7% CAGR through 2022, from $4.1 billion in 2015. –P&S Market Research

Conformal coatings market will grow at a 4.7% CAGR to USD 12.3 billion by 2021. –Research and Markets

Direct Imaging shipments reached an estimated 400 units in 2015 with total cumulative shipments reaching about 2,700 units at the end of 2015. –Dr. Hayao Nakahara

Electronic gases market increased 4.3% y/y to $3.65B in 2015 and is forecast to grow another 6.8% y/y to $3.9B in 2016. –Techcet

Electronics materials & chemicals market is expected to reach USD 81 billion by 2024. –Grand View Research, Inc.

Metamaterials market is expected to grow at a 19.4% CAGR from $308 million in 2015 to $1 billion by 2020 and nearly $2.5 billion by 2025. –BCC Research

Test and measurement equipment market will grow at a 6.8% CAGR to 35.5 billion USD by 2022. – MarketsandMarkets

Air Products spun-off of its Materials Technologies’ Electronic Materials Division to new company, Versum Materials.

Austin American introduced, AquaRose, the world’s first water-based batch circuit board cleaner.

Christian Koenen appointed Michael Zahn to Global Business Development Manager.

Dow Chemical

• became the first foreign company to receive a trading license from Saudi Arabia.

• broke ground on fourth-phase expansion project of its CMP plant in Hsinchu, Taiwan.

• closed its silicones manufacturing facilities in Greensboro, North Carolina, and Yamakita, Japan.

Dymax named Marco Reyes, Senior Regional Sales Manager–U.S. West.

Electrolube opened a new manufacturing plant in Bangalore, India.

Electronic Coating Technologies developed multi-cure conformal coating that improves PCB performance, hides information on circuitry and provides environmental protection.

FANUC America named Mike Cicco, President and CEO.

Fulltech Fiber Glass is investing NT$1.5 billion (US$46.8 million) to build a new production site in Dongguan, China with targeted monthly level of 2.8 million meters in 4Q’17.

Henkel launched an adhesives recycling program.

Horizon Sales hired Joshua Casper as its sales representative for Michigan & Ohio.

HumiSeal

• appointed Bálint Gyorffy, Technical Sales Engineer to provide support to Hungary, Romania, Bulgaria, Poland, Slovakia and the Czech Republic.

• UV500 gained BMW QPL acceptance.

International Electronic Components is celebrating 50th anniversary.

Keysight Technologies

• spent $14 million to open an Atlanta software development center.

• moved to 48,759-SF building and a 21,000-SF building in New Hyde Park, New York.

Kodak named David Bullwinkle, CFO and SVP.

Nordson DAGE opened Asian clean room demonstration facility Seoul, Republic of Korea for XM8000 and bondtester wafer metrology tools.

Omron developed a new wiring process on molded housing with inkjet printing.

Partnertec appointed Edwin de Blauw as Sales Manager for Benelux market.

PROMATION appointed Angel Romero, Sales and Support Manager, Mexico.

Rohde & Schwarz named Christian Leicher, President and CEO.

Scienscope

• achieved ISO 9001:2008 certification.

• expanded its Demo and Service facility in Chino, California by 6,000 SF.

Screen rolled out a new optical inspection system “IM-4100” for assembling lines with multiple products.

Seika Machinery added technical service centers at its Atlanta and San Francisco branches.

Teknek appointed Fausto Ferri, Regional Manager for Southern Europe.

Torenko & Associates hired Julio Richards for its sales team in Chihuahua, Mexico.

Ultra Clean Holdings promoted Sheri Brumm to CFO.

Ventec International Group

• completed its acquisition of TMT Trading.

• received ISO 9001:2015 certification for its Central European facility in Kirchheimbolanden, Germany.

Viking Test opened a new sales & service office in Mysuru, India.

Semiconductors & Other Components

Semiconductor silicon wafers shipments fell 5.3% to $7.2 billion in 2015; silicon wafer volume shipments are expected to expand 6.8% y/y in 2016 to 11.1 BSI Si. –Techcet

China’s

• advanced packaging revenue is expected to grow from US$ 2.2 billion in 2015 to US$ 4.6 billion in 2020. –Yole Développement

• IC industry production value is forecast to rise 15% to US$66.6 billion in 2016 after growing at a 19.1% CAGR to US$60 billion in 2015 from US$21 billion in 2010. –Digitimes Research

North America-based manufacturers of semiconductor equipment’s bookings increased 13.1% y/y to $1.75 billion in worldwide orders in May 2016 (based on a 3-month average) and billings grew 2.8% y/y to $1.60 billion. –SEMI

Automotive semiconductor market increased 0.2% y/y to $29 billion in 2015. –IHS

Capacitive sensor market value is estimated to grow at a 5.4% CAGR to USD 31.8 billion by 2022 and shipment volume will expand at a 9.3% CAGR to 21.1 billion units by 2022. –Research and Markets

CMOS image sensor market grew 11.2% y/y to $10.4 billion in 2015. –Yole Développement

Passives sales are forecast to decrease 3.7% y/y to $20.8 billion in 2016 from $21.5 billion in 2015. –ECIA

Power ICs, power modules and discrete components’ value decreased 3% y/y to $15.2 billion in 2015. –Yole Développement

Power transistor market sales will increase a little more than 1% y/y to $12.4 billion in 2016, 3% y/y to $12.8 billion in 2017, followed by 5% growth in 2018 to $13.5 billion. –IC Insights

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