Walt Custer’s Market Report


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At the recent EIPC Conference, Walt Custer delivered his annual report detailing the trends he’s been seeing in the electronics industry for 2016 and into the first quarter of 2017. Barry Matties sat down with Walt to discuss his findings, including his forecast for the upcoming year. Also discussed are Walt’s prognosis for the market segments with the most promise and those that cause him concern.

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Barry Matties: Walt, you’ve just wrapped up your report. Please give our readers an overview.

Walt Custer: The year 2016 finished up quite well, and the first quarter of 2017 was strong worldwide. Almost all the sectors were up and almost all the geographies were up. The leading indicators were positive. Europe did especially well. Worldwide, I think electronic equipment sales were up about 2.8%. Now, it doesn’t sound like a lot, but it’s been four successive quarters of growth when we had contraction for a while, and Europe was up about 5% the first quarter and all its sectors grew.

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Now, we are seeing some signs of slowing, or at least slower growth, but not contraction worldwide. Looking at the leading indicators out of Asia China contracted again. It dropped down below 50 for PMI. Korea has been contracting, Taiwan is still up, and Japan still up, so I think we’ve had some good times, but the rate of growth has peaked in parts of Asia.

Matties: Is that what you expected in China?

Custer: Well, I think they’re having their problems, you know, financial problems and the like so, no, I wasn’t expecting it. I don’t think the people who released the data were expecting it, but the data is what the data is and we’ll watch it. All I’m saying is I’m a little cautionary that we have had some decent growth, which felt really good, but now we’re also seeing slowing.

By end-market, semiconductor fab equipment is doing incredibly well, but that’s true of capital equipment in general during the upturns in a business cycle. In good times capital spending grows like gangbusters and in bad times it contracts. The automotive industry is up, medical electronics is up, and the instrument control sector is doing better. Even cellphone sales picked up, so there were a lot of sectors that had a good first-quarter growth.

My biggest concern is the global economy, which is fragile because of political situations. North Korea could quickly get out of hand and the Middle East is always a worry, so things could turn very quickly if some crazy person decides to push a button.

Matties: There are a lot of crazy people in the world right now.

Custer: Yeah, there are a lot of crazy people in the world. But I would say it was a very encouraging first quarter. Semiconductor sales are through the roof, but I think that will be unsustained because they are  substantially outgrowing electronic equipment.

In 1Q17 electronic equipment sales grew 2.8% while semiconductors grew 18%. Sure, there’s increased semiconductor content, but not enough to make up for that first quarter growth difference. That implies that people are over-ordering and/or building chip inventories. Once people realize they have enough stock, then they will all of a sudden turn off the spigot.

In the first quarter, semiconductor capital equipment was up over 40% and that’s a bubble—mirroring  semiconductors being up by 18%.

Matties: PCBs were down for a bit, weren’t they?

Custer: Well, PCBs are just not growing as fast as the other sectors. I think in the first quarter I calculated PCBs were up about 1.2% or 1.5%, but that’s compared to semiconductors, which are up 18%. People aren’t stockpiling PCBs, and the good news is that PCBs won’t crash dramatically in a slowdown, but then the bad news is that PCBs are just not growing as much as the other electronic sectors. Whether some of the slower growth is price-related or demand-related, I don't know, but PCB sales are  not growing that much. We recently saw a growth in laminate, but I think some of that was panic-buying because of worries with copper foil and glass shortages.

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