Welcome to this months IT Supply Chain Insights. This monthly newsletter keeps you up to date with market trends and IT channel news giving you the knowledge you need to buy IT for less.
- US and European PMI numbers show an economic deep freeze
- Chinese manufacturers are slowly recovering capacity
- Shipment figures mostly point to a Q3 rebound
COVID-19's exponential growth has changed the channel economy - and life - as we know it. It caused the largest uemployment spike in US history to a record 3.28m, and a fall below the 50-point PMI landmark in the US, signalling economic contraction. Apple, which is accelerating relocation of its production facilities outside China, closed its stores around the world, re-opening stores inside China soon afterwards. Sources suggested retail stores elsewhere might reopen in early April.
The big message this month? Uncertainty. We know the crisis is big, and that it will adversely affect channel fortunes in the long term, but it's difficult to predict the extent of the dip. Dell withdrew its guidance for FY 2021, citing the unpredictable environment. IDC tried to put a expiry date on the crisis, stating that it won't affect the markets past 2021. The cloud computing sector will lead the recovery in the infrastructure markets, it predicted. In the meantime, both supply and demand numbers look grim.
The Euro started low against the pound at 0.8680, dipping only slightly lower to 0.8642 on March 7. It then began a sharp rise to hit a monthly high of 0.9342 on March 19, falling and rallying to a second high of 0.9257 on March 23 before declining steadily to finish the month at 0.8888.
The EUR/USD chart saw the high earlier in the month. From 1.1103 on March 2, the euro rose to 1.1423 on March 9 before beginning a sharp decline to reach 1.0690 on March 22. This was broken by a brief half-hearted rally to 1.1152 on March 16. The euro rose to 1.1137 on March 28 before falling to 1.1000 at March's end.
Europe became the focal point of the COVID-19 crisis in March as cases skyrocketed across the Eurozone, with Italy especially badly affected. The crisis produced some shocking numbers. IHS Markit's PMI showed an unprecedented collapse in business activity across the Eurozone, shrinking to 31.4 in March from 51.6 the month before. This beat even February 2009's low of 36.2. It translates to a quarterly GDP contraction of 2%, and the company sees this as just the beginning.
The service sector (retail, food and other sectors that require people to gather together) took the brunt of the damage, but manufacturing figures are still dire. And whereas services will recover more quickly, longer-term effects on consumer demand could dampen factory orders for months. PMI could rebound in Q3, while employment declines could last longer, IHS Markit predicted.
Price Changes and News Through March 2020
Phones and Tablets
Global smartphone sales dropped 14% YoY in February, said Counterpoint Research.
The biggest impact of the virus on the smartphone market so far has been on demand, TrendForce warned. It adjusted its shipment forecast for Q1 2020 down 10.7% to 274m units. Expect total production volume of 1.29bn units in 2020, it added, down 7.8% from 2019.
Supply chain sources warned that Apple's 5G phone could be delayed, but others dismissed the idea. Foxconn said that it was securing workers to maintain capacity in advance of Apple's next iPhone models in the autumn. It will reach peak production capacity from July onwards. Apple drove a massive (365%) shipment growth of phones in the $401-$600 range with wireless charging capacity in Q4, due largely to its price cut for the iPhone XR.
Expect a slowdown in the server market, warn sources, as Taiwan IC designers see a slowdown in orders for server components. ICD predicts server market revenues will decline 3.4% year over year to $88.6bn in 2020, suffering an 11% dip in Q1, an 8.9% decline in Q2, and a recovery in the second half.
TrendForce also decreased its projected 1Q20 notebook shipment 20.3% from 35 million units pre-crisis to 27.9 million units. The revision is due to lockdowns that hit production capacity.
Not all is bleak. ODMs in Taiwan expect robust shipment growth in Q2 2020 on the back of the worldwide lockdowns as people look for remote working options. Micron said that it saw rising demand for notebooks to support people working from home. Wistron, the chinese manufacturer of notebooks and servers, expects sales to rise this year. This seems largely due to increased revenues from its Taiwanese factories, which are picking up the slack as companies face limited capacity on the mainland. Even there, manufacturers are trying to recover capacity, with Lenovo restarting production at its Wuhan plant and predicting full capacity there by mid-April.
One big problem right now is getting PCs to their final destination. Space is limited on cargo planes, say reports, while Amazon is prioritising the delivery of essentials.
Premium Ultramobiles & Wearables
Expect a dip in AR and VR headset shipments in 1H 2020, warned IDC, citing COVID-19's disruption to the supply chain. This isn't a demand-side problem (yet), because users at home are looking for distractions, said the analyst firm. Instead, with their small screens, these units share production facilities with smartphones, which are already facing supply-wide constraints.
The VR/AR market will see a 10.5% fall in Q1 and a 24.1% decline in Q2. A 2H rebound depends on restored manufacturing capacity, but the company is confident it will see total shipments of 7.1m units this year, up 23.6% from last year. After that, the happy days will continue with an 81.5% 2019-2024 CAGR to reach shipments of 76.7m.
The wearables market will grow 9.4% in 2020 to reach 368.2m shipments, IDC said. That's a significant slowdown from 2019's 89% growth, and it's down to the health crisis, of course. Watches and wristbands will see a 13% decline in Q1 and a 7.1% drop in Q2 before rebounding in 2H.
One bright spot in this whole COVID-19 mess? Ebook readers. E Ink Holdings said that it has seen a spike in demand for these devices, along with other e-paper products. It's been struggling to meet demand but was back up to 90% manufacturing capacity by the end of March, it said.
Processors, MEMs, Semiconductors
Trendforce said that foundries have maintained capacity utilisation by filling orders from Q4 2019. The canary in the coalmine is the IC design industry, which is unlikely to return to growth in 2020 following lowered expectations from IC designers in response to the health crisis. Look for an effect on foundry revenues in Q2 this year, it warned. None of this will be good news for Intel, which is due to unveil its new 14nm processors in April. It may struggle to find buyers, upstream sources warned.
TSMC reported net revenues down 9.9% to NT$93.9bn month-on-month, although revenues for the two-month period were up 41.8% compared to the same period a year ago. The company may revise its 2020 market outlook if COVID-19 cannot be controlled by June, sources said. Semiconductor industry association SEMI warned that global semiconductor materials market revenues were down 1.1% in 2019.
In early March, TrendForce raised its previous forecast for Q2 DRAM pricing, expecting a 20% YoY increase instead of 15%. However, COVID-19 has changed conditions quickly. At the end of March, it said that average sale prices (ASPs) for memory products will increase to a lesser degree than previously expected or perhaps even dip during 2020 overall.
Things look bleak for enterprise storage, warned IDC. External enterprise storage systems (ESS) revenues will decline 5.5% to $28.7 billion in 2020, it said.
TrendForce said that the average sales price (ASP) will tumble in 2H 2020, driven by a projected drop in demand for servers, data center equipment, and gaming consoles.
If you're looking for a rosier picture, take a longer-term view. Consumer storage will enjoy a 3.3% CAGR overall between 2016 and 2025, reaching $18.797m at the end of that period, said Persistence Market Research. SSDs will outperform other segments with a 7.8% CAGR.
Constrained manufacturing capacity due to reduced workforce has hurt the supply of monitor and laptop displays, which are sold in module form that requires more manual labour, warned Trendforce. The gap between actual and forecasted shipments reached 25.5% for monitor panels and 29.9% for notebook panels. Shipments will recover as manufacturers pile on more resources, growing by 3.4% and 0.4% respectively this year.
TV panels are normally shipped in open cell format, which is has a more automated manufacturing processm so supplies haven't been hit as hard. However, demand is a different story. The postponement of the Tokyo Olympics will hit the display market, dampening demand for TV-use LED back lighting units in 2Q20. Omdia cut its 2020 TV shipment forecast, predicting an 8.7% dip to 203.5m units from 222.9m last year. It had previously forecast a 1.1% rise. The biggest dip will hit in Q2, with a 16% dip YoY.
IDC noted a 2.1% YoY drop in worldwide Ethernet switch revenues to $7.6bn in Q4 2019. For the full year, the market recorded $28.8 billion in revenue for a YoY growth rate of 2.3%. The worldwide enterprise wireless LAN market fell 6.5% YoY in Q4 2019 and 3.9% for the full year, it added.
New products saw their two biggest spikes mid-month, reaching 516 on March 13-15 and 586 on March 18, but also breaking 300 on March 30.
Price increases began with a monthly high of 69,351 on March 2 before dipping to a low of 3,602 on March 6. Then they arced to 45,551 on March 20 before landing again with a bump at 6,134 on March 24. They saw a bump to 22,746 before finishing the month at 4,333. HP led the number of price increases.
Price decreases began the month at 8,007, before increasing to 35,270 on March 6. They dipped to 4,708 on March 13 and then reached a low of 2,490 on March 20. From there, they saw a bumpy rise to reach their monthly high of 61,295. Extreme Networks led price reductions.
The curves for stock increases and decreases looked broadly similar, with high spots at the start of the month and a small mid-month bump. Stock down saw a slight elevation to 15,370 on March 9 that wasn't mirrored in stock increases.