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Asia and the global tech slumpRob Carnell - Head Of Research, APAC

The global tech slump

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Asia – some perspective (2018 nominal GDP)

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• There is a tendency to say “Asia” and think “China”.

• China does account for not far off two-thirds of non-Japan Asian Nominal GDP (2018).

• But there are still some important contributions from other North Asian countries, India, and of course, taken together, South East Asia.

SE Asia Asia Ex-Japan GDP

Indonesia37%

Malaysia12%

Philippines12%

Singapore13%

Thailand18%

Vietnam8%

China62%

Hong Kong SAR2%

India12%

South Korea8%

Taiwan3%

SE Asia13%

Source: CEIC Source: CEIC

Global tech slump – separate but connected to trade war

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Tech warStarts with CFIUS, then

ZTE ban and reprieve, US entity list and Huawei -

spillover to suppliers

US-China trade war

Generalised decline in demand as rising tariff environment weighs on

margins and raises prices. Uncertainty leads

to slowdown in consumption and

investment

Global tech slumpCapacity overbuild 2017/18

hits demand slump 2018/19. Poor product design/launch.

Poor incremental performance to cost increase. Consumers

hold fire pre-5G. Excess supply + demand slump leads to big

drop in prices of products and components

WTO IT Agreement at risk

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• It is probably fair to say that this agreement has helped spur global growth in technology.

• Recent tariffs and restrictions could slow the pace of global development.

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2000 2010 2015 2000 2010 2015 2000 2010 2015 2000 2010 2015 2000 2010 2015

All ICT Computers etc Comms eqpt Cons Electron Elec components

China S Korea Taiwan Singapore ASEAN 5 Non-Asia

Asia dominates the ICT industry

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• From a little over 20% in 2000, Asia now exports more than half of all the world’s ICT, with China alone exporting more than half of Asia’s export total.

• Intra-Asian trade has grown, some of this reflects more complicated value chains, but Asia is becoming an important end-market too.

• China for e.g. is today the world’s biggest market for PCs.

Global market share in technology exports

Source: cite CEIC and UNCTAD

Asia – who makes what?

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Made In Asia

LED/LCD TVs: 62%

Semiconductors: 70%

Car Sat Navs: 76%

Smartphones: 86%

Hard Disk Drives: 80%(In ASEAN)

Digital Cameras: 100%

Singapore: World leader in disk drive production. Major semiconductor producer

South Korea: World Number 1 producer of memory chips and display panels

Taiwan: Global leader in wafer foundry and electronic components

Philippines: Electronic components, semiconductors, printed circuit boards

China: Computers, mobile phones, consumer electronics

Malaysia: Electronic components

Vietnam: Smartphones

Indonesia: Smartphones, aspiration as EV hub

Japan: optical lenses for phones, semiconductors, consumer electronics

There is more than just “cycle” at play

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Electronics cycle

Units

Price

Supply

Demand

We are here

We are here

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• The electronics industry is prone to strong cyclical behavior. And there is an element of oversupply weighing on the industry right now.

• But there is more to this than a capacity / price story. Right now, demand for electronics has slumped.

• This preceded the Trade and Tech Wars, but now overlaps it. This is a genuine dip in demand for Hi-tech and the reasons for this are various.

Fab equipment spending by region

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Americas China Europe andMidEast

Japan Korea SE Asia Taiwan

2016 2017 2018 2019

USDbn

Source: Statista Source: ING

Electronics / parts – prices, billings, have fallen

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2011 2012 2013 2014 2015 2016 2017 2018 2019

Semiconductor billings

Asia Pacific Japan Americas Europe

Bllions (per month)

It's all Asia

• It’s not just export volumes, production and orders that are falling…

• …prices of semiconductors and electronics are also plunging.

• Too much capacity, not enough demand, poor product and poor pricing points have all generated this problem.

• Good news – It is cyclical.

• Bad News – it could take years to recover.

Asia Pacific dominates Semiconductor industry

Americas19%

Europe10%

Japan8%

Asia Pacific63%

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Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19

US Export pricesKorea Export Prices, SC MachinesKorea Export Prices, SC Display (rhs)

Semiconductor industry – prices (%YoY)

Semiconductor billings (billions per month)

Source: CEIC Source: CEIC

Source: CEIC

Handsets – incremental improvements, quantum price changes

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iPhone SE($349)

discontinued

iPhone 7($449)

iPhone 8($599)

iPhone XR($749)

LCD screen

iPhone XS($999)OLED

iPhone X Max($1,099)

64GB

iPhone X Max($1,499)512GB

$1,500

0

$500

$1,000

$1,250

$250

$750

• How badly do you want that new phone?

• $500 badly?

• I thought not…

Phones flop

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• Smartphones, 86% of which are made in Asia, have seen shipments flounder at the end of 2018 and 2019.

• This is a global phenomenon, but an Asian problem.

Global handset shipments Global handset shipments (m)

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Shipments, lhs YoY%, rhs

Millions YoY%

Source: Bloomberg Source: Bloomberg

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Mar 16 Sep 16 Mar 17 Sep 17 Mar 18 Sep 18 Mar 19

Asia Pac (inc Japan) N AmericaEurope Middle East and AfricaLatam

Cars and chips

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• Electronics account for about 35% of the costs of a vehicle. For an E-vehicle, it is closer to 50%.

• Sales of vehicles in China are falling – Chinese car production accounts for more than a quarter (27.8%) of the global total (US: 13.1% in 2018), and 45% of global E-Vehicles.

• Chinese vehicle sales lead DRAM prices by about 6m. At best, we can say the decline is slowing.

Source: Bloomberg Source: PWC

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Vehicle sales, YoY%, 3mma, lhs, Lead6M

2GB DRAM price, rhs, YoY%

Chinese auto sales (+6m) and DRAM prices (%YoY) Automotive electronic cost as % total car costs

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1950 1960 1970 1980 1990 2000 2010 2020 2030

Cryptocurrency usage dipping

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• There was a time when you could mine crypto using your home computer – no longer.

• Mining is becoming more and more difficult and energy intensive and the returns are not as high as they were.

• Some estimate crypto mining uses as much electricity annually as Switzerland – that has probably dipped as crypto-fever has ebbed.

The Antminer S9Rocking a lot of top spec chips.

This was once all you needed for mining crypto.

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2,000

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18,000

20,000

1/16 5/16 9/16 1/17 5/17 8/17 12/17 4/18 8/18 12/18 4/19 8/19

Source: Bloomberg

Bitcoin / USD cross

Gaming growing, but still very small

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• This was once a niche market.

• It is now becoming an industry.

• But it is still way too small to become a substantial driver of tech demand.

• Asia Pacific dominates market share of gaming notebook market – growth rates @30%.

Source: GfK

Gaming Mouse

Gaming Notebook Gaming Desktop PC

Gaming Headphones

Gaming Monitor

Gaming Keyboard

24% 2%45%

44%11%

8%

Asian exports – trade war vs tech slump

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Asian electronics and auto exports Korea, Taiwan electronics, total exports

Selected SE Asian electronics exports Global semiconductor sales, Asian Electronics exports

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-505

101520

2013 2014 2015 2016 2017 2018 2019

Electronics Automobile

%YoY 3mma

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2014 2015 2016 2017 2018 2019

Korea-total Korea-electronicsTaiwan-total Taiwan-electronics

%YoY, 3mma

*Includes Japan, Korea, Taiwan, Singapore, Malaysia, Philippines and ThailandSource: CEIC Source: CEIC

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2012 2013 2014 2015 2016 2017 2018 2019

Total Asia* Singapore Malaysia

%YoY, 3mma

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2012 2013 2014 2015 2016 2017 2018 2019

Global semiconductor sales Asia electronics exports

%YoY 3mma

Source: CEIC Source: CEIC

Korea highlights the tech slump / trade war

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• If it were just the trade war that was a problem, tech exports would be falling, but so too would everything else.

• Well if we use Korea as a benchmark, one of the world’s biggest producers and exporters of tech, then we can see that tech has very special problems.

• The trade war is mainly an issue for China.

Tech vs non tech export split Korea Tech complex – exports ($m)

25,000

26,000

27,000

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31,000

32,000

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34,000

35,000

10,000

12,000

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18,000

20,000

22,000

Jan 15 Jan 16 Jan 17 Jan 18 Jan 19

Tech Non tech

Source: CEIC Source: CEIC

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01/2015 01/2016 01/2017 01/2018 01/2019

Semiconductor, rhs Flat Panel DisplaysOrganic Light Emitting Diode (OLED) Computer Phone Parts Mobile PhoneSolid State Disk (SSD)

Overcapacity has dragged down prices

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• The global tech slump isn’t all a volume effect.

• Price effects are very important.

• Price weakness has been driven by overcapacity.

• This will either be overcome by attritional capacity reductions (obsolescence) or a demand pick-up.

• A slight upturn is possibly happening now.

Semiconductors Electronic components

Source: Bloomberg, CEIC Source: Bloomberg, CEIC

0.60.70.80.911.11.21.31.41.51.6

0.81

1.21.41.61.8

22.22.42.62.8

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2GB DRAM Capacity utilisation rate (rhs)

US$ per unit Ratio

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1.21.41.61.8

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2GB DRAM capacity utilisation rate (rhs)

US$ per unit Ratio

Memory price fall stabilizing?

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• Here are some spot prices for memory.

• Since 2017, DRAM memory chip prices have roughly halved.

• NAND Flash memory (Solid state device memory) have likewise fallen.

• There seems to be a little bounce going on now –have we hit bottom?

If you want a not too technical link to a site that explains what some of this stuff is here are two:

https://www.mydigitaldiscount.com/everything-you-need-to-know-about-slc-mlc-and-tlc-nand-flash.html

https://www.atpinc.com/blog/computer-memory-types-dram-ram-module

DRAM spot prices NAND flash spot prices

Source: Bloomberg Source: Bloomberg

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DRAM 8 Gb DRAM 4Gb

US$

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May 17 Aug 17 Nov 17 Feb 18 May 18 Aug 18 Nov 18 Feb 19 May 19 Aug 19

NAND Flash 256gb NAND Flash 128Gb MLCNAND Flash 64Gb

US$

Chips Ahoy! Beginning of the end?

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• Some of the most recent data from Singapore (and elsewhere) also suggests that the downturn in electronics exports / production, may be finding a trough…

• Don’t look for a V-Shaped recovery though, this one will likely be more “L”-shaped.

• That’s better than nothing though…

Singapore electronic exports Non-IC electronics

Source: Bloomberg Source: Bloomberg

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2016 2017 2018 2019

Disc media PC parts PCsDiodes etc Telecom eqpt Disc drivesConsumer Elect Integ Circuit parts

SGDm

1,000

1,500

2,000

2,500

3,000

3,500

2016 2017 2018 2019

Integrated Circuits (ICs) Other

SGDm

Electronics: could rise like a phoenix, but when?

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• The electronics product cycle is not the worst problem for Asia to have, though it may seem bad now.• 5-G rollout could make most existing hardware redundant / obsolete. IOT finally becomes a reality, as do

autonomous vehicles, etc.• Will we need to replace all our hardware? Probably. Big boost to Asian manufactures of consumer electronics,

content providers.• Difficult to imagine what the impact on components will be but storage in consumer devices may become

redundant? (NAND)• In short, positive, but maybe massively disruptive.

Source: Shutterstock

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2E+09

4E+09

6E+09

8E+09

1E+10

1.2E+10

3G 4G 4G (LTEAdvanced)

5G

bps5G vs 4G speed comparison

Source: Phonearena.com

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