Market & Supply Watch - June 2015

The EBV Analysis of the Market Situation

In the US, recent economic data came in disappointing, owing to the cold weather, dock strikes and other one-off factors. In the second quarter, growth is likely to be higher again.

In the Euro zone, the economy grew at a slightly higher rate, driven by the fall in oil prices and the Euro. However, in view of the numerous problems in the Euro zone, this is unlikely to be the start of a sustainable upturn. The economic pain remains high – something that is also evident from still a double-digit unemployment rate. As a result, the core inflation is likely to remain below just 1% for a long time. We stick to our belief that the ECB's bond purchases will continue beyond September 2016.

The German economy has overcome the soft patch from the last summer and is likely to keep outgrowing the rest of the Euro zone. We are looking for the economy to grow by 1.8% in 2015. Yet German growth also has its limits, with rising unit labour costs starting to weigh on corporate profitability and thus corporate investments. Moreover, demand growth from the emerging markets recently declined again.

Considerable risk still arises from China. Corporate debt levels increased massively over the past few years, while property prices keep falling. Economic growth looks set to slow in 2015 from 7.3% to 6.5%.

Regarding the semiconductor industry specifically, there has been a lot of activity concerning mergers/fusions in the last couple of months. Cypress bought Spansion, NXP is in the process to merge with Freescale (which will lead to the number 7 supplier in terms of revenue world- wide) and Intel talked to Altera (negotiations have been stopped officially). So more to come? Currently, Cypress made a bid for ISSI and Avago is showing interest in Xilinx.

Source: Commerzbank AG - Economic Research

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