Asian electronics exports surge

With the launch of Samsung’s Galaxy S8 smartphone in late March and the Apple iPhone 8 expected to be launched later this year, the Asian electronics manufacturing supply chain has shown strengthening positive momentum in recent months.

The new smartphone launches are very important for the electronics manufacturing supply chain, as the communications sector is a key driver of global electronics demand, accounting for around 32% of global demand for semiconductors in 2016.

The electronics industry is an important segment of the manufacturing sector for many East Asian economies, including Malaysia, Singapore, China, Japan, Taiwan, Thailand, Vietnam and the Philippines.

The electronics sector upturn was evident in many East Asian economies during fourth-quarter 2016 (4Q16) and early 2017. Malaysian exports of electrical and electronic (E&E) products have shown considerable strength, rising by 11.4% year-on-year (YoY) in January.

The E&E sector remains a key segment of Malaysia’s manufacturing industry and accounts for around 35% of total Malaysian merchandise exports.

Exports of E&E equipment such as electrical equipment, integrated circuits (ICs) and semiconductors accounted for around 50% of total Malaysian exports to the US.

Singapore’s electronics exports have also reflected the global upturn in electronics demand, rising 17.2% YoY in February.
Taiwan, which is a leading manufacturing hub for semiconductors, recorded a 18.9% increase in electronics exports for the first two months of 2017 compared to the same period a year ago.

The IHS Markit Global Electronics Purchasing Managers Index (PMI), based on a survey of global electronics firms, has been trending upwards since mid-2016 and rose to 55.3 in February.

This reflected strengthening growth in global electronics output and news orders. The new orders index for global consumer electronics rose to 57.2 while the new orders index for industrial electronics reached 57.1, both signalling continued strength for the electronics sector into mid-2017.

Latest data from the Semiconductors Industry Association also signals a positive outlook for the electronics sector, with worldwide sales of semiconductors up 13.9% YoY in January 2017, the strongest pace of growth since November 2010.

Sales of semiconductors to the Chinese market remain very strong, up 20.5% YoY in January, while semiconductors sales to the Japanese market were also robust, up 12.3% YoY.

Total global semiconductors sales reached US$339 billion (RM1.5 trillion) in 2016.

A number of factors are providing positive momentum for the Asian electronics industry over the near-term and medium-term outlook.

The launch of the Apple and Samsung new smartphone models is an important driver for the near-term outlook for the Asian electronics manufacturing supply chain in 2017, supporting demand for key electronics components such as semiconductors.

The upturn in global auto industry momentum is also supporting demand for semiconductors, due to the increasing use of electronics in new auto models. The size of the global automotive semiconductor market is forecast by IHS Markit Technology to reach US$36 billion by 2018, and currently accounts for around 12% of total global semiconductors sales.

Demand for semiconductors for hybrid and electric vehicles is expected to be the fastest growing segment of the automotive semiconductors market.

Another key structural positive trend is the growth in demand for electronics due to the Fourth Industrial Revolution and the Internet of Things (IoT). According to IHS Markit Technology forecasts, the number of connected IoT devices globally will grow by 15% YoY to 20 billion in 2017 and will grow to around 31 billion by 2020. Around half of the growth in connected devices over 2015-2025 will be from industrial demand, for sectors such as industrial automation and automated lighting.

An important growth market for electronics will be Internet-connected devices for smart cities. Global shipments of smart city devices, which are Internet-connected devices used in smart city projects are forecast by IHS Markit Technology to increase from 115 million in 2015 to 1.2 billion in 2025. The Asia-Pacific share of total shipments of smart city devices is set to rise from around one-third currently to over half of total device shipments by 2025.

A related underlying global trend supporting the electronics industry is the rapid growth of robotics. The global market for professional service robots is forecast by IHS Markit Technology to increase very quickly, with a unit-shipment compound annual growth rate of 46% between 2015 and 2020.

The upturn in Asia’s electronics industry has helped to improve the export performance of many East Asian industrial economies in recent months, after a protracted period of weak export growth during 2015 and the first-half of 2016.

Technological trends in the global economy such as the Fourth Industrial Revolution, robotics and driverless cars are also underpinning global demand for Asian electronics and improving the medium-term outlook for the Asian electronics manufacturing supply chain.

However, a key downside risk to the export outlook would be from rising global trade tensions. The Group of 20 (G-20) Finance Ministers Communique at Baden-Baden on March 18 dropped the long standing G-20 commitment explicit in previous G-20 communiques to oppose all forms of protectionism in trade and also lacked any reference of commitment to the World Trade Organisation rules-based multilateral trading system.

The Asian manufacturing supply chain remains highly vulnerable to the risk of escalating global trade tensions and more protectionist policies that could trigger a renewed slowdown in world trade and economic growth.

Rajiv Biswas is the Asia-Pacific chief economist for IHS Markit.