The US economic optimism is having positive effects on more market sectors than just the hot mobile devices; March and April were strong months with US consumer spending growing at 2.9% for the first quarter of 2012, "the fastest pace since late 2010," as reported by Manufacturing Business Technology (MBT). Citing a different MBT article, this also represents an overall optimism by industrial manufacturers about sustained growth in the US economy.
To provide a cautionary note to this rosiness, financial analysts at UBS Global do not see the numbers the same way. Worrying about the slowing of China's economic growth, and OEM inventories for auto and industrial, UBS cautions that "we still expect healthy growth in autos production in 2012 although there are some signs of slowing end demand. Auto and industrials OEMs revenue forecast of +2% and +7% for 2012E and 2013E […]." (UBS Investment Research, Past the trough, OEM inventory risks 8 May 2012, pp. 1, 3-6). The connection here is important, because, as UBS continues, "Autos/industrials revenue growth and profitability are key drivers of semis industry growth." (ibid, p. 16) And with the forecasted growth for 2012-13 for the automotive sector, especially, this means that semi growth is further enhanced.
Auto strength in HEV & EV
The importance of this positive economic indicator for the semiconductor and electronics industry goes beyond that of an external measure of positive consumer confidence, although we'll always take that too! These auto sales increases are importantly centered around smaller cars, with an emphasis on hybrid electric vehicles (HEV) and electric vehicles (EV). The main driver behind this targeted increase? Gasoline prices holding over US $3.50 and hitting the $4 mark in many larger cities (see MBT's earlier report).
Once questioned as a feasible mass-market option, HEV and EV sales are proving that global demand and acceptance has cemented and is definitely on an upward growth curve, in response, we see the major auto makers increasing hiring, new factory or line additions, and output on a global level. The auto OEM investment is based on the early upswing in sales for 2012 and continued strength in new, smaller and HEV or EV sales.
Autos now largest CE device
It is certainly not tongue-in-cheek to say that today's HEVs and EVs are the largest consumer electric (CE) devices out there, and quickly becoming a hot end-device. EVs are sophisticated computers that move, basically, operating on roughly 10 million lines of code, hundreds of embedded processors plus all of the sensors, analog, discrete and all of the other chips that make not only the running of the car possible, as well as the smart recharging of the essential battery at the heart of the vehicle, but the growing connectivity and infotainment features available to passengers and drivers alike (read more about smart EV charging in MarketWatch Commentary and our upcoming MarketWatch Quarterly due out late June).
Semi market growth
Considering just the automotive infotainment market, IHS iSuppli reported that this sector "is set to expand by another 3 percent in 2012, driven by rising car production and increasing electronic content in vehicles." Coupling this growth with growing safety and automated driver assistance systems (ADAS) that are increasingly legislated as standard requirements (e.g., stability, roll prevention, tire pressure, anti-lock braking, etc.) and expanding in complexity for all price levels of vehicles, the semi penetration rates in automotive is rapidly increasing. This increase in semiconductor content in vehicles is rebalancing traditional semiconductor market share to the point that automotive is expected to come close to equaling computing within the next few years.