-
- News
- Books
Featured Books
- smt007 Magazine
Latest Issues
Current IssueBox Build
One trend is to add box build and final assembly to your product offering. In this issue, we explore the opportunities and risks of adding system assembly to your service portfolio.
IPC APEX EXPO 2024 Pre-show
This month’s issue devotes its pages to a comprehensive preview of the IPC APEX EXPO 2024 event. Whether your role is technical or business, if you're new-to-the-industry or seasoned veteran, you'll find value throughout this program.
Boost Your Sales
Every part of your business can be evaluated as a process, including your sales funnel. Optimizing your selling process requires a coordinated effort between marketing and sales. In this issue, industry experts in marketing and sales offer their best advice on how to boost your sales efforts.
- Articles
- Columns
Search Console
- Links
- Events
||| MENU - smt007 Magazine
Outlook for European Electronics Industry Downgraded on Back of Weakening Economy
January 23, 2013 |Estimated reading time: 8 minutes
Editor's Note: This article originally appeared in the December 2012 issue of SMT Magazine.Recent indicators reflect the current gloom facing the European manufacturing sector. With no signs of a recovery in the short-term and with prospects of a slowdown in the emerging markets, the outlook for the European electronics industry remains uncertain. Against this backdrop, Reed Electronics Research has revised down its outlook for European electronics production and now expects output to decline by 2.9% for the year as a whole to Euro 199.2 billion.
In Western Europe, electronics output is forecast to decline by 2.7%. With consumer applications accounting for only a small proportion of output, the decline in consumer spending during the year will not have a marked impact overall. However, electronics production will be hit by reduced government spending, reduced corporate investment, and lower growth in exports including those to emerging markets.
The West European electronics industry has already made the transition to serve markets which require expertise in lower-volume/high-mix production including industrial, control and instrumentation, medical, aerospace and defence, and high-end communications. In recent years, European companies have benefited from the move to renewable energy and, although the sector is itself undergoing a major restructuring as the dynamics of the industry change, in the longer term the sector is expected to continue to offer opportunities as governments look to non-carbon energy solutions.
Germany accounted for 24% of European electronics production and 32% of West European. Although the economy is expected to slow or possibly contract, in the final two quarters of 2012 production within the key industrial segment is expected to show modest growth of 1.7%, but this will be offset by declines across other sectors of the industry.
Over the period to 2015, Germany will be one of the key drivers to growth in the European electronics industry with industrial and communications, including defence, increasing its share of the German electronics industry to 59% by 2015. Computing and consumer electronics will decline further throughout the period to 2015 as companies continue to transfer production to lower cost locations. The components segment is forecast to decline in 2012 and then show modest growth, with events in the photovoltaic industry dampening growth throughout the period to 2015. Increased competition from Chinese manufacturers, falling prices and lower demand as government subsidies are reduced has resulted in a number of high-profile bankruptcies and the transfer of production to Asia to reduce costs.
Figure 1: Growth in Electronics Output in Western Europe by Country 2012 & 2013. (Source: Reed Electronics Research.)
In France, output within the industrial segment is forecast to increase marginally in 2012 and then accelerate in the period to 2015 with single-digit growth. The communication segment, which includes defence, is expected to also show growth in 2012, but with pressure on costs and reduced defence spending it will show only modest growth in 2013 before accelerating to around 3% in 2014 and 2015.
Electronics output in the UK will mirror both Germany and France with growth in the industrial and communication segments in the later part of the forecast period offsetting further declines in the computer segment.
As expected, electronics output in Southern Europe will be impacted to a greater degree by the Eurozone crisis while in the Nordic area the decision by Nokia to move mobile phone production to Asia and the ongoing restructuring within the fixed and wireless infrastructure sectors will also have a major impact in the short-term.
In Central and Eastern Europe the electronics industry is dominated by the computing, communications, and consumer (3C) segments and which overall accounted for an estimated 81% of electronics output in the region in 2011. With weakening consumer demand combined with the decision by a number of manufacturers to transfer production to Asia, most notably by Nokia in Romania, output for the 3C segment in CEE in 2012 is forecast to decline by 4.9% and will not reach 2011’s level until 2014.
With a significant proportion of the CEE’s electronics output controlled by a relatively small number of OEMs and EMS companies individual company decisions can have a marked impact on overall growth in the region. Despite the close proximity to Western Europe and the growth opportunities provided by the region in the current climate pressure on margins could see additional manufacturing transferred to Asia.
Because of pressure from OEMs on cost, the CEE region is expected to benefit from the transfer by European OEMs and EMS companies of more complex production within the industrial and high-end communication segments over the period to 2015. Between 2011 and 2015, industrial is forecast to increase its share of overall electronics output from 8% to approaching 9.7% by 2015.
Based on the latest available indicators, the recovery in electronics output is expected in the later part of 2013 although any further deterioration in Europe or a more marked slowdown in the emerging markets, and in particular China, could push this back into 2014. In the long term, electronics output in the region should stabilise and provide opportunities for growth throughout the global supply chain.
EMS Sector to Mirror Industry Trends Figure 2: European EMS Market 2011-2016. (Source: Reed Electronics Research.)In Europe, as with other regions globally, the move to outsourcing has been one of the key trends impacting the electronics and related industries. Mirroring events in the overall electronics industry, growth in the European EMS will weaken further in the later part of 2012 and is now forecast to decline by around 2% for the year as a whole to Euro 26.0 billion. The current economic crisis and low growth will continue into 2013 and, although significant downside risks remain, based on the latest indicators a modest recovery should begin in the later part of the year which should gain traction in 2014. In line with the general recovery in Europe, EMS revenues after stagnating in 2012 and 2013 are expected to show modest growth in 2014 and then show low single-digit growth in the period to 2016. Growth in CEE and North Africa will outpace Western Europe and although the 3C segment will continue to dominate, the region will increasingly benefit from the transfer of EMS revenues that is taking place in the automotive, medical, control and instrumentation, industrial, and telecommunications (AMCIT). We expect to see the low-volume/high-mix sectors of AMCIT to grow in Western Europe by between 2.6% to 3.5% over the period to 2016.Competition to IntensifyIn our analysis of the European EMS industry we have identified four groups of EMS companies. European EMS Industry: Basic Segmentation
Group 1 – Annual revenues in excess of Euro 400 million and a few of the group have revenues of several billion Euro. These companies have a global footprint with significant resources including vertically integrated operations.
Group 2 – Larger European EMS providers, typically with sales turnover in excess of Euro 100 million, though a few are smaller. These companies all have manufacturing locations in Eastern Europe or North Africa and some in Asia and North America. They concentrate on the AMCIT sectors.
Group 3 – With annual revenues in the region of Euro 25 to 100 million, these companies mainly operate on a sub-regional level, such as Benelux or Nordic. Approximately one-third have no identifiable low-cost manufacturing location, but many have established this resource in the last three to four years.
Group 4 – This group is composed of many smaller companies who tend to operate on a national or even a sub-national level. They have a sales turnover below Euro 25 million with the majority below Euro 10 million. These companies may also have specific skills and competences and operate in one or two market sectors or niche sub-sectors.Although Group 1 companies accounted for 48% of revenues, the majority is associated with the production of 3C products at a small number of high-volume plants in CEE operated by Foxconn, Flextronics, and Jabil. Although benefiting from lower costs and their close proximity to the European market, these sites will face increasing competition from facilities in Asia as OEMs and EMS providers look to drive down costs.
Within Europe the vast majority of the 950+ EMS companies are small, privately-owned, and operating nationally and possibly in niche sectors. In 2011, these Group 4 companies generated combined revenues of Euro 5.8 billion and accounted for 22% of the total. Group 2 and Group 3 companies accounted for 16% and 14% of EMS revenues, respectively, in 2011. All three groups are focused on the AMCIT sectors and related industries, such as transportation and energy and, as such, competition will be fierce, in particular, between the leading Group 2 and 3 European-owned EMS providers, but also the global Group 1 companies who look to exploit their existing European manufacturing and design capabilities.
To compete, Group 2 and Group 3 EMS companies have, or are establishing, lower cost manufacturing plants in CEE, North Africa, and Asia as they seek to provide greater value to their customers. Companies are also looking to acquisitions to enter new markets and extend overall capabilities.
The last year has brought casualties with a number of EMS companies forced into liquidation, most notably Elcoteq. The further prolonged squeeze on costs will continue and that, combined with the high number of EMS companies operating in Europe, will result in further industry consolidation across all four groups.
The Top 20
As in prior years the Top 3 companies dominate, accounting for an estimated 45% of all European EMS revenues in 2011, up from 42% in 2010, with Foxconn, the world’s largest EMS provider, accounting for over 20%. In 2011, the Top 20 accounted for approximately 63% of European EMS revenues.
Outside of Foxconn, which is predominantly focused on high-volume products within the 3C segment, the major global EMS companies have scaled back their manufacturing presence in Western Europe and, in some cases, CEE, although the companies are well positioned to compete in the growth sectors of the industry.
Following the bankruptcy of Elcoteq, the German company Zollner is now the largest indigenous European EMS provider while Videoton is the largest indigenous EMS provider in CEE.
French companies éolane and Asteelflash have strengthened their position through recent acquisitions. éolane acquired fellow French group NCF in 2010 and so far in 2012 the company has acquired former Elcoteq operations in Tallin, Estonia, in early 2012 and in May 2012 the insolvent operations of Lagassé Communications and Industries in Douarnenez, France, and Berlin, Germany.
Asteelflash, formed through the merger of Asteel and the U.S. company Flash Electronics in 2008, acquired TES Electronics Solutions manufacturing plant in Langon, France, in June 2011. The plant, which had revenues of approximately Euro 32 million, strengthened the company’s activities in the defence and avionics markets. Like éolane, AsteelFlash has continued to look at further acquisitions with the most recent announced in August 2012 with the purchase of EN ElectronicNetwork, the German company reporting revenues of Euro 130 million in 2011.
Although still trading the German company SRI filed for insolvency in July 2012.Figure 3: Top 20 European EMS Providers, 2011. (Source: Reed Electronics Research.)
Andrew Fletcher is research manager at Reed Electronics Research. The organization has tracked developments in the European and global electronics industry since 1973 and currently publishes market and production data for 53 countries. For further information, e-mail andrew.fletcher@rer.co.uk or visit www.rer.co.uk.