Front End I AFDEC
Reasons to be cheerful in 2012
“The outlook for employment in the electronics industry is not really as bad as the problems in the overall economy may suggest” according to Adam Fletcher. As many organisations enter the final stages of their 2012 business planning cycle he justifies his optimism by reviewing key data and information sources, but is concerned that this will continue to be a low job creation recovery at best
W
hen plotted on a logarithmic scale graph the global electronic components sales revenue now
closely tracks global GDP. Today it generally appears on the positive side of the growth curve because of the pervasive and increasing use of electronics in daily life, but this was not always the case. As little as a decade ago the typical global cycles, driven largely by advancement in semiconductor process technologies, were periods of very high growth followed by a collapse followed by a slow advance towards the next recovery. This pattern however does not appear to be followed by the UK electronic components markets and GDP growth. The UK electronic components markets are on track to achieve growth of approximately 7% in 2011, consolidating on what was a phenomenal 26% bounce back in 2010. This compares to 2011 GDP growth here in the UK of just over 1%, following on from the weak growth seen in 2010. It’s very hard to justify using hard data but anecdotal evidence suggests that the wide breadth of UK based system integrators in the aerospace, automotive medical and industrial markets are actually enjoying significantly more success in international markets than they are being given credit for.
Statistical information provided by ecsn members indicates that there has also been an increase in electronic component sales originating in the UK, both directly by customers to their subsidiaries or sub- contractors and by UK based distributors in support of their customers in Eastern Europe and China. The same statistical information enables me to estimate that this trade has been growing steadily over the last decade and may now account for 5% to 7% of the UK electronic components sales revenue. According to UK OEM customers the primary reason for this activity is to gain control over the electronic components used in the board assembly process in order to maintain quality standards, but it also enables them to wield much greater influence over suppliers, pricing and availability.
8 November 2011
So what about 2012? A wide cross section of electronic components industry leaders remains sceptical about the local and global economic prospects. A very unscientific poll of over 150 US executives last week revealed an overwhelming majority who believe that we’re in the midst of a “W” shaped economic situation i.e. a further short period of decline possibly long enough to be technically classified as a recession, or at best case an “L” shaped one, i.e. a period of little growth or decline. This outcome reflected a similar poll carried out with the same group in 2009, despite the fact that a very obvious “V” shaped recovery was taking place at the time. Experience suggests that these industry executives should realise that the recovery almost always overshoots, declines and then normalises. The dropped tennis ball analogy is often used by economists when describing a recession: a tennis ball will always bounce back up again; it’s only the timing that’s unknown. But in the current and very uncertain economic times others have likened the global economy to dropping a flat football; on hitting the ground it bounces back, but not much! The challenge for everybody is to pump more air into the ball so that we see a real bounce!
Significant drags There are currently a number of significant drags on UK economic activity; historically low levels of activity in the housing market, lower consumer spending as debt is paid off, stubbornly high unemployment rates and the growing turbulence created by the ongoing Euro region currency and debt crisis, to name but a few. These ‘drags’ are being reflected in lower than normal consumer confidence levels, which have now spread to industrial markets with primary indices like the Industrial Purchasing Managers Index and CBI Industry Confidence Surveys dropping below unity. These surveys whilst very useful indicators do sometimes become a self-fulfilling
Components in Electronics
prophecy as they have the effect of ensuring consumers and industrialists become more negative. This is particularly true if the visibility of customer demand in the supply network also becomes obscured. In the electronic components industry we have also had to cope with the impact of the East Japan Earthquake and Tsunami and now serious flooding in Thailand.
Customer visibility
Fortunately the levels of visibility in the electronic components supply network, whilst not perfect remain reasonably good and when linked to fast communication and accurate analysis of the information, do provide the basis for good business planning.
In 2010 the available capacity in the
electronic components markets did in some areas overshoot demand as the whole industry attempted to grab some market share. This over capacity has, or is in the process of, been withdrawn and as a result lead-times for most commodity parts will return to 4-to-6 weeks (although there are some specific product categories that are likely to remain on extended lead-times).
For many UK businesses, particularly those in the electronics market it remains very difficult to forecast 12 months activity with any accuracy. Unfortunately, forecasting remains a critical business planning area and one against which many organisations choose to make important operating decisions. The organisations that enjoy most success are probably those who have made a very
significant investment in their business planning process, fully involving their partners up and down the supply network – it’s rarely luck! Many organisations now run “rolling” 12 month forecasts based on multiple possible outcome scenarios, only firming up their plans for one or two quarters at a time based on the evolving outcome.
On behalf of its members ecsn is today engaging with a wide range of organisations in the UK electronic components supply network in an effort to accurately forecast the outcome by quarter in 2012. This process will be complete by the end of November when ecsn shares the information widely across the electronics industry in order to provide some assistance in the planning process and industry bench-marking for all. Whilst not wanting to pre-judge the ecsn members forecast outcome and assuming that there are no further major natural or unforeseen economic disasters, I would be very surprised if our forecast does not reflect low single digit growth for the UK and Eire electronic components markets in 2012. That said, the 2012 outlook for those individuals and organisations in the UK and Eire electronic markets remains relatively bright. Today’s latest and greatest new products are already being redesigned with increased functionality. How’s that for a reason to be cheerful?
Afdec |
www.afdec.org.uk ECSN |
www.ecsn-uk.org
Adam Fletcher is chairman of Afdec/ECSN
www.cieonline.co.uk
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