By Dieter G. Weiss, in4ma
At the beginning of 2019, the in4ma EMS annual statistics report indicated a growth rate in Germany of 6%. This prediction was based on the input of 127 EMS companies with a share of more than 63% of German EMS production. This prediction was not unsubstantiated but based on the companies’ existing order backlog and forecasts of their customers. A product normally runs about 5 to 7 years with an EMS company; therefore management has good visibility about the future.
Early in 2019 the bad news came in, first the purchasing manager’s indices, then the predictions of the component distributors and the general forecasts of the GDB for Germany and other European countries. Speculations flew that a recession was imminent when the second quarter of 2019 showed a negative growth rate of GDB; analysts reminded everyone that a second consecutive quarter (which would be the Q3 2019) with a negative growth rate would indicate a technical recession. The German component distribution association reported that after two years of very good results the market was cooling down (is this surprising?). On top of all that, Gartner reported that the semiconductor market would see a revenue decline of 9.6% in 2019. Big OEMs like Bosch and Continental were fast to adjust their forecasts for 2019.
At the 17. EMS-Day in Wuerzburg, comments flew through the air when we repeated our EMS forecast for 2019. We were told that we should just wait and see – revenues would soon collapse.
Now let us look at all the current negative news. Remember, the PMI is a construct which was not specifically designed for the EMS industry; similarly, the GDP pertains to a particular set of data. Are they a good indicator for the EMS industry? No! Not even the data about the German electrical industry is a good indicator for the EMS industry. Over the last six years, the German electrical industry grew 17.3% whereas the German EMS Industry grew by 26.8%. The share of EMS business in the German electrical industry is just a mere 3,8%.
Component distribution market cooling down? That’s actually a healthy sign for EMS. We just need to look at the balance sheets of the 47 biggest EMS in Germany, which represent 52% of German production. Raw materials increased from 10.8% in 2016 to 14.9% in 2018. It is a good time now to cut back inventories as the allocation problems have eased. Semiconductor industry declining by 9.6%? That is also good news, as it is mainly influenced by inventory corrections and price reductions, specifically for memory.
Rather than talking about more potential negative influences on the German and European EMS market, let us have a look at some more facts. The first half of 2019 is over and it is possible to look at the big public EMS, which already reported their figures for the first half of 2019:
- Cicor Technologies reported revenues of 131.9 Mil. CHF, +7.3% against the 1. H. 2018. Converted in Euro it was only 4.9% due to changes of the conversion rates.
- Note reported half-year revenues of 843 Mil. SEK. As they acquired Speedboard Assembly Services Ltd (Windsor/UK) in November 2018, organic revenues would have been 756.7 Mil. SEK, an organic growth of +15% against 1.H. 2018. Due to changes in the conversion rate, it is 20% in Euro.
- Kitron reported revenues of 1,673 Mil. NOK, a growth of 26.9%, a part of this is non-organic. Taking the revenues of the newly acquired API Technologies Corp. (Marlborough/USA) out, one gets to 1,575 Mil. NOK, an organic growth of 19.5%.
- Scanfil reported half-year revenues of 142.6 Mio. Euro, a decline of 6%.
- The first six month of 2019 ended with revenues of 264.5 Mil. Euro for Neways Electronics, a growth of 7.1%
- Turck Duotec reported their best monthly revenue result in their 30-year history in July.
These companies only represent 2% of the European EMS production revenues, but they are a good indicator. In total, converted in Euro, their revenues were 752.2 Mil. Euro, a 6.6% increase against the 1. H. of 2018. It is close to our prediction for Germany as well as the 3.1% predicted for Western Europe, the 4.3% predicted for Eastern Europa and the prediction of 3.7% for all of Europe.
If you do not have similar growth rates, stop looking for excuses. Look at the opportunities: OEMs cutting back their forecasts and reducing their building programs? Good news. Do not look at the doors that close, look at the doors that open. When building programs are decreasing, costs become a bigger burden for the OEM. Under normal circumstances they have already done everything to optimize their production, but their cost structure is not competitive with the EMS industry. This is a favorable time for the EMS industry to increase marketing activities, approach the OEM industry, increase their service offering, develop new markets and become a key player using mergers and acquisitions.
You need reliable market data in order not to be caught in the trap. Three years ago (25.8.2016) a German EMS company with limited visibility announced in the press (Markt & Technik), they would be among the TOP 10 European EMS companies within the next three years. Looking at their data today? Tough luck, they just missed the goal by 300 Mil. Euros. Another German EMS (Katek SE), a client of in4ma market data regularly, in January of this year announced they wanted to be among the TOP 10 European EMS. It took them just eight month and with the purchase of Bebro electronic in Germany they have achieved their goals already.
So rather than looking at excuses why revenues are going down in some EMS companies, see the opportunities which are just opening up and carefully study the reasons why other EMS companies are more successful. In order to shape the future, it is necessary to study real numbers, comparing the past and projecting the future of the European EMS industry.
If you want to learn more about the developments in the European EMS industry, join us at Productronica in Munich, Hall B3 PCB & EMS speaker’s corner, Wednesday, November 13, 2019, 9:30 to 10.00.