European EMS Industry Experiences a Slowdown: in4ma Releases Preliminary Results

By Dieter G. Weiss, in4ma

Research on the latest European EMS industry study by in4ma has closed. A preliminary analysis shows Europe experienced another year of double-digit growth rates in revenues, after 2022 saw a 14% increase.

In contrast to 2022, where the average labour increase was just 2.7%, with widespread concerns about a labour shortage, employment rates for the reporting companies from the current survey jumped up by more than 7%. Some bigger companies hired several hundred new employees, which raises the question, where were all these people hiding a year before?

The more worrying results of this survey will likely be the inventory levels of raw materials. The preliminary numbers for Germany show inventory levels for raw materials of more than 29% of annual revenues. Extrapolating this to 100%, it means there is material valued at €2.76 Billion sitting on the shelves of the EMS industry in Europe. This is only the material which is owned by the EMS companies. Many EMS companies tried to get prepayment for materials needed from their customers, and this is not reflected on the balance sheets but is in addition to that. We warned about the inventory levels a year ago; more than 50% of companies further increased their inventories in 2023.

What is a normal level for inventory? Looking back at the years 2015 to 2019, average raw material inventories ran at about 15% of annual sales. Taking this as a basis, in Germany alone there is €1.36 Billion too much inventory on EMS’ shelves. For Europe, in4ma calculates it to be more than €7 Billion too much. No wonder then that the German association of distributors FBDI is expecting a two digit decline in revenues for 2024. The EMS industry is a bit more positive; they should have most material for their orders on the shelves already. In general, they expect a shorter customer horizon on order placement reflecting the current market sentiment, reduction in lead-times and continued de-stocking of customer inventory.

Is this all the customer’s fault? Definitely not. Rather than questioning the huge customer orders in 2021 and 2022, which in many cases were just panic orders, every EMS was running around with a swollen head, bragging to everybody that they had an orderbook full for the next two to three years. Instead, they should have questioned the huge increase in demand from their customers, which in many cases was initiated by the EMS themselves, telling their customers that there was a chip-crisis, and the customers should order as much as possible now in order to get anything at all.

Today they do not remember this and instead write: In the end market ‘medical’ we expect a reduction in production and sales amounting to 46% due to poor planning on the customer’s side (in the previous year too high quantities were ordered). Appropriate measures to respond to this in terms of costs were set and restructuring costs were planned in the 2023 financial year. Volumes are expected to rise again in FY 2025.

One must ask the question: How many allocation problems have we had in the electronics industry in the past? Have we tried to understand the mechanism of the bull-whip effect and learn from it? What are we going to do differently next time? Write to us if you think you have the answer. weiss@in4ma.de and haass@in4ma.de

About the Research

The annual survey of the EMS industry in Europe is organized by in4ma together with IPC. The last input was accepted on Saturday, February 24. It will then take 4-5 days to complete all analyses and prepare the final report. This report is free of charge to all participating EMS companies. Anyone else can purchase the report for 690 Euro. Please email weiss@in4ma.de to place an order.

It is already obvious that this year will be another record year for survey participation. We currently stand at 280 legal entities belonging to 238 EMS companies. Most of the data comes from the EMS companies directly, but as usual, some data will be taken from the internet from companies who already published their 2023 results on their homepage (about 10) as well as from country company registers for those companies whose financial year deviates from the calendar year and ended in 2023 (about 20, we take those revenues into the 2023 revenues).

The data this year will represent more than 34% of European EMS revenues, more than 64% of D-A-CH revenues and in most other countries between 22 and 30%. No other market research report can deliver accurate data on the European EMS industry for 2023 in such a high percentage. Again, this is not estimations or pareto or other speculative way to quantify the market, this is real data, which the industry can use to benchmark their own results against.

The report does not list the companies which participated, and it does not list individual company data of a reporting company as we strictly adhere to compliance regulations. Most of the data is given to us under strict confidentiality and we hold more than 200 NDA agreements with companies.

The report considers not only revenue development and labour development, but also material cost and value added, market sectors, export rates, inventory levels on raw materials, order backlog and future expectations given by the reporting companies.