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“We’re not out of trouble yet, but it’s a whole lot better than a couple of months ago.”
Walt Custer’s business outlook update, with emphasis on the European electronics industry, attracted a capacity audience to EIPC’s webinar on October 2, and it wasn’t all bad news. As Custer said, “It was really bleak earlier in the year. There was nothing positive that we could say in March and April. But now, business conditions are finally improving again.”
Introduced by Alun Morgan, EIPC president, Custer presented his current assessment of the global electronics industry with a focus on Europe. “We’re definitely not out of it, but it’s a whole lot better than it was 60–90 days ago,” Custer said.
Reiterating earlier concerns about the 2020 economy, he remarked that the global manufacturing decline had been made worse by coronavirus-driven shutdowns and continued tariff, trade, and Brexit issues. Geopolitical concerns have also remained very significant, and service and travel sectors remained in a major recession. But European business conditions were improving, manufacturing was recovering, and industrial production was currently at a much better level than it had been a couple of months previously.
Global Purchasing Managers’ Indices (PMIs), which Custer considered useful and timely leading indicators, point toward expansion in most areas of the world. The European index had risen to 53.7 for September after a long period below 50, indicating that the manufacturing sector was showing the strongest growth for two years, particularly in Germany. European electronic production, which had crashed in the first and second quarters of 2020, was now back close to its former level, and the worst appeared to be over.
The automotive market was a lynch-pin of Europe’s electronics sales and suffered badly. Vehicle production plummeted in the first quarter and early second quarter. It’s now recovering, but it will probably take a long time to reach its former levels. The same was true of the U.S. automotive industry. Vehicle production had fallen almost to zero in the spring of 2020. It was beginning to improve, but still had a way to go.
The aerospace sector, both in the U.S. and Europe, suffered similarly. In Custer’s opinion, it was starting to turn the corner, but he did not expect it to recover quickly. Production in the control and instrumentation sector had been down by about 11% worldwide, and similarly in Europe, but had recovered about half-way. The medical sector had been down 18% but was now almost back to its earlier level. Overall, European electronics assembly had recovered about three-quarters of the way back from the collapse in early 2020.
The semiconductor industry, although highly cyclical, was beginning to show a little growth. Worldwide shipments to regions were a measure of electronic assembly activity. Shipments to Europe, which had been steady at about 8% for the previous couple of years, were down by about 20% in the first half of the year but were expected to increase in the second half.
Semiconductor manufacturers in China, Taiwan, and South Korea had continued to invest in capital equipment. Turning to the global PCB market, Custer’s data indicated that although Chinese and Taiwanese output had dropped at the beginning of 2020, it was now back above the trend line as it entered the annual busy season. South Korean PCB industry appeared to be still suffering the impact of the coronavirus pandemic. Japanese production remained relatively flat. North America had seen a flurry of increased activity in the spring as people switched sources from Asia and started buying PCBs locally.
Custer’s detailed analysis of the European PCB industry included an abundance of information and comment generously shared by Michael Gasch and Hans Friedrichkeit, which he acknowledged appreciatively. European PCB production in 2019 was worth about 1764 million euros, of which Germany represented 43%, Austria and Switzerland 17%, Italy 12%, and the U.K. and France about 8.5% each. Production had been basically flat since about 2007. It had fallen 8% in 2019, and would probably fall another 10% during 2020. The principal end markets remained industrial, medical, and aerospace.
The number of European manufacturers continued to decrease and totalled 187 in 2019. Based on sales, Michael Gasch listed his top 41, the leaders being Würth-group, AT&S, KSG-group, Schweizer Electronic, and Elvia. In his notes on the challenges of 2020–2021, Gasch commented that coronavirus would remain for quite some time, and it would not help either the people or the economy if politicians downplayed the danger. The U.S. had about 4% of the global population but more than 20% of all infections and fatalities. Four states—California, Illinois, Michigan, and Texas—had 27% of all cases but almost half of the U.S. PCB production. In Europe, by comparison, France, German-speaking countries, and the U.K. had 28% of all coronavirus cases but made 84% of all PCBs.
Gasch foresaw that as soon as the situation came closer to normality, there would be a wave of bankruptcies, a huge wave of mass layoffs, and an economic crisis all over the world. The outcome of the U.S. elections would have, either way, an influence on the world economy, and the U.S. trade war would cost the U.S. economy billions of dollars. Brexit would result in additional costs to the U.K., where protectionism, agreements, and contracts would no longer have any value.
He remarked that all principal industrial segments served by European PCB manufacturers were under pressure: industrial electronics in Europe would decline by 20% in 2020, the global automotive market would lose 24%, and new aircraft would no longer be needed because of a large second-hand market. He estimated that the European PCB industry in 2020 might reach just 1,950 million USD, down 10–13% versus 2019, and 6% below the 2009 output.
All of these experiences would lead to the realignment of supply chains. Labour was no longer cheap in China, and Southeast Asia might follow soon. Political decisions and relocating in Southeast Asia would postpone the problems and increase costs. In Gasch’s opinion, a better decision would be to relocate closer to the markets, thus increasing flexibility and security of supply, and certain costs might not rise at all.
Hans Friedrichkeit’s summary of the situation in the European automotive industry began with a lot of bad news. The position at automotive suppliers remained very tense, and the coronavirus was accelerating the relocation of production and job cuts. He reckoned that half the suppliers in the automotive industry expected that pre-crisis levels would not be reached again until 2022, some not even until 2023, and six out of 10 supplier companies were planning staff cuts due to the coronavirus crisis.
Friedrichkeit quoted some figures. Continental had been cutting 13,000 jobs, Schaeffler 4,400, and Bosch 2,000. An extension of government-financed short-time working would help to slow down the loss of more jobs. In Germany, 65% of car manufacturers and suppliers had introduced short-time working in August. However, the number of short-time workers in Germany, which had been 4.7 million in August, fell to 3.7 million in September, and employment in the industry continued an upward trend.
The prospect of the U.K. leaving the European Union without a deal would have a catastrophic impact, with WTO tariffs putting the production of some three million EU- and U.K.-built cars and vans at risk over the next five years. “No deal” would lead to combined EU-U.K. trade losses worth up to 110 billion euros to 2025, on top of around 100 billion euros in lost production value so far in 2020 because of the coronavirus crisis.