-
- News
- Books
Featured Books
- pcb007 Magazine
Latest Issues
Current IssueThe Growing Industry
In this issue of PCB007 Magazine, we talk with leading economic experts, advocacy specialists in Washington, D.C., and PCB company leadership to get a well-rounded picture of what’s happening in the industry today. Don’t miss it.
The Sustainability Issue
Sustainability is one of the most widely used terms in business today, especially for electronics and manufacturing but what does it mean to you? We explore the environmental, business, and economic impacts.
The Fabricator’s Guide to IPC APEX EXPO
This issue previews many of the important events taking place at this year's show and highlights some changes and opportunities. So, buckle up. We are counting down to IPC APEX EXPO 2024.
- Articles
- Columns
Search Console
- Links
- Events
||| MENU - pcb007 Magazine
What share of the global upturn can Europe retain?
January 20, 2004 |Estimated reading time: 8 minutes
What share of the global upturn can Europe retain? by Hans J. Friedrichkeit, PCB-NETWORK
Nine months ago, the question most frequently asked by colleagues in Southeast Asia was, "When will the boom come?" Today they are asking, "How long will the boom last?" Likewise, on visits to hard-hit US component manufacturers and their suppliers, it was noticeable that spirits had lifted since August of last year. Incoming orders have been rising significantly month on month, and order books are particularly full in the case of manufacturers of flexible circuits for mobile phones. Since last fall, the tension among European component manufacturers has also eased. The rise in orders is relieving the strain of the last 2½ years. But as yet, growth in terms of incoming orders has only reached the component manufacturers and the suppliers of consumables, while capital goods manufacturers are still waiting for more orders from their European client base.
Picture 1: A 36 % downturn is over
What share of the global upturn can Europe retain?
The International Monetary Fund (IMF) forecasts 1.9% economic growth for Europe and 1.5% for Germany in 2004. In relation to the forecast of 4.0% for the US and 4.1% for the global economy overall, the disparity becomes rather more humiliating.
In these terms, Germany will probably just experience a recovery and, according to the optimists, turn the corner and head for a slight upturn in 2005 or 2006.
Jobless growth (growth without a rise in employment) or continuing losses are foreseeable while economic growth stays below 3%. With reference to the electronics industry, the ZVEI (German electrical and electronic manufacturer’s association) is more inclined to expect further contraction: the 1998 tally of 2.1 million employees in the German electronics industry is expected to fall below 1.6 million in 2004. This equates to a decline in numbers employed of over 500,000 or 25% since 1998.
Recovery will proceed at a greatly varying pace, not only from one country to another but also based on sector or company-specific factors. In other words the “warm shower” of orders will not be strong enough to reach everyone, only those who have fine-tuned their business model and cost-benefit package for future conditions.
The word has been out for some time that different countries are now in competition. The European electronic industry expects growth in production of 2% for Germany, 4% for Norway, 4.5% for England and Sweden and 6% for Switzerland, while Italy’s electronics production is more likely to decline.
Picture 2: The number of European PCB manufacturers is shrinking constantly
Zero growth for the German printed board industry?
From €1460 million in 2000, €1300 million in 2001 and €1027 million in 2002, PCB production figures for Germany should reach the bottom of the cycle when they hit around € 1 billion in 2003. Nor is a rise much above the €1 billion mark expected in 2004. In fact any market growth is likely to be mopped up by continually rising imports.
Picture 3: Asia had a one year dip only
Impact of the crisis in Southeast Asia:
In contrast to the US and Europe, Southeast Asian economies experienced no more than a one-year dip. At most, Taiwan felt a significant slump in 2001 and 2002. This was caused by a worldwide collapse in demand for PCs and cellphones, which account for the greater part of Taiwan’s output. PCB production dropped by minus 14.7% in 2001 and another minus 1.4% in 2002.Nevertheless, for our analysis, the simultaneous transfer and establishment of PCB capacity within subsidiaries in China should not be left out of the equation. On that basis, growth in Taiwan in this sector will only be moderate, running at 3–5% for the next few years. In Korea, too, where the year 2001 was characterized by stagnation at best, growth in PCB production is on the moderate side at 5 – 7%.
Picture 4: …The winner takes it all….
Being in China is a risk, but not such a risk as not being there!
If the Credit Suisse forecast is to be believed, then in 3–5 years China will be responsible for 70% of worldwide electronics production, from a base of 10% in 2000 and 20% in 2002.
Nowhere is growth more colossal right now than in China! Growth rates in PCB production of between 20–25% in the next few years seem inevitable. The increase in capacity is estimated at 25 – 30%.
For many renowned European PCB production equipment manufacturers, Asia accounts for 60 – 80% of revenue – no wonder spirits at the Munich Productronica trade fair last November were high, despite muted domestic demand.
China is also poised to become the global production center for high value consumer goods. From cell phones to PCs or, before long, cars – China is overtaking one Western industrial nation after another.
As an insider from a large mobile phone manufacturer commented, explaining the figures behind the production transfer from Europe to China: If despite total automation of the assembly lines, the manufacturing costs of a mobile phone pre-assembled in China are US$3 per unit lower, for instance, multiplied by 10 million phones, that adds up to a saving of $30 million. Nokia`s production was 180 million pcs., Motorola 70 mio. pcs. and Siemens 35 mio. pcs. Given the resulting savings, manufacturers can no longer afford to produce mobile phones in Europe or US in the long term.
Not atypically another firm heavily involved in mobile telephony, the Finnish PCB manufacturer Aspocomp, currently generates 40% of revenues from Asia through its joint venture in China with the Taiwanese manufacturer Chin-Poon.
The exodus to China is no great surprise. The twin attractions are a rapidly expanding market with several hundred million consumers, and an unbeatable, low-cost production center which also shows every sign of turning into a center for development. In fact, China’s technical universities now produce more engineers and natural scientists than the US.
The recent comparison drawn by the CEO of Siemens, von Pierer, makes this clear: 12,000 engineers in China cost the same as 2,000 in Germany.
The contrast is even more drastic for Western firms in China, where for instance the cost of 30 Western expatriates is on a par with the wage bill for 650 Chinese employees in the same factory.
Picture 5 : No nation was hit harder than the US
The bad news: No leading PCB-manufacturing nation suffered more from the slump in the electronics industry than the US, with the communication segment worst hit. Production figures plummeted from $11.5 billion in 2000 to 5.1 billion in 2003, a drop of 56%. The number of PCB manufacturers has shrunk from 700 to 400, key factors being company closures and relocations to Southeast Asia, particularly China.
The good news: The IPC book to bill ratio has risen for 6 months in succession. The level of incoming orders for rigid PCBs rose by +20.2% on the previous year in the months of August, September and October 2003. Flexible circuits have seen a veritable boom of +110.1% over the same period. The latter segment is driven by the strong demand for clamshell-type mobile phones with cameras, and the 25.6% rise overall in “electronic equipment” orders.
"Communication equipment" is another sector revived by robust demand; in this case for data transfer equipment.
The weak dollar also had a positive impact on the US economy. This is pushing not only the Euro to record highs, but also the Japanese Yen and other East Asian currencies. Good times for American exporters and a President who will be standing for re-election at the end of this year.
Despite the upturn, many sources of demand in the US will meet a substantial proportion of their component needs from imports, despite higher costs due to currency differences. Growth in production for the PCB industry is therefore estimated at 7-8% in each of the next two years.
The conclusion for US and European PCB manufacturers:
In future, consumer goods of all kinds but primarily mass-market electronic products, from cell phones to digital cameras, will be produced almost without exception in China and, to some extent, in Southeast Asia. Suppliers, e.g. those from the component sector, have no choice but to join the exodus or go under. The percentage of costs attributable to labor (in Europe) is an important indicator of the threat: while labor costs are only 5-10% for semiconductors, they can be up to 30% for passive components and reach 40% for printed board manufacturers. For all those who want or need to maintain production in their domestic markets, the only option is to search for the right niche.
Picture 6: No golden times anymore with old strategies for the Western PCB world
To sum up:
Global economic trends are like the weather; there is no escaping them. But as every experienced sailor knows, it is possible to adjust for almost any weather conditions to reach one’s destination safely.
There are plenty of strategies: AT&S, Austria-based PCB manufacturer, is currently doing very well with its global strategic approach, as its results demonstrate – "high quantity, low mix" to China and India, "high mix, lower quantity and quick turnaround" in Europe.
On the other hand, many smaller manufacturers have found an adequate niche and offer their customers a global range, hinged on a cooperation arrangement with an international marketing operation. One successful example - Elekonta, a QTA shop with its long-term distribution partner Dold Marketing, who reps besides Photocircuit for China-based Prime Star as well.
Lackwerke Peters a solder mask and ink manufacturer and its distribution cooperation in Asia with the large plating equipment and chemistry manufacturer Atotech is another good example.
These examples demonstrate that a firm’s own size and financial clout are far less important than the right strategy for gaining a share in the expanding Asian markets or benefit from imports.
Hans J. Friedrichkeit is president of PCB-NETWORK located near Basel/Switzerland, a business development, marketing strategies and mergers and acquisitions firm. Friedrichkeit is a former Chief executive of various large Europe-based PCB companies and has worked in the electronics industry in the U.S. and Japan as well. He is board member of various companies and organizations such as the Electronica fair, and cofounder of Germany’s PCB association ZVEI-VDL. He may be reached at Friedrichkeit@pcb-network.com