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© Coronex (illustration purposes only!) Electronics Production | September 30, 2011

European EMS revenues to slow in 2011 on weakening economy

The European Electronic Manufacturing Services (EMS) Industry is forecast to increase by 6.4% in 2011 and reach Euro 27.7 billion, according to the latest findings from Reed Electronics Research.
However, there will continue to be marked difference between Western Europe, where growth is forecast to be 2.7% and the low cost countries in Central and Eastern Europe and North Africa where growth is forecast at 9.2%.

The EMS industry after declining sharply during the 2008-2009 recession started to recover in the later part of 2009 and rebounded in 2010 with growth continuing into the first half of 2011. The shortage of components during 2010, which dampened revenue growth for many EMS providers, has eased and the impact of the Japanese earthquake in March were not as severe as originally feared.

However, growth has slowed in recent months and with the outlook for the global economy being downgraded this trend is expected to continue through to the end of the year and at least into the first half of 2012.

The shift of electronic production from the higher labour cost Western Europe to Central & Eastern Europe has continued and indeed accelerated over the last 2 years. As the cost of electronic assembly became probably the most important element for Original Equipment Manufacturers (OEM) so EMS companies shifted much of the production to factories in lower cost areas and even though economic conditions have since improved, that production has not returned to Western European plants.

By 2015, the end of our forecast period, we expect that ‘CEE & Other’ will account for more than 60% of all European electronic production, up from an estimated 57% at the end of 2010.

Group 1 EMS companies, typically with global operations and sales turnovers in billions of Euro have continued to migrate the remaining production of Consumer, Computer and Mobile Communications (3C) products to lower cost countries. There has been an increase in the number of Group 2 and Group 3 EMS companies operating lower cost manufacturing plants as they seek to provide greater value to their customers.

All of these three groups have retained some manufacturing and the greater part of the design, development and sales teams in Western Europe to maintain relationships with the OEM’s based in that area. Group 4 Ems companies in our definition, are small and operate nationally and possibly in niche sectors.

RER expect to see the low volume/high mix sectors of Automotive, Medical, Control & Instrumentation, Industrial and Telecommunications (AMCIT) grow in Western Europe by between 2.8% to 4.4%. In total the research group estimate that there are more than 720 companies (over 1000 locations) across all groups of EMS companies and we expect to see further consolidation of this number as competition in Western Europe in the AMCIT sectors increases.

Some companies are still at lower sales turnover in 2010 than for previous years and although many companies have restructured their operations to match lower sales, some are still recovering their financial position and vulnerable to further difficult economic conditions.

Electronic production, specifically automated board assembly is beginning to become commoditised and all EMS companies will be looking to increase margins by the provision of additional services throughout the lifetime of the product.

Source: More information about the report can be found at Reed Electronics Research

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