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© adam121 dreamstime.com Analysis | December 07, 2015

The state of European contract manufacturing

How is the European EMS market actually doing, and how will it develop? Research firm Reed Electronics Research, has released its latest report on the state of the industry in Europe, and hopefully we can straighten out a couple of question marks.
Demand for most EMS companies was muted in 2014 and electronic production revenues for EMS in Western Europe were 3% below those of 2013. An increase for EMS revenues in Central and Eastern Europe, and Middle East and North Africa (CEE/MENA) helped the overall European market post growth of 0.5%.

Although the economic recovery in the euro area and the EU is now entering its third year it has been subdued compared to past experiences. The slowdown in emerging market economies, increased global uncertainty, and persistent geopolitical tensions which have hampered growth in 2015 will continue into 2016.

Against this backdrop of low growth we estimate that in 2015, the total European EMS revenues are forecast to reach Euro 25.60 billion with the greater part Euro 15.15 billion achieved by companies in Central and Eastern Europe (CEE), Middle East and North Africa, (MENA) and other countries, and Western Europe Euro 10.45 billion.

We do expect that the economic conditions will improve through to 2019 and by that time we expect that total European revenues will reach Euro 27.37 billion with CEE/MENA showing a compound average annual growth rate (CAAGR) of 1.4% to total Euro 16.21 billion. Similarly, we expect the EMS revenues in Western Europe to grow to Euro 11.16 billion at a CAAGR of 1.48% over the period 2014-2019.

Although made up of over 1,000 companies in Europe, the industry is dominated by a small number of Global players with the Top 3 – Foxconn, Flextronics and Jabil – accounting for around 44.5% of revenues in 2014, with nearly 90% from plants in CEE focused on the Computer, Consumer and Communication (3C) sectors. Approaching 75% of the total sales (Euro 19.1 billion) are achieved by the leading 50 companies or 5% of the total number. We are expecting that there will be further consolidation across the industry due to the downward price pressure, slow economic growth and requirement to broaden and deepen the design, development and aftercare services to customers.

For EMS companies based in Western Europe, the most attractive market sectors are those of Aerospace and Defence, Automotive, Medical, Control & Instrumentation, Industrial, and Telecom (ADAMCIT) with additional good growth in the Energy, Transportation, LED Lighting and Renewables areas. In the CEE and other low cost countries, the focus remains on the transfer of production of low and medium volume/high mix electronic assembly from Western European EMS.

If you want to learn more about the current state and the future of the European EMS industry, Peter Brent Consultant Editor of the “European Electronic Manufacturing Services Report” from Reed Electronics Research, will hold a presentation at Evertiq's TEC event in Gothenburg on January 28, 2016. To learn more or register, follow this link.

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