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columns | March 19, 2007

Global market sector and technology opportunities

There are major new market opportunities for those companies active in the electronics sector. Global growth is forecast across all sectors, ranging from 2–6% per year.
Global opportunities in each sector need to be set against UK strengths and success depends on numerous factors, so the EIGT cannot be prescriptive. Functional convergence offers an opportunity for companies that can adapt existing offerings to new applications. There is also considerable potential for those involved in public procurement, as national programmes can stimulate innovation, and underpin business opportunities in key areas such as healthcare and security.

The UK is well placed, primarily due to its excellent science base, to take advantage of emerging technologies. This should be underpinned by promoting an enthusiasm for new technology, through the development of aspirational projects, maintenance of research critical mass, and greater coherence of technology strategies across Government.

Considering the international market potential, China represents a massive opportunity notwithstanding the risks to IP. India also represents a good opportunity, given a shared cultural heritage, willingness to work co-operatively with UK businesses, and a supply of good quality people. Inward investment to the UK by US corporations also provides access opportunities to an otherwise highly parochial market.

MARKET SECTORS AND TECHNOLOGIES
The following market sectors were analysed by the EIGT in terms of new technology and market opportunities, as a model of UK industry overall:

Aerospace & Defence
Automotive
EDP and Office Equipment
Control & Instrumentation
lMedical & Industrial
Telecommunications
Consumer Electronics
Semiconductors
Other Components

The 'components' categories underpin most application sectors. The EIGT analysed these sectors with in-depth interviews and feedback from various sources, and generally found close correlation with published data on market and production forecasts.

Each sector is characteristically dominated by a handful of global players. There are relatively few medium-sized concerns in the UK but numerous small enterprises. The large companies tend to have the funds available to invest and grow. Some mainly innovate through acquisition. There are few major British OEMs and only a handful of British-owned global players across the sectors. However, in the highly globalised electronics market national distinctions are becoming less relevant. The footprints of global players, in terms of design, manufacturing, sales, service and R&D, and the share of the value chain domestic suppliers achieve, is becoming more important to national economies. The former are determined by infrastructure, government constraints and market access considerations. The latter is increasingly influenced by business' abilities to exploit intellectual capital and seek out higher value.

Analysis of published forecasts shows there is little variation in projected growth across sectors as defined in this report. Industry growth is typically forecast to be around 2 – 6% p.a. (Fig 4.1).


Fig 4.1: Projected growth by application sector 2002 – 2006




Electronic components are forecast to show the highest rate of growth at around 9% p.a. This reflects the nature of the UK production base, with few OEMs but a large number of small companies feeding 'building block' components into the OEMs' supply chains. Increasing convergence means component assemblies developed for one device will become suitable for other applications. This trend will favour UK EMS companies with the capability to design and supply noncommoditised, high value-added components.

Emerging technologies and convergence of consumer electronics, computing and wireless
technology, offer a huge opportunity' According to the EIGT consultations, “Digital convergence will be a significant factor in the consumer electronics market," said a major semiconductor design house. A leading electronics distributor also considered that “Emerging technologies and convergence of consumer electronics, computing and wireless technology, offer a
huge opportunity."

Some companies emphasised the importance of specialisation for future success. An electronics distributor felt that small companies could guarantee competitiveness by providing “efficient service in supplying small volumes of niche products". This opinion was reflected by another SME that claimed, “Prototyping is on the increase in the UK PCB industry as this is more lucrative than volume
manufacturing."

The UK has particular expertise in analogue circuit design, although most end up in digital products. Hardware is again becoming significant in image processing solutions. Multi-purpose application specific integrated circuits (ASICs) and hybrid analogue/digital circuits could represent one of the better opportunities for UK firms in the short-term. A major chip supplier maintained, “The UK should focus on analogue, power and mixed signal technology." And another foresaw “an increase
in levering our cell phone design competencies using the latest compound semiconductors."

The UK retains around 40% of the European silicon design market, and also does well in chip verification despite the absence of major fabrication facilities. Niche suppliers and rapid
prototypers enjoy good business. But it will become increasingly difficult to compete with
Asia in this sector. However, a leading semiconductor considers there are strong
opportunities in CAD-based verification – an area where the UK boasts technology
leaders, along with Israel and the USA. It is difficult to give an unequivocal steer on
particular vendor application sectors given the absence of any 'blockbusters'. However, there will be major opportunities from technology convergence. UK businesses need to become agile and accomplished horizon scanners' to identify and exploit emerging opportunities. The Government
must also be increasingly flexible in the technologies and markets it supports, and the types of mechanism used to assist UK industry.

There is some granularity within the sectors, e.g. use of Radio Frequency Identification (RFID) in instrumentation and control systems, and the development of small displays for telecoms and consumer products. Both these technologies are forecast to grow strongly (though from a relatively low base in the case of RFID). The EIGT highlighted significant areas of opportunities in the public sector, e.g. for medical, defence and security – with increasing volumes of embedded systems,
wireless connectivity and associated network infrastructure. There are also good opportunities in environmental services and energy management. Embedded systems and connectivity will also play a major role in home appliances, to facilitate domestic e-enabled services.


Semiconductors


The EIGT commissioned an 'Opportunity Review'7 from Gartner in which the prospects for semiconductor use were analysed. The top 10 fastest-growing applications for semiconductors, as judged by their CAGR to 2007, are shown in Figure 4.2. The consumer market will be the fastest-growing application market segment during the next five years, led by demand for consumer displays, digital TVs and camcorders. There are also strong products in data processing. All together these segments will add $20bn worth of new demand to the semiconductor market
up to 2007.

Fig 4.2: Top 10 fastest growing applications for semiconductors



The EIGT identified three other sectors with significant opportunities: environmental services, energy and security. These applications predominantly use control and instrumentation technologies.

A major venture capital house and a defence supplier considered “security is a major opportunity." A leading systems design house favoured the market for ID cards, and several companies (including a major mobile phone supplier) reckoned 'green technology' was a good bet for the future as 50% of the content is electronics.

The Environmental Goods and Services market was estimated to be about £290bn in 2002, and is forecast to rise to £385bn by 20108. Some 15-20% of the UK environmental industry's turnover is generated overseas, and it is an area where the UK enjoys a trade surplus. The Joint Environmental Markets Unit (now the Environmental Markets Unit) identified environmental monitoring and instrumentation as a 'high' future overseas opportunity.

Click here to download the full report. (PDF)

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