The State of the European EMS Industry 2020 – Part One
By Dieter G. Weiss
Global economic development was marked by strong disappointments in 2019. While a growth of 3.5% was expected at the beginning of the year, it currently looks as if it will only be around 3%. The decline in industrial production and global trade in goods was unexpected in the industry. Although it was repeatedly predicted in the press, there were never indicators of the risk of recession as defined by the National Bureau of Economic Research (www.nber.org).
In the European EMS industry in particular, the signals continued to be positive due to the good order backlog. As recently as the beginning of 2019, the companies participating in the in4ma annual survey were confident and forecast sales growth of 6.0% in 2019 for 2019.
Annual survey EMS Germany
The sales growth of the reporting companies in Germany was 5.1% in 2019 (0.9% lower than forecast a year earlier) and is likely to irritate many reporting companies. 42.9% of reporting companies reported a decline in sales in 2019 (2018 14.3%), sometimes even a double-digit percentage decline. Contrary to the presumed expectation, this did not have a negative impact on the reported total turnover. In particular, the companies in the sales groups below EUR 50 million are affected by 51.2%, while most large EMS companies have increased (82.1%). The evaluation shows growth of EUR 248.6 million or 7.2% for the large EMS (>50 million euro turnover), while the small EMS (<€50 million in sales) generated €9.6 million, or 0.8% less, than in 2018. This results in a total of 5.1% growth to EUR 4.928 billion. The large EMS, which represent only 20% of reporting firms, generate 75.6% of reported turnover and have a significantly greater impact on the totals than the 80% of small EMS.
The number of employees at the reporting companies increased by 3.6% and reached a workforce of 23,509 employees. Again, the large EMS dominated with an increase of 5.2%, while the small EMS grew only 0.6%.
Annual survey EMS Austria and Switzerland
In Austria, the reporting companies had a decline in sales of 1.1%, while Switzerland hit it particularly hard with minus 4.4% (in CHF). Due to the volatile exchange rate of the Swiss franc against the euro, one is deceived when viewed in euros, because then it is only 0.7% sales decline. Both in Austria (-0.1%) as well as in Switzerland (-4.3%) staff has been cut.
After a one-year hiatus, in4ma’s European EMS advertising activities outside D-A-CH have resumed. In addition to the reports from nine EMS, the already published figures of three Scandinavian listed EMS (Note, Kitron, Norbit) with their European sales of 6 legally independent units were also taken into account. In total, the sales volume of these EMS amounted to EUR 880.7 million and 5,722 employees. This is an increase of 10.4% in sales and 2.8% in employment.
The addition of these sales of 138 EMS with 155 legally independent units results in a turnover of 6.832 billion euros, which corresponds to a share of the turnover of the entire EMS industry in Europe of about 16%. Sales growth was 4.8%. The sales growth of 4.0% for Europe in 2019, which was already forecast in 2019, therefore seems quite plausible. Reporting EMS companies increased employment by 2.8% in 2019.
Extrapolated to Europe, in4ma now expects EMS sales of 45.3 billion euros and an employment of 53,700 employees in the EMS industry for Europe in 2019.
The exchange rate trap
Caution should be exercised when converting to USD. Due to the volatility of the USD against the euro, an increase of 4% in euros will result in a decline of 1.4% in 2019. So do not be irritated by American press releases on Europe by people who do not understand currencies.
The situation before Covid 19
For the smaller EMS suppliers in Europe, the wind has become rougher. For example, individual companies report the phasing out of products without a successor product in sight, sometimes greater dependence on customers and the late realization that a successor product does not come but has started in the competition. In addition, some EMS do not even know where their assemblies are installed. None of this should lead to the illusion that this is due to a situation that many recklessly interpret as a consequence of reduced industrial production, stagnating gross domestic product and a declining automotive industry in Europe.
This is the desperate attempt to cheat past the new realities. The fact is that Bosch, for example, has awarded a large contract for “Car Multimedia” to the Japanese EMS SIIX in 2019 and production at SIIX’s Hungarian plant started in the fourth quarter of 2019. It is also a fact that the Norwegian EMS Norbit was able to book a major order from Continental in 2019 and announced a 47.9% increase in sales (21.86 million euros) for 2019 on 14.2.2020. In addition, Neways stated in their annual reporting for 2019, that a major share of the 26.7 million euros in revenue increase was due to the automotive industry, easily offsetting the 20.3 million euros decline in 2019 in the automotive sector of the in4ma annual survey.
Where is the misinterpretation?
The fact is that the share of electronics in the car is constantly increasing and that OEMs from the automotive supply industry are outsourcing parts of their electronics production to EMS (most recently Huf to Katek SE). Therefore, the growth rates of OEM suppliers of electronic products cannot be compared with those of the EMS market. Still most EMS companies do this in their annual reports.
The in4ma statistical reports have shown this many times before, by comparing the growth rates of the electronics industry for Germany, as tracked by the German Association of electrical industries (ZVEI) with the in4ma numbers. Over a period of six years (2013 to 2018) the German electrical industry grew by 17.3%. At the same time, the German EMS industry grew by 27.4%, as the trend to shift work from OEMs to EMS is still ongoing. This means as well, with the right strategy, there are many opportunities for EMS companies.
The Covid 19 Virus
The paradigm shift in the EMS industry announced last year by in4ma has begun. When this statement was made, nobody could foresee the impact of a pandemic and it has nothing to do with it. It bases on thorough analysis of declining margins for pure PCBA manufacturers in addition with structural changes in the EMS industry, the missing strategy of many EMS and the thought, that one can do business in the next ten years in the same way as one has in the last twenty years. The good customer loyalty, which is particularly invoked with smaller companies, crumbles when the same products are offered cheaper, better or with additional services from a competitor.
The Covid 19 virus changes the whole picture further and will cause many companies to shut down their business. The biggest impact in present is the shutdown of the European Car industry for 4 to 6 weeks. Do not believe that the missing market will be caught up as soon as the Virus crisis is over.
Part Two of this article will post later this week. More impacts are being analyzed and will be reported in the new information platform that will launch in April called the EMSNOW Information Marketplace.