Despite strong growth in 2010, the European electronics manufacturing services (EMS) market remains fraught with risk, with reduced government spending and high unemployment resulting in lower-than-average revenue increases during the next few years, according to a new IHS iSuppli research.
The EMS industry in Europe grew nicely in 2010, reaching approximately $29.7 billion, up more than 30 percent from $22.3 billion in 2009. EMS revenue in the region is expected to continue to rise in the coming years, expanding at a 10 percent compound annual growth rate (CAGR) from 2009 to 2014.
Meanwhile, business confidence in Germany, as measured by the Institute for Economic Research (IFO), rose to a record high in January. French business confidence also rose to a three-year high.
Those European original equipment manufacturers (OEM) customers for EMS that have a strong export focus, especially to China and greater Asia, are continuing to report robust demand. The focus of the region’s EMS industry has shifted more to industrial, healthcare/medical devices, automotive/transportation and other higher mix-lower volume product areas and away from higher volume consumer-oriented devices.
The positive EMS results in Europe contrast sharply with the gloomy economic news in the region in 2010. If we turn the clock back just a few short months, the fiscal issues afflicting a number of states in the European Union were daily news. Talk of massive government spending cuts, restructuring of sovereign debt obligations and questions surrounding whether the common currency would survive were a near daily occurrence.
Despite the negative headlines, production numbers and overall demand across much of the European EMS industry continued to recover. However, the European EMS industry’s recovery in 2010 wasn’t nearly as strong as the rebound for many providers in either Asia or the United States. Furthermore, the 10 percent CAGR for European EMS from 2009 to 2014, while encouraging still lags the 13 percent growth for the Asian side of the business -- and 12 percent worldwide.
As we’ve written previously, Asia will remain the key growth engine for the global EMS industry over the next several years given faster domestic economic expansion as well as continuing shifts of production into the region. (See: Uncertainty Ahead for EMS Providers
.) Many of the largest global EMS providers are noting strong demand trends in these end markets as end customers see markets recover after the downdraft of 2008 to 2009 and export demand to Asia remains robust.
With government spending and employment in Europe remaining a concern, the outlook for the consumer remains challenging in our view. In turn, this puts greater emphasis on continued strong demand for export products to Asia. At the current time, the former concerns us to a greater extent and in our view remains one of the biggest risks for the industry given the fact that the European Union as a whole is the largest economy in the world.
Because of this, there remains considerable uncertainty regarding the sustainability of the recovery.
-- Thomas Dinges is the EMS and ODM analyst at the market research firm IHS iSuppli in El Segundo, Calif. For more information on the contract manufacturing market, see Dinges’ new report, entitled: EMS & ODM Revenues Increase, but Profitability Remains Challenged.