European EMS Market Still on Shaky Ground

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.

6 comments on “European EMS Market Still on Shaky Ground

  1. Jay_Bond
    February 2, 2011

    This is a promising report in regards to overall growth. China's continued growth is still managing to help out the global market. With the EU still not seeing the confidence levels needed to create growth and stability, companies are going to have to evaluate how they market themselves.

    With the EU being such a vital part of the global economy, companies can't turn their backs on Europe to chase China and other parts of Asia. As companies see growth and confidence build within the EU, there can be more focus on growth.

  2. mfbertozzi
    February 2, 2011

    Good report Thomas, at the end it summarizes very well a real fact: several markets (and EMS among them) are living in a frozen status because of Europea is still trying to reach a political stability walking step-by-step instead of a medium-long term plan to achieve.

    @Jay_Bond/Thomas: Furthermore what about recent events in Northern African Region? Could they impact a lot the European puzzle to solve?

  3. Jay_Bond
    February 2, 2011

    I feel that the largest impact of the northern Africa conflicts, is the continued use of the Suez Canal for shipping purposes. As other countries try to avoid these conflicts like Jordan is currently doing, everybody needs to pay cose attention to the logistics in the area. This also could mean companies need to try and focus their attention out of the area for awhile to allow for stability.

  4. mfbertozzi
    February 2, 2011

    Yes, it is; and it seems this chain won't be stopped soon. increasing difficulties in conceiving the possible plan to address issues on financial crisis.

  5. Barbara Jorgensen
    February 4, 2011

    In recent earnings calls I've been hearing Europe has been “unseasonably strong” and continues to run counter to historic trends. No one has been able to put their finger on exactly what's driving this growth, particularly with all the economic uncertainty in the EU.

  6. Data4PCB
    February 5, 2011

    My reply is to the comments below:

    the assessment about North Africa might be right if one is located outside Europe, for European companies however, it is a low cost area where many products requiring low cost labour (cable harnesses, assembly etc) are made (esp. in Egypt and Tunesia but as well in the other countries in the region. To limit the importance on the Suez Channel is too little. And one has to take into account: depending how this political power game will end, it may have serious effects to other countries (which have a similar type of government) as well. As soon as Saudi Arabia is closed in by the North African/Middle East countries it may result in more than just a disruption of the Suez Channel – you may have to buy your crude oil elsewhere.

    When looking at the “uncertainty in Europe” it for one has to be seen under the ight that financial speculators have started the hunt to the EURO. I won't deny that some of the countries have lived beyond their means and have the responisbility for their poor ratings but when you look at a arget like Greece (with which the whole hunt started) you have to consider the size: it is about the same size as Pennsylvania in area and population. Have you ever had a look at the debts of this particular state (or all the others? There are just 2 American States without debts! Jot even talking about the debts of American communities.) So I believe that a considerable part of opinion making is just financial business.

    And to Barabara's question, why the European industry is swimming against the current my reply is that the recession in some countries hasn't been that severe than in others. Germany for example has kept most of the employees (which worked short shifts for less money) and were able to start immediately at full steam when things became better. And with globalisation going on already for many years we had to lern to specialize and to concentrate on certain industries. The German (own) business is small volume high mix, whenever it ihigh volume/ small mix than it is gone to Asia or to Eastern Europe or to North Africa. It is an irony that our industry is moving to China and Chinese companies are opening shops in Europe.

    Growth is driven by various industries in each country. In Germany it is industrial electronics (the automotive part to a large extent is made elsewhere), in UK it is defense business, in Switzerland defense and medical etc. So each area has its particular driver.

    I don't see any real reason for uncertainty unless we shall have another financial collapse.


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