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The Case for a Level of Optimism

The global economy continues to founder, casting a pall on the outlook for the year ahead, but don't for a moment think that the electronics equipment market is about to enter a period of severe contraction. Demand for information technology products and especially electronics — from both consumer and corporate buyers — will continue to increase steadily through 2015 despite economic contraction pressures in Europe and North America, according to researchers.

The latest figures backing up this view come from {complink 7014|IDC}, which (to my particular delight) focused in two separate research reports on the Western European IT, utilities, financial services, and communications media markets, positing that these are sectors where executives expect to increase purchases of IT equipment. How could this be? Several key European nations are supposedly tottering on the edge of a financial calamity led by Greece, Ireland, Portugal, and Spain. The effects of Europe's inability to resolve its debt crisis has crimped growth globally and is reportedly hurting equity markets.

The IDC reports — the first on Western European IT spending and the second focused on utilities, media, and financial services — paint a more nuanced picture and provide a better understanding of the complex supply-and-demand situation ahead. Rather than predict continued decline, the analysts project that total IT spending in Western Europe will rise to $460 billion by 2015, building on a recovery that started in 2010. The bigger lesson, though, is that although there are numerous areas of concern, the market is unlikely to contract, and that holds both opportunities and challenges for electronics equipment manufacturers.

The challenge will be figuring out how to avoid overproducing for depressed market segments while tapping opportunities in growth areas, according to Nina Bonagura, senior research analyst with IDC's European Vertical Markets team. “Given the increasing economic uncertainty over the pace of recovery, it is extremely important to identify where pockets of growth will be concentrated,” Bonagura said in the report. Companies must therefore seek ways to develop a better understanding of the market dynamics to identify growth areas and successfully target their products.

That's where the second IDC report on utilities (oil and gas), financial services, and media comes in. Paradoxically, it is the severity of the challenges facing these sectors that is simultaneously driving interest in IT equipment. In order to reduce operating costs and maximize efficiencies, companies in these markets are jacking up their IT capital expenditure budgets. They are also more concerned about the advantages they can glean from deploying the equipment than in seeking the least expensive option. This is because utilities companies understand they can squeeze enormous productivity out of current operations by rolling out features like smart metering and helping customers be more efficient consumers.

Here's an excerpt from the IDC report:

    Respondents in these sectors have greater external ICT spending, with a positive balance of 10% between respondents expecting an ICT budget increase and those expecting a decrease. Also, when choosing an IT vendor, they are more interested in the vendor understanding their business than in a lower price solution, seeing IT more as a business enabler than a cost.

Delightful news, isn't it? So, does this mean rapid growth in electronics despite a weakening general economy? Not at all. It points, instead, to the need to anticipate an overall sales decline while still targeting areas of higher demand. It also means wary electronics manufacturers should be even more deliberative as they plan for the year ahead. Batten down the hatches, certainly, as the market uncertainty deepens and sales fall off in some key market segments, but leave yourself open to the right opportunities.

15 comments on “The Case for a Level of Optimism

  1. SunitaT
    October 17, 2011

    consumer and corporate buyers — will continue to increase steadily through 2015 despite economic contraction pressures in Europe and North America, according to researcher

    @Anna, this is really great news for electronics industry. Do you think emerging markets will play greater role in this recovery ?

  2. Jay_Bond
    October 18, 2011

    This is good news in a sea of constant bad economic forecasts. These reports show us that even though this looks like an overall economic decline, there are certain markets that are still growing. This is always positive news, and might help to turn around other market segments.

  3. Eldredge
    October 18, 2011

    Expect this to become a very competitive environment for suppliers who correctly identify the growth markets, and a very disappointing one for those who don't.

  4. Anna Young
    October 18, 2011

    @Tirlapur, Yes emerging economic nations certainly have a role to play in the recovery. China, Brazil, India, etc have assisted in shifting the global supply of goods to the world economy through various export-orientated policies. Their contribution is clearly seen in commodity markets where demand from these regions is driving prices up. The main challenge for emerging economies is the growing fear of inflation, which is now being tempered by the softening of demand from Europe and North America.

    Emerging economies will drive future growth but they can't do it alone. Western economies must regain their footings if a recovery will be sustainable.

  5. Ashu001
    October 18, 2011

    Anna,

    You are quite right.

    If you read the presentations/speeches of the Trade minsiters of all these countries(BRIC) you can clearly tell they are all focussed on increasing exports.

    Only problem is if these guys continue to export then who is going to import their various products???

    This is precisely where the Western World comes in.

    That is why Growth in the Western World is so essential for these countries ,especially to maintain current growth rates.

    Otherwise the chances of them reducing to stall speed are very,very high.

    Regards

    Ashish.

  6. Ashu001
    October 18, 2011

    Jay,

    For sure,this sounds like good news. Only thing to consider is this-Is this demand enough to offset the massive fall in demand coming from the likes of Europe ,America and Japan???

    I am not so sure.after all their consumption levels as well as their Standard of Living is much-much higher than the BRICS.

    Plus the level of retooling of manufacturing capabilities required(you need Low cost/highly rugged Tech products here)-for instance how many Indians and Chinese(the vast majority of whom even today live on a monthly income of less than USD 100 per month can afford an Ipad???

    Regards

    Ashish.

     

  7. Anna Young
    October 18, 2011

    @Tech4people, that is exactly the point. The BRIC countries are increasing export because it is favourable.The challenge now for the European vertical market  is figuring ways to avoid overproduction in an already depressed market area whilst tapping into opportunities in growth areas as expressed by Nina Bonagura of IDC. How do you suggest the Western countries deal with the emerging markets surpluses? I know various factors are at play here. What's your view? 

  8. Anna Young
    October 18, 2011

    @Eldredge, You're right. That is the name of the game in a business world. Suppliers who know their game will identify and tap in the areas of growth. Whilst others who fail to recognize the growth area will be disappointed.

  9. Anna Young
    October 18, 2011

    @Jay_Bond,I agree. Analyst project that IT spending will increase in Western Europe  to $460 billion by 2015. This holds opportunities for electronics equipment manufacturers as well as challenges I understand. Identfying the growth area is the key to success. Positive news indeed.

  10. Nemos
    October 18, 2011

    “The effects of Europe's inability to resolve its debt crisis has crimped growth globally and is reportedly hurting equity markets.” If the great leaders and founders of the EU can see the today's Europe from the place that they are now probably they are laughing with us…..


  11. Ashu001
    October 19, 2011

    Anna,

    Unfortunately there are no easy answers or solutions here.

    It requires a wholesale restructuring/rebalancing of the Surplus countries away from External /Western Demand and more towards Internal demand.

    It will require a lot of retooling of supply chains as well,especially so as to create the kind of products which are in demand and are needed by the Surplus countries.

    For instance(I believe I had mentioned this earlier also);how many Ipads can the millions of Indians and Chinese who live on less than $3 per day buy?

    If you accept that all the demand in The West for Ipads/Iphones,etc today is artificial (and would not be there in a normal economy)-After all,about Half of America's working population is on some form of Govt Welfare or another[A Highly unnatural situation which cannot persist forever] ;similar things can be seen all across Southern Europe(Italy,Portugal,Greece,Spain and even France & The UK) as well.

    What will happen to demand for these products if Govt support is lost?[They are all Bankrupt for better or worse]

    That is the ground-reality which manufacturers especially in the Surplus countries have to appreciate and be prepared for.There is a huge demand for cheap/low cost Internet communication devices which will not cost more than $200[Even that is kinda stretching it].Are manufacturers and designers ready to meet this need?

    Where is the Tata Nano of the Mobile world?My gut feeling is it will come out of India only.Most Low-cost Chinese products are of extremely shoddy quality and have ZERO reliability.

    Regards

    Ashish.

  12. Ashu001
    October 19, 2011

    Nemos,

    Unfortunately most European Bueracrats are way too deluded with their thinking to think of any of this realistically and pragmatically.

    They would rather ensure Taxpayers go entirely bankrupt rather than admit the Euro project has been a massive and serious failure& that its time to kickout atleast the weaker nations like Ireland,Portugal and Greece..

    Regards

    Ashish.

  13. Barbara Jorgensen
    October 19, 2011

    Anna–kudos for writing about this report. The same message — there will be pockets of growth for electronics — came from our live chat last week. I think compnaies have to be creative to capitalize on this–so many resources have been concenrtaed in the major market regions such as China — it may require some sifting around. But that's what the supply chian is supposed to do, right?

  14. Anna Young
    October 24, 2011

    @ Barbara, thank you for your comment. Yes, there is pockets of growth for electronics. You're absolutely correct in saying that there may be some shifting around.This is for the supply chain industry to figure out.

  15. Himanshugupta
    October 27, 2011

    @Anna, this is really good post as there is optimism for the electornic industry.You said that there will be growth prospects till 2015 mainly from the BRIC natoins. Will the growth be comparable to the last years or there will be some slowdown? The EU nations are grappling with the financial problems. Will this space be filled by the emerging nations.

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