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Where Is the Electronics Market Headed in 2012?

As the old year wound down, everyone was looking at predictions made at the start of 2011 to see how well the prognosticators did. It is interesting to go back to what the “experts” said and try to figure out how they arrived at sometimes dramatically different conclusions.

Who could have predicted two natural disasters, a worldwide debt issue, Chinese currency inflation, and a crippling recession? Individually, any of these could create havoc in our industry and result in a very difficult year. Collectively, they have created one of the most challenging years ever for the industry as a whole.

So, I've decided to float some end-of-the year questions and give everyone a chance to be the expert on events over the next months:

  • What market conditions do you see that have the potential to slow growth over the next six months?
  • What big moves will occur in the industry? Is our industry in “survival of the fittest” mode?
  • What changes can we expect as the result of the focus on stemming the flow of counterfeit parts into the supply chain? How will suppliers and distributors react?
  • What will the market look like in five years? Are we on the verge of another big technological boom or a period of prolonged stagnation?

My thoughts on these issues follow, but I'm really more interested in your opinions, thoughts, and stories. Together, perhaps we can reach an industry-wide consensus.

On the issue of market conditions over the next six months, it looks as if the opportunity for growth is there. We are already seeing indicators that the market may be improving. The major issue that I see getting in the way of significant recovery and growth is an overall lack of confidence. Be it the fear of another recession, currency implosions, volatile stock markets, natural disasters, or any combination thereof, until the citizens of the world have confidence that we are on a forward-thinking, forward-moving path, people will continue to hold tight to their purse strings.

This is true of corporations, and it is true of individuals. It's worth noting that companies that survive this economy and come out stronger are likely to be those that have exercised caution in their expenditures and shown wisdom in their big decisions.

What big shifts will occur in the industry? We have seen the consolidation of distribution, with large distributors growing by acquiring smaller distributors. One example: In 2011, {complink 453|Arrow Electronics Inc.} acquired electronic components distributors in China, Japan, North America, Asia/Pacific, Europe, and Latin America. And there are others. This raises another issue: Are small distributors actually positioning themselves to be acquired? Whether they are or not, my prediction is that we will continue to see more mergers and acquisitions in the coming year. Who do you think will be next?

Attention to the issue of counterfeiting is escalating. For years the industry has battled this issue, and we are now seeing action by the US Congress to mandate purchasing discipline in an effort to prevent counterfeit parts from entering the military supply chain. I was in Washington to witness the Senate Armed Forces Services Committee receiving testimony regarding counterfeit parts entering the military chain. On the same day as the hearing, my colleagues and I submitted language for an amendment to the military appropriations bill that is still awaiting ratification.

When and if the bill is ratified, the US Department of Defense will be charged with developing systems to thwart introduction of counterfeits into the military supply chain. But at what cost? Will suppliers shoulder the burden or will it be shared by the DoD? Once these systems are in place, suppliers that want to do business with the DoD will have to follow them, regardless of the impact. Will there be the opportunity for the suppliers to be part of the process? How can we make sure that happens?

In the EMS world, we are seeing some projects coming back onshore while others continue to move offshore. Are there new criteria being established to determine which projects will be manufactured in Asia, Mexico, and Latin America and which will be built in Europe and the United States? Are any of you involved in such planning? If so, please share your thoughts on this issue.

Looking forward five years, as I said earlier, I think that some of the large contract manufacturers will be gone either through merger or attrition. I think that several of the large OEMs will become much larger through expansion into other industries. This will directly benefit a few key contract manufacturers and industries. Others will be left on the outside looking in.

The supply chain will continue to grow more advanced. Vendors will have to become more sophisticated in how they determine stocking levels, the types of product they stock, and the services they offer. The best growth path forward will be for those that are helping their customers solve their challenging business issues. This means doing more than simply taking orders and delivering product. Understanding the nature of customers' challenges and working in partnership with them to address them will be an essential component of success and growth. If you want to grow, you have to stay relevant.

So, there you have it: my thoughts on these issues. Now it's your turn. Tell me your experiences and what they lead you to believe will happen in the next six months, what big moves are just waiting to be made, and how will our industry look five years from now. I look forward to hearing from you.

17 comments on “Where Is the Electronics Market Headed in 2012?

  1. Barbara Jorgensen
    January 3, 2012

    That's a great list of questions, and I'm going to think more about them before I answer at length. One of the things that does occur to me–and you mention it when you say the supply chain will become more advanced–is that the industry could stand a little regression. The JIT/BTO model is not fool-proof as we saw in 2011. Somebody, somewhere has to stock inventory. Yes, more advanced technology and practices will benefit the supply chain, but I think the industry as a whole has lost touch with the fact that this is still a time/place/utility business.

  2. DataCrunch
    January 3, 2012

    Good questions. There is still too much uncertainty both in the US and globally to make any accurate predictions about where the market is headed.

  3. Eldredge
    January 3, 2012

    I would expect that efforts to stem the flow of counterfeit parts will increase the cost of doing business for hardware manufacturers. Certainlty, putting in place the infrastructure to comply with new legislation will be a factor. But in addition to that, these efforts may constrain the supply of legitimate components (rightfully so, but little solice to those who need the legitimate parts) depending on the percentage of counterfeit productin the supply chain. Could some parts become in short enough supply to force unplanned redesign of electronics? In any case, as military electronics manufacturers deal with component issues in the face of budget issues, it could be a challenging year.

  4. bolaji ojo
    January 3, 2012

    Barbara, We all want the benefits the industry derives from just-in-time everything but shy away from discussing who would have to pay for it. At one time, it was assumed distributors should bear the burden but they also have duties to themselves and their shareholders so once the big guys began asking for fair compensation for value-added services the industry shrank back.

    If I have any forecast for the industry this year, it's that we should expect supply chain uncertainties and pricing fluctuations. You could make this prediction and bank it for the next several years and you wouldn't lose a dime. Here's more: economic wobbling will continue in 2012 and negatively impact electronics. Overall, however, we'll still sell more electronics devices this year — all things being equal.

  5. stochastic excursion
    January 4, 2012

    The demand for more traceable parts along with variability both on the raw materials side and demand side will act adversely on independent distributors most likely.  Vendors that can respond quickly without sacrificing quality will be the winners in the coming year.

  6. Daniel
    January 4, 2012

    “Looking forward five years, as I said earlier, I think that some of the large contract manufacturers will be gone either through merger or attrition. I think that several of the large OEMs will become much larger through expansion into other industries”

    Merging and acquisition are the easiest way to emerge as market leaders. I think finally it ends up in monopolistic nature and hence customers with a lesser choices.

  7. Yoram
    January 4, 2012
    • The market conditions that will slow growth over the next six months are simply general confusion and a lack of understanding about the global processes taking place in the world. The new business atmosphere will cause us to think differently, work differently, and especially relate to others differently. We will either figure this out quickly and adjust or face the concequences. 
    • Survival of the fittest is no longer an option in the integral world. We have to learn to collaborate in new ways and create mutually beneficial conditions for doing business.
    • When we work together instead of against each other, the bad elements in the industry will simply evaporate and no longer be an issue.
    • Industries that enhance sustainablity and help strengthen human ties will continue to experience growth. That is why we are currently dedicating a lot of our time to solar energy, wind energy and water technologies. Anything advancing renewable energy and education will thrive in the coming years.

    Thanks for the great questions – makes us all stop and think …

    Yoram

  8. jbond
    January 4, 2012

    I am interested in seeing what will come out of Congress in regards to counterfeiting. This is a huge global problem, and with the DOD involved and concerned about counterfeits entering the U.S. defense system, I would think this problem isn't going to be swept under the rug.

  9. Eldredge
    January 4, 2012

    I agree regarding adverse impact on the independent distributors – it will be difficult for them to compete.

  10. Barbara Jorgensen
    January 4, 2012

    I believe that some manufacturing will begin to return to the Americas and that manufacturing will continue to grow in the region. What I don't believe is that this is a panacea for all the ills the US is suffering from offshoring. The jobs that come back onshore are not going to be the $50/per hour jobs that many people expect. They are going to be minimum wage jobs. Those that command $50/per hour wages will require a skill set that new college grads–those looking for jobs–simply don't have. I do think onshoring is a worthwhile effort, but I think people have to be realistic about what it really means.

  11. rohscompliant
    January 5, 2012

    FOXCONN will be the ONLY CM left at the rate they are growing and acquiring their competitors.

  12. bolaji ojo
    January 5, 2012

    Barbara, Which manufacturer in the United States today has the capacity to absorb the kind of contract production Foxconn does for the like of Apple, HP, etc. A lot of the manufacturing that has shifted to Asia may not return; what comes back isn't going to be enough to compensate for what previously left.

  13. Barbara Jorgensen
    January 5, 2012

    That's a great question, Bolaji. Maybe GE? It's not a perfect comparison–they are not an EMS, for example–but  from the infrastructure and facilities standpoint, they still have some domestic manufacturing clout. That is, until they moved their x-ray business offshore…

    The other advanatge GE has it is still designs and develops technology, or partners with companies that do. I believe they are getting into the OLED space, for example, and have made a few other annoucements that position them in growing vertical marekts. Energy conservation and the smart grid come to mind.

  14. mfbertozzi
    January 6, 2012

    The matter is in discussion since a long ago, anyway global rules for trying to address the global program are not completely in place, for both internal and foreign market. I believe it is quite complex to outline rules shared and recognized abroad, maybe some positive small steps for resolve the issue inside domestic market, could be a good point.

  15. JADEN
    January 11, 2012

    I don't see any big move to occur in 2012, I'm not sure if I expect to see a wholly new product emerging this year, it's like a lot of focus will be on improving the products already in existence.

  16. bolaji ojo
    January 11, 2012

    Jaden, Rolling out a new product line during a market downturn isn't always the best strategy because of the likelihood for sluggish demand. What I expect for the year, in addition to the gradual improvement you highlighted, would be consolidation and hunkering down to develop new products for introduction as soon as demand starts rising again.

    The best companies typically use the lull in market expansion to examine product line, discard laggards, target R&D much more carefully and plan for recovery.

    A few companies might introduce innovative products during such a period, betting that their customer base is solid enough and would respond positively. Apple, without a doubt, is such a company. There aren't many in such a group although its rivals can't afford to be quiet either. I don't expect them to introduce breakaway products, though.

  17. Anne
    January 11, 2012

    There is an ammendment against counterfeiting in US which includes new provisions that require defence contractors to establish systems for detecting and avoiding counterfeit parts.  The ammendment also requires an establishment of enhanced inspection of electronics parts, and requires the DOD to adopt policies and procedures for detecting and avoiding counterfeit parts in its direct purchase, and for assesing and acting on reports of counterfeits. I hope there will be no hiding place for counterfeiting in 2012.

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