In normal circumstances, it would have been the time of year for the EIPC Summer Conference, and Walt Custer would have opened the proceedings with his business outlook for the global electronics industry. However, circumstances were far from normal.
We are suffering the global social and economic disruption of the coronavirus pandemic, and Europe is subject to lockdown measures and international travel restrictions. Conferences have been cancelled. But at the suggestion of EIPC President Alun Morgan and Executive Director Kirsten Smit-Westenberg, Walt Custer kindly agreed to deliver his business outlook, with emphasis on Europe, by webinar. The event was so eagerly anticipated that it sold out within a couple of hours of being announced!
“These are tough times, and this is not going to be the most uplifting presentation you ever heard from me, but I’ll do my best to give you an idea of what’s going on and when things will turn up again,” said Custer. The global manufacturing decline had been made worse by shutdowns driven by the coronavirus. Tariffs, trade, and Brexit uncertainties were key issues, and geopolitical concerns remained very significant.
Regarding the global economy, Custer referred to two recent projections. The International Monetary Fund envisaged the Euro area GDP going down by about 7.5% this year and the world down about 3%. Current World Bank forecasts had the Euro area down 9%, the world down 5%, and the U.S. down 6%. Only China would show any economic growth, but dramatically less than its typical 6% rate at about 1%. The contraction in global GDP in 2020 would result in the deepest global recession in eight decades, despite unprecedented policy support.
The whole world is feeling the crunch, but projections are better for 2021, in the 4% range. But Custer reminded us that these were relative to 2020 figures, so there were a couple of tough years ahead. Looking to the future, he considered the whole electronic supply chain in terms of the economy, electronic equipment, and components, and commented on what he believed would happen. Custer used purchasing managers’ indices as valuable leading indicators of the short term.
The global index had contracted heavily in April, and although it recovered a little in May, it remained substantially below the neutral line. Likewise, with the index for Europe, all of the European countries contracted in April. Only China was showing slight growth in May. It was no surprise that the world was still challenged. It might take until the end of this year before manufacturing began growing again.
Against that economic background, Custer looked at quarterly worldwide electronic equipment shipments, which had dropped about 5% year-on-year in the first quarter of 2020 based on input from 230 companies, and analysed in terms of company sales and geographic data. Sales had dropped off sharply in March, came up slightly in April, and were flat in May.
Electronic supply chain data indicated that most of the world contracted in the first quarter of 2020. Only semiconductor capital equipment, semiconductors, data storage, and rigid and flex laminate showed any growth, but most sectors contracted. In Europe, there was a contraction in most areas.
Looking at markets with a European focus, the automotive equipment industry was down almost 14% in the first quarter, and there was a dramatic downturn in vehicle production in March. The same happened in the U.S.: all of the factories were shut down because of the pandemic.
Military and aerospace were down about 6%. Airbus and Boeing were hit very hard. People stopped travelling, airlines stopped buying aircraft, and Boeing had the additional burden of their reliability issues. Instruments and controls had traditionally been a very solid sector but were down 5% globally and sharply in Europe during March. April data was awaited.
Medical equipment was down 10% globally, although Europe rebounded somewhat, mainly due to respirators. The more volume markets, like computers and cellphones, although maybe not key to Europe, were expected to be down about 14% in 2020.
Semiconductor shipments by area were effectively a measure of electronic production by region. China represented about 35%, the rest of Asia 27%, U.S. 22%, Europe 8%, and Japan 9%. These figures gave an indication of the total available market for electronic assembly products. Anomalous figures for North America were probably caused by inventory building or panic buying.
The DMASS industry body collated and published market data on European semiconductor distribution, showing shipments of semiconductors and components by region, which were useful for monitoring trends in assembly. The figures for the first quarter were down 12%, and Custer was not expecting them to come up in the second quarter. He considered that all electronic equipment sectors in Europe were effectively contracting. It was basically a flat period, but it was possible to monitor industry growth using this kind of data.
Custer’s composite of 52 publicly traded EMS and ODM companies showed a downturn in sales of about 10% in the first quarter of 2020. 10% seemed to be a consistent number across the global supply chain. The Taiwan ODM companies took a sharper seasonal drop in February 2020 than in 2019 because of less consumer demand and less industrial demand for their products.
Then, Custer turned his attention to PCBs: “The world production of PCBs is going to be down this year, and who knows by how much?” Custer guessed the figure would be in the region of 5%. Taiwanese-owned companies had dropped-off sharply in February, came back in March–April, but were flat in May and below the trendline of the graph. South Korean-owned companies dropped off in the first quarter, but seasonally, they were up versus 2019. Japan had been flat for a number of years. North American production had increased, probably because of concerns about supply worldwide. The figures were based on IPC data and only represented about 35 companies, but he believed the trend was positive.
Custer had access to a lot of European data, and he gratefully acknowledged Michael Gasch and Hans Friedrichkeit for providing previously unpublished figures. According to current data from Gasch, the value of European PCB production in 2019 was 1.7 billion euros. Germany took the largest share at 42.6%, followed by Austria and Switzerland 17.1%, Italy 11.8%, France 8.5%, the U.K. 8.6%, Spain 2.4%, Belgium, Netherlands and Scandinavia 4.2%, and Central Europe 4.8%. Russia and former Soviet Union countries were not included in these figures. The graph of European PCB production by year showed a fall in 2019 over 2018 of about 5%. Over the longer term, there had been a substantial decline since 2000 as more and more business went to Asia, and the curve had been substantially flat since 2012.
European PCB production categorised by technology showed multilayers to constitute about 41% and double-sided plated-through about 17%. By end market, the industrial sector has been about 41%, the medical sector about 20%, and there had been no great change in market segmentation from 2010 to 2019. In summary, between 2013 and 2019, revenues had fallen from 1.8 billion euros to 1.76 billion and staff numbers from 16,700 to 15,800. The total number of companies had dropped from 272 to 187 over the same period. Europe’s top 41 PCB companies in 2019, as listed by Gasch, had Würth Group as largest followed by AT&S, KSG Group, Schweizer Electronic, and Elvia.
Custer listed Gasch’s comments on the European PCB industry:
- In February and March, there was hope that because of the coronavirus in China, a lot of business would come to Europe, and then came the coronavirus not only to Europe but to the world.
- The general opinion has changed in April, and now it is that PCB suppliers (as well the whole supply chain from component distributors to EMS companies) are suffering. The lockdown all over Europe, the halt of production (but especially in the automotive sector) has led initially to corrections and postponements but later to hefty cancellations of orders. As the global production of vehicles expects a decline of 20–25% this year, suppliers to this industry and its subcontractors will have a long dry season.
- The only exception is the medical segment, but it depends on the discipline (ventilators good/dentists bad).
- The prospects are not good. In addition, we have in Europe the coming Brexit, and in this poker round, all is still open (and most likely it leads to a very hard Brexit, which will hurt the U.K. more than the EU, especially under coronavirus aspects).
- Unemployment rises as well in Europe, but unlike the “promised land USA,” we have, in most countries, a functioning social net. With the impending civil war in “God’s own country,” consumers will be hesitant to spend money—especially as they may lose their jobs. And this will have consequences for the rest of the world if there are no takers for the products offered.
Hans Friedrichkeit commented:
- Europe’s recovery will be a rocky road until the second half of 2021.
- The German economy is likely to contract by 6.6% this year and then grow by 10.2% from this low level next year. This is the result of the update of the ifo (Leibniz Institute for Economic Research at the University of Munich) economic forecast for 2020/2021 based on the evaluation of the ifo survey conducted among companies in May.
- On average, they consider a normalization of their own business situation within nine months to be the most likely case, according to German ifo Institute on 5/28/2020.
- After a sharp slump of 12.4% in the second quarter of 2020, the economy should, therefore, recover by the middle of next year.
The economic forecasts he provided indicated that German GDP would be down 7% in 2020, with inflation at 1%. Equivalent figures for the Eurozone were 7.5% and 0.7%, and for the U.K., 7.5% and 1.2%. These forecasts were in line with those of the most recent world data from the IMF and the World Bank.
Friedrichkeit reckoned German PCB production to have shrunk by approximately 11% to around 750 million euros in 2019, compared with 840 million euros in 2018 and 790 million euros in 2017. His rough estimate for German PCB production in 2020 was 640 million euros, corresponding to a fall of 15%. The good news was that with 3.6 million new passenger car registrations in 2019, Germany was showing 5% growth compared with 2018. In contrast, the bad news was that after having shrunk by 9.3% in 2018, German passenger car production shrank again by 8.9% in 2019 and 19% of car manufacturers and suppliers were introducing or planning short-time working in the first quarter of 2020.
In general, the automotive market was in difficult times. Bosch had anticipated that global automobile production would shrink in 2020 for the third year in succession and expected a further decline of 2.6% to around 89 million vehicles worldwide—almost 10 million units fewer than in 2017. The company was preparing for a flat level of production in the coming years and did not expect global automobile production to increase before 2025.
Custer discussed the world market for PCB process equipment, laminate, and materials. Process equipment suppliers were down 2% in the first quarter. Materials suppliers were down 7% during the same period and, surprisingly, rigid and flex laminate were up about 4%. Anyone selling into the printed circuit manufacturing industry could expect a flat year in 2020.
Custer then looked at the world market for PCBs by region. Taiwan and China were clearly the biggest, although their demand was seasonal. Adding-up the whole market, he believed that shipments would be down about 5% on the year. Newly published World Semiconductor Trade Statistics figures were predicting 6% growth in shipments, although Custer considered them over-optimistic. For the European economy, most of the end markets were negative, and the purchasing managers’ index was below 1. The latest economic data from the World Bank had Europe down 9.1% and a recovery in 2021. “It looks like a couple of tough years,” he stated.
Custer’s closing comments were that although the market had reached the bottom and begun to improve, the coronavirus pandemic would significantly impact 2020. Trade disputes would impact long-standing regional alliances, Brexit and U.S.-driven impulsive market actions would remain as problems, and electronic assembly might shift globally to countries less affected by tariffs. However, many good new electronic products are on the horizon, and 5G offers exciting opportunities for the next decade.