By Arthur Visser, Bishop & Associates, Inc.
September 18, 2012
Today, as European politicians try to steer away from the concept of individual sovereign states and forge a closer European union, protection of national interests still hampers the process of creating one unified European marketplace. While businesses try to maximize the benefits of a closer (but not complete) economic union, a cultural, fiscal, and military union stills seems to be a far-off goal. Many agree that the lack of fiscal unity and discipline is the underlying cause of the current euro crisis. As a result of the ongoing monetary and sovereign debt crises, the connector industry is starting to feel the pinch as well. The longer the crisis lingers, the worse it will get for the industry. The first signs of this are now being seen as some European countries slip back into recession.
Today, the connector market in Europe is already underperforming compared to other parts of the world, and it doesn’t look like it will improve in the near future. In Europe, year-to-date bookings through July 2012 were 11.3% below the same period in 2011.
June 2012 World Connector Market Bookings
Year-to-date billings for 2012 through July were 11.4% below the same period in 2011.
June 2012 World Connector Market Billings
These numbers give us some idea of where the European connector market is heading. Analyzing the sales of the world’s top three connector manufacturers in Europe/EMEA provides further insight into the performance of the European connector market.
Top 3 Connector Manufacturers European/EMEA
Annual Connector Sales 2008-2011
These annual sales results look quite promising. Each of the top 3 connector manufacturers saw sales decline during the sharp recession in 2008/2009, but subsequently made a quick recovery. Automotive is responsible for more than one-third (about 34%) of TE Connectivity’s revenues, which is also illustrated by TE’s sharp decline in revenues in 2009 but excellent performance in 2011, when the European automotive industry made an impactful recovery. More recently, when tracking European quarterly sales for TE and Molex, despite the fact that the overall results are good, Bishop detected a slightly negative trend (see below).
Quarterly European Sales Results Q1-2011 to Q2-2012
Molex and TE Connectivity – Total Sales
The annual European sales growth (year-to-year) also seems to point to a peak, reached in 2011. Molex closed its fiscal 2012 on June 30th, showing a 6.8% decline for Molex’s European sales versus fiscal year 2011.
Annual Year-to-Year European Sales Growth (%)
World’s Top 3 Connector Manufacturers
Note: Based on each company’s fiscal year and total sales including non-connector products.
Another measure of the state of the European electronics (connector) market is the performance of the electronic component distributors. Arrow as well as Avnet recorded negative growth in Europe for the 2Q12. These results include all products and are therefore representative of the general electronic components market in Europe, which includes electronic connectors.
Another distributor, TTI, also experienced a drop in sales in Europe for the first half of 2012 versus the first half of 2011, while other major regions showed positive numbers.
Finally, when we analyze the semiconductor sales in Europe, a bellwether for the connector industry, the picture is the same. Comparing the first half of 2012 with the same period in 2011, we see that in Europe, semiconductor sales declined by as much as 14.6%. Sequentially, compared with the second half of 2011, semiconductor sales declined by 7.8% in Europe in 1H12. Even though all regions are in the red for semiconductor sales, Europe is again the worst performing region.
The balance of 2012 will determine whether this is truly a trend in the European connector market or just a temporary blip. With various European countries back in recession and no end to the Euro crisis in sight, the European connector market may continue to underperform. The much-feared “double-dip” is not far off. Recent developments may still turn the tide:
- the ECB decided to buy unlimited amounts of government bonds to keep interest rates (e.g. for Spain and Italy) down and at acceptable levels
- the German constitutional court decided that the European ESM bailout fund is in fact constitutional, so Germany can take part in it
- the recent elections in the Netherlands resulted in a victory for pro-European parties
So what can you do for your country? Ironically, for Europe to succeed in creating a unified internal market, the best thing might be to forget about it for the moment. In relation to the connector market however, innovation is the key to success; lack of innovation makes economies (and companies) vulnerable and hurts competitiveness. So, can the industry innovate its way out of this crisis in Europe? If so, what kind of innovation do we need in the European connector market?
While 70% of the European economy is based on services, there still is a substantial manufacturing and production base, which can be modernized and made more efficient to compete with other regions in the world. This includes the OEM/EMS market as well as that of connector design and manufacturing. The turbulence currently experienced in the European connector market may be countered by new innovations, new products and ingenious interconnect solutions.
One of the places to showcase these innovations for connector manufacturers is the Electronica show, held every two years in Munich. The next one will take place from November 13-16, 2012. Bishop & Associates’ staff will also attend, looking for the latest trends and technologies in the industry and meeting with connector manufacturers. So let’s meet at Electronica 2012, put this crisis behind us, and talk about innovation!