electronica 2010: After the Big Bang, What’s Next?
By Arthur Visser, Bishop & Associates Inc.

This year’s electronica, the world’s leading trade fair for components, systems, and applications, gave an upbeat report on the industry in Munich, Germany, November 2010. The trade fair not only serves as a meeting point for industry professionals, but it also functions as a gauge of the industry’s health. Organizers reported high visitor numbers, exhibitors reflected the upbeat mood, and the general atmosphere conveyed the recent recovery of the sector.

Here’s what they said:

“For PRECI-DIP the fair was an opportunity to measure the ongoing trend of miniaturization and cross functionality within existing and upcoming technologies. The clear trend in the market, as we saw it, is vertical integration and overlapping technology in the product offering. This fair was a great opportunity to evaluate our progress in this direction since it has become a strategic priority for us. We were happy to see that our new segmentation as well as our new market approach were well received by our visitors, and we now feel more confident to grasp the driving forces that will fuel the market in the years to come.”
                                                            —Fabrizio Sommariva, marketing and key account manager, PRECI-DIP

“We could never have dreamt that so many people recognized us and visited our booth. The quality of the contacts was also on a high level.”
                                                                                                                  —Walter Resch, managing director, Inelco

“Harwin had a very productive show, taking more enquiries and leads than ever before. There seemed to be a very high number of design engineers at the show who came to our stand looking for a solution to their interconnect problems.”
                                                          —Ben Green, technical and marketing communications manager, Harwin

The electronica.de website includes reports from connector and cable assembly manufacturers exhibiting at electronica 2010:

“Electronica once again proved to be an important event in the trade fair calendar. We welcomed a large number of trade visitors to our stand. The inclusion of electro-mobility as a topic in the trade fair’s agenda turned out to be a correct decision. It enabled us to talk to visitors about new technologies with a clear market orientation.”
                                                          —Thomas Aurich, corporate communications, Delphi Deutschland GmbH

“Electronica was a great success for our company. After a quick recovery, we recorded more visitors than ever before. They were highly qualified. We met a very high proportion of foreign visitors. They came from European countries, but also from the Far East.

We exhibited new PCB connectors, which proved to be very successful. They are used in embedded computing and throughout the industry.”
                                                                                      —Rüdiger Prill, CEO, Harting Deutschland GmbH & Co. KG

ODU used the fair as an opportunity to officially introduce the new ODU AMC-Advanced Military Connector series. The visitors were very intrigued, because many market sectors are interested in a light, rugged cylindrical connector.
                                                                                                         —Günter Rohr, director strategic markets, ODU
 

“electronica 2010 was a great success for Fischer Connectors. We introduced our international visitors to the new Fischer UltiMate™ Original Series interconnect that is designed for a broad range of harsh environment applications. We were very pleased with the outcome of the exhibition, which confirmed the strong interest of OEM customers for rugged, compact, lightweight, sealed connectors and cable assembly solutions. We will definitely be back for electronica 2012.”
                                                                                             —Pierre Marechal, vice president, Fischer Connectors

The “Big Crunch” in 2008/2009 was quickly followed by a “Big Bang” in the first six months of 2010. The unprecedented market decline was followed by an unprecedented recovery. Many connector manufacturers were struggling to keep up with demand, and the resulting longer lead times were difficult to manage for suppliers and OEMs alike. At the trade show, it appeared that energy efficiency, renewable energies, medical technology, and electro-mobility are the driving forces behind growth in the next few years.

An interesting fact is that it took the global connector industry about five years to get back to pre-crisis (2000) billing levels after the dot.com bubble burst. This time the industry seems to be back at 2007/2008 sales levels in just over two years. Worth observing is also the fact that the recovery in 2010 is virtually a mirror image of the decline in 2009—a nearly perfect sinus wave (see graph).


 

The combined sales of the three largest connector manufacturers worldwide were $11,264.6 million for the first three quarters of calendar year 2010, up by an incredible 36.7 percent over the previous year. Bishop & Associates expects the global connector market to grow by 24.9 percent in 2010. This forecast includes a tough comparison between the fourth quarter 2010 and 2009, when business started to pick up fast.

That most connector manufacturers were pleased with the results in 2010 is no longer a question; the question that kept most of the exhibitors busy was, what is 2011 going to look like?

In general, we found the connector manufacturers at electronica optimistic and many are budgeting for double-digit growth for 2011. Bishop & Associates currently forecasts a moderate, single digit growth for 2011, of six percent for the global connector industry. This can mean [a combination of] three things: 

1. Connector manufacturers plan to increase their market share (in certain niches)

2. Connector manufacturers plan to introduce new products, widen their portfolio, and thus enlarge their accessible market

3. Bishop & Associates is too conservative in its outlook or connector manufacturers are too optimistic about the growth perspectives for 2011

As a rule of thumb, we find that the global connector industry, in the long term, will grow about twice the world GDP growth. A growth of just over six percent next year would more or less confirm this rule, although it only applies over a longer period of time (10-20 years). Given this growth for the market in general, additional growth on the company level has to be realized through an increase in market share or by introducing new product lines to get access to new markets. There are, however, some indications that call for caution, especially when considering an increase in the cost base again.

Reasons to be Cheerful

• Unprecedented recovery and growth figures in 2010

• The global economy is growing, especially in Asia

• New technologies, products, and market niches offer great growth opportunities

• Top line growth in 2010 combined with a lower cost base as a result of measures taken in 2008/2009 resulted in excellent bottom line results

Reasons to be Cautious

• Growth of the global economy is slowing down, especially in North America and Europe

• Financial and currency markets remain unstable and volatile (illustrated by the failed G20 meeting in Seoul last November, the financial turmoil in the Euro area, and the FED executing QE2-Quantitive Easing, part 2)

• A tougher year-over-year comparison means that the high growth numbers of 2010 cannot be sustained in 2011

• Competition will intensify in various growth markets and niches such as alternative energy, electric vehicles, medical equipment, and military/aerospace.

• Materials cost (copper, gold, silver) continue to rise at this time

Other (leading) indicators for the performance of the connector industry are global semiconductor sales, the global PCB manufacturing volumes, and world GDP growth. All three have slowed in recent months in terms of book-to-bill ratio, which means we are slowly finding ourselves in quieter waters, and order intake and market growth is beginning to slow down to single digit levels.

Global Semiconductor Market Outlook
In November 4, the Semiconductor Industry Association (SIA) released its annual forecast of global semiconductor sales for 2010 through 2012. SIA is projecting record sales of $300.5 billion in 2010, an increase of 32.8 percent compared to 2009. For 2011, SIA expects sales to grow by six percent, to $318.7 billion. The growth outlook for 2012 is 3.4 percent, to $329.7 billion. The projected compound annual growth rate (CAGR) is estimated to be 13.4 percent for the period 2009-2012.



Global PCB Production Outlook
IPC, a global trade association, released its data for the North American market in October and stated that for rigid PCBs and flexible circuits combined, industry sales, year-to-date (September 2010), were up 19.3 percent vs. 2009, and bookings were up 28 percent. The combined (rigid and flex) industry book-to-bill ratio in September 2010 remained positive but declined to 1.03, a first indication that sales growth is slowing.

According to the ZVEI, the German PCB market—with a 38 percent share and is the biggest PCB market in Europe—will almost reach the 2008 pre-crisis levels of 1.350 million euro in 2010, and is estimated to close at 1.310 million euro, a growth of nearly 20 percent over 2009. For 2011, the ZVEI expects the German PCB market to grow by 9.7 percent, to reach roughly 1.440 million euro. The book-to-bill ratio has slowed down for the German PCB market in recent months.

Although many leading PCB producers have Japanese origins, the domestic production by these companies has been mostly flat during 2010. Chinese/Taiwanese PCB manufacturers, however, have continued their growth path and are leading the PCB production market by region. According to IPC, Asia’s share of PCB production in 2009 has grown to 86 percent of the world total. China is the world’s largest PCB producer, with a 34 percent share. North America now produces eight percent of the world’s PCBs based on value. Europe accounts for the remaining six to seven percent, while Japan represents roughly 20 percent of the market.

Global GDP Growth Forecast
According to the latest economic outlook released by the OECD on November 18, growth in the world’s developed economies, i.e. the economies of the U.S., Japan, and the Euro area combined, is likely to be 2.3 percent in 2011, which is lower than the 2.8 percent projected for 2010. The OECD expects growth to pick up again by 2012, reaching 2.8 percent. 

                             Source: OECD

Although these figures by the OECD point to an economic slowdown, they still represent economic growth. For other regions of the world, the picture is even more positive, as the IMF’s global economic outlook shows.

                                       Source: IMF

Another interested observation is that according to the latest forecast by the World Bank, India will outpace China in 2011 to become the fastest growing economy in the world. In its 2011 growth outlook, the World Bank showed China’s GDP to grow at 8.5 percent, just below its projection of 8.6 percent for India.

New Technology
One of most important drivers for growth is innovation. New technology, new applications using breakthrough technology, and advances that make existing products better, have been growth drivers for decades. Most recently, Apple launched its iPad, which was not in itself a new product, but a huge technical improvement over existing tablet PCs and e-readers. In every industry we find such examples, including renewable energy, electro-mobility, railway technology, aerospace, ICT, telecom, medical, automotive, and military.

While many companies spent 2009 merely surviving or “battling the storm” by implementing austerity, 2010 has been about generating funds to support innovation and new product development. This promises to produce a whole range of new technologies and applications for the near future. The electronica trade show offers us the opportunity to view some of the exciting and promising products and technologies that are about to take the market by storm. After the industrial revolution, the PC in every household, and the explosive growth of the Internet, we are now in the early stages of a global technological revolution based on mobility and wireless technology: Intelligence on-the-go. From smartphones using 3G/4G to smart clothing to smart connectors using RF technology to smart auto-guided automobiles with infotainment at our fingertips, anywhere, anytime, the possibilities will be enormous. For connector manufacturers, this is a truly interesting time!

Many new, innovative connector products were introduced at electronica. We’ve highlighted several in our new product section. Click here to learn more.

Without a doubt, the exhibitors and visitors at electronica 2010 are optimistic about their future. Once again, the industry is “in the black” and the outlook for 2011 will at least show single digit growth. This does not mean that there is no longer a risk of a downside, but it seems unlikely at this point in time. With a slowing but growing world GDP, and given the diversity of the interconnect industry and a new era of mobility and personalized interconnectivity at our doorstep, connector manufacturers can make and build their own future in 2011.

Arthur Visser Managing Director—Europe, Bishop & Associates Inc. Arthur Visser started his career in 1987 at Océ Corporate headquarters in Venlo, the Netherlands, as a product engineer assigned to provide support to the American Océ organization. In 1988, he joined OMRON Corporation at its European headquarters in the Netherlands as the European product manager responsible for industrial automation systems and components. In 1993, Arthur moved to OMRON Electronics in Brussels as a key account sales engineer, and in 1995 became the product and marketing director. In 1998, he joined the connector manufacturer HARTING as managing director for its Belgian subsidiary. Arthur became an independent consultant, based in Brussels, in 2003. Arthur has a bachelor of science degree in airplane engineering, degrees in marketing and finance, and a master’s degree in e-media enterprising. His native tongue is Dutch, but he also speaks English, French, German, and Russian.