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Walt Custer’s EIPC Business Outlook Webinar: ‘You Can’t Sugarcoat This Stuff!’
June 11, 2020 | Pete Starkey, I-Connect007Estimated reading time: 9 minutes
![](https://iconnect007.com/application/files/4216/3125/6526/pete-starkey-300.jpg)
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.Page 1 of 2
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