The UK EMS sector and the credit crunch – bucking the trend?
16 December 2008
Henry Parker of Intellect introduces this Electronics Outsourcing supplement with his take on the economic climate and how it is affecting the EMS industry in the UK.
If you are like me, it has got to the point now where you almost don’t want to pick up the newspaper or watch the news in the morning. An unrelenting stream of bad news threatens to darken your before day before it has even begun. UK Manufacturing is often singled out for particular attention, with the Government’s Manufacturing Index taking a nosedive in the last two quarters. As I write, it has been confirmed that economy has a whole contracted by 0.5% in the last quarter. Pictures of quiet assembly lines and stories of cancelled shifts have started to displace anguished bankers as the face of what is undeniably a downturn.
But where does the UK EMS Sector sit in all of this? And are things really quite as bad for us as they are for everyone else? The answer, to put it bluntly, is that it doesn’t look as though they are. A number of anecdotal reports stating from members along the lines that ‘actually we are doing very nicely thanks’ prompted Intellect’s Electronics Manufacturing Services Association (EMSA) to survey the industry as a whole to determine exactly what the situation was. Companies representing approximately 25% of the total turnover of the UK EMS Sector (approximately £1.1bn) responded and the picture we got was generally more positive than we expected.
Broadly the results show that the UK EMS Sector is performing well in comparison with the UK Manufacturing Sector, as well as the economy as a whole. Confidence in future performance is broadly ‘as expected’ and no respondents specified that such confidence is ‘considerably diminished’. Likewise, 56% of respondents indicated order books levels, by volume, are ‘as expected’.
At the same time, we certainly shouldn’t go shouting from the rooftops. We have to remember that this data was gathered against the background of sector that went through a particularly difficult time during the early part of the decade, with much high volume production moving wholesale to the Far East and Eastern Europe. Overall UK Electronics Output fell by 50% over the period 2000-2006. While other manufacturing sectors have suffered in recent years, and are certainly suffering now, I think that it’s fair to say they have not been through such tough times. It could well be that the EMS sector’s expectations of market performance are lower than others. The results of the recent EMSA survey back this up, with no respondents indicating that confidence in future market performance had ‘increased considerably’ and only 6% indicating that their order books were ‘much better than expected’.
We also have to think about the lifeblood of the EMS (in fact any) sector: the customers. With credit lines for them shattered, capital spends on product development and production is being cut back. Likewise, defence budgets around the world (especially in the UK) are being squeezed. This will inevitably have an impact on the UK sector, as many key participants are heavily dependent on business from prime contractors. The EMSA survey supported this view, with 40% of respondents citing ‘project deferral by customer’ as the key factor limiting growth in domestic business. The recent announcement that the Government will bring forward some major capital spending projects (including defence projects) to try to stimulate the economy might help to reverse this trend.
At the end of the day, if interest shown in Intellect by EMS providers is any measure, we are seeing a sector in the long term looks healthy. While it is likely that we aren’t going to reflect the recently reported 17% growth in the global EMS sector during 2007 in the UK, our recent networking events have confirmed the sentiment that ‘we are doing o.k. for now’, along with a healthy dollop of scepticism about the prospects for the future.
Henry Parker is Programme Manager for Technology Markets at Intellect, and runs its tailored programme for the UK electronics manufacture and design community
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