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The PC Shift, EMS Cycles and Industry Fundamentals – Growth Opps for 2013+

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2012 was a struggle for many along the semiconductor supply chain, as the final data and analyses are confirming. The challenges to overcome last year range from the macro-economic recession, OEM cautious spending and strict inventory controls, reduction in outsourcing, and margin tightening, to name the leading ones. Couple these industry challenges with the device demand changes and the 2012 disappointments can be well understood.

 

PC growth downgraded

IDC's recent downgrade in PC sales for 2013+ might not come as a tremendous shock, after all the reduction in demand is not a new trend, but the steepness of the downturn has many (such as this recent Wall Street Journal video) discussing the larger industry impacts, particularly for leading PC OEMs and component manufacturers. IDC reduced 2013 PC sales by 7.8% to 321.9 million shipments, followed by further reductions of 1.2% in 2014. The source for this forecast change is the drop in first quarter 2013 PC sales, which harken a steep decline for the PC sector going forward, according to the IDC report.

At the core of the PC upset is the continued favoring of smart wireless devices, both smartphones and tablets, which provide both consumer and enterprise users with the full mobility and portability of devices, the anywhere-anytime access to data via cloud computing, and the ease of use and seamlessness between personal and professional use that is demanded. Also pushing the smartphone and tablet adoption are pricing declines for these devices and the rise in Bring Your Own Device (BYOD). BYOD gives enterprise users the ability to choose their personal preferences for devices and as a result corporations are seeing increases in employee satisfaction and performance while reducing IT costs, according to a recent Citi Research Report ("IT Hardware: BYOD Trend Grows Bigger…" 5/15/2013).

Importantly, these forecasts do not forecast the elimination of the PC sector, there will continue to be a demand for business-use PC devices, as IDC's research underscores, most users will prefer the ease of use and high portability of a tablet.

Pursuing new growth sectors

Also according to another recent IDC research, the smartphone and tablet shipment growth is expected to see significant growth:

58.7% year-over-year in 2013 reaching 229.3 million units, up from 144.5 million units last year. IDC now predicts tablet shipments will exceed those of portable PCs this year, as the slumping PC market is expected to see negative growth for the second consecutive year. In addition, IDC expects tablet shipments to outpace the entire PC market (portables and desktops combined) by 2015.

Given these significant market shifts, the question for OEMs and component manufacturers is where to turn for new growth opportunities? The smartphone and tablet sectors are quite mature in their competitive states and ASPs are falling as commoditization continues to take over the sector. So where is growth?

It is the industrial, medical, and automotive sectors that continue to hold the greatest promise for new growth. While we have discussed these opportunities for a while now both in this column and in Smith's MarketWatch Quarterly, recent financial analysts' drilldown reports are revealing dedicated strategic changes focused on these sectors by Tier I EMS companies, especially. While the EMS group has faced its own set of challenges, as touched on above, the recent PC market downgrade is going to add challenges to an already tough market situation.

On the upside, the rapid growth of wearable and portable medical electronics for both the home healthcare monitoring and the more commercial fitness markets, as well as the increase of 4-6% in electronics component growth in the average vehicle during a time when auto sales forecasts are rising, holds significant promise. Finally, the wider industrial market is also benefitting from the increased competition, commoditization, and price declines for electronics components coupled with the EMS sector's interest in investing R&D into industrial tool improvements at costs that promote adoption.

2013's promises holding

Despite the PC sector challenges, 2013 continues to look to keep its promise of initial growth for the semiconductor and electronics market, with greater uptake in 2014+. The most deciding variable is the macroeconomic situation, still. We continue to live in the shadow of caution after the global recession and continue to see optimism grow, but slowly. Certainly China's recent review of its growth level to 7% targets, down from 7.5% for 2013, adds a cautionary note, but one that comes with a greater sense of reasonable, strategic economic plans that bodes well for controlled growth. Setting a more reasoned pace for growth in the BRIC countries as well as the emerging economies more generally, will improve the positive momentum on the macro-economic plane.

For our industry, where the macro-economy can no longer be seen as the luxury of armchair analysts, our growth rate and opportunities necessarily go hand-in-hand with the recovering pace of global and regional GDP. There are promising forecasts and reasons to be optimistic, but within the daily supply chain mechanics, strategic diversification into new growth market sectors and attention to these new sectors' component plus service needs is paramount to success.


Lisa Ann Cairns, Ph.D.
Written on Tuesday, 28 May 2013 17:27 by Lisa Ann Cairns, Ph.D.

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