The European Union (EU) has had a bumpy road post-2008's global recession, which included a double-dip recession between 2011 and 2013. The domino effect of stumbling economies and slowing consumer demand troubled global industries and supply chains, notably the semiconductor and electronics industry. More recently, the EU has continued, as has the United States, to see steady and sustainable gains in demand and sales across markets, including consumer demand alongside of industrial momentum.
European growth momentum
The European Semiconductor Industry Association (ESIA) recently added to the positive news coming out about the EU electronics market, noting a significant, year-over-year (YoY) increase of 14.9% in sales of European semiconductors for the month of July. Also recently, Credit Suisse reported that EU durable goods consumption has been strong—only one point behind the United States—which has contributed to healthier global manufacturing and goods. Those events do trickle down into the semiconductor and electronics industry, as the upswing regionally and globally in consumer demand and spending extends into demand for components, notably for the industrial electronics sector. Credit Suisse also reports that unemployment in the EU is improving, which gives added strength to improving demand forecasts—unemployment, of course, has been a serious problem in the region, curbing demand and spending across industries. The rebound in the U.S. economy and demand for goods is also supporting EU rebounds—despite a sluggish third quarter, the outlook for the fourth quarter of 2014 and forward is strengthening.
Component demand and supply tightening
Understanding the macro-economic situation in the EU helps us to understand what is happening in the electronics component sector. In the EU, we are seeing strengthening demand for electronic components and semiconductors across three main verticals: automotive, automation, and embedded. Additionally, global demand for memory continues and holds for the EU, where there is also strong memory module demand.
Automotive component demand is driven by the pent-up demand for new models that are now providing notable upgraded technology in the vehicle as well as improved safety features. Both the in-vehicle infotainment (for example, better navigation, voice controls, rear-passenger DVD, and connectivity with personal smart devices) and the improved safety features (for example, lane departure warnings, blind-spot and distance warnings, external camera views, among other features) are driving new car sales.
Hand-in-hand with automotive, is the embedded chip sector, which has seen global demand increase as a result of both the increased semiconductor content in automotive as well as the increased drive to connect devices in pursuit of the Internet of Things (IoT). Industrial use of IoT (more of an "intranet") is more mature than consumer electronic IoT and pushes for "Smart Life" and variants. Industrial IoT drives both embedded demand and notably the demand we continue to see picking up in the automation market. While automation is definitely still a more niche market, it is highly component intensive and a strong driver in the EU region currently for semiconductor and electronics sales.
The weighting of demand in favor of industrial customers and industrial electronics is important and worth watching closely. The industrial strengthening not only signals positive momentum for manufacturing and enterprise electronics, it also signals that industry views are in line with economists' forecasts for improved manufacturing and durable goods demands. Industrial electronics would not be gaining were there not momentum among manufacturers to build up goods to deliver to their customers, whether industrial, enterprise or consumer based.
EU driving SmartCity growth
One of the markets that the EU is leading is SmartCity installations. The push for SmartCity is a natural market for the EU given the long-standing focus on sustainability, environmental awareness, and stewardship. Across the EU, there are numerous roll-outs underway focusing on converting existing grid technology to SmartGrid, as well as smartmetering for water usage (for example, the recent news from energy and water services company Itron that they will support Hamburg's upgrading of water metering—Hamburg is the second largest city in Germany).
Smart metering has seen steady growth in the U.S. and EU over the last five years thanks to subsidies that extended out from solar subsidies, and the push to support photovoltaic energy (PV or solar energy) and reach grid-parity to compete with existing fossil-fuel based energy sources. Smart metering has itself been subsidized and is now seeing ongoing strengthening and adoption by consumers after successful initial installations by energy and water companies in both the United States and the EU. The EU has advocated for a more rapid switch to Smart Cities, adding LED streetlamp projects along with ongoing Wi-Fi hotspots on public transportation and other municipally run infrastructure. The long-standing goal in the EU has been to leverage technology to better control demand management for utilities in general.
Currently, SmartCity and the Internet of Things (IoT) drivers are promoting adoption not only from the municipal level but on the consumer side as well, as demand from consumers to connect and manage their utility use is rising. These drivers are, in turn, driving the demand for the embedded ICs, microelectromechanical systems (MEMS), an array of sensors, LED lighting, and other solutions that improve consumers' environmental impact while controlling their costs (utility costs are notoriously high in the EU) and leveraging their personal devices. Additionally, the increase in IoT demand by consumers is further driving demand for smart meters within the home and workplace. Coming full circle, the increase in smart meter demand and smart city solutions are part and parcel of the current industrial electronics demand increases that we see in the EU market.
Combining these facts and data, we see that the current component demands relate back to a core of positive, sustainable, and fluid growth. In turn, this growth is supporting an increase of sales across a wider set of components and driving more diverse market applications for the semiconductor and electronics industry in the EU and globally.