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February 1, 2000

9 Min Read
Rapid growth in global electronics: How can U.S. molders participate?

Editor’s note: This report looks at electronics and computer markets from an international viewpoint, albeit with the view of how U.S. molders can participate. A companion look with a domestic slant appears in this month’s Market Focus.

Products based on electronics are the fastest growing product group around the globe. This includes PCs and notebook computers, laser printers and copiers of all types, mobile phones, PDAs, and electronic books. Growth rates of at least 12 percent/year are common, and in many areas of the world growth rates in excess of that have been recorded for the past five years (see Table 1).

Sales of products are not the only thing growing so fast. Injection molders—and that includes many in the United States—producing parts for these products have seen their sales grow at the same rates and in some cases even faster. It is an enormous market; in 1999 consumer electronics, which excludes PCs and related office equipment, reached $82 billion in sales.

Most projections for the next three years call for the average growth of PC sales to exceed 18 percent/year. Some specialty products—such as mobile phones—may grow even faster.

So how can U.S. molders benefit from this growth even more? In the past few years, injection molding in the United States for electronics applications has outperformed every other market segment. Yet many molders supplying components to the electronics industry complain that a surge of lower-cost imports is taking away market opportunities. "It is tougher than ever to compete," says a Texas-based molder of keyboard parts.

Trade data collected by the U.S. Government support this fact: Imports of electronic items—fully or partially assembled—have grown twice as fast as corresponding exports.

How Suppliers are Selected
We spoke with key buyers for components at powerhouse firms such as Dell, IBM, Hewlett-Packard, Gateway, Motorola, and Nokia. Just how are suppliers of parts selected and what does a molder have to do to be well-positioned for additional business?

The most interesting finding was that the ability to produce parts at low prices is not necessarily the most important factor. While price is clearly a consideration, location and proximity to assembly plants appear far more important. But the most critical requirements—and this was the consistent response from these buyers—are the abilities to change product design very quickly and to be a full partner in bringing new products to market rapidly.

Product life cycles continue to shrink. In the 1995-1998 period, say component buyers, the typical life cycle of a PC or notebook computer was about 14 months. This shrunk to less than eight months in 1999 and may shrink to six months or less in 2000-2003.

The rapid evolution of electronics technology and swiftly shifting consumer demands favor molders that can act as full partners in minimizing the time between product concept development and actual production. Molders working in close contact with moldmakers and machinery suppliers have been performing best in this market. And those molders with the most recent, up-to-date production equipment in terms of molds and secondary assembly operations have also done best.

The fact is that the often brand-new molding plants in countries such as Thailand, Malaysia, Singapore, the Philippines, and Taiwan were selected primarily because their equipment is so new and advanced. Proximity to assembly plants helps as well.

Table 1.
Growthin computers and electronics products, Nov. 1998 to Nov. 1999

Country

Singapore

South Korea

Malaysia

China

Thailand

United States

Canada

France

Sweden

Indonesia

Belgium

The Netherlands

Denmark

Philippines

Euro-11

United Kingdom

Australia

Taiwan

Italy

Hong Kong

Norway

Japan

Germany

Where the Market is Going
It may be helpful for molders to look at just where the market is going and position their operations accordingly. U.S. molders have the benefit that the ultimate headquarters of most of the leading electronics firms are in the United States. It is this proximity to decision-making power that should favor them in getting the foot in the door on new products. And molders that have seen their U.S. output grow by more than 20 percent in past years have done just that: They are always ready to do prototype work and always ready to take on development projects that may not be that profitable.

Additionally, major U.S. molding houses have been exporting manufacturing expertise to manufacturing plants in Asia. Often these molders own such plants or have some kind of investment with them.

We had the opportunity to discuss these issues with buyers for Nokia during a recent Scandinavian trip. Nokia works with molders all over the world and has carefully selected those firms that are willing to "go the extra step" in supporting concept development. "We are looking for technology partners that offer new solutions in product design, materials selection, and the ability to help us bring new designs to market more quickly," our Nokia contact says.

Key Trends for the Future
Now, in early 2000, we anticipate a post-Y2K mini-boom as businesses and consumers resume buying computers without concern for the millennium bug. Major computer firms forecast accelerated sales for now, having seen many potential buyers shy away until after the turn of the year. Major research firm International Data Corp. found in a study late last year that 37 percent of the 2100 North American companies it surveyed deferred spending last year on nonessential technology projects unrelated to the Y2K glitch.

At the same time, PC makers are trying to move away as rapidly as possible from the money-losing low-cost or no-cost PCs. Such products created enormous pricing pressures for molders and generated little profit for PC makers. "The percentage of retail buyers willing to sign up for long-term Internet service to earn hefty rebates fell from 4.1 percent in July 1999 to only 1.4 percent in November," says a report from Allison Boswell Consulting Inc.

In a year when global PC shipments are expected to grow at a rate of more than 18 percent/year, the major opportunity for molders lies in new devices that are now in the concept stage. Internet appliances likely to hit the market late in 2000 are just now in development and offer new opportunities for aggressive molders. What are we talking about? These are devices connected to washing machines, cooking ranges, refrigerators, and other household appliances. These devices may connect consumers to the Internet.

This year’s Consumer Electronics Show was the launching pad for a variety of products—many still in the concept stage—that will likely dominate the electronics industry for the next two years. At the January show companies demonstrated products from mobile phones with Net access and electronic organizers to television set-top boxes that let users log onto the Internet.

Such Net appliances are products that move away from traditional PC design and focus more on the utility of electronic devices as Internet products. Companies mostly unknown now—such as Vivo and Research in Motion—will be looking for parts vendors shortly. And major houses such as Dell and Compaq will look at expanding their vendor bases for these new products. But the real opportunity for molders new to this business will be found in upstarts that compete in areas such as specialty mobile phones, DDS technology, or PDAs.

Here is one item that highlights the importance of new players. Texas Instruments—a major supplier of chips for mobile phones—sold more than 30 percent of its output in this product category to new telecom companies.

Worldwide sales of semiconductors rose 18 percent in 1999 and will increase even faster this year on rapid growth in Internet use and mobile phones, according to Gartner Group Inc.’s Dataquest unit. Semiconductor sales jumped to $160 billion in 1999 from $136 billion a year ago, the biggest gain since 1995.

Dataquest expects sales to accelerate in the next few years as the rest of the world catches up with the U.S. in Internet use. Demand for chips that power mobile phones and electronic devices is prompting companies such as Royal Philips Electronics NV, Europe’s biggest semiconductor maker, to increase production.

But Asia is likely to see the most growth and this will create opportunities for molders that have worked at getting access to that market. Segment data by Dataquest show that global semiconductor sales climbed 25 percent in November to a record $14.2 billion, based on data collected by the Semiconductor Industry Assn. Sales in Japan and other Asia-Pacific countries grew the most, rising about 39 percent from a year earlier. Sales in the Americas rose 16 percent, while European sales gained 11 percent.

According to Dataquest, analysts project growth of Internet subscribers in the Asia-Pacific region to explode from 13.7 million in 1999 to 40 million by 2003.

Contact information
The Repton Group
New York, NY
Agostino von Hassell
Phone: (212) 750-0824
Fax: (212) 752-5378
E-mail: [email protected]

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