Electronics Look Bright, Long-Term

It’s difficult to think of a component of the global economy that has a brighter long-term outlook than the electronics industry. This statement holds true for all of the various segments of the electronics sector. Global output and sales of electronic products for audio/visual, telecommunications, computers, industrial, commercial, defense, medical devices, transportation, security devices, construction, and energy generation are all expected to increase at an average annual rate of at least 5% for the foreseeable future.

Rest assured that U.S. manufacturers of electronics products will benefit greatly from this global uptrend. The Federal Reserve compiles a monthly index of U.S. production of computers and electronics products. Like most segments of manufacturing, the electronics industry is vulnerable to recessions. Hence, the negative growth rates in the years 2002 and 2009. But what is most interesting is both the speed with which this industry recovers after a recession and also the high rates of growth it enjoys during periods of economic expansion.

In fact, U.S. output of electronics products surpassed its pre-recession peak late in 2010, and it grew by nearly 9% in 2011. Our forecast calls for another 9% expansion in 2012. This is based on our expectations that the current recovery in the U.S. will continue to improve gradually. We are also factoring in a moderate recession in the European economy during the first half 2012, followed by slow growth during the second half of this year.

The U.S. and Europe will remain, by far, the largest global markets for electronics products. These two regions will also continue to be the major drivers of design and development of new electronics products and technologies. The recession in Europe will push the demand in this region down for the immediate future, but its overall consumption levels will still be large. The fastest growing markets for electronics products will be the emerging economies of China, Southeast Asia, and India.

Market demand for computers, especially tablets, is expected to expand more rapidly than other electronics sectors in the coming months. Sales of these products will expand by 15% in 2012. Mobility is a huge factor influencing the buying decisions of most consumers, so demand for smartphones and other telecommunications devices will also escalate by 15%. Sales of large-screen TVs will be another strong segment, with growth of 10% to 12%. An emerging sector that is still small in volume, but will be among the fastest growing both this year and beyond, is solar panels, where a gain of 13% to 15% is expected.

WHAT THIS MEANS TO YOU

•The price of playing in this game is high, but the potential rewards are certainly commensurate.

•Advances in materials, design capabilities, manufacturing processes, and even packaging are developing at a rapid rate. This means that processors must continually invest substantial resources in both equipment and education.

•Electronics manufacturing is technology-driven, not labor-driven. The competitive advantages of countries with low labor costs (like China) will continue to fade.