Electronics Industry Reports Growing Revenue, Capital Expenditures

Gardner Intelligence’s collection and review of the reported financial results of more 90 publicly traded electronics firms through the first quarter of 2018 points to an industry that has been experiencing above-average growth, a trend that’s expected to continue. Calculated on a year-over-year basis, inflation-adjusted revenue growth in the electronics market at the end of March was 6.9%.

Earnings before interest, taxes, depreciation, and amortization when measured using the same technique was up 4% at the end of the first quarter. By comparison, U.S. total economic growth according to the Federal Reserve as of May was 2.48%, suggesting that electronics grew more than twice as fast as the overall economy.

Year-on-year capital-expenditure growth ending in the first quarter of 2018 showed more than an 11% increase. However, these results are in part because electronics capital expenditures contracted between the fourth quarter of 2016 and the third quarter of 2017. Capital-spending data independently collected by Gardner Intelligence from shops and fabricators serving the industry corroborate this view. Gardner’s data indicates that spending hit a recent low in mid-2017 and has since rebounded through the latest available data collected in May.

Among all firms reviewed in this study, 56 are tracked by one or more Wall Street analysts who also provide forecasts for revenues and earnings. Aggregating these forward-looking results, revenue growth will slow from nearly 7% in mid-to-late 2018 to nearly unchanged between the third and fourth quarters of 2019.

Similarly, earnings growth is projected to climax in late 2018 at just over 8% before slowing to a low of just above 2% in late 2019. A 2% growth rate would place the industry’s growth approximately on-par with overall U.S. economic growth.

One area of concern is the under-performance of small (under 20 employees) suppliers—including plastics processors—serving this market. Since early 2017, these companies have reported periods of both modest expansion and contraction. In comparison, larger companies with more than 100 employees have experienced record growth during this same period.

Applying Gardner’s multi-lens analytics approach to the electronics industry, the combination of actual and forecasted financial results, macroeconomic data, and proprietary survey data all suggest that industry growth will exceed overall economic growth for the country. Supplier companies of all sizes are likely to benefit over the next 18 months, with a bias towards larger plants experiencing greater opportunities for growth.

ABOUT THE AUTHOR: Michael Guckes is the chief economist for Gardner Business Intelligence, a division of Gardner Business Media (Cincinnati, OH US). He has performed economic analysis, modeling and forecasting work for nearly 20 years among a wide range of industries. Michael received his BA in political science and economics from Kenyon College and his MBA from The Ohio State University. mguckes@gardnerweb.com