EMS@C-LEVEL
As Forbes, Entrepreneur, Fast Company and SCOOP writer, Philip Stoten, continues to talk to EMS (Electronic Manufacturing Services) executives he learns more about their individual and collective experiences and their expectations for their own businesses and for the entire electronic manufacturing industry.
EMS@C-LEVEL
European EMS & PCB Industries with Dieter Weiss: How to Survive and Thrive
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Whether it was a chip crisis or fake news (spoiler, Dieter thinks the latter is more likely), how did the inventory bubble, inflation and a slow economy become a perfect storm for the EMS market, and what strategies can companies use to weather the storm? Check out this episode of EMS@C-Level, where Dieter Weiss (in4ma and Data4PCB) joins me to dissect the OEM behaviors that led to this artificial surge in demand and subsequent market decline.
We explore the harsh reality many companies face as they operate below capacity, with looming losses in 2024. Through insightful discussions, well researched data and real life examples, we highlight how strategic mergers and acquisitions can offer much-needed stability. While, those companies with a sharp focus on aerospace and defense sectors emerge as resilient players in this challenging environment. Dieter underscores the challenge of being a ‘me-too’ business in a tough market.
The EMS industry in Europe is a tale of two regions, and we break that down. Eastern Europe, dominated by global giants like Foxconn, Flex and Jabil, contrasts sharply with the more fragmented landscape of Western Europe. We dive into the financial health and significant revenues of major players in both regions, while shedding light on the precarious and critical state of the European PCB industry. With recent closures and incidents adding to its woes, and stress in the supply chain, the future of European PCB manufacturing hinges on local production and a shift in OEM mentality. We tackle this pressing issue in our discussion, emphasizing the importance of supply chain security and independence from regions like China.
The IPC seminar in Gdansk, Poland, on 25th September is a focal point for industry leaders to gather, collaborate, and forge better paths forward. This free event by IPC and in4ma is a must-attend for those looking to gain essential insights from top executives, as well as access real analysis from in4ma around the first six months of 2024. I am delighted to have been asked to host the event, conduct the keynote interview with a senior leader from one of the industries largest players, and moderate the leadership roundtable where we plan to explore the pendulum like swing from globalization to regionalization. I really hope I see you there!
Join us for this episode and in person in Poland next month as we help navigate turbulent waters and uncover valuable information to help your business thrive amidst uncertainty.
For more information check out https://in4ma.de/?lang=en
To register for next months IPC Day in Gdansk - https://www.ipc.org/event/ipc-day-gdansk-poland
EMS@C-Level is hosted by global inspection leaders Koh Young (https://www.kohyoung.com) and Global Electronics Association (https://www.electronics.org)
You can see video versions of all of the EMS@C-Level pods on our YouTube playlist.
Hello, I'm Philip Stoughton. Welcome to EMS at Sea Level. I am joined from the mountains by Dieter Weiss. Dieter, thanks for joining me. I wanted to talk initially about the event in Gdansk coming up in around about a month. Thank you so much for asking me to moderate the day and to moderate the roundtable. I'm really excited about that. But tell me a bit about the profile of the content and what are the big topics that we'll be covering that people should be coming along to hear about be covering that people should be coming along to hear about.
Speaker 2well, you know, phil, the last three years, people have been talking about the chip crisis. Now you know and I'm gonna stress this subject as well in gdansk that there was no chip crisis, but what we have at the moment is a real crisis. If you want, you can call it a chip crisis now, but we have a crisis that the market has tanked and I'm wondering why so many people are so quiet about it. Why so many people are so quiet about it. Normally, if you see such a collapse, everybody goes out on LinkedIn and explains his view, why that is the case. In this time, it's different. Nobody talks about it, but I think many know. The point is that the OEMs have their stores filled to the rim when they realize that.
Speaker 2See, if you go back to 2022, where we had this chip crisis the European EMS were able to increase their revenues by 16.4%, an increase they had never done the last 20 years. The last 20 years, yeah, and we know that this was not all quantity. It was, in part, as well, a price increase, because the distributors and the semiconductor industry they they raised prices. They used this as well, but already in the mid of 22, ipc and Informa had been doing a half-year survey asking the EMS how much of that increase was price and how much was quantity. And those days we had a very, very qualified analysis of this and the outcome was that one third of the revenue increases was price and two third was quantity.
Speaker 2So we are talking about 10 and a half to 11% more output. Yeah, again, even the 10 and5% to 11% higher output is an output increase we had never seen for the last 15 years. The highest we ever had was something about in the region of 9%, but never 10.5% to 11%. So still, I always ask how was it able for you guys to increase your quantity output if, on the other hand, you were having no chips, and people don't want to admit that. There never has been a chip crisis. I'm going to stress it again, but not too long. We need to focus on the real problems. The real problem because now everybody seems to run around headless Headless. Oh, where have the orders been? Where have the orders been? We have companies running at a capacity utilization of 70%, some even down to 50%.
Speaker 2We have several companies who are working only three days a week at the moment because they have no business. Many companies already tell me that for 2024, they know they're going to make a loss. In addition as well, from MT Finance talking about mergers and acquisitions being a chance to improve the situation. The latest M&A you might have read about it happened just in Germany. We have a big ems north of munich called lacon, and lacon just bought a company with about 65 people, more than 10 million in revenues east of hamburg. The company is called Montronik and I think that is going to be a nice addition to Lacon, for the simple reason that this Montronik is sitting very close to Airbus in Hamburg and their product mix, or better, their market segment mix, is very interesting. So good move from LACON and it will enhance their business. So we're going to talk about those things in Gdansk as well.
Speaker 2For sure, we're going to review the half-year survey from this year. You know we just have finished that and the results were a disaster. I've made a post on LinkedIn about that. We are expecting, or first of all, we know, that the billings of the EMS industry in the first half of those companies reporting to us were minus 12.4%, and that equals about 23% of the production value of Europe. And, yes, there is a difference.
Speaker 2Not everybody has been making losses. It is about, I think, 75%. Sorry, I don't have that in my head. Normally I have the numbers in my head, but this time I don't. It's about 75% of the companies who have lower revenues than in the first half of 2023. But there are a few companies who are doing quite well, yeah well, and interestingly, those are companies who, in my opinion, have a very professional strategy. Now let's look at who is not having a good strategy. If you are a me too, trying to collect any orders, no matter where they come from, forget about it. I've said it before Go close your shop, take some money. Open up a burger shop in a big city. You're going to make better profits because you don't know what you're doing.
Speaker 2You need to focus on your business and you need to focus on certain market segments. Well, it's not nice, because I hate all these wars going on in the world in present, innocent people are being killed because it is not those who are actually fighting, verbally fighting each other. It is innocent young men and women who are being drafted to the army and who kill each other. It's ridiculous. So the outcome of that is that we see a huge increase in demand in the airspace and defense industry and those companies focusing on those market segments are doing well. But it's not only airspace and defense.
Speaker 2Well, if you are focusing on a special product, for example and I can't name names without a lot of people immediately realizing which company I'm talking about but there are products which are high runners at the moment. It's not many, but they are, and those companies have seen 30% 40% increase of their revenues in the first half of 2024. But again, it's few. So what we have seen? Whereas in the first half of 20, or in the full year of 2023, about 75% to 80% were making higher revenues, now it's the opposite.
Speaker 1It's the other way around. Yeah, Dieter, just to get back to the agenda then the chip crisis is something you're going to be giving a presentation on the reasons, the present state of the markets. So I think that is interesting and that's really actionable for people. I think, Marika, Dr Marika Haas is talking about the, the half year presentation.
Speaker 1I'm going to be doing a keynote interview with one of the largest EMSs in Europe, so that'll be interesting. You mentioned that you have the guy from MP Corporate Finance talking about M&A, so again, very important. And then I think, where the last two elements in the morning session are going to be a roundtable, with really some of the very big hitters in Europe talking about the current, I guess, pendulum swing from globalization.
Speaker 2We were able to book a good moderator of this.
Speaker 1Absolutely. I'm excited to be doing that because it's a topic that I care deeply about and I'm delighted that we've assembled such a good panel. And then you've got kind of a pre-lunch keynote talking about the uh, talking about ems in poland specifically and the, the secrets to success there, so it really fills in the morning.
EMS Industry Trends in Europe
Speaker 2But if I, if I mention uh, let me mention something on this. Yes, there will be a presentation in, not only on poland, but in general, and for sure we're going to present some top listing as well on a couple of countries in the East, but we're going to show as well, once again, the structure. I'm often being asked well, what's the difference between East and West? What's the difference between East and West? Well, the difference is we have only 460 EMS companies in Eastern Europe, whereas we have 1,763 EMS companies in the West, and still, with the exception of 2023, but before they were even more or less even in revenues. And what we see is we see three groups of companies.
Speaker 2In the East, we see most of the really big global EMS companies. They have their subsidiaries over there in the East and they all build those subsidiaries up after the fell of the Iron Curtain. That is Foxconn, that is Flex, that is Jabil, that is Plexus, that is Kimball, that is Celestica, and you name them. So Bistron, inventek, they're all in the East, imi, not to forget so, and most of those companies have revenues in more than 100 million, and companies with more than 100 million are more the exception in the West. So there are these big companies and just to give you an idea on the size some of them FLEX in Hungary has revenues in Hungary of more than 1.8 billion. Yeah, jabil in Hungary has revenues of more than 1.2 billion, and I'm talking about euros, just to make sure you don't mix that with US dollars. So there are very, very big companies, big players over there, very big companies, big players over there.
Speaker 2Then you have a huge group of subsidiaries of western european companies and many of those are just transferring the assembly of thc components to the east. And then, I'm sorry to say, but I have a clear view on that I think it's stupid, if you want to take advantage of the Eastern European lower labor costs, manufacture a full product in Central Eastern Europe rather than shipping products back and forth. That is stupid. So that is the second group. And then we have a relatively small group of real central Eastern European companies, and the majority of those with two exceptions. There's two exceptions on that, and that is Videotone, who is one of the biggest in Europe on that.
Speaker 2And that is Videotone who is one of the biggest in Europe. And there is Fieldtronic in Poland. Those two are very big companies, but other than that we have about 80 companies in Central Eastern Europe who are locally owned medium-sized companies in the range of, let's say, 5 to 30 million. We have analyzed all of them and without telling too much, but we're going to put light on this and we're going to show you what their profits before taxes are, without naming names. Even so, it's public information. We take those information from the country company registers, so it's not confidential. We would never publish any information that is available.
Speaker 1We analyze that.
Speaker 2And it clearly shows that 15% profits before tax is not uncommon in Central Eastern Europe.
Speaker 1So yeah, yeah, yeah, it's interesting and I think when you look at what's happening in Europe, you consider what's happening in Eastern Europe, you consider what you and Eric found out on your recent tour of Tunisia and the opportunities there. There clearly is some low cost opportunities very much available to those companies prepared to invest.
Speaker 2Just to get back to my day in Poland.
Speaker 1it's the 25th of September. We have we talked a bit about the agenda in the morning. In the afternoon there are a few technical presentations which I think are really interesting, talking about different solutions for better logistics and greater agility in electronics. I think those are going to be really fascinating. What drew my attention is again you presenting and talking a little bit about the data on the printed circuit board industry, which just doesn't seem to be moving forward, and it's a real concern that it's getting to a critical mass, that it's in danger of extinction. That's something that is really important to listen to and think hard about, isn't it? What happens if we don't have a real PCB industry?
Speaker 2in Europe. Yes, you know I have been taking over the work of Michael Gush. Michael Gush has been the absolute expert on the european printed circuit board industry, issuing monthly reports and annual reports for the printed circuit board industry. Michael died on the 24th of may this year and I have taken over this year and I have taken over. He knew that he was going to die so we had organized me taking over already in january of this year and I did my first reports in april and I'm now on a monthly base work on those reports as well and it's um, it's a nightmare. You can imagine, see, when we talk about the european ems industry declining in the first half by minus 12.4 percent. The pressure on the ems industry is that high at the moment that they say we have no excuses, we need to reduce our costs. So the PCB industry is even suffering more because if a company has a strategy, let's at least buy 10% of the PCBs in Europe some of them say not a single piece anymore.
Speaker 2So I have companies telling me hey, this month we got nearly no order intake when I question the numbers coming in, and then they get. Well, we had a lot of cancellations. So the situation for the PCB industry is even worse. We had a Chesh company closing down in May, a small one. We had a fire in a PCB factory in southern France now in July, which will at least stop production over there. Luckily they have more factories than just one factory, so they will be able to hopefully compensate that and move products over there in one of the other factories. But then we have as well the information that the last PCB manufacturer in Estonia, brandner PCB, has just sent out letters to his customers that he's closing down end of the year and he will not accept any orders anymore later than, I think, mid of November.
Speaker 2This company has been in the past, made relatively constant revenues and shortly after the chip crisis the business was not that bad. They were able to make reasonable profits because there was still this supply chain issue due to COVID from China, but now in 2023, from China, but now in 23,. Their profits before tax reduced to 1.6% and the owner said well, it doesn't make sense for me anymore to work for that Now. I have to say, if that was the attitude of all PCB manufacturers in Europe, then probably another 40 PCB shops smaller PCB shops would shut down end of the year as well. I'm not only looking at revenues. I do a lot of balance sheet analysis. I look at the profits and we have this situation that we can access a lot of very interesting data and we look at that and, yes, it is a disaster at the moment.
Speaker 2And we know as well that the EMS industry is sitting between two chairs. Yeah, on the one hand, they would like to buy PCBs from Europe. On the other hand, they are forced by their customers to supply the cheapest price, the cheapest price. So it's all about price and the OEM industry seem not to care too much where the PCB comes from, as long as they can buy their PCBAs or their finished products as cheap as possible. And we need to have a change in mentality and the attitude has to change.
Speaker 2The OEMs have to realize that they have to accept, for a certain amount of products, slightly higher prices and demanding PCBs manufactured in Europe. Because if we are not able and today we are already not able to supply a full product electronic product for system-critical applications. In Europe we are totally dependent and people still forget about the fact that if you're sending your artwork data over to China to manufacture PCBs, that contains IP. Yeah, it's not a commodity product. Pcbs have never been a commodity product. It is IP and with all those global problems we are having at the moment, we have to make sure that we maintain a certain independence. That doesn't mean that we want a free global trade no matter, no problem about that, but we have to maintain a certain independence whether it's in Europe whether it's in the United States, whether it's in Japan.
Speaker 1And I think you're right, dieter, it's not about protectionism, it's not about nationalism, it's about security and it's about having robust and sustainable supply chains, and that's really important.
Speaker 1I think, given the state of the market and the challenges that you've talked about, and given what's going on in other sectors like the PCB industry, it's never been more important to be at an event like the IPC seminar in Gdansk in Poland on the 25th of September. If you're an Es c-suite you you should really think about registering and being there. If you're one of the large ems companies, um, being there and being involved in the conversations uh is really important and really valuable, and I think part of that is having at least initial access to the um half year report. You've that you've put together and also, you know, perhaps thinking about acquiring that full report so they can dig into the detail with a little bit of help from from your good self and your team. So I think to me it feels like don't just go to these events when the sun's shining. When it starts to rain a little bit, it becomes even more important to go and find out where you can get some shelter and you can get some help.
Speaker 2Yeah, see, the point is number one. Ipc has done everything to make sure that this seminar is free of charge. Sure that this seminar is free of charge. So it is a service of IPC to the electronics industry. And we know that the electronics industry at the moment at least EMS and PCB companies are suffering and they are pulling the brakes on and they are looking at every individual cost item. And we know that this is an issue. But here you get a chance to attending a seminar and if most companies are only working three days a week anyhow, so there's still two more days to yeah, they've got time to come, but more importantly, they should come because there's also valuable insight.
Speaker 2Their cost will be travel cost and for sure Gdansk normally will be accessed by plane.
Speaker 1Yeah, it's not the most expensive place to stay, if you book early enough.
Industry Event Registration Announcement
Speaker 2You need to book within the next two weeks. Then you can still catch a cheap flight, and hotels in Poland are not that expensive either. So we're talking about 200 to 300 euros in travel expenses.
Speaker 1Yeah.
Speaker 2To get qualified information.
Speaker 1And to access some really good insight and a really good program. Not a big thought about that. Yeah, dieter, we'll put the registration link in the show notes, so we've got that for everybody. We'll get that out there in the next couple of days. Thank you so much for your time, thanks for talking to me, and I look forward to learning more from your presentations, but also from the excellent list of executives that will be at the event. Thank you so much. Thank you, phil.