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Electronics executives expect second half growth
Electronics industry leaders are cautiously optimistic that demand for components will rise later in the year.
By James Carbone
Electronics component manufacturers and distributors expect business to improve as the year progresses, despite economic uncertainty in the U.S. and the debt issues in Europe.
Industry executives, attending the recent Electronics Distribution Show (EDS) in Las Vegas, said that they were cautiously optimistic that component demand would build during the rest of the year, although first-quarter demand and revenue was weaker compared to the fourth quarter of 2011 for many companies.
Most electronics companies were forecasting 3 to 6 percent revenue growth for the year. They said weak economic recovery in the U.S. and concern over debt problems dampened their outlook for the rest of the year.
“What is going to happen with Europe?” asked Dan Persico, vice president, strategic marketing and business development for component maker Kemet, headquartered in Simpsonville, S.C. “Is the U.S. going to continue with 2.2 percent growth? That really is not superb. It's nice because it's growth, but it doesn't drive things the way we would like.” Persico added that despite macroeconomic concerns, business has turned a corner and is recovering.
“I think we will see a slow upward trend. Our book-to-bills are up,” said Daniel Persico vice president, strategic marketing and business development for Kemet.He noted that business bottomed out in the first quarter of 2012. “I think we will see a slow upward trend," said Persico. “Our book-to-bills are up above 1.00.”
David Kirk, CEO and president of Murata Electronics North America in Smyrna, Ga, agrees that business is improving and is bullish about revenue per growth for the remainder of the year. “We guided to just over 16 percent revenue growth for 2012,” said Kirk. The aggressive forecast comes after a fiscal year in which Murata's sales declined 5 percent to $7.2 billion.
Kirk added that considering the issues that Murata had with the disasters in Japan and Thailand last year, revenue declining 5 percent "really is not bad." Kirk noted that Murata had 85 percent of its manufacturing in Japan prior to the March 2011 earthquake and tsunami which shut down several of Murata's production facilities for an extended period last year.
Murata has been increasing manufacturing capacity at its plants outside of Japan, according to Kirk, and by 2013 will have 30 percent of its manufacturing in other countries.
Automotive drives business
Kirk went on to say that Murata's revenue will increase this year because most of its customer segments are growing, unlike last year. One growth segment will be automotive.
“The number of vehicles will continue to grow may eventually get 12, 13, or 14 million units," Kirk said. Also driving growth in the automotive sector is rising electronics content in vehicles. Increasing electronics content, per systems such as navigation, infotainment and other systems, means demand for capacitors and other components Murata makes will rise.
Besides automotive, smartphones and ultrabooks are important drivers of Murata's components including capacitors, wireless modules, power supplies and sensor products business, Kirk noted.
“Capacitors are 35 percent of our business. That is what we are known for,” said Kirk. “However, wireless modules, including Wi-Fi and Bluetooth fully integrated modules, are about 25 to 30 percent of our business and is the fastest growing part of our business.”
Kirk added that inventory at distributors has “started to burn off and we are starting to see there some replenishment of inventory in the distribution channel.”
A slow start but…
“We guided to just over 16 percent revenue growth for 2012,” said David Kirk, CEO and president of Murata Electronics North America.Some distributors say that although 2012 has gotten off to a slow start, business will improve later in the year.
“Comparing the first four months of 2012 to the first four months of 2011, 2012 is down,” said Mark Larson, president and chief operating officer of electronics distributor Digi-Key, headquartered in Thief River Falls, Minn. However, business started to improve last August.
”If you take a look at our sales in August of last year, the daily rate grew in September, October, November, and fell a little bit in December. We were up again in January, February and March,” he said.
Larson noted that 2012 may not be a “fantastic year, but it will be a decent year with growth in the single-digit range.”
“We are doing approximately $1 billion in North America and about $250 million in Asia-Pacific and about $250 million in Europe,” said Larson. “Within the next year and a half to two years, we expect those regions (Asia-Pacific and Europe) to resume growth. I would expect the next three or four years we will be doing as much business outside North America that we do in North America.”
North American growth has also been decent for component manufacturer Vishay Intertechnology, based in Malvern, Pa. However, business In Asia and Europe has been weak, impacting Vishay’s overall sales.
Dave Valletta, executive vice president, worldwide sales for Vishay, said the first quarter of the year was basically flat compared to the fourth quarter and was down about 10 percent compared to the first quarter of 2011. One reason was high inventory levels in the supply chain. “Macroeconomic issues in Europe have created uncertainty. Asia fell apart on the consumer side of the business last year,” he said. “The computer business was really hurting. For us that's a big part of our business in Asia.”
Valletta noted that business in the Americas seems to be solid and appears to be picking up. “The computer business seems to be getting its footing again and the automotive business is doing fantastically well in Europe,” he said.
“I would expect the next three or four years we will be doing as much business outside North America as we do in North America,” said Mark Larson, president and chief operating officer for Digi-Key.Valletta added that inventory levels "are starting to normalize. They are in better shape, and have been coming down every month since August. In the first quarter, we started to see more major drops in inventory levels. We are close to normal but not quite there yet.”
Inventory levels are highest for products that went onto allocation in 2010, including MOSFETs and tantalum and film capacitors, according to Valletta. “In 2010 we had shortages of virtually everything. But those three were the main ones that give us the most heartburn from an inventory point of view now,” he added.
Orders are picking up and Vishay’s book-to-bill ratios are over 1.00. “Right now, we are seeing a huge influx of orders for semiconductors used in notebook computers in preparation of build up in the third quarter,” said Valletta.
Valletta added that as a result, the second quarter should be better than the first and he expects "continued growth in the third quarter and the leveling off of business in the fourth.”
He said supply and demand are aligned and “there are no major shortages right now. Leadtimes are starting to normalize.”
Single-digit growth expected
Jim Lieb, vice president of sales for connector manufacturer Conec, based in Garner, N.C., expects single-digit growth although Conec’s sales were down in the first quarter.
“In the first quarter we were down 16 percent over the first quarter of 2011 and down 2 percent from the fourth quarter. We are anticipating we will see 3 to 4 percent growth in 2012 over 2011,” said Lieb.
“I think we were going to see some design wins on projects that we've been working on for the last 12 months,” he said. Those wins will go into production and help "our year-over-year performance."
Lieb added that whatever growth Conec posts this year will be driven by industrial, medical, communications, and defense industry customers. Conec makes a variety of connectors for those segments including I/O, d-subminiature, circular, and PCB connectors.
The smart grid “has created a whole new market for us because of the industrial requirements that are needed for those types of wireless requirements,” Lieb noted. “We have 7/8 inch connectors to power up a remote data collection box that collects meter readings from a bank of meters, processes and collates all that information and passes it on to a central office or central location.”
While Lieb and other electronics industry executives expect business to improve later in the year, macroeconomic issues could stymie growth.
“We are not 100 percent confident that we will see that uptick in second half of the year,” said Lieb. “We might see a gradual uptick through the end of the second quarter, and it may be flat to down in the third quarter. Time will tell.”