ELECTRONICS: A THIRTY-YEAR PERSPECTIVE

Later this year Prismark will mark the 30th anniversary of its founding. Thirty years, roughly the midpoint of the electronics industry’s history, provides an interesting perspective. While an insider may see only steady, forecastable growth, a look back at the past thirty years demonstrates the scale of the shifts that have occurred. Consider the following:

•       Systems Production – At the systems level, the electronics industry has grown at a compounded average annual rate of 3.7% over the past thirty years. While undeniably a growth industry, this is likely below many people’s view of electronics as a 2x GDP market. With the exception of short periods, it has not reached those levels since the 1980s, in the early days of the PC boom. There has been considerable variation from this mean with year-on-year growth ranging from -9% YoY (2009) to +15% YoY (2010), both related to the financial crisis (aka the Great Recession). Like other segments of the global economy, electronics production is driven by movements in the global economy including both major shocks (Y2K/dot-com-bubble, global financial crisis, and the recent pandemic) as well as the more modest 5-year business cycle.

ELECTRONIC SYSTEMS 1994-2024

At the systems level, we are in the early stages of a major sector rotation – the maturation of legacy growth drivers and the rise of new drivers of growth. While PCs, the major driver of growth in the 1980s and early 1990s, had begun to mature by 1994, cell phones had only just begun to rise, with sales of only 26M units in 1994 (mainly analog with a few advanced 2G models that enabled texting!). Accelerated by the development of 3G, the mobile market grew at almost a 25% CAAGR over the next 20 years. It reached its peak of 1.75Bn units in 2014, before beginning to mature in the late teens. The growth of the smartphone market was the major event of the past thirty years, driving the growth of many OEMs (Motorola, Nokia, and Alcatel; succeeded by Apple, Samsung, and LG; most recently succeeded by Apple, Samsung, Huawei, Xiaomi, and Oppo), shaping new supply chains (camera modules, Bluetooth, HDI PCBs, OLEDs), driving innovation, and changing the everyday lives of 6Bn people worldwide. Smartphones, PCs, and TVs are now mature replacement markets, with growth gated by the global economy and awaiting feature-driven replacement cycles.

PHONE SHIPMENTS BY CELLULAR STANDARD

With the increasing maturity of the smartphone and its specific supply chain, the driver of electronics industry growth has now shifted to automotive and infrastructure applications (Industrial, Medical, Military and Aerospace). These new drivers of growth are defined by more modest unit volumes – 10s or 100s of millions, not billions, generally higher ASPs and long expected lives. Growth of long-lived, high-value systems has led that of systems focused on consumers (PCs, phones, TVs) over the past 10 years, and this shift in systems leadership is likely to continue.

The growth of infrastructure applications is backed by three major tailwinds: data growth (servers, routers, base stations), automation (automotive ADAS, AI servers, and chipsets) and concern for the environment (PV, rechargeable batteries, xEV, SiC). These tailwinds are fueling content growth – the addition of electronic content to systems that historically had little to none. Much of this content growth is enabled by the high-volume supply chains (e.g., computing and communications chipsets, sensors) and the communications networks (e.g., cellular, WiFi) built to support the PC and smartphone markets. These macro drivers are still in their early days and are poised to drive the electronics industry over at least the next ten years.

•       Supply Chain Structure – Electronics production is dynamic, over the past 30 years transitioning from local production by vertically integrated North American and European OEMs (e.g., IBM, Siemens, Philips, HP) to the rise of similarly vertically integrated OEMs in Japan and South Korea (e.g., Sony, Samsung, Hitachi, Fujitsu, Matsushita, LG) and most recently to companies headquartered in Taiwan or China (e.g., Huawei). Coincident with these geographic shifts we have also seen a movement from largely captive production at all levels of the supply chain to an increasingly merchant model led by specialists (e.g., Foxconn, TSMC), with OEMs now focused on design and services. While the merchant-dominant supply model shows little potential for change, there is a new geographic shift underway that is still in its early days – a new focus on manufacturing in countries outside of China: Vietnam, Malaysia, Thailand, India, Indonesia, Mexico.

•       Value Chain – The chart below shows growth across the electronics value chain over the past thirty years, demonstrating relatively stronger growth of the components and materials markets: Systems 3.7% CAAGR, Components more than 5% CAAGR, Materials almost 8% CAAGR. Some of the out-performance of early stages of the value chain is the result of the emergence of the component and materials-rich display, PV, and rechargeable batteries segments. Further, Prismark does not include the value of the xEV battery packs in our automotive systems value, which if included would boost the 30-year electronic systems growth to approximately 4.0%. The relatively faster growth of the components and materials segments is reflective of their role in enabling innovation and value creation, squeezing out other parts of the electronics bill of materials.   

COMPONENTS 1994-2024

COMPONENTS

The electronics supply chain has seen many changes over its 60+ year history. Despite a long list of challenges (e.g., the end of Moore’s Law? geopolitical tensions . . .), it remains a fast-growing, dynamic market that rewards innovative participants. As we have considered, the best opportunities over the next 10 years are likely those that focus on automotive and infrastructure segments, as well as those that facilitate growth of the supply chain into new geographies.

Contact Prismark for a more detailed discussion.