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A new year but uncertainty remains

Magazines, such as New Electronics, endeavour – particularly at this time of the year – to put a positive spin on things. But it’s hard to do that at the moment.

There’s a number of reasons for this. One of the biggest factors is continuing uncertainty about what exactly is happening to the global economy. Last year saw the FTSE100 drop by 5%, while 2016 was welcomed by an apparent meltdown in the Chinese stock market and the leading global markets falling in sympathy.

But some of the market figures suggest things are better than they appear. Late in 2015, statistics provided by DMASS – which monitors sales of semiconductors through industrial channels – pointed to demand booming. Sales in the UK in Q3 2015 were said to have grown by 17.4% over the same period in 2014; something that doesn’t quite agree with the data provided by the UK’s Electronic Component Supply Network (ECSN). More uncertainty then for while the figures say one thing; market sentiment says another and ECSN is expecting only ‘low growth, at best’ for 2016.

There’s also uncertainty over the shape of the industry. Last year saw a rash of acquisitions, with Chinese investment vehicles targeting a number of high profile companies.

In some respects, part of last year’s acquisition frenzy can be put down to companies looking to make themselves too big to swallow. But another reason for these acquisitions was simply market share; with long term growth rates in the electronics industry slowing, executives are looking for ways to keep the shareholders happy. Buying companies, increasing revenues and cutting costs is a traditional route to providing the return for which investors look.

Is there a double edged sword at work here? As companies combine and chief executives look for the so called ‘synergies’, there’s a suspicion that one of the casualties will be the R&D budget. Short term gains in financial performance maybe being traded against an inability to develop the company’s longer term future.

And yet, despite the uncertainty, the outburst of innovation on display at the recent Consumer Electronics Show in Las Vegas must go a long way to convincing everyone that while the companies that make components are experiencing ‘interesting times’, those that use them are as creative as ever and that the industry is in good health.

Graham Pitcher

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