In the midst of the 2008 economic downturn, it appears that electronic products, so ubiquitous and ingrained in our lives, have emerged as a new category of consumer staples. Most industry watchers agree that, so far, the electronics industry has weathered the most recent economic downturn with relative ease - especially when compared to other industries traditionally dependent on discretionary spending.
"There is a growing sense that electronic products are essential," says Jim Feldhan, president of Phoenix, Arizona-based Semico Research. "Businesses see tremendous value in electronics, and, in 2008, when consumers are considering what to buy with scarce dollars, electronic products seem to be winning out."
Steve Koenig, director of industry analysis with the Consumer Electronics Association in Arlington, Virginia, has released statistics that back up Feldhan's observations. "We recently completed the mid-year update to our industry forecast," says Koenig. "We now project $173 billion in consumer electronics sales in 2008. These new projections represent a 7.3 percent gain over 2007's revenue. The good news from the industry's perspective is that consumers are still spending on electronics, even though they may be cutting back in other areas, such as energy and autos."
Consumer electronics isn't the only segment of the industry that is doing well. Semiconductors are also showing signs of resiliency. "While we forecasted slowing economic growth for 2008, there isn't a 100 percent correlation between the semiconductor business and the rest of the economy," says Feldhan. "We said at the end of last year - and have continued to forecast - that the electronics industries will do better than the general economy."
So far this year, Feldhan has been correct. To date, according to Feldhan's statistics, the semiconductor industry is up almost 6 percent compared to 2007. Feldhan's forecast calls for a 7 percent increase for the year. Why the rosy outlook? "Typically, the culprit of downturns was excess capacity and excess inventory in the channel while end markets were slowing," he says. "That's not the case in 2008."
Consumer electronics products are doing well in a number of categories. Notebook computers, for instance, are on track to grow 30 percent this year. Cell phones will conservatively grow 10 percent in 2008. Although consumers get to decide what they spend their money on - whether that is clothing, light goods, or electronics products such as flat-panel HDTVs - it appears that they are choosing electronics. One of Semico's recent surveys shows that only 11 percent of the people surveyed said it was a good time to buy items. However, 50 percent of the people said they were going to buy an HDTV in the coming months.
As electronics have become staples, the wildcat growth rates of an earlier era have given way to more stable, steady growth in the industry. "The electronics industry has moved into a phase of behaving more like a mature industry," says Dale Ford, senior vice president of iSuppli, an El Segundo, California-based consulting firm. What that means, according to Ford, is the industry's cyclical behavior of the past will continue, but he no longer envisions the same highs and lows experienced during its infancy. "In the past, we saw anywhere from +20 to 30 percent growth to -20 to 30 percent growth in the electronics industry. During the past 20 years, the overall, long-term growth in the semiconductor space was 27 percent."
Today, according to Ford, the industry has matured and settled into a more stable growth rate of approximately 7 percent. "We are seeing the industry in terms of its size and global presence, which has reached a level of maturity previously not seen," he says.
It's not just maturation of the industry that has helped stabilize growth in good times and bad. A quick glance at the troubled automotive industry shows that maturity alone doesn't guarantee stable growth. Product innovation and new technologies are key ingredients to the industry's stable, sustainable growth pattern. Not surprisingly, the electronics industry continues its endless parade of new gadget and gizmo introductions in 2008. However, it is the industry's new technologies and innovations that excite observers such as Ford and Feldhan.
One technology on nearly every industry watcher's radar is nanotechnology, or nanotech, a field of applied science whose theme is the control of matter on an atomic and molecular scale. Generally, nanotechnology is approximately 100 nanometers or smaller and involves developing materials or devices within that size.
"Nanotech could be poised for a big breakthrough in the near future," says Josh James, senior research analyst at Washington, D.C.-based American Electronics Association (AeA). "It has the potential to touch everything. Nanotech looks to be a transformative technology like the Internet. It is going to become a part of everything imaginable, from computing to medicine to healthcare."
Feldhan echoes James' enthusiasm for nanotech. "Until recently, there haven't been a lot of commercialized technologies for nanotechnology. In the next five years, carbon nano-tubes for new memory structures or ultra-fine processing of electronics are going into production," he says. "Nanotech has viability based on what we are learning in the university systems, and I expect we will see the fruits of that research in the coming decade. The result will be smaller, faster, hungrier devices that will make our lives easier. We will continue to see another round of new products and people will want to upgrade their existing products into Nanotech-powered devices."
James agrees that the electronics industry is still at the basic stage of Nanotech research, but he's also starting to see ideas emerging for new products. "The big question is, how do you commercialize those?" says James. "When the industry reaches the commercialization stage, that's when we will see the big payoff." (Please see page 47 for additional information about nanotechnology.)
While not likely to cause the same tectonic shift as nanotech, the development of new battery technology, especially advancements in lithium-ion (Li-ion) batteries and fuel cells, is another area that has the potential to have a significant impact on the electronics industry's long-term growth.
"We haven't seen a dramatic change in battery technology for quite some time. The most recent innovation has been lithium-ion batteries and that was developed 10 years ago," says Feldhan. "We are starting to see some new battery technologies entering the market, which will be in production in the next few years. Fuel cells continue to get closer to being a viable product. Most of the battery technologies being developed are smaller, lighter, and last longer. When these come to market, it will create a whole new wave of lifecycles."
Mechatronics is another technology that has emerged recently as a significant driver of electronics industry growth. Mechatronics is the combination of the mechanical, electronics, and software engineering found in an array of electronic devices, from washing machines to airplanes. Today, for instance, it is estimated that more than 1 million lines of mechatronic code are built into every new automobile. Ten years ago, car makers sold automobiles based on styling and performance. Today, many buyers are drawn to models based on the mechatronic-driven features such as rear-view cameras and consumer electronics gadgets.
According to International Data Group (IDC) of Framingham, Massachusetts, advancement through mechatronics will pave the way for 90 percent of tomorrow's vehicle innovation. The number of lines of mechatronics code is expected to grow 50 to 100 times in the next three to five years. "In five years, a tremendous amount of electronics in cars will rely on mechatronics," says Feldhan. "Even though car sales are lower by a couple of percent this year, the embedded electronics are growing at double digit rates and will continue to escalate."
As the electronics industry has matured and growth has stabilized, the traditional locations for electronics industry activity has also become more fixed. For instance, San Jose-Silicon Valley, California, the perennial home of the high-tech industry, continues to dominate the electronics manufacturing sector. The area ranks at or near the top in seven of the nine high-tech manufacturing sectors by employment, according to the 2008 Cybercities report issued by the AeA. San Jose-Silicon Valley also ranked first in computers, peripherals, electronic components, semiconductors, and photonics manufacturing.
The usual spots, such as Boston, Massachusetts, continue to set the pace for employment and innovation. Boston, for its part, leads the nation in measuring and control manufacturing in terms of employment. It also is a leader in consumer electronics manufacturing. Other metro areas where the electronics industry has taken root are Dallas-Fort Worth, Texas; New York City and upstate New York; and Washington, D.C.
"One of the hottest places recognized around the world is upstate New York," says Feldhan. "The state has done a great job of supporting that development, and IBM has done a good job of creating a coalition of worldwide companies to focus on new technologies. New York has become the premier site for leading-edge, state-of-the-art research and development."
When it comes to semiconductors, Austin, Texas, continues to be a hotbed of activity. Companies such as Motorola, AMD, and Samsung are located in Austin. It is also the home of two national research consortia, MCC and SEMATECH. There are more than 100 semiconductor makers clustered in Austin. And just to the west, in Arizona, the semiconductor industry has also taken root. The Phoenix metro area boasts such top semiconductor players as Intel and Texas Instruments.
Electronics companies, Feldhan observes, seem to cluster around major research universities like those found in Boston, San Jose, and Austin: "The university system will continue to serve as an incubator for electronics industry talent."