Catching up with their North American counterparts, Europe's interconnect, passives, and electromechanical markets rebounded late last year.
Prospects for 2000 are promising, particularly for IP&E makers able to capitalize on the cell-phone boom and the region's other high-growth markets.
"Everything that has to do with mobile phones is fueling component demand in Europe," said Alex Van Roosbroeck, managing director in Europe at CP Clare NV, Hasselt, Belgium.
Demand for commodity products, including ceramic- and tantalum-chip capacitors, began increasing substantially last year as cell-phone makers ramped production, said Alan Gordon, managing director for the European sales and marketing division and corporate officer at AVX Ltd. in Fleet, England.
To capitalize on the cell-phone windfall, many makers are expanding capacity-either by adding bricks and mortar or increasing efficiencies-to address the surge in demand.
Last year, AVX built a tantalum-capacitor facility in the Czech Republic and a ceramic-capacitor facility in Coleraine, Ireland. "We've been able to meet quite a lot of the increased demand, but there are still shortages," Gordon said.
Meanwhile, new production capacity in Evora, Portugal, and Singapore is helping Epcos AG capitalize on the cell-phone sector's strong demand for surface-acoustic-wave (SAW) filters and tantalum capacitors in Europe and other regions.
The European market strengthened in the first half of Epcos' fiscal 1999, which ended in September, and continued to bounce back in the December quarter partly because of an economic recovery in Germany.
Executives at Munich-based Epcos, which is reporting strong growth in every region, expect the company's worldwide sales to rise 25% and earnings increases to be even higher.
Although most of Paris-based FCI's recent capacity additions are in the Asia-Pacific, the company has been upgrading facilities worldwide.
FCI is the first connector maker to meet ISO 14001 environmental standards, according to Alain Dumont, European segment marketing manager at FCI in Versailles, France. The company has started implementing the standard at two facilities in Europe, and is working to meet the specification in the United States and Japan.
Breaking it down
Generalizing about Europe's IP&E markets is difficult. They are as diverse as the companies, products, and technologies that comprise them.
Moreover, performance-as well as challenges-vary by sector and country.
France, Germany, Italy, and the United Kingdom remain the largest consumers of IP&E components in Europe, while Scandinavia continues to gain ground due to the region's wireless-communications leaders such as Ericsson and Nokia.
Demand is also strong on the automotive front, where market leaders are driving up electronic content as they push the envelope for innovative introductions, said Glyndwr Smith, senior vice president of marketing intelligence at Vishay Intertechnology Inc., Malvern, Pa.
Europe's IP&E market rebound lagged that of North America by about half a year.
The recovery in Asia has affected the European market, Smith said. "Due to economic improvements in Asia over the past 18 months, components manufactured in Asia are now being used in their own local markets, instead of supplying European and U.S. customers, which has contributed to component shortages in the U.S. and Europe," he said.
The demand pickup on the Continent is becoming more broad-based.
"Now we see segments other than communications picking up," Smith said.
IP&E demand and product development in Europe has traditionally been less tied to the PC market than in the United States. This is a mixed blessing because the PC market, while price-sensitive, is also a high-volume business.
However, PC penetration in Europe and the Continent's adoption of the Internet are on the upswing, which provides a boost to related markets such as high-speed networking.
"The communications sectors are extremely strong, and the Internet is causing the PC market to grow substantially, so the outlook looks fairly good," said analyst Ralph Anavy of Electronic Outlook Corp., San Francisco.
Although IP&E makers tapping Europe's cell-phone and other fast-growing markets expect to chalk up double-digit revenue gains in the region, unfavorable exchange rates have dampened the outlook for some market players.
Taking into account currency fluctuations, Electronic Outlook forecasts that Europe's capacitor sales will increase 5.4%, to $1.81 billion, this year, and the region's resistor business will grow 8.9%, to $948 million. Next year, the two passives markets will show 10% and 13% gains, respectively.
"The only thing that distorts the growth rate for Europe is the exchange-rate fluctuation, and the exchange-rate weakness for European currencies has made it look worse than it is," Anavy said.
Although this year's European connector sales are expected to grow only 3.1%, the same rate as last year, the region's connector sales for telecommunications/ data-communications applications are projected to increase 4.8%, to $7.16 billion, this year, according to Bishop & Associates Inc., St. Charles, Ill. Connector demand is picking up in France, Germany, and the United Kingdom, according to Bishop.
Connector demand in Europe last year was soft, although the prospects are a bit better for 2000, said Joe King, president of Molex Inc., Lisle, Ill. He expects Molex's growth in Europe to be in the high single digits this year.
"We're optimistic. The telecom, industrial, and automotive sectors will show good, solid profits for us," King said.
FCI is projecting that connector sales in Europe will grow 4% this year, but the region's telecom-connector sales will increase 8% and the automotive connector segment will gain 5%.
Europe's switch market-which isn't riding the cell-phone boom-is less robust than other IP&E segments. The top switch consumers in Europe are the appliance (white goods), transportation/automotive, and industrial-controls/commercial-equipment segments.
Annual growth in the European switch market is about 2% because of depressed regional economies, oversupply of some products, and price pressure from OEMs, according to analyst John Gordon at Venture Development Corp., Natick, Mass. He expects the market to return to a higher growth of 2.5% by 2003 and reach the $1 billion mark in 2004.
Watertown, Mass.-based C&K Components Inc. last year eked out 2% to 4% sales growth in Europe in its electromechanical-switch business. "We expect the same growth this year," said Stefan Keller, director of European sales at C&K Switches Ltd., Kettering, England.
A handful of communications and automotive companies drive those markets in Europe and dictate the strategies of a lot of component manufacturers, said John Sutherby, director of worldwide marketing at C&K Components.
So IP&E manufacturers that serve Europe's faster-growing markets and their leading players benefit the most. This contrasts with the U.S. market, where growth engines are more broad-based.
The telecom market offers the most growth potential for C&K; demand is also growing for membrane switches in medical and instrumentation applications, Keller said.
Modest growth is also in store for Europe's relay market. Venture Development projects a compound annual growth rate of 3.1% from 1999 to 2003, when it will reach $1.7 billion.
However, the solid-state-relay market-though a small part of the relay industry-is expected to have a 5.8% CAGR due to Europe's booming markets for wireless phones, modems, and networking equipment, according to Venture Development.
Culture and currency
Language is no longer a barrier. "While there are big cultural differences, if you have local sales offices with employees who speak the local language, it's less of a problem," AVX's Gordon said. "And, as every year goes by, more and more companies adopt English as the language to do business in the global marketplace."
However, there are differences country by country in the terms and conditions of contracts and the way business is conducted, Gordon said, although they are becoming increasingly similar as global companies seek to deal with suppliers under the same contract in several countries.
Conducting business in Europe is no different from doing so in any other region, said Ulrich Bauer, director of the communications business in Europe at Tyco Electronics Corp., Bensheim, Germany. The challenges are the same-customers request shorter lead times, have shorter development cycles and more complex engineering, and demand lower costs, he said.
The biggest issue is time-to-market, Molex's King said. "Customers are expecting faster product-development cycles," he said. "And clearly, cost is a challenge, particularly since manufacture in Europe is expensive."
Price erosion seems a perennial problem, even during an upswing.
BC Components, Eindhoven, Netherlands, expects sales to rise 10% this year, even though unit-shipment growth will exceed that rate. The main culprit: price erosion.
"We have been successful in keeping prices stable, but in general, prices eroded about 3% to 6% for non-shortage components," said Giuseppe Corti, European sales director at BC Components, which makes aluminum-electrolytic, ceramic, film, and variable capacitors as well as crystals and oscillators, potentiometers, and variable resistors.
To offset cost and price pressure, U.S.-based companies are developing strategies to increase their sales volume on the Continent. C&K has boosted its European sales in the past six to 12 months by centralizing the company's customer-service center in the United Kingdom.
"Our European customer-service center has people who speak French, Italian, and German, which is important to serve local customers," Keller said.
C&K has also beefed up its global distribution network in the past year. The manufacturer of electromechanical switches, interface products, and membrane switches expanded its franchise with Future Electronics Inc. to include 46 locations in Europe and added Deltron Electronics plc in the European market.
"Historically, you have a lot of small local distributors calling on local customers and not much going beyond that for cultural and currency-exchange reasons, but global distributors are changing that very quickly," Sutherby said.
For C&K, selling into Europe from the United States proved challenging because of different price levels and currencies from country to country, Keller said.
"The dollar is very strong at the moment compared to the euro, which is another issue that we are fighting against. Since the British pound and U.S. dollar [two currencies that the company trades in] are extremely strong, it's very difficult to get into Germany, Italy, and France," he said.
Others face similar challenges.
"Since the euro has been dropping significantly compared with the value of the dollar over the past year, it has had an effect on pricing since all of our products are manufactured in the U.S.," CP Clare's Van Roosbroeck said.
But exchange-rate effects are in the eye of the beholder. They depend on where goods are made and in what currencies buyers and sellers transact business.
For FCI, the euro's depreciation against the U.S. dollar has been offset by the appreciation of British and Swedish currencies, Dumont said.
For U.S.-based Molex, however, margins on products manufactured in the United States and Japan and sold in Europe are under pressure, King said, adding that the euro is not yet universal and has had a mixed reception.
"We welcome the euro because it has stabilized the relationship between countries in Europe, so when we ship within Europe, we don't incur the currency-translation risks," he said. "But if customers are not ready for it, then we're still using local currency exchange."
Gina Roos is a freelance writer based in Plymouth, Mass.