The Global Electronic Components Industry. (Focus on Industries and Markets)

By Gross, Andrew C.; Hester, Edward D. | Business Economics, July 2002 | Go to article overview
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The Global Electronic Components Industry. (Focus on Industries and Markets)


Gross, Andrew C., Hester, Edward D., Business Economics


The long term global demand for electronic components will remain strong during the current decade, though growth will be slightly less robust than in the past ten years (9.0 percent vs. 10.5 percent per annum). Ongoing advances in information technology; expansion of the global Internet infrastructure, new generations of handheld and wireless devices, and rising electronic content in original equipment products are the key factors in the growth of shipments. The best prospects for sales will shift to developing countries and emerging markets. Demand growth will decelerate in the United States, but the long-suffering Japanese market will recover. High-end integrated circuit devices offer the best growth opportunities. The Asia-Pacific region will remain a strong net exporter, while all other regions will continue to be net importers of electronic components.

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The universe of generic applications (or end uses) of electronic products spans virtually all sectors of the economy. In the twenty-first century, the scope of electronics touches on most consumer durables (from kitchen appliances to entertainment centers) and industrial equipment (telecom gear, motor vehicles, aerospace goods, instruments, etc.). There are three major end uses for electronics: information technology (IT), industrial and transportation, and consumer goods and "other."

The global revolution in electronics has made possible both the automation of repetitive tasks and the more efficient performance of other tasks. This revolution began in the late 1940s, followed by advances in integrated circuit technology in the late 1950s. Since 1960, continuous progress in components and subsystems have allowed prices to decline sharply, while performance measures have exploded. Using a global price deflator index of 1992=100, the drop went from 123 in 1989 to 27 in 1999. No other sector can boast such trends. From design and fabrication through assembly and even distribution, this business is technology-driven.

Components form the basic building blocks of all electronics products. There are two major groups: a large family of active components and a small group of passive components. Active electronic components are semiconductor products that supplanted the previous generation of vacuum tube devices. The semiconductor family in turn can be broken down into integrated circuits (IC) on the one hand and so-called discretes, plus optoelectronics, on the other. Integrated circuit devices can be further divided into memory chips, digital ICs, microprocessors, and others. Microprocessors are very large-scale ICs, commonly referred to as "computers on a chip" since they feature processing, memory, access, and input/output capacity.

Passive components can interrupt, resist or otherwise influence current flow, but cannot control it. Passive components are capacitors, resistors, connectors, filters, inductors, and oscillators. In effect, the "passives" are used to enhance or supplement the performance of ICs. As subsystems become more miniaturized, integrated passive components will emerge. All switches, sensors, keyboards, sockets, wiring harnesses, and the like, are excluded in this analysis.

The Macroeconomic Environment

The demand for electronic components is a derived demand. The vast majority of both active and passive components are installed in "original equipment make" (OEM) products: consumer electronics, motor vehicles, telecom equipment, factory automation systems, military hardware, and other goods. A far smaller portion enters the maintenance/repair/operations (MRO) sector.

Because electronic components are so widely installed, they are affected by all major macroeconomic variables, ranging from capital spending by businesses to disposable income of consumers, from government budgets to sectoral trends. Falling prices are a positive influence, and saturation rates are a negative influence in both the industry and consumer sectors.

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