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The Asia-Pacific electronics industry, which is a significant
part of the manufacturing sector for many East Asian economies, has
shown a strong rebound during the second half of 2020, after being
significantly impacted by disruptions caused by the Covid-19
pandemic lockdowns in the first half of 2020.
The latest IHS Markit Purchasing Managers' Index (PMI) survey
data shows a strengthening recovery in global electronics output,
as the world economy and major consumer markets have gradually
emerged from the severe economic slump in the first half of 2020.
This recovery has been reflected in China's electronics exports
data, which rose strongly in November, rising 24.8% year-on-year
due to strong Christmas demand for consumer electronics in key
global markets, notably the US and EU.
APAC electronics sector output rebounds after Covid-19
related disruptions
The electronics manufacturing industry is an important part of
the manufacturing export sector for many East Asian economies,
including China, South Korea, Taiwan, Malaysia, Singapore,
Philippines, Thailand and Vietnam. Furthermore, the electronics
supply chain is highly integrated across different economies, with
China being an important supplier of intermediate electronics parts
for a number of Southeast Asian electronics sectors. The complete
shutdown of Chinese industrial production for a protracted period
consequently created significant supply chain disruptions to the
electronics manufacturing sector in many Southeast Asian economies
during February and March.
As the impact of the pandemic widened in the Asian region during
April, the headline IHS Markit Global Electronics PMI fell to 43.6
in April, down from 49.2 in March, to signal a sharp deterioration
in business conditions faced by electronics manufacturers. The
April reading pointed to the fastest decline since April 2009, with
many businesses temporarily closed amid the global Covid-19
outbreak. In addition to supply side disruptions to electronics
output, widespread lockdowns of retail businesses in many major
markets worldwide also disrupted consumer demand for electronics
goods as well as products that have significant electronics
components, such as autos. Extended periods of lockdown in major
electronics manufacturing hubs, including China and Malaysia, as
authorities tried to control the spread of the pandemic, resulted
in disruption of industrial production and consumption, impacting
on global supply chains.
However, since April, the IHS Markit Global Electronics PMI has
showed significant improvement. The headline seasonally adjusted
PMI rose to 53.4 in November, up from 51.8 in October. The latest
reading pointed to the quickest improvement in the overall health
of the global electronics sector for over two years, amid stronger
increases in both output and new orders.
The global electronics PMI's new orders index rose from a
near-12-year low of 35.0 in May to a level of 52.8 by November,
reflecting a significant recovery in new orders.
Each of the four monitored sub-sectors recorded an improvement
in business conditions during November, led by communications
firms, with all four sub-sectors recording expansionary conditions.
The strongest recovery has been in output for communications
electronics, the index for which reached 56.7 in November, helped
by improving demand for mobile phones.
A number of Asian economies have reported strong growth in
electronics exports in the second half of 2020, as the global shift
towards working from home and ecommerce retailing resulted in
surging demand for laptops and smartphones from companies,
governments, and households.
In Malaysia, production of electrical and electronic products
fell by 34.2% y/y in April, as the government's strict lockdown
measures resulted in a sharp contraction in industrial production.
However, as the lockdown restrictions were eased from May onwards,
production rebounded. In October, production of electrical and
electronic products rose by 9.8% y/y, with electronics exports up
3% y/y.
In South Korea, semiconductor exports increased 16.4% y/y in
November, boosted by newly launched mobile phone products as well
as increasing sales of mobile phone parts.
Taiwan's exports of electronic components rose by 19.5% y/y in
November, driven by strong demand for integrated circuits.
In Vietnam, exports of personal computers and related products
rose strongly in the third quarter of 2020, up by an estimated 20%
y/y, as the global shift to remote working boosted demand for
personal computers. For the first ten months of 2020, exports of
personal computers, electrical products and spare parts rose by 25%
y/y.
Electronics industry suppliers' delivery times hit by
supply chain disruptions
Due to the extensive disruption of manufacturing output in many
leading electronics manufacturing hubs due to the Covid-19
pandemic, the situation in April reflected severe supply-side
problems in electronics supply chains. April survey data pointed to
input delivery times lengthening drastically. In fact, the rate at
which vendor performance deteriorated in April to set a new survey
record. During April, companies widely cited difficulties in
obtaining inputs, particularly from the US, Europe and China.
Despite supply chain disruptions, there has been a considerable
rebound in global electronics suppliers' delivery times in recent
months, from a low of 24.9 in April to 46.0 by August. However,
supplier delivery times have worsened again during the fourth
quarter of 2020, with the November reading having declined again to
39.4, with companies reporting raw materials shortages amidst
rising global electronics demand.
Reshaping of electronics supply chains in
APAC
The process of diversification of manufacturing production and
supply chains away from China has already been underway over the
past decade, initially driven by rapidly rising manufacturing wage
costs in coastal provinces of China. The escalating US-China trade
war since 2018 has further intensified this process of supply chain
diversification, as firms shifted some production of manufacturing
exports for the US market away from mainland China in order to
mitigate the impact of US tariff measures. The Covid-19 pandemic
has become a further driver for this supply chain diversification
process. All of these factors are continuing to reshape APAC supply
chains for the electronics industry.
One of the biggest winners of the shift in electronics supply
chains away from China over the past decade has been Vietnam.
Vietnam has attracted large inflows of foreign direct investment
into its electronics manufacturing sector, notably from South
Korean electronics firms. The importance of Vietnam's electronics
industry has risen dramatically, with the electronic industry's
share of total GDP rising from around 5% in 2010 to around one-
quarter of GDP by 2019, a key factor helping to drive rapid growth
of both exports and GDP.
Total electronic and electrical manufacturing exports accounted
for 33% of total Vietnamese merchandise exports in 2019. Vietnam
has become the biggest foreign production hub for Samsung
Electronics, which booked USD 66 billion of sales in 2018 out of
its Vietnamese operations, which was equivalent to around 28% of
Vietnam's GDP.
Vietnam's new EU-Vietnam Free Trade Agreement (EVFTA) which was
implemented on 1st August 2020 will also help to boost Vietnam's
electronics sector.
The Indian economy is also benefiting from new investment
inflows into its electronics industry, linked to the rapid
development of telecoms infrastructure. The rollout of 4G networks
is helping to support the medium-term outlook for new smartphone
sales, and will be further boosted by the development of 5G
networks. The strong growth of India's mobile phone market is
attracting a large number of foreign electronics firms to increase
their manufacturing capacity in India.
The decision by Apple to increase its manufacturing of iPhones
in India has resulted in a significant number of its component
manufacturers also shifting production and diversifying supply
chains to India. Apple component maker Wistron is hiring an
additional 10,000 staff in India as it increases its local
manufacturing capacity. This reflects the strong growth potential
of India's domestic market as well as supply chain diversification
away from China as US-China technology tensions have escalated in
recent months. Apple suppliers Foxconn and Pegatron have also
planned to significantly increase production capacity in India.
The estimated value of domestic Indian manufacturing of mobile
phones reached USD 24.3 billion in the 2018-19 financial year,
compared with just USD 3.1 billion in 2014-15. The overall exports
of mobile handsets from India were valued at USD 2.6 billion in the
2018-19 financial year, according to the Indian Department of
Commerce.
APAC electronics sector outlook
The gradual easing of lockdown restrictions in many of the
world's largest economies has resulted in a rebound of world
consumer demand since June 2020. This is helping to boost demand
for electronics products, as well as for a wide range of other
consumer goods and industrial goods that utilize electronics
components. New orders from the US and Europe for the Christmas
season have also helped to support recovery in new orders for the
electronics sector during the second half of 2020.
In 2021, world growth is expected to gradually strengthen
through the year, with the global economy forecast to grow at a
pace of 4.2% y/y. Most major economies are expected to show a
significant rebound in economic activity as vaccine rollouts result
in improving economic momentum. Consequently, global electronics
demand for both consumer and industrial electronics is expected to
strengthen in 2021.
Over the medium-term outlook, a number of factors should
continue to support further recovery in the global electronics
cycle.
Firstly, a return to positive economic growth in the world
economy is forecast for 2021, which should help to boost consumer
demand for electronics products. Continued positive economic
expansion for the global economy is also forecast for
2022-2023.
Secondly, the rollout of 5G networks will support increasing
demand for new model 5G smartphones over the next three years,
helping to boost demand for communications electronics.
Thirdly, the continued development of industrial automation and
increasing use of robotics and smart devices for industrial
applications and new technologies such as autonomous vehicles will
also help to boost demand for electronics components such as
semiconductors.
These trends will help to boost output and exports in the
electronics sectors for many Asian economies, with the East Asian
region continuing to play a key role in global electronics supply
chains.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.