IndustriAll Project « Strategic study on anticipation of changes in the

IndustriAll Project « Strategic study on anticipation of changes in the European ICT sector » Phase 2 : sub‐sectorial analysis October 2015 
Table of contents
 CHAPTER 1 – TELECOMS ................................................................................................. 4 1. NETWORKS .................................................. 6 1.1. Short overview ........................................................................................................... 6 1.2. The drivers ................................................................................................................. 6 2. DISRUPTIVE TECHNOLOGIES ...................................... 8 2.1. Many M&A are ongoing in the telco industry ........................................................... 9 2.2. Strategy ................................................................................................................... 10 2.3. The main players ..................................................................................................... 11 2.4. Outlook .................................................................................................................... 11 2.5. Desired state ............................................................................................................ 11 3. SET-TOP BOX AND GATEWAYS .................................... 12 3.1. Major players .......................................................................................................... 13 3.2. Technological trends and strategy .......................................................................... 14 4. MOBILE HANDSET ............................................ 14 4.1. Mobile handset sales ............................................................................................... 15 4.2. Major players .......................................................................................................... 16 5. WHAT’S GOING IN EUROPE? .................................... 18  CHAPTER 2 – SMART CARDS ......................................................................................... 20 1. OVERVIEW OF THE SECTORAL TRENDS .............................. 22 1.1. Smart cards have been, and will probably be a dynamic market in the mid term .. 22 1.2. Smart cards employment: Europe still hosts a significant part of jobs ................... 24 2. DISRUPTIVE TECHNOLOGIES AND STRATEGIES OF THE SECTOR ............. 26 2.1. Game changer technologies: softwarisation, and the tide of M2M ....................... 26 2.2. Strategies of the players .......................................................................................... 28 3. MAIN PLAYERS AND EMPLOYMENT IN EUROPE ......................... 29 3.1. Overview of the main competitors .......................................................................... 29 3.2. Trends for the employment in Europe ..................................................................... 31  CHAPTER 3 – ELECTRONIC COMPONENTS ..................................................................... 34 1. OVERVIEW OF THE SECTORAL TRENDS .............................. 36 1.1. Semi‐conductors sector has been buoyant in 2014 and this should continue in the mid term .............................................................................................................................. 36 1.2. However, the clout of Europe in global semi‐conductor industry has shrunk ......... 38 1.3. Employment in Europe ............................................................................................ 39 2. DISRUPTIVE TECHNOLOGIES AND STRATEGIES OF THE SECTOR ............. 39 2.1. Game changer technologies .................................................................................... 39 2.2. Strategies of the players .......................................................................................... 40 3. MAIN PLAYERS AND EMPLOYMENT IN EUROPE ......................... 46
3.1. Overview of the main competitors .......................................................................... 46 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 3.2. Trends for the employment in Europe ..................................................................... 54  CHAPTER 4 – CONNECTORS .......................................................................................... 57 4. OVERVIEW OF THE SECTORAL TRENDS .............................. 59 4.1. A significant growth for the Connector industry since the 2009 crisis and good perspectives towards 2020 .................................................................................................. 59 The Connector industry has retrieving growth after the 2009 drop ................................... 59 Connectors sales are likely to go on growing in the mid‐run .............................................. 60 Main actors : US and Japanese groups dominate the ranking ............................................ 61 A profitability even better than before the 2009 crisis ....................................................... 62 4.2. Employment in Europe ............................................................................................ 62 5. DISRUPTIVE TECHNOLOGIES AND STRATEGIES OF THE ACTORS: ............ 63 5.1. Game changer technologies .................................................................................... 63 5.2. Strategies of the players .......................................................................................... 64 The Connectors industry goes on concentrating ................................................................. 64 But there is still place for big SMEs on specific markets ..................................................... 65 6. MAIN PLAYERS AND EMPLOYMENT IN EUROPE ......................... 67 6.1. European market ..................................................................................................... 67 6.2. Overview of the main European competitors .......................................................... 70 6.3. Trends for the employment in Europe ..................................................................... 76  CHAPTER 5 – CONSUMER ELECTRONICS AND DOMESTIC APPLIANCES .......................... 79 1. OVERVIEW OF THE SECTORAL TRENDS .............................. 81 1.1. A complex market with a wide range of products .................................................. 81 1.2. Employment in the sector ........................................................................................ 87 2. DISRUPTIVE TECHNOLOGIES AND STRATEGIES OF THE SECTOR ............. 89 2.1. Increased digitalization of home appliances ........................................................... 89 Table 1. Trends in consumer electronics, by products ......................................................... 89 Table 2. Trends in domestic appliances, by products .......................................................... 90 2.2. Profound changes in television technologies towards smart and connected TVs... 90 2.3. A competitive landscape marked by multiple mergers and acquisitions ................ 91 2.4. Sustainability ........................................................................................................... 92 3. MAIN PLAYERS AND EMPLOYMENT IN EUROPE ......................... 95 3.1. In the sub‐sector of consumer electronics, European TV producers lost the battle against Asian companies ..................................................................................................... 95 3.2. The largest European producer of home appliances, Bosch moves towards digitalization ........................................................................................................................ 96 3.3. The global leader Samsung has a limited industrial presence in Europe ................ 97 3.4. LG Electronics aims at becoming market leader on the Home entertainment market 99 3.5. Groupe SEB expands its presence in Europe .......................................................... 100 3.6. Whirlpool doubles its footprint in Europe through the acquisition of Indesit ....... 102 3.7. Electrolux continues its restructuring plan and at the same time makes courageous acquisitions. ....................................................................................................................... 103 3.8. Trends for employment in Europe ......................................................................... 105 
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2 Table of contents – Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector”  CHAPTER 6 – CABLES .................................................................................................. 109 1. OVERVIEW OF THE SECTORAL TRENDS ............................. 111 1.1. A highly fragmented sector with strong competitors in Europe ........................... 111 2. NUMBER OF PERSONS EMPLOYED IN THE EUROPEAN CABLES SECTOR: A DROP OF
15% SINCE 2008 .............................................. 117 3. WORLDWIDE TRENDS OF THE SECTOR .............................. 118 4. MAIN PLAYERS AND EMPLOYMENT IN EUROPE ........................ 119 4.1. Leoni, the largest European player, is highly dependent on the automotive sector ............................................................................................................................... 119 4.2. Prysmian restructured its activities in the Netherlands and France ...................... 121 4.3. Nexans is pursuing transformation ....................................................................... 122 4.4. NKT Cables grows through acquisitions and targets cost cutting ......................... 123 4.5. General Cables restructuring actions including in Europe ..................................... 124 4.6. Tele – Fonika, a strong local player in Central and Eastern Europe ...................... 125 5. TRENDS FOR EMPLOYMENT IN EUROPE ............................. 125  CHAPTER 7 – COMPUTERS ......................................................................................... 127 1. OVERVIEW OF THE SECTORAL TRENDS ............................. 129 1.1. A highly fragmented sector with a reduced footprint in Europe ........................... 129 1.2. Employment in the Computer sector in Europe: a drop of more than 30% since 2008 ............................................................................................................................... 134 2. DISRUPTIVE TECHNOLOGIES AND STRATEGIES OF THE SECTOR ............ 135 2.1. Game changer technologies .................................................................................. 135 2.2. Trends in storage systems business ....................................................................... 135 2.3. Mergers and acquisitions ...................................................................................... 136 3. MAIN PLAYERS AND EMPLOYMENT IN EUROPE ........................ 138 3.1. HP targets cloud, mobile, big data, security ......................................................... 138 3.2. DELL turned private and focused on end‐user computing .................................... 139 3.3. Apple has a limited manufacturing presence in Europe ........................................ 141 3.4. IBM exited PC business and focuses on cloud, big data and cognitive computing 142 3.5. Atos expands through the acquisition of Bull and Xerox ....................................... 144 3.6. Fujitsu business shrinks in Europe, focuses to services .......................................... 145 3.7. Hitachi has a broad range of activities in Europe, including Enterprise Storage System ............................................................................................................................... 146 3.8. Trends for employment in Europe ......................................................................... 147 Table of contents – Telecoms 3 
Chapter 1 ______________________
Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Chapter 1 – Telecoms 5 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” The telecom sector is made up of 3 main segments: 
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Networks 110 €b STB & Gateways. 30 $b Mobile handsets. 200 €b 1. Networks 1.1. Short overview At worldwide level, networks are representing a 150€b market1. Around 50 b€ can be added with the enterprise networks market. The network telecom market does not grow fast anymore due to the NSP’s cycle investment. Some analysts believe that the Wireless market may have peaked in 2015 and then might decrease in the forthcoming years due to the wait‐and‐see attitude of the NSPs before the 5 G ramp‐up. At best, the Wireless market might stay stable from now on to 2019. Nevertheless, some segments in the market are still growing. That’s the case for instance of the critical point of IP routers. This segment should benefit from a steady growth. Other applications such OSS/BSS should also enjoy a strong growth. SDN and NFV are also growing a lot in a context of a datacenters boom and the virtualization of networks. 1.2. The drivers Mobile subscribers One of the main drivers is the mobile subscriber growth. According to According to Ericsson2, smartphone subscriptions might rise from 2600 million in 2014 to 6100 million in 2020! Tomi Ahonen Forecast3 is more cautious with “only” 3700 million smartphone subscribers in 2018… Nevertheless, this growth of the smartphone sales along a global growth subscriber of mobile subscribers, from will feed data explosion in the forthcoming years. 1
Digiworld Yearbook 2015. Idate May 2015. Ericsson – smartphone – mobility report. May 2015. 3
Mobile Forecast 2014‐2018. Tomi T Ahonen. 2015 2
6 Chapter 1 – Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Data and increasing traffic Traffic is increasing at a stellar speed due to the rise of smartphones subscribers and intense use of video. This trend should continue during many years. It means that networks will have to support a growing amount of data and be flexible so as to face data explosion. Chapter 1 – Telecoms 7 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” European decline in employment Employment in Europe has been strongly declining these last 15 years. Many European players gave up or were acquired (Marconi, Siemens…). Major companies implemented many restructuring plans. Fabless became the motto of most of the players. First, networks providers began to outsource to Electronic Manufacturers Services (Flextronics, Jabil…). The manufacturing units were quickly closed in Western Europe and were offshored either to Eastern Europe or to Asia. Almost all manufacturing jobs disappeared in the 2000’s. Even in Eastern Europe. Then offshoring projects were launched in order to create Shared Services Centres, mostly in Eastern Europe (Czech republic, Poland…). R&D at first began to be offshored but only in the case of legacy products. Quickly, things evolved and more innovative developments began to be offshored. Nowadays firms such as Ericsson have at least 35% of their total headcount located in Asia4. In the case of Nokia – before ALU’s takeover –it’s around 40%5. Global employment in telecom equipment is around a million jobs worldwide. Figures do not include Foxconn and the likes. These figures come from the top 60‐telecom companies. Some figures are not available. In some cases, Samsung or Apple, assessments have to made so as not to include retail employees for instance. In Europe, the number of employees in the manufacture of communication equipment (ANCE code 26.3) was around 180 000 in 2012. It must be lower today. 2. Disruptive technologies In the telco industry, technological changes are uninterrupted. Wireless is a good illustration with 4G being currently deployed all over the world and further improvements such as VoLTE and LTE‐Advanced at their beginning. In the meantime 5G researches have already begun. As regards to fixed broadband, copper is still being upgraded with VDSL? VDSL2 and now G.Fast along fiber improvements. Telecom players do invest a lot in R&D. As a whole, it’s an intensive R&D industry with R&D/Sales ratio of 12‐15%. One of the major issues of the telco market is the rise of SDN and NFV. Because networks are supporting more and more users, data and needs, scalability and adaptability are key. SDN (Software Defined Networking) and NFV (Networks Function Virtualization) are being deployed like in Domain 2.0 AT&T program. SDN is the opportunity to centralize equipment control through software. Networks can become programmable. SDN is often linked to NFV. NFV is the virtualization, that is softwarization, of major networks functions. Using commoditized equipments, these softwares are becoming the key part of the networks and are hosted in the cloud. This major trend will progressively redesign networks architecture and favour telecom and IT convergence. 4
Ericsson website. October 2015. Facts & figures. Nokia’s People & Planet Report 2014. 5
8 Chapter 1 – Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” As regards to IT & Telecom, it should be noted that a research institute such as IDATE has decided in its last edition to put together telecom infrastructures and IT infrastructures. This also illustrates the IT & telecom convergence that is taking place. IT players including Acenture, Cap Gemini and so on are trying to enter the telecom market and are proposing applications and integration services to NSP’s. Tekelec’s acquisition by Oracle is an illustration of that trend. Some sub‐segment of the telco market such as OSS/BSS are a grey zone between IT players and telecom equipment providers. Another major trend is M2M. M2M is emerging right now. It will constitute of the main drivers of the telco market. However it should be said that this is a major phenomenon. M2M whithers the telco industry and will impact the whole digital world and beyond i.e manufacturing. Automotive and utilities should fuel the M2M growth. M2M can be considered as an opportunity for NSP’s as well as telco equipment providers. Source: Ericsson As regards to IT & Telecom convergence, it should be noted that a research institute such as IDATE has decided in its last edition to put together telecom infrastructures and IT infrastructures. This illustrates the IT & telecom convergence that is taking place. IT players including Acenture, Cap Gemini and so on are trying to enter the telecom market and are proposing applications and integration services to NSP’s. Tekelec’s acquisition by Oracle is an illustration of that trend. Some sub‐segment of the telco market such as OSS/BSS are a grey zone between IT players and telecom equipment providers. 2.1. Many M&A are ongoing in the telco industry Because NSP’s are merging and scale is becoming a crucial issue, telecom equipment providers have never ceased to merge neither. These last 15 years or so, many players disappeared. Some were acquired (Marconi, Motorola, Panasonic…). Other merged (Alcatel + Lucent, Nokia + Siemens) or filed for bankruptcy (Nortel). In April 2015, Nokia announced a public exchange offer so as to announce Alcatel‐Lucent’s acquisition. This is the most important M&A since many years. Chapter 1 – Telecoms 9 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Ericsson proceeded many smaller acquisitions these last 3 or 4 years. Beyond some Nortel’s assets, Ericsson bought numerous companies such as Telcordia and Telcocell so as to strengthen its position in the OSS/BSS market. It also acquired several companies in order to get in the TV & Media market (Technicolor Broadcast, MediaRoom, Redbee Media). More recently, Ericsson focused on cloud related acquisitions: MetraTech, Apcera, Sentilla and added a telecom IT services business takeover in China. Even though Cisco has much broader portfolio, it can be considered as a major telecom player. Cisco has been acquiring frenetically companies along the years: 6, 10, 11, 6 respectively in 2014, 2013, 2012 and 2011. In 2015, 3 acquisitions have already been announced. Because of the technological hype related to SDN and NFV, Cisco bought T‐fail, Ciena is currently acquiring Cyan and Infinera has completed the Transmode’s takeover. Among the other M&A that could happen and as an answer to Nokia’s public offer, Ciena or Juniper might be an Ericsson’s target even though it announced that it had arbitrated in favor of organic growth. The story is not yet over. 2.2. Strategy Ericsson has been the leader of the telecom industry these last 15 years or so. In reality, it’s Wireless leader that has tried to enlarge its portfolio through services offer (managed services, professional services…). More recently, it entered OSS/BSS and IPTV. One of its goal is to reinforce in key markets such as IP routers in which he’s been on the fringe up to now. It has realized relatively small‐scale acquisitions in order to get technologies and/or market share. Its domination is being threatened by the – irresistible? – rise of Huawei. Due to the Chinese industrial policy – Chinese NSPs procurement policy, state export subsidies etc. – Huawei has been gaining market share in every Economic zone except in the United States. It is now the world leader in several markets such as Optics and GPON. The new Nokia – after Alcatel‐Lucent integration – will however be the number 2. Huawei has also become one of the world leaders of the smartphone industry. This successful development must be put into the context of the Chinese industrial policy. 20 years ago, China had announced its ambition to favor the emergence of a world leader in the telco industry. Ericsson is still the leader but needs to invest deeply (internal and/or organic growth) on the most high growth potential products/markets. It has developed these last years beyond its traditional market, that is wireless, so as to catch the growth of other markets beyond traditional services. Only a success in high growth new segments could allow Ericsson to remain the world leader. Nokia’s takeover for ALU is an answer to the issues of scale, market share and portfolio. In the forthcoming years, Nokia will use a lot of energy so as to succeed at doing the integration. 10 Chapter 1 – Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 2.3. The main players The big players are Ericsson, Huawei and Nokia (including Alcatel‐Lucent). Cisco is another big player with a broad portfolio much wider than telecom infrastructures. Nevertheless, Cisco is major player with dominant market positions in routers for NSPs as well as enterprises. It is also present in many different segments such as ePC (Evolved Packet Core), SDN and NFV. ZTE is another Chinese player, although smaller and less successful. There are also some smaller players that are significant competitors in Optics (Ciena, Infinera, ECI…), in Fixed Access (Tellabs, Calix…), OSS/BSS (Amdocs, Comverse…). Beyond Ericsson and Nokia/Alcatel‐Lucent, there aren’t European players anymore. 2.4. Outlook Following the trend, these are the following features that should happen in the forthcoming years: 
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Chinese competitors are threatening. Huawei should become the telecom world leader. In the US, innovation will continue to flourish due to an ecosystem with heavyweight NSPs among the frontrunners. At the same time, European NSPs are lagging behind and are slow to roll out next generation networks. Boundaries are blurring: outsourcing from operators. IT companies getting in. Telecom equipment market is one of the rare sub‐sector with European companies leading. 5G will be launched early in South Korea and Japan. That won’t be the case in Europe. Even though Europe has announced a 5G‐PPP (pulic private partnership) with the European Commission, industry manufacturers, NSPs and researchers. Some agreements have been signed with China and South Korea. The latter has budgeted an amount quite similar to the European Commission! Employment in Europe will continue to decline. The restructuring plan launched by Ericsson in autumn 2014 is targeting employment in Europe including Sweden. It will be followed by the synergies announced by Nokia that would lead to at least 10 000 jobs losses, with a large chunk in Europe. Subcontractors will also suffer from these synergies (procurement policy). 2.5. Desired state Telecom infrastructures must be considered as a critical and strategic asset. NSPs in Europe should have a more cautious policy as regards to procurement. A responsible policy should take into account not only prices but also issues such as national sovereignty and security. Chapter 1 – Telecoms 11 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” As it’s being done in the US. And some guarantees concerning local employment and manufacturing should be mentioned in tenders and awarding contracts. Europe must invest more in 5G. The amount today is quite ridiculous. A 40 million inhabitants country is able to mobilize as much money as a 500 million Economic zone! Europe must use normalization as a tool to promote its own manufacturers. Spectrum auctions and 5G auctions should be harmonized around the EU. And the time frame should be used so as to boost European R&D as regards to 5G roll out. Time schedule can be a very efficient tool so as to encourage NSPs and networks providers to speed up. These different measures should lead to a ramp up of new factories and the development of R&D centers. This would help to keep Europe as a major hub for innovation and employment in the telecom sector. 3. Set‐top box and gateways STB and gateways can be considered as a distinct segment or a component of networks equipment segment. It represents a market of around 30 b€. STB represent the most important part of it. Some of the main players are also present in networks (Huawei, ZTE, Cisco, …) or mobile handsets (Samsung). MSOs face an increasing competition coming from NSPs as well as OTT (Apple TV, Roku…). The latter provide specific boxes or sticks (Amazon, Google…) at very low prices. This is leading to a decline of Pay‐TV, the cable and satellite market should therefore decline in the forthcoming years. Combined with STB embedded in SmartTV or game consoles, the overall STB market should decline up to 2019. Source : Infonetics research 2015. STB market. 12 Chapter 1 – Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” On the other hand, because gateways are unavoidable, the trend is different. The gateway market should rise in the future but it will not offset the STB market decline. Source: Infonetics Research. 2015. CPE. The gateways or CPE market growth will be driven by the growth of subscribers. The development of triple play bundles and multi‐screens usages will fuel the growth along with fiber growth as well as fixed LTE. In the STB market, there’s a significant divide between developed and the emerging markets. In Western Europe and North America, operators have trouble attracting new subscribers and therefore propose more and more sophisticated devices and services. In the emerging countries, CPE are more basic. 3.1. Major players The market is not concentrated with dozens of Chinese and Taiwanese players. The leader is Arris that is currently acquiring Pace, the number 2, the latter being a British competitor. Huawei and ZTE are also major players along Samsung and Technicolor. Technicolor has entered into an exclusive agreement with Cisco. Its goal is to acquire Cisco Connected Devices, one of the big players. The transaction will lead to a strong number 2 vis‐à‐vis Arris. Furthermore, the 2 groups have announced that they will enter into a strategic partnership that will allow them to deliver and products and cooperate on Internet of Things Solutions and services. Other important competitors include Echostar, Humax, Sagemcom, TP‐Link, Zyxel, Fiberhome among others. Chapter 1 – Telecoms 13 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Technicolor, a French company, will remain the only European and major competitor with a strong location in the US. Sagemcom is another player but much smaller. Beyond these 2, ADB (Swiss) and Netgem (French, really tiny) are the only other European firms. 3.2. Technological trends and strategy Several transitions are ongoing: DSL CPE from ADSL to VDSL and G.fast. And from modems to broadband gateways. In the CPE cable market, there’s a transition from DOCSIS 2.0 to DOCSIS 3.0 so as to deliver multiscreen. Beyond the competition between MSOs and between MSOs and NSPs, a more gigantic battle is taking place around the connected home. The issue is which player or category of player will succeed in hosting and keeping the intelligence that allows to control not only telephone, internet and TV but also many other services such as: security, fire detection, temperature regulation, domestic appliances use etc. NSPs, MSOs, OTT (Apple….), domestic appliances manufacturers as well as STB/gateways manufacturers are all trying to find the solution so as to control the connected home. This battle could imply to shuffle again the cards. This market will be profoundly transformed in the future. 4. Mobile Handset Fueled by subscription development, mobile industry revenues have been growing fast. The mobile industry is the fastest‐ever to go to achieve one trillion dollars revenues in only 29 years. The growth rate is now slowing because of the peak of voice revenues. Applications represent a tiny fraction of the whole. Mobile industry revenues Mds$
2000
1800
1600
1400
1200
1000
800
600
400
200
0
2011
2012
2013
2014
2015
2016
2017
2018
Source: Tomi Ahonen‐Mobile Forecast‐ 2014‐2018 14 Chapter 1 – Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 4.1. Mobile handset sales Because of smartphones, revenues from the hardware side are growing fast. But the penetration rate will soon reach a peak. 2 contradictory forces push Smartphones revenues: high‐end smartphones on one side and Moore Law on the other side. New handset sales wil continue to rise up to the end of the decade but the growth will slow. Features phones have fallen below 20 US$. But 2/3 of handsets sold are smartphones. The 2 billion phones level sold per year will be reached in 2015. Source: Tomi Ahonen‐Mobile Forecast‐ 2014‐2018 Consumers quickly switched from basic phones to smartphones, allowing smartphones sales to grow quickly. The one billion threshold was passed in 2014 and the 2 billion will be reached in 2018. New smartphones sales in units
2500
2140
1980
2000
1800
1560
1500
1290
990
1000
695
500
476
0
2011
2012
2013
2014
2015
2016
2017
2018
Source: Tomi Ahonen‐Mobile Forecast‐ 2014‐2018 Chapter 1 – Telecoms 15 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” The average sales price (ASP) is going down given the Moore law. Basic phones are now really cheap. But even smartphones prices are declining quickly. 4.2. Major players As regards to shipments, Samsung is the world leader. Apple is number 2. Looking at profits, Apple gets a huge proportion of the whole sector’s profits. It took 93% of mobile profits last quarter 2014. Samsung got only 9%. Microsoft lost money as well as Blackberry, Sony Mobile and HTC. Apple sold smartphones at an average selling price of 698$ compared to an ASP 206$ for Samsung! Beyond these two leaders, many Chinese players are becoming stronger. Huawei has been well ranked these last years. Its sales are growing in 2016 at an impressive rate. Levovo was reinforced by its takeover of former Motorola’s mobile handset business. But the most impressive success to date is the spectacular rise of Xiaomi, another Chine player. Founded in 2010, it became the largest smartphone maker in China in 2014. Xiaomi was als the 3rd largest smartphone maker in the word according to IDC and Strategy analytics. 6. Huawei actually captured the number 3 position in 2015. Xiaomi ranked 4th. 6
IDC. 29 October 2014. Worldwide Quarterly Mobile Phone Tracker. 16 Chapter 1 – Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Regarding the future, Tomi Ahonen predicts that Samsung will stabilize after difficult years. Apple should loose ground as regards to market share and its focus on high‐end smartphones. And Chine manufacturers will continue to grow (Huawei, Lenovo, Xiaomi and TCL). One could add that it might be possible that the numerous Indian firms that are flourishing nowadays might become serious competitors before the end of the decade. Chapter 1 – Telecoms 17 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Regarding mobile operating systems, according to Tomi Ahonen, the most likely scenario is of the picture to remain frozen like it is today. The author does not exclude a Tizen flop (Samsung), an iPhone surge, a Tizen surge, a Blackberry comeback and Windows comeback by order of likelihood. 5. What’s going in Europe? Almost every European players have disappeared. Many players gave up: Alcatel, Ericsson, Nokia, Phillips, Sagem and Siemens among others along with numerous other players in Japan or in the US (Motorola). In Europe, only a handful of SMEs remain or emerged. 
Former Nokia employees have launched a new firm, Jolla. It has developed Sailfish OS a new operating system (OS) based on MeeGo that had been developed by Nokia. It’s a company with 125 employees.  Archos has been created in 1989. This French company designs smartphones, tablets as well as connected devices. It has been struggling with a declining turnover and losses. 2015 might be the year of a bounce back with a turnover rising for the first time since 2011. It employed 179 people end of 2014.  Few other SME exist in Europe such as Fairphone that sells Fairtrade phones. Fairphone will use the new Sailfish OS.  Vertu is a British designer of luxury mobile handsets owned by a private equity fund. The company has 1000 employees. It’s difficult to imagine how things might change in Europe and how some big players could merge in the short/medium term. In terms of manufacturing, Foxconn is obviously the major producer even though not all competitors did not outsource to EMS. Nevertheless, China is hosting the largest chunk of plants and employees. One should mention that these last years plants were opened in other countries such Brazil, Malaysia and Vietnam. In Brazil, this has to do will high import taxes that can be avoided in case of local manufacturing. In India, new plants are opening due to Chinese firms (Huawei, Foxconn…) willing to comply to Indias’ policy. Originally companies that began to emerge quite recently were dedicated to design and were outsourcing production in China. This situation might be changing with some Indian companies opening plants in India. This must be related to “Make in India” governmental policy. 18 Chapter 1 – Telecoms IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Chapter 1 – Telecoms 19 
Chapter 2 ______________________
Smart cards IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Chapter 2 – Smart cards 21 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 1. Overview of the sectoral trends 1.1. Smart cards have been, and will probably be a dynamic market in the mid term Smart cards are used to transfer and store data. They lie at the very heart of the last years’ telecommunications boom, since the telecoms (cell phones) have been the main end market for smart cards. This market was around 2,3Bn€ in 2013. Financial services (credit cards, which represent a market of 2,1Bn€), public services (ID cards and national health services cards, which represent a market of 2,4Bn€), and transports (contactless transport cards) are also important drivers for the sub‐sector. Please note that there is a distortion between an analysis of end markets by volumes (where telecoms clearly lead the way) and an analysis of end markets by value (where there are three important markets). This is due to the fact that telecom smart cards (SIM cards) are becoming “commodities” and have then a lower price than more value oriented cards such ID cards or bank services. In 2014, smart cards production has kept growing More than 8Bn of cards have been delivered in 2014, that is a growth of 10%. The average annual growth between 2009 and 2014 reaches 12, 2% (in volume), the sign of a dynamic market. Production of microprocessors "smart secure devices" (Millions of units) % of total
2014/2013
CAGR 2014/2009
2011
2012
2013
2014(f)
Telecoms
4 700 5 100 4 850 5 100 63%
5,2%
8,4%
Financial services
1 050 1 200 1 550 1 950 24%
25,8%
21,1%
Public‐Health
240 310 350 390 5%
11,4%
19,5%
Others (transport…)
305 480 580 600 7%
3,4%
23,4%
TOTAL
6 295 7 090 7 330 8 040 100%
9,7%
12,2%
Source : Eurosmart
Fueled notably by financial services growth, short and mid‐term perspectives are good In 2015, production is expected to reach 8,8Bn of cards, increasing by 9% from 2014. The 2014‐2020 CAGR should amount to 7% per year. However, those high figures have to be handled carefully: they reflect the dynamism of the demand in smart cards. The figures should be lower when focusing on the value of the market (the revenues of the players). 22 Chapter 2 – Smart cards IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” The sector has been through bearish trends regarding prices in the last years:  Competition is increasing, with some major players being very price aggressive, and some new players (mainly from Asia) slowly rising;  Basic SIM cards are in the process of commoditization, though prices are still kept high in some sub‐markets (next‐generation SIM cards, financial services). Forecast for production of smart secure devices (millions of units. Source : Eurosmart)
14 000
12 000
10 000
8 000
900 600 390 1 950 6 000
4 000
2 000
1 700 750 440 Others (transport…)
3 500 2 350 210 160 750 Public‐Health
Financial services
Telecoms
5 100 5 250 5 900 3 400 ‐
2009
2014 (f)
2015 (f)
2020
Telecom market should keep growing at a moderate pace, carried by next‐gen SIM cards SIM cards are, and will remain the first end market for smart cards sector. However, the growth should slow down in the mid‐term (forecast of 2014‐2020 2% CAGR according to Eurosmart). Demand has been fed by increasing equipment of emerging countries as regards to mobile devices, 4G networks roll‐outs, and development of machine‐to‐machine technologies. Asia and America are the most dynamic regions… While Europe is already a mature market, where the main boost for demand should lie in the 4G and 5G network updates. Financial services opportunities are flourishing, thanks to standards harmonization and emerging countries’ growth Demand for credit smart cards should be buoyant in the mid‐term, with a 10% CAGR between 2014 and 2020. This is explained by :  Fast development of contactless credit cards ;  Transitioning to EMV (international Mastercard Visa standard) of three major markets: China, India and the US.  Sharpening need for security and extra services. Chapter 2 – Smart cards 23 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Demand for electronic ID cards is dynamic, though the volumes are lower The « public » market (ID, health and social security) should keep growing in the years to come (expected CAGR of 19% between 2014 and 2020). More and more governments and public services are choosing safer, hence, “smart” identity documents. Today, e‐ID documents stand for a small third of ID documents; the share should rise to 50% in 2017 (source : ABI Research). It is true both of developing countries and the EU. 1.2. Smart cards employment: Europe still hosts a significant part of jobs From a statistical viewpoint, smart cards industry is mixed among NACE code 261, along with EMS, microelectronics and connectors. As a result, a statistical approach to assess the number of employees does not seem relevant. Since smart cards industry is a concentrated market, with few and well‐known actors, it seems appropriate to compute the number of employees through a bottom‐up approach, relying on the competitors and adding up the numbers. According to public sources:  The leader Gemalto is thought to have around 6000 employees in EMEA (EMEA is a larger region than Europe in itself, but we assume that almost all EMEA employees are European).  Oberthur headcount is close to 6400 employees all around the world. We assume that half of them are employed within Europe (France, UK, Spain).  At the end of 2013, G&D employed more than 6000 people in its Mobile security (= smart cards) division. We assume that half of them are employed within Europe (mostly Germany), which means about 3000 people in the business in Europe.  We assume Morpho, for its E‐documents division, has around 1000 employees in Europe. Those estimates lead to a 10K‐15K European headcount for smart cards industry. We will consider the mid‐point 13K employees as our estimate. Indeed, smart cards are one of the few, if not the one and only, sectors where Europe is still clearly leading the game:  All top players are European (French of German) ;  Europe is still the region concentrating the biggest share of headcount;  What’s more, Western Europe still has a strong industrial footprint, and not only R&D. 24 Chapter 2 – Smart cards IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” The figures are then clearly in favor of Europe, but… the trend is plainly less positive. European headcount has been oriented downwards in the last years. However, it is not the case for smart cards players’ global headcount. The bulk of employees and the recruitments are shifting from Western Europe to emerging countries: Eastern Europe, South America, Asia.  The “soft” way is to give minimum work load to western European factories and staff, rely on retirement and resignation to diminish the number of employees, and concentrate the work load (both in manufacturing and R&D) in emerging countries.  The “hard” way” is to close plants in Europe and/or initiate programs of collective redundancies… and, still, concentrate the work load (both in manufacturing and R&D) in emerging countries. All players have been using those strategies, in a way or another:  Gemalto headcount has been increasing, but the role of France (and of Western Europe more generally) has been shrinking. French plants get minimal load, and the rest goes to low‐cost factories. Even though the European R&D employees still play a key role in the company, there have been numerous recruitments of engineers in low cost countries too.  In 2014, G&D started a cost‐cutting plan, the so‐called “P100” program, which aims at increasing profitability by 100M€. It involves several locations in Europe, and mainly Germany, causing some protests to rise, all the more important since it was the first restructuration of that scope in G&D’s history.  The Munich headquarters would be closed and moved to Leipzig;  The Munich plants would also be moved to others German plants;  950 jobs would be cut (around two thirds in Germany), with “re‐dimensioning” of administrative and commercial structures;  150 German employees would have to be relocated.  This plan is to be carried out in 2014, 2015, 2016, and has already created restructuring costs of 74M€ in 2014.  Though keeping a significant footprint in France, Oberthur has relied on outsourcing (for example, in Ukraine and Philippines) in the last few years, both for manufacturing and R&D. What’s more, they have launched a major restructuring program in 2014, with several projets :  Closure of two plants in Europe (one in Uk and one in Spain), the remaining workload being transferred to a French plant (Vitré) or to Asia ;  Closure of two small plants in France ;  Around 400 job cuts in Europe (UK, Spain and France).  Headcount of the only remaining manufacturing location in Europe, Vitré, would moderately increase (+50 employees). Chapter 2 – Smart cards 25 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector”  The number of employees of Morpho is on an upward trend, notably through the numerous acquisitions realized over the last years. However, Morpho is also carrying out cost‐control strategies. Morpho launched a restructuring program of its smart cards division, with one site closure in Germany (300 people impacted) : the R&D and manufacturing activities will be transferred to France and India (R&D) and Czech Republic and Colombia (manufacturing). 2. Disruptive technologies and strategies of the sector 2.1. Game changer technologies: softwarisation, and the tide of M2M Smart cards sector is no exception to the general IT trends. More specifically, the movement of softwarisation (with a shift of value added from hardware to software and related services), and the machine‐to‐machine technology are currently some major stakes the players have to tackle. This also leads to more fragmentation in the market. From an oligopolistic situation, where strength is based on economies of scale for hardware production… new players, IT giants or specific and smaller software companies, are entering the game. Main drivers for the sector in the years to come should be:  Next‐generation SIM cards (4G and 5G) and embedded SIM cards;  Sharpening need for security and safer transactions;  Digital identity;  Financial services on mobile devices;  Machine‐to‐machine technology. Strong potential for contactless technologies In 2014, contactless smart cards amount to 16% of total volumes, but this share has been steadily rising in the last years (as a comparison, the share was only 9,5% in 2012). This is mostly explained by the rise of new types of financial services: electronic wallet, contactless credit card (or carrying both contact and contactless technologies), Near Field communication (NFC) technologies embedded in smartphones as a payment device… In Western Europe, contactless credit cards should be the main driver of an already mature market, whereas credit card penetration is still at stake in Eastern Europe. Production of contactless smart cards (Millions of units)
2014/2015
2013
2014
2015
Financial services
590 800 1 000 25,0%
Public ‐ Health
200 230 260 13,0%
Others (transport)
250 250 280 12,0%
TOTAL
1 040 1 280 1 540 20,3%
Source : Eurosmart
26 Chapter 2 – Smart cards IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” The growth of mobile payment represents a risk of market fragmentation and could negatively affect the smart cards companies Payment on mobile phones is obviously one of the top challenges in the sector and object of a fierce struggle between diverse companies. Traditional hardware smart cards companies face the risk of being bypassed by payment companies, such as PayPal or Square, which develop their own payment schemes, or over the top companies (Google). Today, the secure element of mobile payment is located in the phone SIM card (result of cooperation between smart cards producers and MNOs) but could:  Be directly welded to the phone, or be located in a card dedicated to payment. In the first case, smart card players could offer related services to payment identification, without offering the card itself. In the second case, smart card players could offer the specific card, in addition to the traditional SIM card.  Or the secure element could disappear. This directly to the Google project of ‘”host card emulation”: payment would be directly handled by Google, without smart card and without the control of MNOs. In either situation, revenues of smart card players could be hit, and they will have to prove their ability to offer extra services, even without the hardware part. Biometric identification is also expected to be a big opportunity in the longer‐term, and could allow French players, among them Morpho, to have a say in the race. Machine‐to‐machine technology is spreading and could be a game changer for smart cards firms The expansion of M2M objects (automotive, consumer and industrial electronics…) is a megatrend of the ICT world currently, and smart cards take their share. From traditional SIM cards (allowing secure access to mobile networks) the SIM card is changing and embedded SIM cards with remote management are spreading. A new specification was adopted in 2014 by GSMA7, and this should boost the development of M2M objects:  SIM card will be embedded in the M2M product during its manufacturing (car, consumer electronics…) and will be managed (customization, validation…) by remote control.  This is expected to facilitate:  maintenance (for instance, if a SIM card is located in a sensitive part of a car or a smart electricity meter, it is easier to control remotely than to change the whole part);  swap of MNO (instead of changing the SIM card, the MNO will just have to remotely activate/deactivate the embedded SIM by radio). 7
GSM Association is a worldwide association representing interests of MNOs. Chapter 2 – Smart cards 27 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Embedded SIM cards are still new, and companies are still working on the construction of hardware/software/services/ offers. Nevertheless, they are bound to be a game changer both for smart cards sectors, and more globally for ICT megatrends. The rise of related services and software, beyond the hardware, leads to the rise of new software players Digital identity services (digital signature, online identification for a firm’s employees…) is a promising market, where smart cards actors are struggling to have a role, faced with lack of standards and the arrival of IT security players (from corporate markets or payment processors). The security and the privacy of interactions, on the web and the cloud, are already major issues and should develop in the future. The leaders in this highly fragmented field are RSA, Vasco, Entrust, Symantec or Gemalto. Neither Oberthur, G&D or Morpho are thought robust enough in this regard. Other firms also enter the game (Atos, Microsoft, IBM…). Trusted Services Management (TSM) activities, though not new, are a good example of the growth of related‐services activities. In the mobile payment field, smart cards competitors play the role of a “neutral third party” or intermediary (the role of the “TS manager”) between MNOs and banks, managing the software platforms that enable mobile payment transactions. 2.2. Strategies of the players Cost‐cutting and outsourcing programs have involved the whole sector, though highly profitable Indeed, the sector is going through important price pressures on some markets, though the pressure is limited because of the oligopolistic structure of the sector. Those price pressures come from the fierce competition between the top players themselves, and from the local players (most Asian), gaining coverage and shares. Those constraints have served as a justification to start cost‐cutting programs, and to develop low cost R&D and manufacturing locations (cf.infra with company overview). This outsourcing trend is a way to reduce costs, but also to get closer to the biggest markets (China, India, South America). Consolidation over the last years… and more to come? The smart cards players have tried to adjust to the “softwarisation” of the sector, and to try to answer to the new and buoyant technologies (NFC…). One of the answers has been a strong movement of concentration: the 4 majors have bought a lot of smaller software companies to extend their technological offer. After this movement of external growth, the sector could step up to the next phase of concentration… with M&As involving the 4 major players. What is at stake: 28 Chapter 2 – Smart cards IndustriAll project "Strategic study on anticipation of changes in the European ICT sector”  the ability to compete against IT giants, while the borders between smart cards, IT services, financial services, telcos are being blurred;  For the numbers 2, 3, 4, the ability to catch up with the fast pace of Gemalto. In the wake of its restructuration, G&D could split up its activities8 (bank notes production, smart cards for telcos and banking, ID smart cards, digital ID…). This sector, already highly concentrated (with top 4 gathering 80% to 90% of the revenues) could then concentrate even more. This would be a response to technological and strategic issues… but also a step towards increased profitability, even though the players already enjoy good performance. 3. Main players and employment in Europe 3.1. Overview of the main competitors The leader Gemalto is in good shape Gemalto is a smart card « pure player », and the leader with a market share of 40%, benefiting from a complete portfolio, both in terms of end markets (telecoms, finance…) and in terms of value chain position (from hardware – card‐ to software and extra services). It holds a strong footprint on the e‐identification sub‐segment. This French‐Dutch group is publicly listed in Paris, and relies heavily on financial communication to the stock exchange markets. It keeps releasing top results, and achieves the targets. In 2014 too, results have turned out to be good: the revenues are up, notably thanks to the Payment and identity Business division (EMV transition). Even though the operational and net profits are slightly lower than previous years, this is mostly explained by heavy restructuring charges (30M€), because of reorganizations and lay‐offs (both in manufacturing and R&D). The structure is still solid. In 2015, Gemalto bought two companies:  Safenet, a company specialized on data and software security ;  The Secure documents Division of Trüb AG. 8
Source : media. Chapter 2 – Smart cards 29 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” M€
Revenues
Operational profit
% of revenues
Net profit
% of revenues
Net cash
2009
1 602
134
8,4%
118
7,4%
381
Main results of Gemalto
2010
2011
1 906
2 015
163
183
8,6%
9,1%
167
161
8,8%
8,0%
236
309
2012
2 246
239
10,6%
201
8,9%
348
2013
2 384
283
11,9%
258
10,8%
449
2014
2 465
270
11,0%
221
9,0%
493
With weakening results, Giesecke & Devrient has launched restructuring and outsourcing programs in the last two years Giesecke & Devrient (G&D) is a German family group, and one of the sector top 3 players. It is mainly committed into “reliable transactions” business (bank notes printing is the first business line of the company), with a smart card division. In 2014, sales amounted to 1,8Bn€ (5% growth), among which 778M€ for Mobile security, the smart cards division (6% growth). G&D has generated positive results over the last years, though lower than those of the leader Gemalto. However, it was not the case in 2014, because of heavy restructuring expenses (74M€ in 2014). From 3,4% of sales before restructuring, the OP sank to 0,6% of sales after that. G&D has indeed launched major restructuring programs in Europe, including cost‐control policies, plant closures and lay‐offs. Some manufacturing activities were outsourced to Asia, and especially China. There were rumors about splitting up the firm into several pieces (banknotes, mobile security…). There have been tensions among the management, and some key managers left the group over the last year. Main results of Giesecke & Devrient
M€
2012
2013
Revenues
1 789
1 754
Operational profit
97
61
% of revenues
5,4%
3,5%
Net profit
39
3
% of revenues
2,2%
0,1%
Net cash
156
250
-
2014
1 833
11
-0,6%
73
-4,0%
235
Oberthur must meet with LBO ambitious financial targets, and find new sources of financing After being bought by an investment fund (Advent), Oberthur is now a French pure player, but used to be a competitor in money printing business. It is one the top 3 players, with revenues of 1,3Bn€. Oberthur is strong in financial services sub‐sector, but weaker in Identity division. 30 Chapter 2 – Smart cards IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Oberthur is a profitable company, but must comply with very aggressive financial targets since it was bought, under Leveraged‐Buy‐Out scheme, by the Advent investment fund… leading to short‐term, aggressive and “cash‐oriented” management. Oberthur has to pay back the LBO, which means increasing levels of operational profit and cash flows. Oberthur has also chosen an aggressive commercial strategy, whose goal is probably to gain market shares. Oberthur may be in a difficult position, with financial as well as commercial pressures, and may be experiencing difficulties to keep up with the other competitors. Its future is pretty uncertain. Oberthur has recently chosen to start an IPO process, and should complete the procedure at the end of 2015. Advent would stay the majority shareholder. The firm is looking for new financing in a very competitive and capital‐intensive business. Nb : Oberthur does not release any of its financial result. The number 4 Morpho is trying to catch up with the front pack in main end markets Morpho is a subsidiary of French MNC Safran, and number 4 of the sector. The company progressively tried to broaden its portfolio towards telecoms and banking, from a solid position in identification and security. Morpho relied on external growth (acquisitions) to do that, and strengthen its technological position. Among others, Morpho bought Dictao, focused on digital identity, in 2014. The mother company Safran has been supportive of this strategy over the last years, but the “pay back issue” is still in the picture: when will the cash invested (in R&D and acquisitions to extend the portfolio) generate higher sales, higher market shares and positive cash flows ? Morpho sales amounted to 1,5Bn€ in 2013, steady in comparison to 2012, and positive OP. But the company nevertheless embraced the cost reduction strategy of its fellow players. It is especially the case in Germany. More globally, a key element for the future lies in the the behavior of Safran towards its subsidiary. The nomination of a new CEO, with “a telco and digital profile” is clearly a step in the right direction. Morpho is thought to gain traction, with major wins and a “security‐
oriented” profile that should help stay in the innovation race as regards to topics such as e‐
identification or confidentiality software and services. 3.2. Trends for the employment in Europe As a reminder (cf. 1.2), we consider the mid‐point 13K employees as our estimate for the smart cards industry in Europe. Main trends underlying our scenarii  Smart cards industry, as a global market, is dynamic and presents good opportunities in the future, both in terms of end‐users (emerging countries’ growth, e‐payment, security…) and of products (hardware and growing needs for software and services). Chapter 2 – Smart cards 31 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector”  However, the major markets are shifting to Asia or Latin America, while Europe is mature.  Smart card players have generally presented positive results, and the industry is thought to be profitable. However, the industry is capital‐intensive, with lots of investments required to keep up the pace, especially the pace of Gemalto. Moreover, the competition is increasing (local players, in Asia for instance) and the rise of software component is reshuffling the game.  In terms of skills, European employees are still considered as top‐level regarding R&D (especially as far as patents issuing or quality go), but the differences with other countries, mostly Asia, are gradually disappearing. Regarding manufacturing, there is no major difference.  As a result, over the last years, the smart cards players’ strategies have not been keen on European jobs. All firms have carried out cost‐cutting policies, with European plant/site closures, outsourcing to low‐cost locations, massive job cuts in Europe. The low‐cost outsourcing is also said to be a response to the shift in the biggest end‐
markets (getting closer to the clients, hence India, China, Latin America…).  Most manufacturing locations still remaining in Western Europe are closing down (Oberthur) or used at minimum level.  As a necessary response to the software and services innovation race, all competitors focused on software innovation over the last years, with critical technical developments, and as a result, growth of headcount to adjust to those issues. It seems that many developments are now on track, and that some of innovative R&D jobs will shift to application software development. This may lead to headcount “optimization”, with global headcount decreasing, and sharpened shift from Europe to Asia.  Finally, a major event could disrupt the smart cards field in the next years: further consolidation with two players merging (within the top 4) could arise as a response to enhanced competition and ever‐greater financial needs. Such an event, which appears if not certain, as least likely. It would induce “synergies”, and, thus, restructuring and job cuts (at least at the corporate functions level, which are mostly located in Europe). Hypotheses and conclusions of the two scenarii Business as usual scenario In this scenario, we suppose:  “Natural” diminution of jobs in European manufacturing, the bulk of production being gradually transferred to low‐cost locations.  R&D functions would slightly decrease in Europe, as all major players would start rationalizing business lines, including software and services‐related activities. Moreover, R&D is developing in Asia and Latin America.  On‐going restructuration programs are completed. 32 Chapter 2 – Smart cards IndustriAll project "Strategic study on anticipation of changes in the European ICT sector”  Most importantly, a merger occurs between two key players in the industry, which leads to :  restructuration of corporate functions (HR, finance, supply, IT…), and to job cuts in Europe (which still hosts a good part of those functions) ;  restructuration of R&D activities, and maybe plant closures. Given those hypotheses, our “business as usual” scenario forecasts a 20% reduction of the number of European employees up to 2020. Desired state scenario In this scenario, we suppose:  Jobs in European manufacturing are not increased but at least maintained.  R&D functions are maintained in Europe for all major players, as new issues and activities arise (NFC, M2M, software component…) and offset general movement of rationalization.  On‐going restructuration programs are completed.  A merger occurs between two key players in the industry, which leads to :  restructuration of corporate functions (HR, finance, supply, IT…), and to job cuts in Europe (which still hosts a good part of those functions) ;  R&D and manufacturing are not heavily impacted by rationalization. Given those hypotheses, our “desired state” scenario forecasts that the number of jobs in the sector would decline by about 10% up to 2020. Chapter 2 – Smart cards 33 
Chapter 3 ______________________
Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Chapter 3 – Electronic components 35 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 1. Overview of the sectoral trends 1.1. Semi‐conductors sector has been buoyant in 2014 and this should continue in the mid term Semi‐conductors sector evolves in close correlation of with world GDM. Because of a highly capitalistic structure and potential pressures on plant capacities, the sector generally amplifies the economic trends, with strong price changes. Moreover, semi‐conductors industry is at the very heart of several manufacturing value chains and a key vector of innovation. Semi‐conductors world revenues (K$. Source : WSTS)
400 000
350 000
300 000
250 000
200 000
150 000
100 000
50 000
‐
1986
1990
1994
1998
2002
2006
2010
2014
In 2014, the semi‐conductor market grew by 9,9% (far beyond the GDP change) and reached 336$Bns, and almost all regions (except Japan) benefited from the movement. The main driver was the demand for memories (24% of total market), with an increase of 17% in 2014. However, all products proved dynamic in 2014. Integrated circuits revenues per end market ($Bns) and 2013‐18 CAGR (%)9 Forecasts WSTS of semi‐conductors revenues (autumn 2014, K$) 2015
2016
2014
2015
2016
2013
2014
Americas
61 496 65 763 69274 71 432 6,9%
5,3%
3,1%
Europe
34 883 37 923 38491 39 732 8,7%
1,5%
3,2%
0,9%
Japan
34 795 35 239 35133 35 452 1,3%
‐0,3%
Asia‐pacific
174 410 194 226 201648 208 656 11,4%
3,8%
3,5%
305 584 333 151 355 272 9,0%
3,4%
3,1%
World
344 546 Discrete Semiconductors
18 201 20 441 21347 21 980 12,3%
4,4%
3,0%
Optoelectronics
27 571 29 498 30958 31 983 7,0%
4,9%
3,3%
Sensors
8 036 8 627 9151 9 624 7,4%
6,1%
5,2%
Integrated Circuits
251 776 274 586 283090 291 685 9,1%
3,1%
3,0%
3,7%
Analog
40 117 44 217 47429 49 175 10,2%
7,3%
Micro
58 688 62 211 63144 64 240 6,0%
1,5%
1,7%
Logic
85 928 89 547 91488 93 927 4,2%
2,2%
2,7%
Memory
67 043 78 611 81029 84 343 17,3%
3,1%
4,1%
9,0%
3,4%
3,1%
Total 305 584 333 151 9
344 546 355 272 IC Insights, March 2015. 36 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Smartphones stand for the major part of revenues, but Internet of things revenues should rapidly increase in the next years Cellphones have long caught up with the historical driver of the semi‐conductor industry, computers; they are now the biggest market for electronic components. Nevertheless, highest growth rates are to be found on markets related to mobility and connectivity (IoT, tablets…). Mid‐single digit growth expected in the long‐term According to WSTS, the market should rise by 3,4% in 2015 (then representing 345$Bns) and 3,1% in 2016 (355$Bns). Automotive and Communications would be the most dynamic segments, while Consumer electronics and Computer would keep steady. With a longer perspective, the industry revenues should enjoy an average growth of more or less 4% per year until 201910, explained by: 




Lower capital expenditures and consolidation of the market (through M&As); Slower demand for computers, but flourishing revenues stemming from smartphones and tablets; Ever increasing quantity of data on the wireless networks and devices. 4G and then 5G technologies will spread in all regions. Very promising prospects for Internet of Things… Underlying societal changes, with more demand for security, energy‐efficient transport (automotive market) or housing (home appliances market), e‐health devices. 10
IC Insights Chapter 3 – Electronic components 37 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 1.2. However, the clout of Europe in global semi‐conductor industry has shrunk Share of semi‐conductor sales by region (WSTS)
100%
90%
80%
70%
60%
50%
40%
30%
22%
20%
19%
19%
17%
16%
20%
16%
15%
13%
13%
12%
13%
11%
11%
10%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Americas
Europe
Japan
Asia‐Pacific
Europe was historically a stronghold of the sector, but has been withering over the years. Europe was faced with the rise of Asian players: first from Japan, then from South Korea and Taiwan. Europe now ranks 6th in terms of total production. Several elements account for this phenomenon: 


Mass consumer markets have risen in Asia and local players have ruled the game; Outsourcing strategies have been dominant, moving headcount from Europe to Asia; General decay of European high‐tech industry, in comparison to the arrival of American giants (Apple, Microsoft, Google…) on high‐end markets, and Korean giants (Samsung, LG) on mid‐end markets. Another key element to have in mind when trying to explain this shift from Europe to Asia is public incentive. In some Asian countries, as well as in the USA, governments have carried out aggressive policies to attract, and maintain, electronic plants on their territories. The incentives generally rely on : 


Tax reliefs for companies (through R&D tax credits, or corporate tax reliefs); Low‐rent locations, or low‐cost energy offered thanks to public sponsoring; Competitive financing conditions offered to companies that invest. Public incentive turns out to be one of the key factors when deciding on the future location of manufacturing facilities. It is thought that a major part of each new semi‐conductor plant is publicly financed. That is how Taiwan became one of the hot places for the semi‐
conductor sector. Like in other IT sectors, Europe has turned away from consumer and mass‐market electronic components, to focus on industrial end markets. Consumer markets are more cost‐oriented, which obviously does not play for Europe in comparison to Asia, while professional markets still value proximity. In this regard, Europe can still boast about industrial champions (automotive, aerospace and rail industries). 38 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 1.3. Employment in Europe From a statistical viewpoint, the semiconductor industry is mixed among NACE code 261, along with smart cards, EMS and connectors. As a result, a statistical approach to assess the number of employees does not seem relevant. We then tried to evaluate the semiconductors employees crossing our view on the firms’ employment split within Europe and the information gathered on semiconductor employment by regions. Given that several firms concentrate a main part of the total employment we have adopted a bottom‐up approach, relying mainly on the main competitors (STM, Infineon, ARM, Global Foundries, NXP and the main clusters). Those estimates lead to a 95K European headcount for the semiconductor industry. The number of jobs in Europe within the semiconductor industry has been highly decreasing for the last ten years because of the shift of production volumes towards Asia but also competitors’ strategies as financialized bias (NXP), choice to focus on specific segments (Infineon) or the broad choice to externalize growing volumes towards foundries (cf. fablite model). We give some more details about the employment situation of each of these competitors in the 3.1 part of the semiconductor report. 2. Disruptive technologies and strategies of the sector 2.1. Game changer technologies The semiconductors industry is highly connected to disruptive electronic technologies as IoT, mobility or big data modifying the global demand. The growth of the sector is mainly driven by three trends which are mobility, energy efficiency, big data or Internet of Things: 
The mobility demand concerns the expansion of tablets, smartphones but also devices as smart watches and smart glasses,  The rise of Big Data is creating new needs going with the massive growth in demand for storage means implying for example the replacement of hard disk drives by solid state drives,  The energy efficiency trend explains a growing demand of renewables,  The Internet of Things also constitutes a main trend fostering the sensors products. As stressed in the following chart the main perspectives of growth concern the IC Logic Products and the sensors and optoelectronics segment. Chapter 3 – Electronic components 39 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Demand perpsective for semiconductor chip sales (USD bn)
313
More han TMoore
298
292
20
30
More Moore
0%
+33%
42
44
+5%
60
62
+2%
91
94 +22%
57
62
64
2012
2014 (e.)
38
39
61
20
40
19
34
42
19
325
60
Discrete semicond
Sensors &
Optoelectronics
IC Analog
IC Micro
IC Logic
77
82
70
2010
IC Memory
Total
‐9%
2015 (e.)
growth between 2010 and 2015 Source : Rolland Berger 2014 2.2. Strategies of the players More than Moore, beyond Moore… An accelerated technologies renewal, with increasing investments Various changes have impacted the electronic industry through the last decades thanks to a unit cost of production decrease (strong rise in volumes). This “innovation race” has mainly concerned the transistors miniaturization, which size is more and more close to atoms but also the growth of the silicon wafer size, integrated circuit support (300 mm today, 450 mm in the mid‐run?). These evolutions allow the integration on one circuit of a growing number of transistors or even functions. The counterpart of such technological innovations is the rise in research and fabrication costs. Indeed, the processes are more and more constrained by technical requirements such as nanometer scale, growing robotization, the need to produce in cleanrooms and shorter life cycles of products (quick obsolescence). Investments evolution according to technological generation Circuit size Transistor minimum size Plant cost 100 mm 20 to 5 μm 70 M€ 150 mm 5 to 0,8 μm 100‐200 M€ 200 mm 300 mm 0,5 to 0,13 μm 0,1 to 0,032 μm 1‐2 B€ 2‐4 B€ Source : STMicroelectronics – 2008 (Decision) 40 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Beyond initial investments, production factories result in very high fixed costs: depreciations, energy … The development costs are following the same exponential trend which has significant impacts on firms’ strategies: concentration, alliances, externalization or differentiation. Differentiation strategies are less capital intensive The « more Moore » strategy 11 has been the main track of development in the semi‐
conductors history. Nevertheless, this strategy is reaching its financial (the necessary investments can only be realized by a few giants of the sector) and physical (the transistor size may not be endless. More and more firms are turning their strategy towards “more than Moore” or “beyond Moore” which consists to add new functions with a certain level of miniaturization which leads: 

To extend the semi‐conductors pervasion to new sectors, services ; To retrieve non cost competitiveness on products with rather low volumes but high margins, produced on yet depreciated assets. Fabless / fablite / IDM players Deverticalization trend The semiconductors sector is highly intensive in capital but also in R&D which leads with high a very high level of investment required. Traditionally, semiconductors firms were performing all steps of the value chain: R&D, conception, production of the integrated circuits, marketing, and sales. But given the growing need to invest, only a few actors can follow the pace without losing money. Thus, new operating models have emerged with a growing deverticalization of the value chain: 
Some actors have divested the production focusing on higher margins steps (research and conception),  Other actors have specialized themselves on the production step. We can distinguish nowadays four main business models: 
The historical model of « Integrated Device manufacturer », or IDM, in which all the value chain steps are being overtaken by the same actor.  This model has been followed by main industrial groups (Motorola, Philips, Siemens), which have divested from the semiconductors sector since then. It still represents the main part of the market. 11
The Moore law anticipates that the transistors number on an integrated circuit doubles every 18 months. Chapter 3 – Electronic components 41 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
The fabless model, appeared a few years ago, in which firms are focusing on research, conception and commercialization. Divesting from production, these firms can mobilize more resources on innovation.  From 7 % of the global market in 1999, the fabless turnover has been growing to almost 15 % in 2012 according to IC Insight and the trend is still growing (especially Qualcomm). 
The « fablight model »: while maintaining internal capacities, some actors as Texas Instruments or European actors (NXP or even ST Microelectronics) are outsourcing a growing part of production, especially on the last generations of integrated circuits, but maintain production capacities on mature technologies or specializing on some specific process of production. This model is mainly driven by financial considerations with a return on investment maximization and a reduction in investments budgets. The Foundries, which are focusing on the semi‐conductors production and are especially supplying fabless and fablight actors, but they are also used as a flexibility factor by IDM. They are mainly located in Asia (Taiwan especially) and focused on high volumes productions and on the latest technologies  With a 50 % market share, the Taiwanese TSMC has multiplied its turnover by 3 on this segment with a net result rate reaching 33 % in 2012. The four main foundries concentrated in 2012 more than 80 % of the market. 
Model evolutions: growing weight of foundries and alliances The foundries are gaining power and weight in the semi‐conductors market thanks to better financial performances than the other actors. Nevertheless, they are overexposed to a slowing demand while their level of investments demands a very high utilization rate of factories. This could explain that these actors are increasingly interested to work up the value chain (towards conception or “more than moore” segments?) Indeed, fabless or even fablight actors could have to face in the mid‐run the foundries’ competition on their niche competencies or markets. Finally the IDM/fablight actors are managed with a more and more financial focus which lead them to divest form the markets in which they are the first or the second player allowing economies of scale and high returns on investments. Productivity and cost saving targets are becoming the main indicators along with the headcount flexibility/reactivity at growing risks for the ability to innovate. 42 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” European actors positioning Most of the European actors have been trying to avoid the More Moore competition in front of Asian or US giants by diversifying their activity through More than Moore strategies. Most European factories are concentrated on a 150 to 200 mm wafer production with only three 300 mm wafer factories: ST Microelectronics, Infineon Technologies and Globalfoundries. The shift to the next generation, 450 mm wafers factories, is a key turn to keep pace with the most advanced firms. If some Asian and US firms are already making the move (Intel, Samsung, TSMC, Globalfoundries), the European involvement was not guaranteed. Nevertheless, a change in the EU policy funding secured the funding of 5 pilot lines of 450mm. Indeed, most of European actors have concentrated their efforts on More than Moore strategies trying to benefit from the growing demand in industrial and automotive electronics. But the increasing will of Asian players to enter the More than Moore markets niches represents a growing threat for European actors all the more when taking into account their financial and technological power. Chapter 3 – Electronic components 43 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Moreover, More than Moore strategies may prove to be strategies by default, adopted by the Europeans because they have no other viable option (financially viable). It could be harder for European actors to seize the full opportunities of Industrial Internet / smart industry issues only with niche products low‐volume manufacturing capacities… while tens of billions of objects will be connected in the future. Source Roland Berger, 2014 Alliances and M&A : a lever to face increasing technological costs Given the growing levels of necessary investments, most actors are adapting their strategies through alliances or M&A operations in ordrer to keep means in the technological competition. The most known alliance gathers around IBM the biggest players of the semiconductors industry (excepted Intel and TSMC) and offers to its members a technological parity with Intel by pooling the R&D efforts. As developped thereafter, ST Microelectronics has recently decided to exit this alliance which could have impact on the company’s ability to catch the technological pace of the main players. Another way to counter increasing development and production costs may be to launch M&A operations with among the biggest operations: 

the recent acquisition of NXP by Freescale in march 2015 for 11,8 bn $ which has created the 8th actor of the semiconductor industry and a main competitor in the Microcontrollers and the Digital Signal Processing segments, or the acquisition of Broadcom by Avago Technologies for 37 bn $ in May 2015 44 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
Intel has recently bought the US company Altera for 16,7 bn $ which will offer a diversified portfolio and broader perspectives of growth towards the Automotive market The objectives of these huge M&A operations are also to gain bargaining power in front of huge clients as Apple or Samsung and to benefit from economies of scales while increasing R&D expenses. Public support is an essential factor to lower growing costs and Europe seems still lagging behind Asian countries or the US Public support is an essential lever to lower fixed costs burden and may take different forms as the provision of land, of favorable financing means or even direct subsidies. Indeed, public financing schemes represent an important factor of firms’ implantation or investments. Most of new factories benefiting in most part of the world from a significant public provision. This fact could explain for example the Taiwanese success in micro/nano‐
electronics. Exemples of public incentives provided to micro‐electronics industry outside Europe
Type of project
Company
Country
Israël ‐ 2014
Intel
Public support packages
Type of investment
USD 6Bn
plant upgrade Grant
USD 300M
Tax relief
Corporate tax rate of 5% for 10yrs, instead of Estimation of 26,5%
around USD 700M
USA ‐ NY State, Malta
2010/2012
GlobalFoundries USD 4,2Bn plant
USD 665M cash grant
(300mm) USA ‐ NY State, East Fishkill 2002
IBM
(now GlobalFoundries) USD 156M : State sales tax exemptions, local tax breaks
USD 2,5Bn plant USD 28,75M : State grants and loans
(300mm) USD 475M in tax breaks and incentives (no details, from Federal State)
Taïwan *
Asia *
Innovative firms
Low‐rate loans for equipment purchases Electronics firms Free access to land
Bank loans guarantee
Fixed price for utilities during 5 to 10 years * Source : French Parliamentary reports Saunier et Malier
Total
Around USD 700M tax breaks (local and federal)
Around USD 1,2Bn
Around USD 660M
Tax exemptions :
‐ 30% relief for R&D expenses ‐ accelerated amortization
‐ 30% relief for training
‐ 5% to 20% relief for automated equipment purchases
‐ possible complete tax exemption for 5 years for some emerging/strategic industries Up to 150% tax relief for R&D expenses
Tax credits on corporate tax (decreasing gradually) Nevertheless, public support remains lower in Europe in comparison with the practices in other production zones. The risk for Europe, which has only one actor among the worldwide top ten firms (ST Microelectronics), is to be left marginalized in the mid‐run on a main technological sector including on fast growing sectors as the Internet of Things. The European Union seems to be increasingly aware of this trend, as shown by the launch, by the European Commission vice‐president, of the 10/100/20 initiative in May 2013 (also called “Airbus of Chips”) whose goals focus on: 
Securing 10 bn € of public funding in order to unlock 100 bn € of investment in the sector between 2014 and 2020, Chapter 3 – Electronic components 45 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
But also raising the European part in the worldwide semiconductors production to 20 % in 2020/2025 (from less than 10 % nowadays). A working group has been settled in this framework, gathering groups’ representatives (European Leaders Group) to draw a road map to reenergize the industry towards 2020 in oder to meet the initiative 10/100/20 goals. If the EU intentions represent a positive track, the achievement will mostly depend on the main firms will to invest and Europe still seems far below form the public support level of some Asian countries or even the United States. Indeed, when the 10/100/20 initiative relies on a 10 % public investment goal, Taiwanese actors as TSMC or UBC benefit from massive economies of scale and a huge public support. Further to financial support, Europe needs a comprehensive industrial policy regarding semi‐conductors, with : 


Focus on low‐energy integrated circuits; State‐of‐the‐art manufacturing facilities, with capacity to develop low‐cost and mass production; Coordination with industrial players, to build a global Industrial internet strategy, from integrated circuits, through software, to end‐products. 3. Main players and employment in Europe 3.1. Overview of the main competitors STM is still the European leader, but this should change in S2 2015, once the NXP/Freescale is official. Infineon is the third European top 20 player. Top 20 of semi‐conductor competitors, excluding foundries 46 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” ST Microelectronics Though on the rise in 2014, STM has delivered poor performances over the last years ST Microelectronics is a French‐Italian company, with significant public shareholdes (27,5% for French and Italian governments). It is still an “IDM” company, though it resorts more and more to manufacturing outsourcing, and should be qualified today as “fablite”. STM revenues have been following a downward over the last years (‐28,5% between 2010 and 2014), and it was the case again in 2014, even though the market globally experienced a strong rebound. A good part of the decrease is explained by the closure of the ST‐Ericsson JV, but not all of it. Then, STM still has its rank in the semi‐conductors world top 10, but it should go down in 2015, and be replaced by the taiwanese MediaTrek but also the new NXP/Freescale group. 

Even though revenues were up in some divisions (Automotive, Discrete power components, industrial, microcontrolers); Those increases can not make up for the fall of revenues in the Wireless division (because of the ST‐E JV end, but also because of far lower sales to the former main client, Nokia), and in the AMS division (analogic products and MEMS). In the latter division, major contracts with Galaxy5 Samsung and Iphone 6 were lost. M$
Revenues
R&D
% of revenues
Operational profit
% of revenues
Net profit
% of revenues
Net cash
Main results of STMicroelectronics
2010
2011
2012
2013
10 350
9 730
8 490
8 082
2 350
2 352
2 413
1 816
-22,7%
-24,2%
-28,4%
-22,5%
476
46
730
465
4,6%
0,5%
-8,6%
-5,8%
830
650
1 158
500
8,0%
6,7%
-13,6%
-6,2%
1 152
1 167
1 192
741
2014
7 404
1 520
-20,5%
168
2,3%
128
1,7%
546
2012 and 2013 results were poor, because of lower revenues and signifcant restructuration and impairment charges. Resultats have slightly improved in 2014, with operational profit positive again, thanks to the JV closure (which generated important losses) and reduction of costs. The improvement is still modest, but STM can still rely on a solid financial position. The company is bending towards a fablite modle, and its future is uncertain, especially since STM can no longer lean on the IBM Alliance If cost‐cutting measures have proved efficient in 2014 with regards to financial performance, they have been linked to cutbacks in industrial investments and R&D expenses… Whereas the ability to invest huge amounts in fabs is key to success in the semi‐
conductors industry. What’s more, STM has been more aggressive in financial operations (dividends while net profit was negative, in 2012 and 2013, and purchase of shares in 2014) than in next‐generation manufacturing investments… STM is more and more opting for a Chapter 3 – Electronic components 47 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” “fablite” model, questioning the mid and long term future of its plants, especially in France and Italy. On the plus side, the Nano 2017 program has been signed in 2013: it provides a budget of 3,5Bns€ (shared between STM, French government and Europe) for : 
Investments in the state‐of‐the‐art plant of Crolles 2 (next to Grenoble), which could double its wafer production capacity;  R&D expenses in next‐gen technologies (FD‐SOI, processors and sensors for images, embedded memories);  Giving the ability to carry along the minor semi‐conductors players of the whole Grenoble region. This good piece of news has been somehow darkened by another strategic announcement: STM leaves the IBM alliance. If this decision breeds significant savings for the company… It first and foremost reduces the R&D capacities for STM, especially for next‐gen circuits. STM Employees per region (thousands)
60
50
11,1
10,6
10,4
8,8
8,8
4,4
4,4
24,2
21,7
21,3
19,1
2010
2011
2012
2013
40
8,6
30
4,8
20
10
10,4
9,5
4,5
0
Asia
48 Mediterranean region
USA
Other Europe
Italy
France
Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” ST‐Microelectronics still maintains significant headcount in Europe, but the trend looks downward Globally, STM has been sharply focusing on cost‐cutting programs over the last years, and this includes growing quantities of outsourced production to the foundries. Probably supported by their public shareholders (27,5% of capital for both governments), France and Italy have managed to maintain both manufacturing and R&D strong places… Until when? STM has been more and more focused on financial targets since 2007 resulting in decreasing investments in new technolgies and a growing amount of volumes externalized to foundries. As a consequence, STM has been gradually turning itself into a fablite semiconductor company. In France, beyond Crolles 2, other plants are aging. New and significant sources of workload for Crolles 1 and Rousset are still to be found. The situation is better for the plant in Tours, which should specialize in micro‐batteries through new manufacturing capabilities. A restructuring plan is likely to be have been analyzed by the company in 2015 concerning the Digital segment planning to reduce significantlty employment especially in France (1100 of the 1800 employees of the Digital segment are located in France). The situation seems slightly better in Italy with a focus on well orientated segments as automotive, industry or sensors. Nevertheless, the italian facilities of STM do not benefit from significant public support (as opposed to Crolles) and the supposed will of the Italian State to sell its STM shares would not be a good indicator for the local employment in the long‐run. Global foundries GlobalFoundries (GF) was the foundry of the semi‐conductor player AMD, which carved out its activities in 2009. GF then became an independent foundry; it is owned by Advanced Technology Investment Company, an industrial investment fund from Abu Dhabi12. GF bought another foundry, Chartered semiconductor manufacturing, in 2009, and acquired the chip manufacturing facilities of IBM in late 201413. In 2013, GF was ranked as the second foundry in the world (behind TSMC but before UMC), and revenues amounted to 4,4Bn$ in 201414. GF manufactures integrated circuits for companies such as Qualcomm, AMD or STM. It holds several 200mm manufacturing plants in Singapore, and three 300mm plants (Singapore, Dresden in Germany, USA). The construction of the 300mm American plant started in 2009, and was thought to be the world most advanced manufacturing facility. Close to 10Bn$ were invested in the construction. Moreover, GF industrial portfolio now includes two plants formerly owned by IBM (one in 200mm and one in 300mm). Indeed, 12 For this reason, GF does not report any detail about revenues or financial situation. 13 IBM wanted to concentrate on core business, and will actually pay GF for taking over its manufacturing activities (1,5Bn$ over the next 3 years). 14 Source : IC Insights http://www.icinsights.com/news/bulletins/Six‐Top‐20‐1Q15‐Semiconductor‐Suppliers‐
Show‐20‐Growth‐/ Chapter 3 – Electronic components 49 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” through the IBM Microelectronics Business acquisition, GF will benefit from thousands of licenses to improve its manufacturing processes but also accelerate its transition towards the 10 nm technology. This acquisition involves the transfer of around 5 000 former IBM workers in the US. GF employs about 13 000 employees worldwide, among which 3700 people in Germany at the leading edge fab of Dresde. ARM ARM is a British specific kind of player in the semi‐conductor industry: revenues only come from licensing revenues of Intellectual property. ARM does not manufacture any circuit on its own, but licenses its IP (result of its R&D efforts) to its “partners”, generally semi‐
conductors producers. ARM communicates on more than 300 clients using ARM chips. It sells chips for a wide range of semi‐conductor markets: Internet of Things, embedded products, mobile phones, wearables (watches, headbands…), home appliances…ARM estimates that it holds a market share of 37%, which means that 37% of chip processors produced in 2014 used ARM design. ARM has numerous locations all around the world, in the US and in Asia. Total headcount is about 3300 people, and numbers are growing. Its headquarters and are located in the UK (Cambridge), which also holds smaller several design and sales centers. Other minor locations include Norway, Finland, France, Germany, and Sweden. European headcount is around 160015. Main results of ARM
2011
2012
492
577
165
166
-33,6%
-28,8%
149
208
30,3%
36,1%
113
161
22,9%
27,9%
424
520
M£
Revenues
R&D
% of revenues
Operational profit
% of revenues
Net profit
% of revenues
Net cash
2013
715
203
-28,4%
154
21,5%
105
14,7%
706
2014
795
224
-28,2%
309
38,9%
255
32,1%
862
15
Source : ARM website. This number should be a minimum, as headcount was not indicated for some locations. The date is unknown. 50 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” ARM Employees by fonction 3500
3000
2500
2000
1500
924
846
698
1000
500
0
740
734
1191
1382
1652
2010
2011
2012
Engineers
1987
2013
2370
2014
Others
ARM results are very good. Revenues have been up for several years, with both new licensing clients and existing clients increasing their use of ARM portfolio. In 2014, sales rose by 11%, outperforming the industry. ARM relies heavily on IT megatrends, such as the penetration of smartphones (half of ARM chips goes to mobile devices) and the emergence of IoT (with developing market shares for embedded chips). Both operational and net margins are record high, and the financial situation is very robust. NXP NXP is a Dutch company, spin off of Philips. Previously entirely held by equity funds, it was publicly introduced in 2010; equity funds keep a part of shares. Bought under LBO, NXP was heavily restructured since 2006, with mass job cuts and carve‐outs (sale of its mobile phone division), with a clear focus on short‐term cash generation. M$
Revenues
R&D
% of revenues
Operational profit
% of revenues
Net profit
% of revenues
Main results of NXP
2011
2012
4 194
4 358
635
628
-15,1%
-14,4%
357
412
8,5%
9,5%
390
115
9,3%
-2,6%
2013
4 815
639
-13,3%
651
13,5%
348
7,2%
2014
5 647
763
-13,5%
1 049
18,6%
539
9,5%
NXP revenues have been very dynamic in 2014, clearly out‐performing the sector. More globally, NXP has enjoyed robust growth over the last years, thanks to strong positions on smartphones and tablets, NFC technologies, identification or automotive. Operational profit is also on a very positive trend, close to 19% of sales. This is explained by higher revenues, decrease of operational expenses (in the wake of years of restructuring programs) and cost‐control policies. Net profit is also positive, and cash flow important. Chapter 3 – Electronic components 51 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Moreover, financial debt has deflated, and financial situation, which was worrisome a few years ago, is getting healthier. Those improved financial metrics have enabled to focus on value creation for shareholders (with purchase or shares)… and have opened the way for external growth, with the major acquisition of Freescale earlier in March 2015. Among the most important M&A of the industry (11,8 bn $), this operation creates the 8th actor of the semiconductor industry with a competitive advantage on Microcontrollers and the Digital Signal Processing segments NXP total headcount is approximately 29 000 employees worldwide. Wafer fabs are located in the Netherlands, Germany, the UK, China and Singapore. The M&A with Freescale will probably have impacts on R&D and central headcounts of each firm, including in Europe, in the mid‐run. Infineon Infineon is a German semi‐conductor manufacturer, and a spin‐off of Siemens. The company has undergone through several restructurings in the past years, and sold parts of its activity to concentrate on mostly industrial markets (memory chip division in 2009, wireless solutions in 2011 to Intel, wireline communications). Infineon bought American company International Rectifier (specialized in power management integrated circuits) in early 2014, for 2,4Bn$ net of cash. Today, its top end market is Automotive (45% of 2014 sales), which seems logical given that Infineon is German, as well as leading car manufacturers (Bosch…). On this segment, Infineon is number 2. Other main markets include power management (power supplies for consumer electronics or lighting systems, 25% of 2014 sales), industrial power control (home appliances, energy transmission, industrial drives…, 18% of 2014 sales) and security (authentication and identification for smart cards, 11% of 2014 sales). Infineon communicates on 3 megatrends that deeply influence its business: energy efficiency, mobility and security. M€
Revenues
R&D
% of revenues
Operational profit
% of revenues
Net profit
% of revenues
Net cash
Main results of Infineon
2011
2012
2013
3 997
3 904
3 843
439
455
525
-11,0%
-11,7%
-13,7%
736
455
325
18,4%
11,7%
8,5%
1 119
427
272
28,0%
10,9%
7,1%
2 387
1 940
1 983
2014
4 320
550
-12,7%
525
12,2%
535
12,4%
2 232
Infineon holds 33 R&D facilities in the US, all over Asia and in Europe (Germany, UK, Italy, Austria and Romania). It holds 20 manufacturing sites mostly in Asia (with a major site in 52 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Malaysia), but also in the USA and Europe (Germany, Austria16 and a smaller plant in Hungary). Total Infineon headcount was 29 800 people, among which 556 in America, 13 179 in EMEA and 16 072 in Asia. International rectifier employees (around 4000 people) have now to be added. In 2014, Infineon outperformed the market with a sales growth of 12%. All divisions reported a growth, especially automotive and industrial power control. The sales towards APAC are gaining traction, because of the presence of numerous EMS in this region, including EMS working for Europe and the US. Moreover, Infineon improved its financial performance; this is mainly explained by a greater rate of capacity utilization (since Infineon still resorts mostly to in‐house manufacturing, the absorption of heavy fixed costs is essential). The financial position is very good. Infineon employees by region
35000
30000
25000
20000
15000
12 285 12 024 3449
3 755 4 019 4 067 4 291 8826
7 926 8 408 8 520 8 888 2010
2011
2012
2013
2014
10000
5000
0
14 324 12 317 12106
Germany
Other Europe
Americas
China
Other Asia
Europe lags behind and tries to catch up Asia and North America It is clear that Asia and the USA now lead the semi‐conductor world. Europe is finally trying to catch up with those regions. In 2014, the EU launched a public‐private initiative, the “Ecsel partnership”. This program aims at doubling the value of European semi‐conductor production from now to 2020, with a dedicated budget of 5Bn€ (1,2Bn coming from the EU, 1,2Bn coming from member states and the rest from private investments). The plan will rely on European strengths (current European skills with automotive, energy, smart cards, security, home automation, leading edge clusters such as CEA‐Leti, IMEC, Franhofer) and bet on future trends such as IoT. 16
It started producing 300mm wafers in its Austrian plant in 2015, for automotive power components. This is the second player to ramp up to 300mm for analog and discrete components. Chapter 3 – Electronic components 53 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” European industrial footprint in semi‐conductor industry in 2013, and evolution of European production in 200mm (Source : Garnter, Yole, SEMI) 3.2. Trends for the employment in Europe As a reminder (cf. 1.3), we consider 95K employees as our estimate for the semiconductor industry in Europe. Main trends underlying our scenarii 




Slowing mid‐term growth of the semiconductor market, The More Moore strategy is getting increasingly difficult and costly… … as minimum investments to keep pace on new generations facilities reach new heights, The market is concentrating by the mean of huge M&A and is likely to continue on this track, The shift of volumes towards foundries goes on since most semiconductor competitors are turning increasingly towards a fablite model, Hypotheses and conclusions of the two scenarii Business as usual scenario In this scenario, we suppose: 54 Chapter 3 – Electronic components IndustriAll project "Strategic study on anticipation of changes in the European ICT sector”  Acceleration of volumes shifting towards foundries that would cost production jobs but also R&D capacities in Europe,  Further M&A impacts on jobs,  European competitors have made a choice towards the More than Moore strategy that shows better growth perspective …  … but the threat of foundries is growing as these actors show more and more interest to these segments but also competencies and means to execute,  Some European actors seem more and more focused on financial targets turning them into a fablite strategy that could cost jobs in Europe in the mid‐run,  The public support gap between Europe and other geographical zones could have a main impact on the location of next generation facilities investments, Given those hypotheses, our “business as usual” scenario forecasts a 15% reduction of the number of European employees up to 2020. Desired state scenario In this scenario, we suppose: 

Europe take advantage of the positive technological trends of IoT, Big Data or smart industry in which European actors may have competitive strengths and competencies, Massive public programm to unlock a significant impact on the entire value chain with initiatives such as: :  Raising the public investment of the 10/100/20 initiative from 10 to 30 bn € in order to secure the group capacities to invest in next‐gen technologies in Europe and to face the Asian competition,  Reinforcing the chain collaboration insisting for example on a stronger cooperation between the 4 main micro/nano‐electronics poles (Dresden, Grenoble, Eindhoven, Leuven) but also with clusters of related industries or even client sectors,  Facilitating business cooperation or combination between European actors (even concerning M&A) which was the initial idea of the “Airbus of chips” program. 
Such initiatives could help relocating production volumes and jobs within Europe. Given those hypotheses, our “desired state” scenario forecasts that the number of jobs in the sector would decrease by 5 % up to 2020. Chapter 3 – Electronic components 55 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 56 Chapter 3 – Electronic components 
Chapter 4 ______________________
Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 58 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 1. Overview of the sectoral trends 1.1. A significant growth for the Connector industry since the 2009 crisis and good perspectives towards 2020 The Connector industry has retrieving growth after the 2009 drop According to Bishop & Associates, the Connectors market represented in 2014 almost 53 billions of dollars (+ 7,8% vs 2013). Connectors global sales (M$)
45 341
2010
48 355
47 049
49 047
2011
2012
2013
52 855
2014
55 569
2015
After a sharp decrease in 2009 (loss of 10 B$ sales in one year), the sector turnover has been retrieving with an average annual growth of 4% between 2010 and 2014. Connectors market ‐ worlwide growth
28,5%
18,0%
11,4%
13,1%
7,5%
7,6%
6,6%
2,7%
4,2%
7,8%
5,1%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
‐2,7%
‐21,9%
Chapter 4 – Connectors 59 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Connectors sales are likely to go on growing in the mid‐run The Connectors industry projections in the mid‐run are good with 6% CAGR between 2015 and 2020 according to Bishop & Associates. Surge of China, while the historical end‐user markets have shrunk The analysis by geographical zones stresses the following tendencies:  Continued growth in North America (+ 26% between 2010 and 2014);  Significant recovery for Europe in 2014 after two years of stagnation ;  Slight growth in China until 2014 which has seen a significant recover with + 15% in one year. Connectors sales by regions (en M$)
16 000
14 000
12 000
North America
10 000
Europe
8 000
Japan
6 000
China
Asia‐Pacific
4 000
ROW
2 000
0
2010
2011
2012
2013
2014
2015
Conector sales by regions (% of wordlwide turnover) 2002 2014 5,7%
5,4%
20,5%
11,8%
33,0%
10,8%
16,2%
North America
North America
Europe
Europe
Japan
Japan
China
China
Asia‐Pacific
25,8%
ROW
14,6%
24,1%
60 21,4%
Asia‐Pacific
ROW
10,6%
Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” The worldwide Connectors industry was characterized by a main shift concerning regions importance in the global turnover mainly explained by actors choices (especially US or European groups) to relocate their production to Asia. In the 1980’s, the United‐States represented almost the half of the world turnover, Europe one third, the balance coming from Asia and mainly Japan. Their weight has sharply decreased since then with an acceleration of relocation strategies. In the beginning of the 2000’s, the US still represented more than one third of the total market, Europe almost 25% and China slightly more than 10%. At the end of 2014, the chart has clearly changed with 20% for the US, 21% for Europe and 26% for China. Main actors : US and Japanese groups dominate the ranking The domination of the US and Japan is obvious when analyzing the firms top 10 according to turnover with 4 American firms within the top 5 and 5 Japanese firms within the top 10. The only European actor has disappeared from the top 10 a few years ago: FCI, a former affiliate of Areva, has been bought by the investment fund Bain Capital, which has sold a significant part of its activities (see thereafter). Top 10 Manufacturer by 2014 Annual sales M$ 1 2 3 4 5 6 7 8 9 10 TE Connectivity Amphenol Molex Delphi Foxconn Yazaki JST JAE Sumitomo Hirose Top ten All other Total world 2011 2012 2013 Var 2011/2013 Market share 2013 8 476 3 676 3 582 2 522 2 718 2 176 1 509 1 083 859 1 160 26 601 21 162 47 763 8 432 4 015 3 580 2 589 2 683 2 278 1 357 1 311 1 006 948 28 199 19 411 47 610 8 719 4 290 3 617 2 953 2 704 2 382 1 508 1 335 1 038 959 29 506 19 372 48 877 2,9% 16,7% 1,0% 17,1% ‐0,5% 9,5% ‐0,1% 23,3% 20,8% ‐17,3% 10,9% ‐8,5% 2,3% 18% 9% 7% 6% 6% 5% 3% 3% 2% 2% 60% 40% 100% Chapter 4 – Connectors 61 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” A profitability even better than before the 2009 crisis During the year 2009, the Connecters sector has experienced a sharp decrease of volumes with a huge impact on profitability:  Volumes drop (‐ 21,9%) ;  Rise of raw materials ;  Conectors price deacrease. And yet in 2010, the profitability of Connectors companies has retrieved and has been above its pre‐crisis level from this date. Connector industry profitability
13,4%
15,0%
10,0%
12,0%
11,3%
9,5% 9,0%
8,8%
8,6%
9,3%
5,0%
5,8%
0,0%
12,7%
2008
2009
2010
‐5,0%
2011
2012
2013
Operating income (as a %
of sales)
Net margin (as a % of sales)
‐10,0%
‐15,0%
‐16,8%
‐20,0%
‐17,0%
1.2. Employment in Europe From a statistical viewpoint, the connectors industry is mixed among NACE code 261, along with semiconductors, smart cards and EMS. As a result, a statistical approach to assess the number of employees does not seem relevant. Assessing the connectors industry employment within Europe gathers two difficulties:  Firstly, unlike other electronic components industries, the Connector industry relies on an important number of firms active in Europe.  Moreover, a significant level of employment concerns family owned firms which often do not communicate precisely on their headcount split between locations. In this context, we have gathered the maximum information on the basis of main groups’ public published data or interviews and we have tried to build the most accurate evaluation of employment we could. 62 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Those estimates lead to a 36K European headcount for the connectors industry. If the industry has experienced massive relocations of standard connectors towards Asia especially in the Telecom & Computers sectors or even Automotive, the trend is positive on the remaining activities especially in aerospace and industries with long‐term growth perspectives and recognized competencies in Europe 2. Disruptive technologies and strategies of the actors: 2.1. Game changer technologies The main technological trends going through the Electronic industry but also client markets will have impacts on the Connector industry The Connectors industry is also impacted by most of disruptive technologies crossing the electronic industry but also client markets:  as technology becomes more mobile, the need for connectors made for computer peripherals will decline,  the deceleration of the Moore’s Law strategies may implies a growth of some applications connectors in the semiconductor and IC packaging industries,…  …but technologies as SoC (system on chip) or SiP (Session Initiation Protocol) will reduce the Connectors needs due to circuit integration,  the Internet of Things impacting some client markets will bring new needs from Connectors suppliers and will represent a huge opportunity while requiring connectors on an exponential number of objects,  the industry 4.0 will also bring some growth opportunities for actors specialized in industrial markets (some German actors seem well positioned) If some main technological trends may change the Connectors industry landscape, the Connectors suppliers will be very differently impacted according to their final market/specialization:  Indeed, the divide between Datacom/high‐tech segment and industrial specific applications (electro‐mechanical, high‐voltage, ergonomic, applications with very specific parameters) will be surely widening.  For example, the connectors dedicated to the automotive industry may move from electro‐mechanical to Datacom applications which could change significantly the competitive situation. Chapter 4 – Connectors 63 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” The Connector industry is involved in a continued concentration process The connectors sector is pursuing a continued concentration process concerning both main groups and the SMEs trying to find way to accelerate their growth and to buy niche competencies. We can quote the most recent and significant examples of M&A in the sector:  The Deutsch acquisition by TE Connectivity in 2012 for 1,6 B€ in order to expand the portfolio and sector offer of the US group (especially Aerospace, Railway, Transports),  The buyout of the Motorized division of FCI by Delphi Interconnect in 2012 for around 0,8 B€,  The FCT Connectors takeover by Molex in 2013 (acquisition of competencies in the industrial, telecom and aerospace industries).  Or the acquisition by Amphenol of FEP (a German based company; mainly automotive) and more recently the proposal to buy FCI. Asia for 1,2 B$ (telecom, Datacom, wireless communications and industrial markets). The last potential acquisition of FCI Asia by Amphenol raises an issue about what will happen to the remaining part of FCI Europe. 2.2. Strategies of the players The Connectors industry goes on concentrating The market shares of the first ten connectors producers have been increasing continuously since the 1980’s to reach 60% in 2013. This trend is especially linked to the acquisitions which have particularly concerned TE Connectivity (Deutsch acquisition), Delphi Interconnect (Motorized division of FCI) or Amphenol (FEP). Worldwide turnover (M$)
60 000
50 000
40 000
40%
43%
43%
1990
1995
51%
52%
54%
2000
2005
2010
57%
59%
60%
2011
2012
2013
30 000
20 000
10 000
0
1980
Worldwide turnover (M$)
top ten share
64 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” But there is still place for big SMEs on specific markets The global Connectors market gathers more than 1000 actors with a huge number of SME concentrated on niche markets. As stressed in the following chart, the Computer, the Automotive and Telecom/Datacom sectors concentrated almost 60% of the world sales in 2014. Nevertheless, the balance is distributed on a lot of end markets. Connectors markets (in% of 2014 world sales)
22,2%
20,4%
16,3%
11,9%
6,0%
1,5%
2,3%
3,3%
6,1%
5,2%
4,9%
Chapter 4 – Connectors 65 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Sub‐sectors analysis (Bishop & Associates 2013) The analysis by sub‐sector offers a rather good picture of the European actors’ specializations:  A good position of French firms (Souriau and Radiall) in Aerospace, Transports and Medical or even FCI in Computers or Telecom,  Some important German actors in Instrumentation, Industrial Equipment, Automotive but also Telecom (Harting, Rosenberger, Weidmüller), As stressed by this table, the main connectors firms in Europe are French or German. Another European significant actor is Lemo, a firm headquartered in Swiss which is well positioned in the Medical sub sector. 66 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 3. Main players and employment in Europe 3.1. European market Connectors sales in Europe (M$)
10 251
2010
11 276
9 919
2011
2012
10 643
2013
11 310
11 816
2014
2015
The Connector sector in Europe has experienced a huge drop of sales in 2012 (‐12%) but has been since keeping growing with +7% in 2013 and +6% in 2014. The market is highly concentrated in Western European countries (82% of the total European turnover in 2014 according to Bishop & Associates) with almost the half in France and Germany. Most of the production of Telecom or Computer Connectors (or generally speaking standard connectors) has already been relocated to low costs zones. Some Telecom production remains thanks to companies as Ericsson or SMEs which keep on buying European connectors or concerning specific connectors with technological components. The production of connectors for automotive have also highly decreased in Europe, the only country keeping a good balance being Germany. The main part of the European Connectors production concerns:  Automotive for the production remaining in Europe is still the first sector in terms of turnover,  Industries with a huge number of end market and technologies (industry equipment, industrial applications, transports, medical,…),  Military/Aerospace. Chapter 4 – Connectors 67 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” These three segments have been growing in 2014:  The Aerospace segment is fast increasing with a strong European base even for US groups (as Amphenol for example) and especially in France (but also in the UK, in Italy or in Spain),  The Industrial segment is also on a rising trend, particularly for segments as robotization and mechanization (in Germany) or railways (Germany but also France, Italy and Scandinavian countries),  The Automotive segment with constructors retrieving growth in Europe. In these three segments the proximity to the clients production site is essential in order to be close to the design center and to have logistic facilities next to the client factories. The situation of European actors and, on a wider scale, of the production in Europe is rather good with positive mid‐term perspectives (especially for Aerospace) and a clear recognition of the competencies located in Europe. Nevertheless, some threats could darken this bright picture since:  The relocation strategy of specific client could have huge impacts especially on SME dedicated to a few number of clients (cf. Automotive, some Industrial segments),  Some Chinese actors are yet trying to capture European volumes for example in Automotive,  The regulation at the European level as the REACH initiative which could ban some products used in the industrialization (derivative of chrome 6 banned in 2017) and then incites some producers to relocate their activities. 68 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” European top ten 2013 Headquarters World Sales 2013 (M$) World ranking European sales 2013(M$) Weght of Europe Rosenberg Germany 720 11 335 47% Harting Germany 642,7 12 462 72% Phoenix Contact Germany 412,4 18 182,9 44% Souriau France 363,5 21 215,1 59% Radiall France 312,2 23 112,6 36% Huber+Suhner Germany 310,6 24 144 46% Multi‐contact Switz. 290,3 27 203,5 70% Kostal Contact Germany 275,6 31 144,1 52% UK 252,2 34 89,3 35% Switz. 240,3 36 129 54% 3 820 2 018 53% 8% 19% 48 877 10 643 Smiths Interconnect Lemo Total European top 10 Market share of top 10 Total market Bishop & Associates, 2014 The European top ten groups have sold 3.8 billion $ in 2013 which represented only 8% of the total market (less than TE Connectivity or Amphenol alone). But even when focusing on European sales, they represented less than 20% of the European Connectors market. This fact stresses the importance even in Europe of US and Japan based groups in the Connectors industry (TE Connectivity, Amphenol, Molex or Delphi). Within this European top ten, half of firms are headquartered in Germany (5), 2 in France, 2 in Swiss and 1 in the UK. Most of them are family owned, realize a main part of their sales in Europe and are specialized on specific markets as for example:  high‐frequency and fiber optic technology (telecom, medical, instrumentation,…) for Rosenberger,  industrial applications for Harting,  military/aerospace and industry for Souriau or Radiall. Their internationalization is quite recent with the construction of production sites in most regions. In the detailed analysis of actors, we will focus our attention on these four actors which may constitute good examples of the European Connectors sector. Chapter 4 – Connectors 69 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 3.2. Overview of the main European competitors The main actors in Europe are generally family owned firms from Germany, France or Swiss with renowned competencies on a few niche markets. The main difference between France and Germany (or even Swiss) may rely on the ownership structure:  Germany gathers around 15 fast growing SME that have always been family owned,  France has a few main actors which had a capital link with French multinationals that have decided to get rid of them (Souriau, FCI) and a lot of smaller companies often mono‐client. We are going to present 4 actors representative according to us of the European competitors’ landscape: Souriau and Radiall for France, Harting and Roseberger for Germany. Harting: the company is keeping growing in industrial applications by organic growth Harting is a German family owned company created in 1945 which has keeping growing thanks to a strong position in industrial applications (robotics, machine tools but also railway) and has sold its Automotive business in the 1990’s Turnover (m€)
547
479
484
132
136
347
348
369
2012
2013
2014
178
Sales Europe
Sales outside Europe
Total
The Harting total turnover has grown by 13% in 2014 thanks to:  a good dynamism of sales in Germany (+ 11,5%)  A main contribution of Asia with a sales increase of 40%. This evolution stresses the on‐going internationalization of Harting with new production sites located in China, Brazil and Romania. 70 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Turnover (m €)
194
174
175 174
126
90
2013
46
52
2014
Germany
EMEA wo
Germany
Asia
Americas
Unless the share if Asia in the company turnover is increasing, Germany remains the base of Harting with production sites, R&D teams but also the decision centers. The evolution of headcount is quite similar with constant growth (+ 6%) towards 4 048 employees in 2014 on which more than the half are located in Germany (56% in 2014; + 7% in 2014 vs 2013). Rosenberger: a very dynamic trend fueled by acquisitions and organic growth As for Harting, it is quite difficult to find financial information about Rosenberger given its family owned status. Created in 1958, Rosenberger is also a family owned company and a leading manufacturer of connector solutions in the high‐frequency and fiber optic technology fields. The clients are mainly high‐tech companies in cellular technology and telecommunications, data systems, medical electronics, industrial measurement technology, automotive electronics and electro‐mobility fields. Rosenberger has strongly expanded both by organic and external growth:  Opening of production facilities in (China in 2001, expansion of Hungary in 2003, India in 2006, Brazil in 2010, new facilities opened in Germany and in China in 2014, new facility opened in India in 2015)  Acquisitions of companies (CDS DataComm, Plano‐Texas in the US, a leading contractor for fiber optic products, Hörl Kunststofftechnik and H&S Automotive in 2007; Toth Inc. in the US in 2012). As a consequence of its aggressive growth strategy, Rosenberger has multiplied its headcount by 6 between 2000 and 2014 to reach around 6 200 employees in the world (Germany representing less than a third of total headcount with 1 770 employees at the end of 2014). Chapter 4 – Connectors 71 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Headcount ‐ Rosenberger
6200
4900
5100
2012
2013
4015
3500
2600
2720
2700
2007
2008
2009
1040
2000
2010
2011
2014
Its industrial footprint is yet internationalized with 19 production sites worldwide in 11 countries (Brazil, Chile, China, Denmark, Germany, Hungary, India, Spain, Sweden, UK, USA). If Germany still concentrates 4 production sites of most of the decision centers (Augsburg, Augsburg, Ottobrunn, Laufen), the Rosenberger production and commercial presence has also expanded especially in Asia and in the US (2 production sites in India, 3 China and 3 in the US), but also within Europe with the Assembly and logistic center located in Hungary. If Europe still represents almost half of its turnover, Rosenberger is quickly growing in the US (thanks especially to external growth) and in Asia with new production sites. Turnover (m€)‐ Rosenberger
Less than 50% from Europe 542
453
483
336
265
247
2008
2009
2010
2011
2012
2013
72 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Souriau: an eventlful history but the business seems flourishing especially on the aerospace and industrial segments Only few information on Souriau is available since the company remains unlisted. Nevertheless, some information are reflected since 2011 in the Esterline annual report but they are still quite limited. Created in 1917 and specialized in Coonectors solutions for severe/extreme environments, Souriau has experienced several holding changes:  buyout of Souriau in 1989 by Framatome which created FCI ;  creation of the MAI division within the FCI group (military, aerospace and industry) ;  sale in 2003 to Axa Private Equity et rebirth of Souriau ;  sale in 2006 to the Investment fund Sagard ;  finally, Esterline bought in 2011 the company (for 726,7 M$ in cash). Esterline is a US industrial company that has realized sales of 2 bn € in 2014 and was not active in the Connectors industry before the buyout but in related sectors as sensors, man‐
machine interface or advanced materials with potential synergies with Souriau. The decentralized organization allows to Souriau a quite important autonomy and a decision center located in France. The society is particularly active in sectors as aerospace, military and industries (transport, instrumentation…). If the link with the aerospace industry is historical, the company has also developed links and competencies in the nuclear industry, marine or the offshore segment. Souriau has 11 production sites in the world Souriau dispose de 11 sites de production, among others 4 in France:  Champagné: high volume production for aerospace/industry and center of development and industrialization ;  La‐Ferté‐Bernard: linked to the Champagné site, moulding operations for all the French industrial sites ;  Marolles: specialized in specific products with low volumes but high value‐added ;  Cluses: contacts machining for all the French industrial sites ;  One site in Morocco: this site has been fast growing for the last years and yet centralizes the production of standard products (high volumes) ;  Two sites in Asia (India and Japan) ;  Two sites in the US ;  One site in South America (Porto Rico) ; The Asian and American sites have been settled to facilitate the local markets penetration. Chapter 4 – Connectors 73 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Despite these numerous ownership changes, Souriau has been keeping growing with a turnover around 250 M$ in 2012 (Sensors & Sytems division within Esterline) and a net result of 40 M$ (net margin of around 16%). Separate data concerning Souriau within the Esterline annual report have not been communicated any more since 2013. The trend seems also positive for the years to come with a good positionning in the aerospace segment (especially with Airbus). The French headcount should pursue its growth: indeed, in spite of the the reallocation of standard volumes toward Tangers, the headcount of French sites has been growing for the last years tanks to the development of new activities (offshore, nuclear…) and the dynamism of aerospace sales. The company has annouced in june 2015 the recruitment of 100 employees for Champagné and La‐Ferté‐Bernard to follow the backlog growth which represents a 15% increase in the total headcounts of both sites (from 700 to 800). Radiall: a strong growth for the family owned company thanks to internationalization and aerospace Family owned SME funded by the Gattaz family, Radiall has strongly grown since its creation and now operates production sites on four continents. Halting concerning the model to settle to finance its growth, Radiall went into the stock exchange more than twenty years ago for a limited part of its capital but has announced in 2010 its will of withdrawal, with a share buyback representing around 25% of the total shares. The company direction explained then this decision by its will to keep a long‐term prism in its development and to limit the financial market pressure. Nevertheless, at the end of 2012, the Commercial Court opposed this withdrawal arguing that 7% of the capital owned by the fund Orfim were detained for less than 3 years and could not be perceived as a steady stake. The company fits into a strong growth trend with a 55% growth of sales in only five years and + 21% for the sole year 2014. The operating margin is following the same track, reaching 16% of sales in 2014 (vs 10% in 2013). Indeed, the company has benefited from a good growth of the Telecom segment and the continuation of the aerospace growth. 74 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Chiffre d'affaires 2014 Radiall par division
12,8%
18,5%
Wireless
Military, Aeornautics,
Space
Automotive
Industrial
68,7%
Chiffre d'affaires 2014 Radiall par zone
24,1%
19,5%
France
Europe (hros France)
19,2%
Amériques
Asie et ROW
37,2%
The main part of growth is obviously coming from the Aeronautics segment with very dynamic sales to Airbus. This segment represented more than two thirds orf the company turnover in 2014. The Wireless division was also fast growing in 2014 with an increase of 41% in sales mainly coming from the recovery in China. If sales and headcounts have been fast growing in Americas and Asia, the French headcount has remained rather steady since 2010 with + 4% between 2009 Chapter 4 – Connectors 75 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 3.3. Trends for the employment in Europe As a reminder (cf. 1.2), we consider 36 K employees as our estimate for the connectors industry in Europe. Main trends underlying our scenarii  Strong growth perspectives for the global Connectors market including in Europe,  Standard connectors volumes may decrease in Europe …  … and globally the rise of Wireless may impact the Computers peripherals segment…  …but specific connectors seem globally well orientated in the mid‐run,  Growing internalization of European main competitors,  As specific connectors suppliers are dependent on clients’ localizations, any relocation strategy on the client side may have impacts on employment,  Potentially huge opportunities from the IoT and the Industry 4.0. Hypotheses and conclusions of the two scenarii Business as usual scenario In this scenario, we suppose:  Main European actors are well positioned on specific markets,  The relocation towards Asia is likely to continue concerning standard products,  The relocation of some final clients could impose a shift of the Connectors production. This threat is especially strong for Automotive suppliers but not only,  Major groups (US MNE for example) decide to relocate some production sites to low‐
cost zones,  The European competencies are recognized even by US based groups in sectors as aerospace or instrumentation,  The European regulation may become stricter than in the other zones (cf. REACH) which could harm European actors competitiveness, Given those hypotheses, our “business as usual” scenario forecasts a 5% rise of the number of European employees up to 2020. Desired state scenario In this scenario, we suppose:  Europe takes advantage of the positive technological trends of IoT, Big Data or smart industry in which European actors may have competitive strengths and competencies,  Manufacturing jobs increase and capacity investments are located in Europe…  …while most of R&D competencies stay in Europe, 76 Chapter 4 – Connectors IndustriAll project "Strategic study on anticipation of changes in the European ICT sector”  End markets for specific connectors keeps on growing (aerospace, industries, automotive),  There is no major M&A involving an important European actor,  The initiative 10/20/100 is well delivered and fosters the entire value chain including the Connectors industry. Given those hypotheses, our “desired state” scenario forecasts that the number of jobs in the sector would increase by 10% up to 2020. Chapter 4 – Connectors 77 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 78 Chapter 4 – Connectors 
Chapter 5 ______________________
Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 80 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 1. Overview of the sectoral trends 1.1. A complex market with a wide range of products Domestic appliances are divided between: 
Major domestic appliances: refrigerators, freezers, dishwashers, washing machines, tumble dryers, free standing cookers, built‐in ovens, hobs, hoods, and microwaves;  Small domestic appliances: ovens, cookers, irons, fans etc. The wide range of products enumerated above, as well as their different features and classification creates a highly fragmented market, making the analysis of the consumer electronics and domestic appliances sector a difficult task. Moreover, the sector is characterized by the existence of a high number of big companies manufacturing a large palette of products. These companies are market leaders/top manufacturers for certain products, sometimes having as competition smaller companies specialized on producing certain products. This situation makes the analysis even more complex as for some products there is the possibility to identify leaders that compared to the whole sector are not significant. The sector knew a sharp decline during the crisis The domestic appliances market in Europe knew a sharp decrease during the crisis; the contraction was around 14% in 2009, the sales decreasing to 45 bn. EUR from 52 bn. EUR. The market fluctuated in the next period and in 2012 a new minimum was reached – 43.7 bn. EUR, when the debt crisis hit Europe. Since then, the domestic appliances market started to recover, but at a small pace. On the other hand, the Consumer electronic market is declining despite a small recover in 2010. In 2012, the total European market accounted for 24.4 bn. EUR showing a 28% decrease compared to 2008. Chapter 5 – Consumer electronics and domestic appliances 81 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” According to CECED17, the total appliances stock is around 1.7 billion appliances across Europe. The same institution estimates that the total production of appliances in EU28 and Turkey is around 121 million divided as follows: 


72 million large appliances 47 million small appliances 1.8 million heating, ventilation and air conditioning Recovery and growth indicators for domestic appliances in 2015 According to GfK and EUROSTAT data, Western European18 countries are main markets for IT&C products, including consumer electronics and domestic appliances. The evolution of sales in this region is defining general EU trends. According to GfK reports19, for the first quarter of 2015, Major Domestic Appliances sales show a solid increase compared to the same period of 2014. Tumble dryers outperformed expectations, having the biggest increase among the Major Domestic Appliances. The positive evolution is also due to the increase in sales of appliances with the efficiency class of A+++ on the back of a decrease in prices. 17
European Committee of Domestic Equipment Manufacturers *Western Europe: AT, BE, CH, DE, DK, ES, FI, FR, GR, IT, NL, NO, PT, SE, UK 19
http://www.gfk.com/ 18
82 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” The sub‐sector of Small Domestic Appliances register a growth of nearly 10% in the first quarter of 2015, many products such as vacuum cleaners, shavers, dental care products and food preparation equipment posting double‐digit robust growth. Main trends observed in the sector include more efficient energy consumption (e.g. 2013 refrigerators are 40% more efficient than those produced in 2003) and lower sale prices (on average, by 4% since 2005). Consumer electronics lag behind, but potential exists on the TV segment Overall, Consumer Electronics sales declined in Q1 2015 and are expected to fall for the whole year, as there is no major sporting event to fuel demand. However, the market for TVs is expected to grow in the middle term, especially for large screen sizes and high quality (4k/UHD) sets. Smart TVs will become the most sold TV product worldwide. The market research company Gartner20 estimates that until 2018, 87% of the TV shipped annually will be smart TVs. In European countries the smart TV penetration rate is rather low and the market is not yet mature: UK – 29% (Jan. 201521), Germany – 38% (201322), Austria – 33%, France – 42% (201223), Poland – 36%, Netherland – 26%, Spain – 26%, Italy – 28%. According to European TV market 2007‐2013 report24, sales of televisions in Europe reached their peak in 2010, when 56 million units were sold and the market was dominated by CCFL25‐LCD TVs. High volumes were stimulated by a 30% decrease in prices registered in 2007‐2010. After 2010, the disruptive technology such as LCD monitors changed consumer preferences and eventually led to the disappearance of CRT TVs from the market. Given the higher average sale price for the new televisions and the average replacement cycle of 7 years, the number of units sold decreased by 7% from 2010 to 2013. In less than 10 years, the television market changed completely, evolving from CRT TVs to Smart TVs with lower energy consumption, higher image quality and full connectivity. 20
http://www.gartner.com http://www.emarketer.com/Smart‐TVs‐Make‐Slow‐Progress‐UK 22
http://www.gfu.de 23
http://www.digitaltveurope.net 24
European TV market study (2007‐2013) 25
Cold Cathode Fluorescent Lamps 21
Chapter 5 – Consumer electronics and domestic appliances 83 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” A similar trend is observed at the global level, as the market declined in the last years and the brands are exploring many avenues to revitalize the market, including OLED displays, curved screens, and increased resolution (4K or Ultra‐HD). “Connected home” More and more devices are connected. The trend is obvious and by the end of 2023, around 22 bn. devices will be connected26 into M2M27 and Internet of Things, an astonishing 6 time increase since 2014 (3.5 bn. devices connected). Source: Machina Research The “connected home” is part of a wider concept called Internet of Things and is referring to the idea that all the devices in a house can communicate with each other. Although there is no clear definition of the connected home, it is well accepted that the connected home market consists of 5 domains or “submarkets”: 



Home security & safety Home energy management (HEM) Home automation Home entertainment 26
Machina Research forecast database 2014 Machine‐to‐Machine 27
84 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
Home health monitoring This is the next big market for the coming years and most of the Consumer Electronics and Home Appliances companies are developing products that can be integrated in this new concept. Some of the companies even created special departments inside their organizations that are focused to develop products in this direction. The race has begun and the competition will be fierce as the demand for smart appliances will boost in the next 5 years: IHS analysts estimate that the “smart connected home appliances” market will boom from 1 million unit sales in 2014 to 220 million by 2020, resulting into a CAGR of 134% for the period. The total number of connected appliances will be more than 470 million: 




186 M smart air‐conditioning and heater units; 131 M smart washing and drying machines; 120 M smart fridges; 11 M smart large cookers; 17 M smart dishwashers; If small appliances are included – coffee machines, robotic vacuums, microwave ovens etc. – the total number of connected devices will jump to 700 M. To give a clearer picture of the potential of smart‐homes, it is estimated that revenues generated by this market will reach $71 bn. by 201828. Samsung, LG Electronics and other consumer electronics giants vying for first‐mover advantage have shifted their focus from mobile devices, television and other saturated businesses, to smart home technology devices. In the next years this will sharpen the competition on the European market and the newcomers will try to take advantage of the convergence between mobile devices and smart appliances. At the same time, smart home is a great opportunity for European companies like BSH, Electrolux, Miele, Philips or Groupe SEB, that are market leaders: their know‐how can be determinant in conquering new markets. Moreover, their business is protected by high entering barriers, which hinder small start‐ups to menace their leader positions as it has happened in the case of mobile devices. However, the question remains if the production of the new devices will be kept in Europe or it will be relocated to low‐cost countries in order to increase profits. One thing is sure: the development centers will be kept in Europe and most probably will increase their workforce. R&D represents an important piece in a manufacturer’s internal structure and its importance will increase in the actual dynamic environment. In 2012, the total amount invested by the consumer electronic and home appliances sector in R&D in Europe accounted for 1.4 bn. EUR. Two of the most important factors that will impact the evolution of smart home appliances are: energy management initiatives, such as dynamic pricing, government initiatives and structure of utilities and standards for interoperability. 28
3 Reasons Why The Connected Home Will Be Defined By Big Brands Chapter 5 – Consumer electronics and domestic appliances 85 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Interoperability between devices is one of the main challenges that producers must face at present. According to a research made by BSH, 90% of customers own different home appliances brands in their home and 66% want one app to connect them all. Such platforms have already been developed for TVs and other multimedia devices, and are currently developed for home appliances. Some of the producers developed their own platforms that facilitate communication among appliances (for example BSH with its Home Connect app, an open platform that can evolve to accommodate a growing selection of services), but the IHS report suggests that there will be just a couple of connectivity platforms. Today, the most important platforms/ecosystems are developed by a consortium of several companies or IT giants: 
ZigBee Alliance: its product, ZigBee, is the language for a wide variety of smart home devices so companies can deliver an integrated ecosystem of home monitoring, energy management, heating and cooling, security and convenience devices;  HomePlug Alliance: its goal is to develop standards and technology for enabling devices to communicate with each other, and the Internet, over existing home electrical wiring;  Nest – developed by Google and already used by Whirlpool and LG;  HomeKit – developed by Apple;  AllSeen Alliance – non‐profit consortium dedicated to enabling and driving the adoption of the internet of things. The protocol is used by big names such as Electrolux, LG, Sony, Panasonic and Microsoft;  Thread – is an IPv6 based protocol for "smart" household devices to communicate on a network. Still, there are companies that are not throwing themselves into launching products with network capability. The German manufacturer Miele, for example, is still on standby considering that simple functions like turning on/off your dishwasher or washing machine are not features from which the customer will benefit, but only basic functions. On the other hand, reducing energy consumption is more important for a customer and according to Miele, the company concentrates its efforts to develop this kind of useful features. The development of solutions for connected appliances in the “connected home” environment is still at the beginning. The compatibility between smart appliances produced by different companies and phone apps is under construction. First steps have already been made in that direction but unfortunately, European developers are not part of it. One should consider that the standards and devices born in the world of mobile telephony terminals, of which the EU is now completely absent, could gain an hegemonic position in this market segment. In order to counteract this prospect, developing a common EU‐based standard around a domestic gateway, with fair legal and economic conditions of access, could prove to be a viable solution. The existence of significant EU players in the gateway manufacturing sector, and in the home appliance sector, would be an opportunity for developing such a common EU‐based standard. 86 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” In the document Home appliances 2025: A vision for the home appliance industry in Europe of the European Committee of Domestic Equipment Manufacturers (CECED), the connected home is one of the 4 pillars that the companies consider to be essential for the future development of the sector. In that respect, the CECED asks the European Commission to establish a “Connected Appliances” platform with policymakers, consumers and industry to discuss trends and market uptake as part of the EU Digital Single Market and also to coordinate with industry to align investments in technology innovation with supporting infrastructure. 1.2. Employment in the sector According to the most recent data29, Domestic Appliances Industry direct contribution to employment in Europe is around 219k workers, while the indirect contribution accounted for 465k, most of the indirect workforce being located in Italy and Poland. The TV production in Europe represents a particular case having in view that, with few small exceptions we could not identify any manufacturers in Europe. The biggest TV producers – Samsung, Sony, LG – are not present in Europe, as their products are manufactured in their home countries or other Asian countries. The number of persons employed in the consumer electronic sector is estimated to be at around 67k as of 2012. Based on our estimation, the existing workforce employed in TV production is at around 2,500: 



The Slovak company Universal Media Corporation employs around 600 workers, The Chinese manufacturer TPV, after shutting down the production in Hungary, remained with around 700 workers at the site in Poland. When acquired by Skyworth, the German producer Metz employed a total of 650 workers and TCL reported more than 400 employees for its operations in Europe. 29
2011, The Economic Impact of the Domestic Appliances Industry in Europe (April 2015) Chapter 5 – Consumer electronics and domestic appliances 87 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Some producers chose to leave European market because of high costs (Sharp), while local companies divested their TV divisions (Philips) or became victims of the fast moving technology. In the last years the European TV market has been penetrated by Chinese producers such as TPVision or Skyworth that acquired local companies. Even so, from employee’s perspective, the news is not comforting: the Chinese are planning to move nearly all of the production in Asia or to concentrate local production in Eastern Europe, while TPVision will close its factory in Hungary. Still, Europe is attractive in what concerns high skill workers for the R&D field, most of the biggest global companies having innovating centers in E.U.: 
Samsung: Samsung Electronics Research Institute (UK, area of R&D: Mobile phones and digital TV software); Samsung Poland R&D Centre (Poland, area of R&D: STB SW Platform Development);  Sony: Sony Computer Entertainment Europe R&D (UK);  LG: R&D center located in Poland that will adapt LG's products including televisions, refrigerators and washing machines to the European market; In what concerns the Domestic appliances producers, Europe is very well represented at global level. Many production sites are located in Europe, but the pressure for cheaper and energy efficient products and higher competition on the market led to important changes in the organizational structure of the companies. The weight of European employees in total number of employees constantly decreased in the last years, partially because of a wider global footprint (mainly in Asia), partially because of delocalization of European production sites toward Asia: 
BSH maintained the number of employees in Europe since 2009, while its global effectives increased by 1/3. Most of the company recent investments were in production sites located in Turkey and China.  70% of Electrolux total production is located in low costs countries. Inside Europe, many companies chose to open/acquire new facilities in Eastern Europe in order to reduce costs: BSH bought a bankrupt domestic household appliances factory in Poland and its plan is to double the production by 2025; Miele’s last two investments in production sites were in Romania and Czech Republic. Most of the R&D centers in the domestic appliances sector are located in Europe, but some new investments in were also made outside E.U. For example, BSH built a R&D center in Turkey in 2013 and another one in India this year, while Miele invested in South Korea. The BSH’s Indian center will be located in Puna and will hire around 30 people. According to our estimates of the companies, the percentage of R&D employees in total workforce is no more than 3‐4%. 88 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 2. Disruptive technologies and strategies of the sector 2.1. Increased digitalization of home appliances Communication between CE components and household appliances opens up a wealth of possibilities for future applications. Thus home networks can help to save energy and also make the home a safer place. The trend of digitalization will remove the barrier between the producers and it will determine the manufacturers to collaborate in order to create more competitive and innovative products that will respond to a more complex demand. More important is that in the case of Home Appliances, this trend can be led by European manufacturers, given their know‐how and highly skilled personnel. Table 1. Trends in consumer electronics, by products30 TVs Watches Sound systems Loudspeakers/ Headphones Ultra High Definition TVs (UHD) are ready for the mass market; TVs that support HEVC standard (highly efficient video compression); New nanocrystals technology in the red and green color filters; New OLED (Organic Light‐Emitting Diode) TVs; High Dynamic Range (HDR) technology for obtaining better contrast; A competition is developing for Smart TV's operating system; Higher connectivity between TVs, mobile phones, tablets and other appliances; Smart watches connected to Internet, with sensors to monitor body activity 3D sound technology Wireless technology Recalibration functions that individually adapt the sound to the hearer’s ears; Sophisticated control concepts (e.g. going to the next piece of music in response to a wave of the hand); Headphones that no longer obtain the sound via the traditional way, but have their own digital‐analogue converter and amplifier in the earphones; High definition sound format. 30
GFU Consumer Electronics trends 2015 Chapter 5 – Consumer electronics and domestic appliances 89 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Table 2. Trends in domestic appliances, by products31 Major Domestic Appliances Washing machines Tumble driers Dishwashers Tumble driers Fridges Ovens Small Domestic Appliances Food processors New sub‐sectors Vacuum cleaners Higher economical use of electric energy, water and detergents; Interconnecting the appliances using smartphones Effective washing even at 20°C, use of foam system, reduction in noise level Economical use of energy, noise reduction, higher load capacity Faster and more efficient, reducing operating times up to 60% Reducing the amounts of water and energy used Economical use of energy, noise reduction, higher load capacity Improved energy efficiency Higher flexibility and speed: new generation ovens combine a number of functions in a single unit, such as such as conventional heating, hot air, a grill and steam cooking, as well as a microwave and induction Higher use of sensors to insure maximum efficiency Developing new products with multiple functions; Interconnectivity between the appliances and smart phones; The global market is driven by large European groups such as Groupe SEB, Philips, Bosch Siemens or De Longhi, which develop new products and concepts, open up new categories and set up in new territories; Multiple tasks and new functions (some of them can even cook the food prepared) Food preparation (mixers, stick blenders etc.) and Fun cooking (e.g. waffle irons) Improved performance and reduced energy consumption The units are tend to be more compact, lighter and quieter New vacuum robots are growing in popularity and they can be controlled via smartphones. 2.2. Profound changes in television technologies towards smart and connected TVs The European market is adopting the display resolution 1920 × 1080 pixels of Full‐HD (1080p). The increasing market penetration of LED technology with 3D capability (about 30% of total TV unit shipments are already 3D) is pushing enhanced resolutions such as 3840x2160 pixels or Quad Full‐HD (2130p) into the market. The trend goes to even higher resolution of 4096×2304 pixels or 4kx2k. Independently from the core technologies and display specifications, the global TV market is shifting towards the next generation of “smart or connected TVs”. Most manufacturers are launching smart TVs that allow access to the internet and interactive service platforms. According to 6Wresearch, the global smart TV market is expected to ship 198.2 million smart TVs by 2017, growing at a CAGR of 20.8% from 2012‐2017. 31
GFU Electric Home Appliances 2015 90 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 2.3. A competitive landscape marked by multiple mergers and acquisitions In the last years, some important acquisitions, mergers and even bankruptcies changed the European market in what concerns the Consumer Electronics and Domestic Appliances. 




The acquisition of Indesit by Whirlpool (world’s largest Major Domestic Appliance manufacturer) in July 2014. The transaction accounted for some 758 million EUR. With this acquisition, the American Group consolidated its position on the European market, Indesit being the market leader in Italy. Recently, the American company announced a restructuring plan that will cut nearly 2,000 jobs out of 6,700 in Italy. The redundancies are 480 higher than the initial numbers declared (1,350 jobs out of which 1,200 factory jobs and 150 jobs in research). The restructuring plan is targeting 2 factories. All the jobs cuts are due to be carried out by 2018. European home appliances manufacturer Electrolux came to an agreement in September 2014 to acquire its competitor, the American company GE Appliances. The transaction is still subject to antitrust regulations. By this transaction, Electrolux will strengthen its position in North America and will become a much stronger competitor of Whirlpool. Public declaration of Panasonic’s CEO in November 2014 says that the Group is considering future M&A deals in order to increase its presence on the European home appliance market. The company didn’t announce any target yet, but the company is present in Europe through the Slovenian company Gorenje, in which Panasonic is a minority shareholder. In 2013, Spain’s largest appliances manufacturer, Fargo, declared its bankruptcy. The company was acquired by CAN Group, another Spanish appliances manufacturer. The new shareholder plans to restart Fargo’s activities as soon as possible and to bring back 840 jobs in the next four years. Groupe SEB announced in mid‐2015 the acquisition of OBH Nordica group, a leading appliances manufacturer in Scandinavia. The closing is expected to take place at the end of August. Chapter 5 – Consumer electronics and domestic appliances 91 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
At a smaller scale, the Italian company Hoover‐Candy acquired the British appliances manufacturer Baumatic at the end of 2013. After the transaction closed, around 100 jobs were cut.  Mid‐April 2015, the Chinese company Skyworth acquired the Metz’s LCD, LED production and distribution units. The German manufacturer declared its bankruptcy in 2014. With this acquisition, the Chinese company is entering the European market. The next step will be to control costs, with plans to gradually transfer METZ's research and development as well as manufacturing systems to China, although the sales infrastructure will remain in Germany32. The fierce competition on the European market and also the weak demand in the region forced manufacturers like Sharp to exit Europe in July 2014. According to public data, around 300 jobs were cut while the factory situated in Poland was sold to the Slovakian company Universal Media Corporation. 2.4. Sustainability The European policy regarding the energy efficiency represents an important chapter in the 2020 EU strategy. Most of the manufactured products will have to consume less energy by 2020 and by then more tight regulations will be adopted. All the appliance manufacturers are paying a special attention to this subject and they invest important amounts of money in order to develop new products that will meet or even surpass EU requirements. According to IEA (International Energy Agency), electricity consumption would have been 23% higher since 1990 without energy efficiency. Energy efficiency benefits are above average in the case of large appliances: the electricity consumption would have been 39% higher compared to 1990 without energy efficiency. The largest savings are coming from refrigerators, where total energy use has increased by 48% whilst the stock has increased by 131% since 1990. 32
http://www.wantchinatimes.com 92 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” In spite of the mentioned results, the energy efficiency hasn’t reached its maximum potential. Government policies such as energy labeling and Ecodesign MEPS are very important in reaching further energy savings and should be maintained. On the other hand, the EU directive on the issue seems to be obsolete, as most of the appliances are already in the energy label’s highest energy efficiency class. For example, 90% of household dishwashers are energy efficient. However, not all the products are becoming more efficient. Televisions are a negative example: a study conducted by Natural Resources Defense Council (NRDC) revealed that 2015 UHD TVs have in average 41% higher energy consumption than HD TVs. Even if UHD TVs reduced their energy footprint by 4% compared to 2014, HD TVs improved their efficiency by 7%. The study focused on 55 inch TVs and important differences were observed among different brands. Therefore, the difference in energy consumption between the most efficient TV (LG model – standard consumption of 88.5 Watts) and the least efficient one (Vizio – American producer – standard consumption of 166.3 Watts) is 77.8 Watts. Chapter 5 – Consumer electronics and domestic appliances 93 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Companies continue to invest in developing new products that have lower energy consumption. Recently, European Investment Bank granted Electrolux a 150 MEUR loan for the development of more energy efficient major and small home appliances. Electrolux goal is to reduce its product carbon dioxide emission by 50% by 2020. Moreover, according to the company, one third of R&D expenses are related to sustainability and energy efficiency. In July 2015, Electrolux unveiled its latest washing machine that is 50% more efficient than the EU’s top energy rating A+++ and emphasized the fact that, even if the energy labeling stimulated the manufacturers to improve energy efficiency, the actual classification can’t keep the pace with technological development. The table below integrates the actual EU regulations for the most energy efficient appliances. Home appliance ovens range hoods household tumble driers television household washing machine household dishwasher household refrigerating appliances vacuum cleaner ‐ annual energy consumption Start date 1 January 2015 1 January 2015 1 March 2012 28 September 2010 28 September 2010 28 September 2010 1 July 2014 1 September 2014 EEI for A+++ < 45% < 55% < 24% < 10% < 46% < 50% < 22% ≤ 28 kWh EEI stands for Energy Efficiency Index and represents the percentage of power consumption relative to benchmark power consumption. For example, for washing machines, the EEI is a measure of the annual electricity consumption, and includes energy consumed during power‐off and standby modes, and the energy consumed in 220 washing 94 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” cycles. For the washing cycles, a weighted mix consisting of 42% full‐load cycles at 60 °C, 29% partial‐load cycles at 60 °C, and 29% partial‐load cycles at 40 °C. The washing performance is not mentioned anymore, since all washing machines must reach class A anyway. For a 6‐kg machine, an EEI of 100 is equivalent to 334 kWh per year, or 1.52 kWh per cycle33. In order to demonstrate the energy efficiency of new products and the benefits of connected appliances, several Swedish companies created a cross‐industry consortium that developed a testing bench composed of 150 apartments. Key contributors are Fortum, ABB, Ericsson, Electrolux and Swedish Energy Agency. This kind of projects shows that in Europe the interest for energy efficient technology remains high. 3. Main players and employment in Europe 3.1. In the sub‐sector of consumer electronics, European TV producers lost the battle against Asian companies The consumer electronics sector comprises a wide range of products, among which the television market is the most representative. The European TV market is dominated by Korean and Japanese brands such as Samsung, LG or Sony. Most of these corporations are manufacturing their products in their home countries and exporting to Europe. Until 3 years ago, Philips was one of a few well‐known European consumer electronics manufacturers that produced TV sets. But even a big company such as Philips couldn’t face the fierce competition of the Asian products, and in 2012 the Television business was divested as part of a strategic partnership agreement with the Chinese company TPV Technology Ltd (TPV). In 2013, the production site situated in Hungary was shut down and 370 employees were laid off. The European production is now concentrated in Gorzow, Poland. Besides TPV, another Chinese TV manufacturer is producing TV sets in Europe – TCL Multimedia, which has a plant in Żyrardów, Poland. The company produces TVs under Thomson brand. The biggest European TV producer is the Turkish company Vestel, but no production sites are based in EU. The sole European based company that produces televisions is UMC Slovakia (Universal Media Corporation), which manufactures various TV sets including Technika TVs, Tesco’s brand. It seems that the European manufacturers have lost the battle with foreign companies for the local TV market. 33
Wikipedia ‐ European Union energy label Chapter 5 – Consumer electronics and domestic appliances 95 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 3.2. The largest European producer of home appliances, Bosch moves towards digitalization BSHindicators
Indicator
2009
2010
2011
2012
2013
2014
2014
vs.
2009
Revenue,inMEUR
8,410
9,073
9,654
9,800
10,508
11,389
35%
No.ofemployeesworldwide
39,600
42,841
46,228
46,925
49,876
53,211
34%
No.ofemployeesinEurope
30,136
31,274
33,284
33,317
28,085
29,552
‐2%
%Europeintotalemployees
76%
73%
72%
71%
56%
56%
R&Drate(%ofrevenue)
3.1%
3.1%
3.1%
3.3%
3.2%
3.3%
BSH Hausgeräte GmbH is the largest manufacturer of home appliances in Europe and one of the leading companies in the sector worldwide. Within the brand portfolio the main brands are Bosch and Siemens¹. With its eight special brands (Gaggenau, Neff, Thermador, Constructa, Viva, Ufesa, Junker and Zelmer), BSH caters to the individual wishes of consumers. Four regional brands (Balay, Pitsos, Profilo and Coldex) ensure a broad presence in their respective home markets. In Sept. 2014, Bosch Group came to an agreement for purchasing the 50% stake in BSH from Siemens. The total amount of the transaction is 3.25 bn. €. The transaction was completed in the first half of 2015. STRATEGY 
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



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96 moving toward a more digitalized range of products; innovation; in 2014, BSH developed the first ovens and dishwashers to be network‐capable, and can be controlled away from home using the Home Connect app; the strategy for producing networked appliances will continue also in 2015; the existence of a Digital Transition department; consumers wish list for appliances is headed by performance and ease of use. BSH R&D expenses had an increasing trend since 2008, revealing the company’s strong interest for developing new products that will make the difference in the market. Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRENGTHS 
WEAKNESSES 

BSH was the fastest growing Western European major appliance manufacturer at world level in absolute volume terms in 2009‐
2014. High technology available 
Low performance of major appliances Low presence in Asia and North America OPPORTUNITIES 
THREATS 


Increasing presence in China and Eastern Europe Developing small appliances business ‐ through the acquisition of Zelmer, which boosted sales in this category and its presence in Eastern Europe. Digitalized appliances Developing opportunities in emerging markets 


Merger between Electrolux and GE Appliances Lack of growth in Western Europe Stringent safety and performance certifications 3.3. The global leader Samsung has a limited industrial presence in Europe Samsungindicators
Indicator
2009
2010
2011
2012
2013
2014
2014
vs.
2010
Revenue,total,inbnEUR
78.6
103.1
107.3
139.3
158
147.8
43%
ConsumerElectronics
Division,inbnEUR
38.9
32.6
35.4
34.7
36
‐7%
ConsumerElectronics
Division,%oftotalrevenue
38%
30%
25%
22%
24%
No.ofemployeesworldwide
157,701 190,464 221,726 235,868 286,284 319,208
68%
No.ofemployeesinEurope
8,985
10,609
13,850
15,318
18,362
18,602
75%
%Europeintotalemployees
5.7%
5.6%
6.2%
6.5%
6.4%
5.8%
R&Drate(%ofrevenue)
5.5%
6.1%
6.2%
5.9%
6.5%
7.4%
The Korean giant is the world biggest manufacturer of mobiles phones, TVs, refrigerators and memories. The Group developed rapidly even during the crisis. The total sales increased by 70%34 between 2008 and 2014. The company has a various range of products that are sold all over the world. The most dynamic division is the Mobile Business that developed at a fast pace in the last years and is the main reason for the recent Group evolution. The Consumer Electronics Division (CE Division) inside Samsung is quite large and comprises the following sub‐divisions: Visual Display Business, Digital Appliance Business, Printing Solution and Business Health & Medical. TV represents the core product of the CE Division (64.6% of the division’s sales). The weight of CE Division in total sales decreased constantly, 34
KRW figures Chapter 5 – Consumer electronics and domestic appliances 97 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” from 37.8% in 2010 down to 24.3% in 2014 given the bloom registered by the Mobile Business. It seems that home appliances products do not have an important weight in Samsung’s total sales as the Group does not report sales figures for this sub‐division. The number of employees at Samsung more than doubled since 2009, reaching 320k workers. Most of the employees are based in Korea, while only 5,8% of the total working force is based in Europe, most of them being blue collars workers in the plants situated in Hungary (Production of electronic goods), Slovakia (Display panel processing, Production of TVs and monitors) and Poland (Production of home appliances). The important role of the R&D is emphasized by the high number of employees dedicated. In 2014 their weight in total number of employees accounted to 22% (70k workers). In Europe, Samsung owns five R&D centers in Sweden, Greece, Denmark, France and UK. Strategy 

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
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98 focusing on new premium products such as SUHD TVs, featuring Nano Crystal technology expand market leadership based on smart devices; focus on emerging markets. As such, Samsung is hard at work on successfully entering new and emerging markets. In particular, the company strengthens emerging market strategies through its deep understanding of consumer needs, localized product designs and local knowledge, developed by regional R&D centers. lead innovations in technology high interest on connected home appliances 90% of all devices created by Samsung, including televisions and mobile devices, will be Internet‐enabled by 2017. Samsung's platform will be entirely open to developers and other software and hardware manufacturers. Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRENGTHS 
WEAKNESSES Worldwide market leader in TVs (9 years in a 
row) and refrigerators High investments in R&D and developing new 
centers around the world Global presence doubled by a strong brand name Innovative products brought on the market Developing three new product lines—
including smart refrigerators, air conditioners, and washing machines—that should help Samsung gain a stronger foothold in the connected‐device market 



Focusing on other business divisions (especially Mobile Business) Moderate weight of home appliances revenues in total sales OPPORTUNITIES 
THREATS The trend towards large‐size and high‐
resolution screens is accelerating Increased demand for UHD TVs and refrigerators (US market) Developing its own operating system for TVs (Tizen) 




Higher competition Average selling prices are dropping (TVs) High costs for developing new products 3.4. LG Electronics aims at becoming market leader on the Home entertainment market LGElectronicsindicators
Indicator
2009
2010
2011
2012
2013
2014
2014
vs.
2009
Revenue,inbnEUR
31.4
37.2
35.3
35.3
40.2
42.3
35%
No.ofemployeesworldwide
81,652
90,578
91,045
86,697
82,432
83,641
2%
No.ofemployeesinEurope
3,086
3,426
7,466
6,382
5,183
6,078
97%
%Europeintotalemployees
3.8%
3.8%
8.2%
7.4%
6.3%
7.3%
R&Drate(%ofrevenue)
0.7%
1.0%
1.1%
1.5%
1.6%
1.6%
The Korean company is a world market leader of TVs, Mobile Communications and Home Appliances. LG maintained the number of employees relatively stable between 2008 and 2014, with a peak in 2011. In the same year, LG opened an appliances plant in Poland with an annual capacity of 700,000 units and increased the refrigerator capacity by 21%. Strategy 


Aiming to become the leader of the Home entertainment market; Focusing on technological innovation and implement business initiatives based on accurate identification of market needs; Delivering more differentiated products; Chapter 5 – Consumer electronics and domestic appliances 99 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
Improving cost competitiveness by lowering the raw material costs and delivering higher energy efficient products; The key areas are considered to be cell phones and digital TVs STRENGTHS WEAKNESSES 


Consumer electronics and Home appliances are the main business divisions of the company Pioneer of the UHD TVs and OLED TV sets The new Home Appliances Division that incorporates the Air Conditioning & Energy Solutions (AE) unit Eco‐friendly product development and production process Leading‐edge technology for OLED TVs Increased market share for Home Appliances products 






Despite important efforts, still in the shadow of its main competitor, Samsung Low level of R&D expenses compared to the leader Home appliances are not considered as being key areas for developing new products OPPORTUNITIES 
THREATS 
Developing its own operating system for smart devices (WebOS) Leveraging on its broad product portfolio Expected demand for UHD and OLED TVs to increase Increasing its focus on Smart Technologies Participating in pilot projects to develop new products 




Strong competition on all the markets, but mostly on the mobile communications market Unstable economic conditions in the emerging markets 3.5. Groupe SEB expands its presence in Europe GroupeSEBindicators
Indicator
2009
2010
2011
2012
2013
2014
2014
vs.
2009
Revenue,inMEUR
3,176
3,652
3,963
4,060
4,161
4,253
34%
No.ofemployeesworldwide
20,633
23,058
23,988
24,758
24,682
25,453
23%
No.ofemployeesinEurope
(incl.RussiaandCIS)
8,012
7,963
8,012
8,113
8,041
7,980
0%
%Europeintotalemployees
38.8%
34.5%
33.4%
32.8%
32.6%
31.4%
R&Drate(%ofrevenue)
1.9%
2.0%
1.7%
1.8%
1.9%
2.0%
According to Euromonitor, Groupe SEB is the second largest small domestic appliances manufacturer in the world. The company is very active on the Chinese market where it is developing its business, but also on the European market where the Group acquired the OBH Nordica in July 2015. The number of employees involved in R&D activities is about 900 or 3.5% of total workforce. 100 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Strategy 










Aggressively implementing a strong product innovation and brand differentiation policy; Conquest of new markets; Leveraging the strength and complementarity of its brands; Expanding its sales operations by opening its own retail brand outlets; In 2014, Groupe SEB’s cross‐disciplinary development initiatives focused on the ageing of the population, wired households, digital applications, health/beauty/well‐
being assets, energy and environmental responsibility; Focusing on China: new investments in local plants. STRENGTHS WEAKNESSES World 2nd largest manufacturer in small 
domestic appliances 
Important investments in companies that activate in innovation sector such as hardware and software, robotic navigation, 3D printing etc. Good financial situation that allows the Group to buy other companies Diversified distribution channels that are adapted to markets A wide, diversified product range OPPORTUNITIES 





The acquisitions made in the last years increased its presence in emerging markets Strong anticipated growth in Chinese and Latin America markets New consumer trends and a more attention given to nutrition and health The necessity of developing new products in partnership with other mass consumer goods manufacturers Few competitors have a global coverage Small household equipment market growing around 7% per year. Higher prices relatively to emerging markets Fragmented markets with different consumption habits THREATS 




Worldwide fierce competition; increased competition in China (Midea) Strong pressure on prices Low‐to‐moderate, yet steady, demand in the majority of mature markets (e.g. Europe) Another form of competition comes from “white label” goods and retailer brands; both mainly consist of aggressively priced entry level products New European regulation on hazardous waste and energy footprint Chapter 5 – Consumer electronics and domestic appliances 101 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 3.6. Whirlpool doubles its footprint in Europe through the acquisition of Indesit Whirlpoolindicators
Indicator
2009
2010
2011
2012
2013
2014
2014
vs.
2009
Revenue,inbnEUR
12.8
12.3
13.8
13.4
14.1
14.1
10%
No.ofemployeesworldwide
noinformation
No.ofemployeesinEurope(incl.
RussiaandCIS)
66,884
70,758
68,000
68,000
69,000
100,000
50%
R&Drate(%ofrevenue)
2.9%
2.9%
3.1%
3.0%
3.1%
2.8%
The global leader in home appliances manufacturing, Whirlpool has an important presence in Europe being leader in UK, France, Russia, Poland or Italy (after the recent acquisition of Indesit). After the acquisition of Indesit in 2014, Whirlpool is already its the operations in Italy, despite the strong, low‐cost country footprint35 that Indesit has. Facing an over‐capacity of production, the company decided to cut 1,350 jobs, according to an announcement made in April 2015. In May, Whirlpool increased the number of employees to be laid off to 2,000, nearly one third of total employees in Italy. The situation is still on the table and discussions are still taken place between the company, trade union and the minister of industry. Strategy 





Continuing to expand the regional footprint (+30% by 2018); Expanding trade distribution channels; Increased presence in emerging markets, especially in Asia and particularly in China; Increased revenue from emerging markets, including through acquisitions; Creating an Internet of Things team, in order to develop more connected appliances; Reducing production costs. 35
Indesit Day Foundation for Growth – May 2015 102 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRENGTHS 



WEAKNESSES The world’s leading global manufacturer and marketer of major home appliances Long experience in manufacturing home appliances products (more than 100 years) Strong financial situation allowing the Group to make important acquisitions Strong chain of distribution around the world 



Over production capacity in Europe The need of reorganization and restructuring of the European operations after the acquisition of Indesit, which will imply important costs Costs associated with new acquisitions in Asia in order to comply with legal demands (e.g. Foreign Corrupt Practices Act ‐ FCPA) Low presence in Asia OPPORTUNITIES 



THREATS Acquisition of Indesit that doubled the size of the company in Europe and made Whirlpool the market leader in Europe by number of units Extending its footprint in China by acquiring Hefei Sanyo home appliances Moving the production to low cost economies Growing demand in the US 




The adoption of stricter governmental energy and environmental standards The competitors are expanding beyond their existing manufacturing footprint Acquisition of GE Appliances by Electrolux Higher pressure on prices and competitive products Small industrial demand on the European market (1‐3%) 3.7. Electrolux continues its restructuring plan and at the same time makes courageous acquisitions. GroupeElectroluxindicators
Indicator
2009
2010
2011
2012
2013
2014
2014
vs.
2009
Revenue,inMEUR
10,279
11,142
11,256
12,638
12,619
12,329
20%
No.ofemployeesworldwide
50,633
51,544
52,916
59,478
60,783
60,038
19%
No.ofemployeesinEurope(incl.
RussiaandCIS)
25,292
23,030
21,667
21,615
21,602
20,768
‐18%
%Europeintotalemployees
50.0%
44.7%
40.9%
36.3%
35.5%
34.6%
R&Drate(%ofrevenue)
1.8%
1.9%
2.0%
1.9%
2.5%
2.6%
The Swedish company Electrolux is a global consumer appliances manufacturer with strong footholds in all regions, except China, where the company didn’t manag to build a supplier network. In January 2014, Electrolux threatened to move the production of one of its four plants that it owns in Italy to Poland, if the employees didn’t accept a salary cut. More than 1,200 jobs were at stake. After the government intervention and nine months of negotiations, Chapter 5 – Consumer electronics and domestic appliances 103 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Electrolux accepted to keep the production in Italy. The deal comprised tax breaks for all Italian plants of the company, while Electrolux engaged to invest around 150M€ by 201736. Discussions were initiated with employee representatives concerning the production at two plants – one in Sweden and one in Switzerland – and a decision was taken to cease production at the plant in Switzerland. The company laid off 80 people at its Schwanden operations, after announcing that it was reorienting the focus of the plant to the Swiss market. In 2014, Electrolux sold the French plant situated in Revin to the electric motors and pumps manufacturer Selni. The new company will keep only 186 employees out of 420. The plant’s production was moved by Electrolux in Poland37. Strategy 










Investment in new technology; Focus on the development of intuitive and user‐friendly control panels; Solutions with less environmental impact; Operational efficiency: Reducing energy, water and waste in manufacturing, shifting sources to minimize negative impact, minimizing emissions from logistics; Western Europe: Increased focus on the strongest product categories and brands (Electrolux, AEG and Zanussi); Greater priority assigned to small domestic appliances; North America: Increased focus on professional products and a strong offering for global food chains; Major efforts to market a broad range of appliances targeting the Chinese premium segment, with functions adapted to this market; Electrolux has a focused growth strategy targeting primarily Egypt, Saudi Arabia and the Lower Gulf countries; European strategy was based on its premium brands, primarily built‐in kitchen; Consumer relevant innovation in the strongest product categories and brands. 36
http://www.industryweek.com/labor‐employment‐policy/italy‐strikes‐deal‐electrolux‐save‐1200‐jobs http://www.force‐ouvriere.fr/la‐colere‐explose‐chez‐electrolux‐a‐revin?lang=fr 37
104 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRENGTHS 




Acquisition of GE Appliances in Q4 2014 Strong presence in Western Europe and North America Professional expertise at Group level (more than 90 years) High market shares mainly in Western Europe (particularly strong position in kitchen appliances), North and Latin America and Australia First steps toward digitalization ‐ connected‐
oven WEAKNESSES 


OPPORTUNITIES 





Development in North America Building up its strength in emerging markets where Electrolux has strong volume shares, such as Brazil and Russia. Electrolux Design Lab. The purpose is to stimulate and activate design students globally by inviting them to present breakthrough ideas for future household environments. Energy‐efficient products are growing in popularity Growing segments like built‐in appliances High demand of major domestic appliances in China Poor presence in Asia and Pacific, mainly in China Europe is the Group's biggest market Low presence in the small domestic appliances industry (excepting the vacuum cleaners) THREATS 



An unsuccessful closure of the GE Appliances deal Europe market is a fragmented market with a large number of manufacturers, brands and retailers For some time, the market in Western Europe has been characterized by overcapacity and price pressure Negative economic evolution estimated for the Western Europe 3.8. Trends for employment in Europe The European employees in the domestic appliance sector are going through difficult times, for several reasons: 
weak demand for household appliances in Europe can have as effect lower capacity utilization rate, reduced working time or even to radical decisions regarding the production sites;  higher costs associated with the workforce are making the employees susceptible to redundancies;  the loss in competitiveness when it comes to prices can lead to relocation of manufacturing sites;  the consolidation of the sector is inevitably followed by restructuring measures. The loss of jobs in Europe will continue, but the pace is difficult to estimate. Reorganization measures taken in most of the companies are related to costs‐cutting. A representative example is Electrolux, which since 2004 moved 35% of its manufacturing sites located in high costs area to low costs regions. However, we do not expect production sites in Europe Chapter 5 – Consumer electronics and domestic appliances 105 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” to be completely eliminated, as the need to be close to the end market for region‐specific products is essential. The battle for a higher market share is sharpening at the global level. Asia is the new battlefield, but mature markets remain important from the business perspective. Recent acquisitions – as that of Indesit by Whirlpool and of GE Appliances by Electrolux – will surely change not only the global home appliances market, but will have a major social impact in Europe. To prove this, the restructuring announced in Indesit factories will cut around 2,100 jobs and will reduce the number of employees by nearly 30% until 2018. Increased market share of less expensive products will become a serious threat for European jobs: Turkish producer Beko is the second best‐selling home appliance in Europe. Even if the Turkish company invested in some production sites in Europe, the positive impact for the European workforce will still be limited. A trend underlined by trade union representatives is that more and more production sites are moving towards Eastern countries, where production costs are lower. According to interviewed trade union leaders, one of reasons for which European manufacturers didn’t close more sites in Western countries is the protectionist national legislation and high compensation costs that would have incurred in case of site closures. Therefore, restructuring plans are taking place in countries where the legislation is more relaxed, such as in Spain, Switzerland and Italy. Many manufacturers opened production sites in Eastern countries, including Poland and Romania, due to obvious reasons: cost‐efficiency and closeness to Western markets. For instance, Electrolux not only transferred the production of hobs and ovens into Romania, but also decided to create a R&D center that employs around 100 engineers. A similar R&D center was built in Krakow, Poland, with more than 500 employees. In spite of these evolutions, the main R&D hub remains in Sweden. The goal is to concentrate the R&D workforce for a range of products in the same location in order to increase efficiency. In many cases, components for products are imported from China and assembled at European sites. The immediate consequences for the European workforce are: 
the decrease number of employees at the production sites in Europe as only assembly process is necessary;  an indirect decrease of number of employees in Europe as suppliers are relocating their production to Asia. Taking into consideration all of the above, the number of employees at European level will continue to decrease in the next 3 to 5 years, the time necessary for the main players to conclude their reorganizations/restructurings following the recent mergers and acquisitions. The weak European demand and some new M&A will lead to further reduction in workforce. In a business as usual scenario, we expect a further 8% to 12% decrease of the number of employed persons in the European computer industry until 2020. Workforce should gradually decrease if the following factors are not countered: 106 Chapter 5 – Consumer electronics and domestic appliances IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 



Ongoing restructuring plans Relocation of production sites in Asia and other low cost areas Concentration of the sector through synergies, followed by redundancies Missing the disrupting trends in technology, resulting in closing factories or even divesting divisions  Poor demand for home appliances in Europe  High pressure on prices leading to cost cutting programs In a desired state scenario, we expect slight decrease of 2% or even a stable number of workers until 2020. In order to settle, the sector could benefit from the following developments: 




R&D competencies to stay in Europe Europea to develop its own standards for connected appliances and Smart Homes Higher demand in Europe No more major M&A concerning European actors New investments in production sites from extra‐EU companies (Turkey and/or China) A quicker completion of cost cutting programs. Chapter 5 – Consumer electronics and domestic appliances 107 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 108 Chapter 5 – Consumer electronics and domestic appliances 
Chapter 6 ______________________
Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 110 Chapter 6 – Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 1. Overview of the sectoral trends 1.1. A highly fragmented sector with strong competitors in Europe The cables industry represents the production and sale of power and telecom cables widely used in electric power industry, data communication, rail transit, automobiles, shipbuilding, and other industries. The development of the sector depends directly on the evolution of each consumer sector. 
Power cables consists of medium, high, and extra high voltage copper and aluminum cabling  Telecom cables consist of metallic external and internal cabling, as well as fibre‐optic cabling. According to the NACE classification (rev. 2), the manufacture of wiring and wiring devices is a sub‐sector of the broader `Manufacture of electrical equipment` sector. In European statistics, the sector is defined as `Manufacture of wiring and wiring devices (Group 27.3). Cables are a very dynamic and competitive industry. The wide range of products for different applications creates a highly fragmented market. Demand for the wire and cable manufacturing industry has grown over the past five years, as the need for faster interconnectivity has intensified. Cables market has grown at a reasonably strong rate and growth is expected to accelerate until 2019 Currently, the cables market is facing a set of challenges: 


wireless links, such as cellular networks and satellite‐linked communication increased roll of fiber to the home (FTTH) networks across Europe in power market, solar panels which are costly to implement without government support such as the feed‐in tariffs  in terms of power cables, new materials with lower power dissipation and higher maximum current densities  one of the most important challenges, the decline of the market of the raw materials such as copper and aluminium In spite of the challenges, the performance of the cable and wire market is forecast to accelerate, with an anticipated CAGR of 5.8% for the five‐year period 2014 ‐ 2019, which is expected to drive the market to a value of $28,652.8m by the end of 2019.38 In Europe, Germany accounts for 20.5% of the cables market value. Power cabling is the largest segment of the cables market in Europe, accounting for 67.9% of the market's total value. Telecom cables account for the remaining 32.1%.39 38
39
http://www.marketline.com/ http://www.marketline.com Chapter 6 – Cables 111 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” European cables market has grown at around 5% per year in the last two years, supported by a range of trends: 
investments in telecommunication and an increased demand for telecom cables, in particular fibre‐optic cabling  deployment of high speed broadband  securing and reinforcing energy grids  upgrading efficiency of building and industrial installations  development of renewable energy Typical players in the cables market are well established, large sized companies. Such players are able to benefit from scale economies, and are therefore able to increase competitiveness on price. 
General Cable Corporation, Nexans, Prysmian Group, NKT Cables Group, LS cable, Southwires, Tyco, etc. Besides large companies, niche players (geographic coverage/ sectoral niches) are serious competitors. 
Leoni, NKT, LS Cable, Huber & Suhner, Omerin, etc. Europe cables market value, bn. USD
25
25%
20%
20
15%
10%
15
5%
10
$ billion
% Growth
0%
‐5%
5
‐10%
0
‐15%
2010
2011
2012
2013
2014
112 Chapter 6 – Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Europe cables market segmentation, 2014
Germany
21%
Germany
France
United Kingdom
Rest of Europe
59%
France
8%
United Kingdom
6%
Spain
Italy
1%
5%
Italy
Spain
Rest of Europe
Source: MARKETLINE A highly fragmented market Prysmian is the largest global player, with Nexans the second largest. General Cable is the largest US player. In Asia, Fujikura and Furukawa are less than half of the size of Prysmian and Nexans, but are focused more on telecoms and specifically optical fibres. Chapter 6 – Cables 113 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Top leading companies in 2014 Company Comments European companies Prysmian Nexans Leoni NKT Cables Continued to beat market expectations, leader in all submarine applications with largest production capabilities and also in optical fiber cables. In the telecom sector, the highlights show a sound demand in the European (mainly France, Italy and the UK) market. Outperformed the market in Europe interconnections, first in building cables in France, and strong market share in aerospace cables. Major company with strong performance in the European automotive cables sector. Also provides industrial, healthcare and communication cables. Strong presence in Germany and focused on high performance in China over‐head rail cable market. US companies General cables Southwire Strong market exposures in the communication sector. The Europe segment contributed approximately 22% of the Company’s consolidated revenues for 2014. Market share in medium and HV cable, building cables and wire for automotive harnesses, electric motors and industrial equipment. Asian companies Fujikura Strong in the communication sector, cooper cables, industrial cables and magnet wires. Hitachi Cables Strong presence outside Japan. Furukawa Strong market‐share in Brazil in telecom cables. LS Cables Offers power T&D cables, optical fiber cables and cables for the nuclear, rail, airport industries. European top players have not managed to capture growth registered in the cables market in 2014, as three of them – Prysmian, Nexans and NKT Cables – have registered decreased revenues in 2014 compared to 201340. 40
https://www.integer‐research.com/ 114 Chapter 6 – Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Europeanleadingcompanies2014
Revenue
2013
Company
Revenue
2014
2013/2014
Revenue
Growth
1.Prysmian€M
7273.0
6840.0
‐6.0%
2.Nexans€M
6711.0
6403.0
‐4.6%
3.Leoni€ M
3809.0
3917.9
3%
4.NKTCablesM$
1589.9
1546.5
‐3%
In spite of growing demand, industrial footprint of the cables sector in Europe decreased In spite of a dynamic market in Europe, local manufacturers have seen their footprint decreased in the last years. According to Eurostat, the number of registered companies in the sector of `Manufacture of wiring and wiring devices` fell from 4.7 thousands in 2008 to 4.3 thousands in 2013, a decrease of more than 10% in 5 years. Among the first 8 European countries with the biggest number of cable manufacturers, only in 3 countries the number of companies grew since 2008: Slovakia, UK and the Czech Republic. In Germany, the country with most companies in the sector, the number of enterprises fell from 1.5 thousands in 2008 to 1.2 thousands in 2013 (‐21%). In the same period, the number of companies fell by 2% in Romania, by 4% in Poland, by 15% in Italy, by 16% in France and by 37% in Spain. Evolution of number of enterprises
`Manufacture of wiring and wiring devices`, by country 1 600
1 400
Germany
1 200
Italy
1 000
Czech Republic
800
United Kingdom
600
France
400
Spain
200
Poland
0
Slovakia
2008
2009
2010
2011
2012
2013
Source: Eurostat Chapter 6 – Cables 115 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” In spite of a decrease of the number of companies, main economic indicators are positive: 
The total turnover has known an increase from 22.9 bn€ in 2008 to an estimated 35.5bn € in 2013, a 55% growth in 5 years. The most significant increases in total turnover were registered in Germany (+3.7bn€), Poland (+0.85bn€) and UK (+0.7bn€). On the other hand, the total turnover has decreased in Italy (‐1.3bn€), Sweden (‐
0.65bn€) and Spain (‐0.5bn€). The profitability of the sector was relatively stable during the last years, with the gross operating rate (gross operating surplus/turnover) fluctuating between 6.5% and 8.5%. As of 2013, highest gross operating rates were registered in Hungary (14.7%), Latvia and Lithuania (above 13%), Austria (10.5%). German companies registered a gross operating rate of 7.9% in 2013, slightly lower than during the period 2010‐2012, when rates of around 9% were achieved. However, in spite of increased turnover and stable profitability, investments in tangible goods have decreased at the level of the EU, mainly due to shrinking investments in France, where total CAPEX of the sector fell from 240M€ in 2009 to 128M€ in 2013. On the other hand, investments rose in Germany and Central and Eastern Europe (Poland, Hungary, Czech Republic, Romania). 

Share of European countries in the total turnover of the sector 'Manufacture of wiring and wiring devices' in EU, 2013
Others
21%
Czech Republic
3%
Poland
4%
UK
Spain
5%
6%
France
Germany
30%
Italy
16%
15%
116 Chapter 6 – Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Evolution of the gross operating rate(gross operating surplus/turnover) of the sector of 'Manufacture of wiring and wring devices', by country
16
14
Germany
12
Czech Republic
10
Spain
8
France
6
Italy
4
Poland
2
UK
0
Hungary
2008
2009
2010
2011
2012
2013
Source: Eurostat 2. Number of persons employed in the European cables sector: a drop of 15% since 2008 According to Eurostat data and our estimates, the sector of `Manufacture of wiring and wiring devices` employed around 213k persons in 2013, compared to 252k persons in 2008. From approximately 39k jobs lost during the period, Germany accounts for the biggest loss of 26k jobs, while Italy and Slovakia lost more than 4k jobs each. On the other hand, the number of persons employed rose by 1.7k in Poland (+18%). In other Central and Eastern countries the increase in employment was modest. As of 2013, with almost 80k employed persons, Germany accounted for 37% of the sector’s workforce in the European Union, while France represented 11% of the total, Italy 8% and Czech Republic 7%. Chapter 6 – Cables 117 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 984
800
623
Latvia
Ireland
Estonia
1 074
Lithuania
1 488
Finland
1 419
2 528
Netherlands
1 132
2 908
Belgium
Greece
2 913
Denmark
Croatia
2 997
Sweden
3 487
Bulgaria
3 448
3 510
Portugal
3 438
5 430
Romania
Austria
5 767
Spain
Slovakia
11 078
8 860
Poland
13 960
Czech…
Hungary
17 478
Italy
23 138
France
Germany
90 000
80 000
70 000
60 000
50 000
40 000
30 000
20 000
10 000
0
79 737
Number of persons employed by the sector of 'Manufacture of wiring and wiring devices', by country, 2013 (no data for UK)
Source: Eurostat 3. Worldwide trends of the sector Economic growth, aging infrastructure, the shift to renewable energy, demographic growth, urbanization, mobility of people and goods, energy transition, digital transformation and massively increasing volumes of data exchange are all generating considerable needs for energy, infrastructure, transport and buildings. These factors are driving long‐term demand for energy and data cables. Big cable companies are expanding at fast pace worldwide. The sector relies on big renewal projects developed by other related sectors. European competitors are investing in the Asian market. In the new environment, companies tend to be more flexible, to adapt faster to clients’ needs, new technologies and to have an internal organization that can respond faster to market changes. Mergers, acquisitions and restructurings Strong competition in the market forces players to permanently extend their portfolio in order to adapt to market demand. Some of the players chose to extend their market shares through acquisitions. The traditional players have been buying cables firms with strong potential in order to broaden their portfolio or to enter new markets: 

118 The adjustment process relating to the acquisition of Global Marine Systems by Prysmian Group was completed on March 2014. Also in 2014, Prysmian Group finalised the acquisition of the remaining 34% of the subsidiary AS Draka Keila Cables, becoming the sole shareholder of this Estonian Chapter 6 – Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” company. The investment in Keila Cables will allow the Group to further accelerate its growth strategy in this high‐potential region.  In 2014, Leoni has acquired several entities from Europe and Asia. The company has consolidated two Chinese companies and two Russian into one legal entity.  In January 2015, OMERIN Group sealed a buyout deal to acquire a 100% equity stake in Union Plastic, a company based in Saint‐Didier‐en‐Velay having 200 employees, and €26M turnover in 2014.  In February, 2014, Southwire purchased Coleman Cable, Inc. a leading manufacturer and innovator of electrical and electronic wire and cable products. Several companies have also continued their restructuring plans: 


Nexans restructuring costs came to 51 million euros in 2014 versus 180 million euros in 2013, corresponding primarily to restructuring plans in Belgium, France, Germany and the Asia‐Pacific region. In 2014, NKT Cables was restructuring its accessories and cabinet business with a view to focusing sales operations and the product portfolio. Prysmian closed its plant in Amsterdam and the Aubevoye plant of Draka Paricable in France. 4. Main players and employment in Europe 4.1. Leoni, the largest European player, is highly dependent on the automotive sector Leoniindicators
Indicator
2010
2011
2012
2013
2014
2014vs
2010
Revenue€M
2,956
3,701
3,809
3,918
4,103
39%
Noofemployeesworldwide
55,156
60,745
59,393
61,591
67,988
23%
NoofemployeesEurope
21,432
26,074
25,248
28,802
28,000
31%
Germany
3,775
4,017
4,172
4,222
4283
13%
EasternEurope
17,702
20,008
19,129
22,596
23659
34%
RestofEurope
1,955
2,049
1,947
1,984
%Europeintotalemployees
39%
43%
43%
47%
41%
R&Demployeesworldwide
1,116
1,042
1,329
1,636
1,637
R&Demployeesfromtotal
2%
1,7%
2,2%
2,7%
2,4%
R&Dspentas%ofrevenue
2.6%
2.3%
2.5%
2.7%
2.7%
47%
Leoni’s production network consists of 35 production facilities in 17 countries, including China, Mexico, North Africa and Eastern Europe. The locations are chosen strictly on the Chapter 6 – Cables 119 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” basis of cost efficiency and logistic requirements. In 2014, production was extended in China, Serbia and Romania. STRATEGY Leoni`s strategy responds to the global trends and focuses on innovative topics, development of new areas, strengthening system competences, expanding services offered in the areas of automotive, industry and healthcare, communication and infrastructure. Leoni would like to expand its presence into environmental technology markets, directing its portfolio of products and services at key markets have been identified as dynamic areas of the future. However, the automotive sector still represents 80% of the consolidated sales. STRENGTHS 




WEAKNESSES Leading position in Europe 
Wide range of technologies 
Strong distribution channels globally Large low‐cost proportion in the cost‐sensitive product areas International customer base OPPORTUNITIES 



Technological changes towards hybrid and e‐
drive Innovation in electrical systems and electronic systems Expansion of system business Expansion of non‐automotive business Small market shares in China, India, Brazil Highly dependent on the European market THREATS 

Increasing wages in low‐cost countries Heavy pressure on prices 120 Chapter 6 – Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 4.2. Prysmian restructured its activities in the Netherlands and France Prysmianindicators
Indicators
2009
2010
2011
2012
2013
2014
2014vs
2009
Revenue€M
3,731
4,571
7,583
7,574
6,995
6,840
83%
Noofemployeesworldwide
12,352
21,547
20,427
19,769
19,232
19,436
57%
1.0%
0.9%
0.9%
1.0%
1.0%
R&Dspentas%ofrevenue
The Italian group Prysmian has 89 production facilities and/or companies in Asia, Latin America, the Middle East and Eastern Europe. 51 plants are located in EMEA. The Group currently has 17 Centres of Excellence and over 500 highly skilled professionals. In line with its cost reduction strategy, Prysmian has closed its plant in Amsterdam, laying off 78 employees and transferring production to the plants in Delft and Emmen. In 2014, Draka Paricable (France) closed the Aubevoye plant, laying off 92 employees and transferring production to the Group’s plants in Amfreville and Gron. According to the company, the plant closures were a response to the need to optimise manufacturing footprint at individual country level, with the aim of realigning industrial presence with the potential of the relevant business/market and of improving production capacity utilisation, as well as overall economic performance, through economies of scale. On the other hand, in the optical cables field, at Slatina plant in Romania, now one of the major European centres of optical cable production, investments continued for a significant increase in production capacity of the Flextube and Drop cables. STRATEGY The Group has pursued its growth strategy by focusing :  on investments in its high value‐added businesses  on ongoing actions to reduce costs  improving the efficiency of its organisational structure  maintaining a wide geographical presence to minimise distribution costs In particular, Prysmian is driving forward the process of concentrating high‐tech product manufacturing in a smaller number of plants, with the goal of creating centres of excellence with high levels of know‐how, where economies of scale can be achieved by improving manufacturing efficiency and reducing capital employed. Prysmian has targeted R&D activity towards the submarine cables area, with the aim of further strengthening the Group's technological leadership. The Telecom business introduced innovations to optical fibres to boost their capacity and performance and to meet the specific requirements of broadband cabling projects. Chapter 6 – Cables 121 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRENGTHS 




WEAKNESSES Strong liquidity Focus on R&D activities Development of optical cables production Leadership in submarine cables area Innovations in optical fibres area 

Reduced footprint in Western Europe due to plant closures Lower R&D expenditure compared to competitors OPPORTUNITIES 

THREATS 

Submarine cables development Positive outlook for cable market Highly competitive market Heavy pressure on prices, especially on the lower range 4.3. Nexans is pursuing transformation Nexansindicators
Indicators
2009
2010
2011
2012
2013
2014
2014vs
2009
Revenue€M
5,045
6,179
6,920
7,178
6,711
5,300
5%
Noofemployeesworldwide
22,700
23,648
24,561
25,000
26,000
26,144
15%
NoofemployeesEurope
14,277
14,618
14,884
14,752
14,679
15,214
7%
%employeesintotalemployees
63%
62%
61%
59%
56%
58%
R&Dspentas%ofrevenue
1.0%
1.1%
1.0%
1.0%
1.1%
1.4%
The French group Nexans has an industrial presence in 40 countries and commercial activities worldwide. In line with the 2013‐2015 Strategic Plan, overseen by the Transformation Program Office, the company launched the following initiatives: 


Capacity reductions and an improvement in cost‐efficiency in Europe and Asia; An improvement in operating conditions in the submarine high‐voltage business; Cost savings achieved for both manufacturing and purchasing operations. The group places a particular focus on innovation and to this end has research teams dedicated to developing new materials, products and technologies. More than 600 researchers, engineers and technicians work in the Group's technical centers, which form part of four Research Centers. The Group currently has a portfolio of approximately 670 patent families, and 78 new patents were filed in 2014. STRATEGY 

122 Regaining competitiveness by optimizing fixed and variable costs and working capital, and improving productivity and operating efficiency; Strengthening market leadership in the four end‐markets by expanding product and service, notably through innovation and R&D capabilities; Chapter 6 – Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
Pro‐actively managing the portfolio by favouring targeted investments in high‐
potential businesses. STRENGTHS 
WEAKNESSES Strong market share also in the Asian markets Strong R&D activities Strong label 


Restructuring plans may affect the activity 


High level of competition Rapid technological changes in the sector Heavy pressure on prices, especially on the lower range OPPORTUNITIES 
THREATS Expanding its market opportunities to high‐
potential businesses Submarine high‐voltage business 
4.4. NKT Cables grows through acquisitions and targets cost cutting NKTCablesindicators
Indicators
2009
2010
2011
2012
2013
2014
2014vs
2009
Revenue€M
1,136 1,516 1,618 1,518 1,599 1,555
37%
Noofemployees
3,127 3,490 3,503 3,395 3,560 3,211
3%
R&Dspentas%ofrevenue
0.5%
0.7%
0.5%
NKT Cables has 12 production units in Europe, including 4 in Germany, 3 in Czech Republic, 2 in Poland, 2 in Denmark and 1 in Norway. The company is strongly positioned in the European market for on‐ and offshore high‐voltage power cables and accessories. In the last years, the company has carried a range of acquisitions, including the purchase of IndustroClean (Nilfisk), the acquisition of Ericsson’s power cable operations in Sweden as at July 2013 (NKT Cables), as well as a number of minor acquisitions carried out by Nilfisk in 2014. Currently, NKT Cables focuses on a process aimed at increasing production capacity and accommodating higher sales. NKT Cables is well positioned to meet the expected growth in demand in European markets where customers have increasingly solution‐based demands that combine supply of cables, accessories and services. STRATEGY The company’s strategy combines its willingness to increase its market share with a tight control of costs. In 2014, NKT Cables implemented Drive, an efficiency improvement programme aiming to increase profitability through: 

Cost reductions Keeping cost focus Chapter 6 – Cables 123 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 


Excellence in production, sales and support functions Accelerate profitable organic growth Introduce new products STRENGTHS 
WEAKNESSES 



Strong position in the European market for on‐ and offshore high‐voltage power cables and accessories Lower financial costs Capital market access Global market footprint Long‐term transformation 

Attractive growth opportunities in China Continue growth through acquisitions 


Sustained operational breakdowns at manufacturing or distribution sites Dependence on key suppliers Lower R&D expenditure compared to competitors OPPORTUNITIES THREATS 



Challenging market competition New market entrants Decreasing global demand Significant change in customer demand towards low‐price products 4.5. General Cables restructuring actions including in Europe NKTCablesindicators
Indicators
2009
2010
2011
2012
2013
2014
2014
vs2009
Revenue$M
4,385
4,856
5,808
6,060
6,421
5,980
36%
Noofemployeesworldwide
11,300
11,700
12,000
14,000
15,000
13,000
15%
General Cables has 7 manufacturing facilities in Europe (France, Germany, Norway, Portugal and Spain). Additionally, the Europe segment has regional centres of excellence and state‐
of‐the‐art laboratories for high and extra high voltage power cables and systems, submarine power and communications systems, and halogen‐free flame retardant technology and compounding. The Europe segment contributed approximately 22% of the group’s consolidated revenues in 2014. In 2014, General Cables announced and implemented a restructuring program focused principally on operations in North America, Latin America and Europe. The program is focused on closing or selling underperforming assets and consolidating or realigning other facilities. As part of the plan, restructuring actions were undertaken in two manufacturing facilities in Europe and one manufacturing operation was closed. STRATEGY 

124 Growth through acquisition Focus on lowering the cost base Chapter 6 – Cables IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
Restructuring program and simplifying the global operations by divesting the manufacturing operations in Asia Pacific and Africa STRENGTHS 




Worldwide brand Low cost base Capital market access Global market footprint Strong position in high and extra high voltage power cables and systems 

Possible growth through acquisitions Diversity of operations in Asia and Africa WEAKNESSES 
Minimal differentiation against industry participants 
Competition from European companies in Europe USD / EUR exchange rate Highly competitive industry Global demand for its products remains below historical levels OPPORTUNITIES THREATS 


4.6. Tele – Fonika, a strong local player in Central and Eastern Europe Tele – Fonika is the largest cable company in Poland and Central and Eastern Europe. It has 8 production plants in Ukraine, Serbia and Poland. With an annual turnover of around 100$M, it has around 3,000 employees. STRENGTHS 
Domestic market in Central and Eastern Europe High growth rate Reduced labour costs 

WEAKNESSES 


Competitive market Brand portfolio Lower investments in R&D activities OPPORTUNITIES 




Income level is at a constant increase Growing economy Growth rates and profitability New products and services New markets THREATS 


Increasing costs Rising cost of raw materials Technological updates 5. Trends for employment in Europe Trends of the employment in the sector of cables in Europe are: 

Relocation of jobs from Western Europe into Asia, especially India. The relocated jobs usually require lower level skills, which are less expensive in other regions compared to Western Europe. Within the European Union there is a trend of relocating manufacture sites to Eastern countries. Operational activities are concentrated in countries such as Czech Chapter 6 – Cables 125 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
Republic, Poland, Romania, and Bulgaria. Western countries maintain competence centres, sales and client support functions. The sector was confronted with restructuring and reorganization measures. In many companies, redundancies are taking place with regularity. The issue of competencies The industry faces many challenges and ensuring employees are competent, fit to practice is essential. Companies face difficulties to find necessary competencies at the level of public higher education and try to support the educational system by organizing flied excursions to the plants, job fairs jointly organized, apprenticeship and training programs. Young employees are going through comprehensive internal programs that help them adapting to technologies used by the companies. For example, Leoni, with the support of the Leonardo project of the National Education Agency for Europe, promoted networking between apprentices and trainees. Revolutionary sectors such as green technology require new skills and many companies have invested in developing needed competences. The aggravating shortage of skilled professionals makes it hard to find and augment staff loyalty, and most companies offer internal programmes to provide employees with further qualifications and wide range of social benefits. Prospects for the development of the sector in Europe In a business as usual scenario, we expect a 5% decrease of the number of employed persons in the European cable industry until 2020. Workforce should gradually decrease if restructurings are pursued and market players continue to consolidate through mergers and acquisitions. In a desired state scenario, we expect a stable number of workers until 2020, if the following conditions are met: 




Manufacturing jobs maintained R&D functions increase in new technologies On‐going restructurings to be completed and no new restructurings to follow Minor mergers between niche players Economy to recover and infrastructure projects to continue both in Western and Eastern Europe 126 Chapter 6 – Cables 
Chapter 7 ______________________
Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 128 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 1. Overview of the sectoral trends 1.1. A highly fragmented sector with a reduced footprint in Europe The computer or information technology, or IT industry is the range of businesses involved in designing computer hardware and computer networking infrastructures, developing computer software, manufacturing computer components, and providing information technology (IT) services. According to the NACE classification (rev. 2), the computer industry is a sub‐sector of the broader „Manufacture of computer, electronic and optical products” sector. In European statistics, the sector is defined as „Manufacture of computers and peripheral equipment (Group 26.2)”. The group of „Manufacture of computers and peripheral equipment” comprises establishments primarily engaged in manufacturing and/or assembling electronic computers, such as mainframes, personal computers, workstations, laptops, and computer servers; and computer peripheral equipment, such as storage devices, printers, monitors, input/output devices and terminals. The wide range of products enumerated above, as well as their different features and classification creates a highly fragmented market, making the analysis of the computers and peripheral equipment group a difficult task. Computer industry is one of the most dynamic, fast changing and competitive industries in the world, characterized by constant cycles of innovation and commoditization. A decline in the PC market in 2015 The computer sector is facing a set of challenges due to a range of market trends, such as : 

the decline of the PC market; the market shift towards tablets, some analysts have argued that the emergence of low‐cost tablets such as Amazon's $50 Fire tablet represent a threat to traditional PCs41;  the growth of multi‐architecture devices running competing operating systems;  the market shift to cloud‐related infrastructure, software, and services;  the growth in software‐as‐a‐service business models. Among the most important challenges, the decline of PC sales has affected Europe recently. According to the International Data Corporation (IDC), in the first quarter of 2015 PC shipments in EMEA (Europe, Middle East and Africa) fell 7.7% year on year, to 20.2 million units.42 All three EMEA sub‐regions posted declines, shipments of PCs in Western Europe (WE) contracting by 2%, in Central and Eastern Europe (CEE) by 23% and in Middle East and 41
http://www.zdnet.com/article/playing-with-fire-will-amazons-50-tablet-burn-the-pc-business-and-savethe-world 42
Worldwide Quarterly PC Tracker http://www.iteuropa.com/?q=europes‐pc‐sales‐drop‐back‐expected Chapter 7 – Computers 129 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Africa (MEA) by 10%. Political and economic factors, especially unfavourable exchange rates, negatively impacted numerous countries across the region.43 The decline is driven by a decrease of sales to business clients, as the PC renewals in the biggest Western European companies contracted. On the other hand, consumer shipments in Western Europe held better than expected, leading to a 8.4% growth in consumer portable PC. According to the IDC, WorldwidewPC shipments are expected to fall by 8.7% in 2015 and not stabilize until 2017. Growth not expected to resume before 2017 PCShipmentsbyProductCategoryandRegion(Shipmentsinmillions)
Region
2015
Shipments
(M)
Market
Share
2019
Shipments
(M)
Market
Share
5‐Year
CAGR
Mature
87.60
31%
90.50
32%
0.8%
Emerging
76.80
27%
82.20
29%
1.7%
PortablePCTotal
Mature
Desktop
PC
Emerging
164.40
44.60
58%
16%
172.80
39.30
61%
14%
1.2%
‐3.1%
72.50
26%
70.00
25%
‐0.9%
DesktopPCTotal
Mature
TotalPC
Emerging
117.20
132.20
42%
47%
109.30
129.80
39%
46%
‐1.7%
‐0.5%
149.40
53%
152.20
54%
0.5%
GrandTotal
281.60
100%
282.10
100%
0.0%
Product
Category
Portable
PC
Source: IDC Worldwide Quarter PC Tracker, August 25, 2015 According to the latest forecast from IDC, growth should resume in 2017 after five years of decline. The growth should be led by the commercial market, while consumer volume will continue a small decline until 2019. The dynamic of the sector is hindered by a large inventory of notebooks and severe constraints posed by the decline of major currencies relative to the US Dollar. In addition to economic issues, free upgrades of Windows 10, a relative scarcity of newer models in the short term, and the reluctancy of distribution channels to take stock also limit growth prospects through 2016. Tablets sales will also be affected by saturation and "good enough computing" sentiments44. IDC predicts a modest recovery in 2017, when the prospect of the next refresh cycle and the cessation of a free Windows 10 upgrade should provide opportunities in notebooks and commercial segments. On a 5‐year cycle, growth is expected to be mainly driven by emerging regions. 43
http://www.idc.com/getdoc.jsp?containerId=prUS25372415 http://www.businesswire.com/news/home/20150826005571/en/PC‐Shipments‐Expected‐Shrink‐2016‐Currency‐
Devaluations#.VgF‐gzYVjIU 44
130 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Server market grows in Europe In the first three months of 2015, EMEA server shipments grew 3.5% year on year even as the big players adjusted their price structures to compensate for the strengthening dollar. This marked the fourth consecutive quarter of year‐on‐year unit shipment growth in EMEA. Server revenues rose even higher, at 6.3%, as a move towards richer configurations fuelled a rise in vendor average selling prices. Market was driven by new projects in the cloud space and a broad infrastructure refresh on latest‐generation x86 chips, especially in large global organisations. The non‐x86 market also built on the positive signals, as volume shipments for non‐x86 more than doubled year on year. HP remained the EMEA market's biggest player, with a market share above 35%, ahead of Dell on 17.2%, IBM on 11.1%, Lenovo on 7.5% and Cisco on 6.9%. The growth trend in the server market is confirmation of the large IT investment taking place, despite dramatic change occurring in system software due to open source projects such as Docker and OpenStack45. Big players keep strong The decline in shipments was not evenly spread among competitors. In fact, four among the top five players – HP, Lenovo, Dell and Apple – have managed to increase their PC shipments in 2014. Among the big players, only Acer has posted a slight decrease in shipments last year. 




Lenovo continued to beat market expectations across EMEA. For the first time, the vendor reached more than 20% market share fuelled by strong momentum in Southern Europe (France, Italy, Spain, Greece, and Portugal).46 HP outperformed the market in 2014 and expects strong gains in the portable PC area in 2015. Results in WE and MEA were strong last year. The vendor focuses on product innovations and Go‐to‐Market execution as keys elements of its success. Dell’s growth of 10% last year is much based on a strong performance in notebooks in the U.S. and Asia/Pacific (excluding Japan), while its growth in Europe slowed. Acer was the only major company to post a decrease in shipments last year, but it expects to recover due to the success of its Chromebooks and entry‐level notebooks. Apple posted the largest growth among the top 5, supported by price cuts and improved demand in mature markets. 45
http://www.channelnomics.eu/channelnomics‐eu/news/2413200/emea‐server‐market‐still‐growing‐despite‐
price‐increases 46
http://www.iteuropa.com/?q=europes‐pc‐sales‐drop‐back‐expected Chapter 7 – Computers 131 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Top5Vendors,WorldwidePCShipments,2014
(UnitsShipmentsareinthousands)
Company
1.Lenovo
2014
Shipments
59,233
2014
Market
Share
19%
2.HP
56,849
18%
9%
3.Dell
41,665
14%
10%
4.AcerGroup 24,104
8%
‐2%
2014/2013
Growth
10%
5.Apple
19,822
6%
16%
Others
106,952
35%
‐18%
TotalMarket
308,625
100%
‐2%
Source: IDC Worldwide Quarterly PC Tracker, January 12, 2015 A reduced footprint in Europe Historically, the number of companies in the business grew in line with the demand for computers. However, the growh in the last decade was mostly centered in North America and Asia. It is widely considered that Asia attracted most of the manufacturers because of successful investment in research and development, lower production costs and relatively low wages. 47 In the new competitive landscape, European or American computer manufacturers were acquired by Asian companies, such as Dutch‐based Packard Bell acquired by Acer or the computer manufacturing branch of IBM acquired by Lenovo. American companies also concentrated most of the manufacturing in Asia. Currently, there are no European players among the top computer manufacturers and the presence of the industry in Europe is mostly comprised of R&D and test facilities, service centers, distribution and sales forces. A few production sites exist in Europe, such as Apple and HP facilities in Ireland. According to Eurostat, the number of registered companies in the sector of „Manufacture of computers and peripheral equipment” fell from 7.3 thousands in 2008 to 6 thousands in 2013, a decrease of 18% in 5 years. Among the first eight European countries in which the sector comprises the biggest number of companies, only Poland has registered growth, from 433 companies in 2008 to 757 companies in 2013 (+75%), and has become the second European country behind Germany according to this indicator. The number of registered companies fell between 2008 and 2013 in other main countries: by 20% in Germany, by 9% in UK, by 21% in Spain, by 45% in Italy, by 31% in Czech Republic, by 4% in France and by 43% in Romania. However, the number of companies in the sector has to be interpreted with precaution, as it does not necessarily reflect the size of the sector in terms of workforce – for instance, in Ireland there were only 6 companies registered 2013, but these firms employed 4,5 thousand workers, whereas the 672 companies registered in Spain employed only 1,9 thousand workers in the same year. 47
http://www.reddit.com/r/europe/comments/1lv73d/why_are_there_so_few_european_computer/ 132 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Evolution of the number of companies „Manufacture of computers and peripheral equipment”, by country
2 000
Germany
Poland
1 500
UK
1 000
Spain
Italy
500
Czech Republic
0
2008
2009
2010
2011
2012
2013
France
Source: Eurostat Other economic indicators of the sector reflect the reduction of the perimeter in European Union: 

The turnover of the sector fell from 47bn€ in 2008 to 27.8bn€ in 2013, a 41% decrease in 5 years. The most significant drops in turnover were registered in Ireland, from 16.1bn€ in 2008 to 6.2bn€ in 2013 (‐62%), and in Germany, from 12.2bn€ in 2008 to 5.7bn€ in 2013 (‐53%). The production value of the sector fell in line with the activity, from 41.1€ in 2008 to 25.6bn€ in 2013, a 38% drop. The indicator fell from 15.1bn€ in 2008 to 6.1€ in 2013 (‐
60%) in Ireland and from 9.5bn€ in 2008 to 5.1bn€ in Germany (‐46%). Share of European countries in the total turnover of the sector „Manufacture of computers and peripheral equipment” in EU, 2013
Other countries
; 13%
Italy; 6%
France; 7%
Hungary; 7%
UK; 9%
Share of European countries in the total production value of the sector „Manufacture of computers and peripheral equipment” in EU, 2013
Other countries
Hungary; ; 10%
6%
Italy; 6%
Ireland; 22%
Ireland; 24%
France; 7%
Germany
; 21%
Germany
; 20%
UK; 9%
Czech Republic; 17%
Czech Republic; 18%
Source: Eurostat Chapter 7 – Computers 133 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” In this context of footprint reduction, the profitability of the sector also degraded. With the exception of UK, where the profitability of the sector is high since 2011 (gross operating rate above 25% between 2011 and 2013), in other main countries for the sector the operating rate was decreasing (Germany, Hungary, Romania) or remained low (France, Czech Republic). Evolution of the gross operating rate (gross operating surplus/turnover, in %) of the sector „Manufacture of computers and peripheral equipment”, by country
30,0
25,0
Ireland
20,0
Germany
15,0
Czech Republic
10,0
United Kingdom
France
5,0
Hungary
0,0
2008
2009
2010
2011
2012
2013
Source: Eurostat 1.2. Employment in the Computer sector in Europe: a drop of more than 30% since 2008 According to Eurostat data, the number of persons employed by the European sector of „Manufacture of computers and peripheral equipment” fell from 117 thousands in 2008 to 80 thousands in 2013, a drop of 31%. From the total of 37 thousands lost jobs during the period: 




Germany for the loss of 11k jobs, Ireland for 6k, Hungary for 3.1k each Italy and Spain for 2.2k each Romania for almost 1k The only countries in which the number of persons employed by the Computer sector increased since 2008 are Belgium, Portugal and Slovakia, but the increase in each country is modest at around 200 persons. As of 2013, Germany accounted for 30% of all the persons employed by the sector in the European Union (21k persons), while Italy and Hungary accounted for 10% each (7k persons). Unfortunately, no data was available on employment of the sector in UK, but we assess the sector employs more than 8k persons, which represents more than 10% of the 134 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” European total. Other important countries for the employment in the sector are Czech Republic (6k), Poland and France (5.5k), Ireland (4.5k) and Romania (3k). 793
751
329
315
219
186
131
128
61
Denmark
Netherlands
Bulgaria
Finland
Greece
Slovenia
Lithuania
Estonia
Latvia
996
Portugal
975
1 150
Belgium
910
1 282
Slovakia
Austria
1 637
Sweden
Croatia
1 942
Spain
5 476
France
4 467
5 506
Poland
2 934
6 066
Czech Republic
Ireland
6 818
Italy
Romania
7 155
Hungary
21 323
Germany
25 000
20 000
15 000
10 000
5 000
0
Number of persons employed by the sector „Manufacture of computers and peripheral equipment”, 2013
Source: Eurostat 2. Disruptive technologies and strategies of the sector 2.1. Game changer technologies European computer sector is going through major transformation and reorientation towards services as the hardware production is moved to cheaper locations or even divested. The focus is on cloud services, big data, mobile and security. Big companies are expanding at fast pace, through internal or external growth, but this expansion is made mainly outside of Europe. Huge amounts of money are invested in data centers (at least 10 in Europe already completed and yet to follow). For big projects, multinational companies can find synergies in spite of their competition on commoditized products. One way of increasing the market share and/or enter new markets is through acquisitions. We’ve already seen major M&A on the European market and new ones are in pipeline. Speed is the key word in this environment and, as stated by one of the trade union representatives, if a company is not fast enough in adapting to new market demands, the end can come very quickly. In the new environment, companies tend to be more flexible, to adapt faster to clients’ needs, new technologies and to have an internal organization that can respond faster to market changes. 2.2. Trends in storage systems business The storage industry is undergoing rapid changes. New technologies such as software‐
defined storage, object storage and big data are providing new options for architecting Chapter 7 – Computers 135 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” solutions to meet the demands of the business. Also, a transition towards hybrid cloud services can be observed. Hybrid cloud allows for new levels of elasticity and reduce IT costs. The impact is that applications and data are diverted into the public cloud, and the amount of infrastructure required within on‐premises data centers is reduced over time. According to NetApp48, several technological trends are driving the storage market in 2015 : 




The Internet of Things will combine with Big Data Analytics to produce smart systems. The rise of integrated telemetry in industrial equipment, health monitoring devices, mobile payment systems and a host of new sensors for measuring the world will spawn the next wave of business analytics. Flash is transformative to the future of enterprise storage systems, but it is expected that at least 80% of enterprise data will continue to reside on disks. Even the least expensive SSDs are likely to be 10 times more expensive than the least expensive SATA disks through the end of the decade. Multi‐Vendor Hybrid Clouds will evolve. Avoidance of lock‐in, leverage in negotiations or simply a desire for choice will drive IT decision makers to deploy multi‐vendor hybrid clouds. However, insufficient data mobility between data centers and public cloud providers can be a significant barrier to hybrid cloud adoption. In a recent CIO survey conducted by IDG Research Services, 78% of enterprise IT organizations viewed the ability to manage data across multiple clouds as critical or very important—but only 29% of these organizations viewed their ability to do so as either excellent or good. Software‐Defined Storage (SDS) solutions that can be deployed on a variety of hardware platforms will provide a consistent way for applications to access data across clouds, and it will simplify data management when moving existing applications into the cloud. Those SDS solutions will actually reduce the cost of moving data to and from the public cloud, and they will lower the cost of storing active data in the public cloud for long periods of time. New Hyper‐Converged Infrastructure will enable Direct‐Attached Storage to be shared across several servers, making each “compute unit” more resilient while enabling the sharing of non‐local enterprise data over a LAN or SAN. 2.3. Mergers and acquisitions On October 6, 2014, Hewlett Packard announced it was planning to break into two separate companies, separating its personal‐computer and printer businesses from its technology services. The split will result in two publicly traded companies: Hewlett‐Packard Enterprise and HP, Inc. The split is expected to be completed by the end of fiscal year 2015. 48
http://searchstorage.techtarget.com/NetAppSponsoredNews/Buckle‐Up‐The‐Top‐Storage‐Technology‐
Trends‐for‐2015 136 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” In May 2015, Hewlett‐Packard Co sold a controlling 51% stake in its China‐based data‐
networking business to China's Tsinghua Unigroup for at least $2.3 billion, forming a partnership designed to create a Chinese technology powerhouse.49 Since the beginning of 2012, DELL has completed a significant number of acquisitions that bring many new capabilities in areas such as scalable storage solutions, application migration, and software. DELL completed several of these acquisitions in 2013, including acquisitions of SonicWALL, Inc. ("SonicWALL"), Wyse Technology Inc., and Quest Software, Inc. ("Quest Software"). In July 2014, Apple acquired Beats Music, LLC, which offers a subscription streaming music service that offers a curated listening experience and complements the Company’s other music services and offerings. On May 26, 2014, Atos acquired Bull for $844m, saying that it intends to create a dedicated entity under the Bull brand focused on big data and cybersecurity. In 2015, Atos also acquired Xerox ITO, a move that will allow it to expand into the American market. IBM also invested in cloud data development and cloud security. In 2013, IBM purchased for 2bn USD Softlayer, an American specialist of hosting and services for public cloud infrastructure. In 2014, the company also bought Cloudant (a supplier of data base services in cloud for mobile applications and Big Data), the Italian company CrossIdeas and Lighthouse Security Group. In 2015, IBM acquired AlchemyAPI, Explorys, Phytel in the sector of healthcare management. Western Digital has acquired for $4.3bn the Hitachi‘s hard drive unit, after agreeing to sell some production assets due to European Commission requirements. The market for 3.5‐
inch hard drives is dominated by Western Digital and Seagate Technology, which recently acquired Samsung’s hard drive unit. 49
http://www.reuters.com/article/2015/05/22/hp‐ma‐tsinghuaunigroup‐idUSL3N0YD04820150522 Chapter 7 – Computers 137 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 3. Main players and employment in Europe 3.1. HP targets cloud, mobile, big data, security HPindicators
Indicator
Revenue,inMUSD
Netrevenue‐Personal
SystemsGroup,inMUSD
Netrevenue‐Enterprise
StorageandServers,inM
USD
No.ofemployeesworldwide
No.ofemployeesEMEA
2009
2010
2011
2012
2013
2014
2014
vs.
2009
114,552 126,033 127,245 120,357 112,298 111,454
‐3%
35,305
40,741
39,574
35,843
32,179
34,303
‐3%
16,121
20,356
22,241
29,643
28,081
27,814
73%
304,000 324,000 349,600 331,800 317,500 302,000
‐1%
80,000
75,128
68,660
%EMEAintotalemployees
24.1%
23.7%
22.7%
R&Drate(%ofrevenue)
2.5%
2.4%
2.6%
2.8%
2.8%
3.1%
In 2014, HP cut 7k positions in European part of its strategy to save costs and reinvest back into cloud, mobile, big data, and security. The company argued that its restructuring plans "addressed current markets and business pressures." HP did not comment on how many staffers were to be redeployed over being made redundant, but said it did not expect the layoffs to breach the 15% mark. Since 2011, the company has already laid off approximately 47,600 positions as part of its global reductions plan. The locations of HP`s major product development, manufacturing, data centers, and laboratory facilities in Europe are: Grenoble (France), Leixlip (Ireland), Sant Cugat del Valles (Spain), Billingham, Erskine, Norwich, Sunderland and Bristol lab (United Kingdom). At the beginning of 2015, HP has launched the Cloud28+ initiative, a self‐governing organization aimed at using OpenStack to “standardize” what are now 28 different European cloud systems. HP are advocating the creation of a federated, European cloud ‐ a "Cloud of Clouds," made in Europe and secured locally. According to an IDC study, a unified cloud could increase the EU gross national productivity by 250 billion Euros and create 3.8 million jobs, compared to growth of 88 billion and 1.3 million jobs without the political involvement of the various authorities50. 50
https://www.mirantis.com/openstack-portal/external-news/cloud-europe-hp-looks-unification-orangebuy-cloudwatt/ , http://www.cbronline.com/news/hp-call-for-cloud-of-clouds-4489638 138 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRATEGY 









Deliver superior products, high‐value technology support services and differentiated integrated solutions that combine HP`s infrastructure, software and services capabilities New product introductions, including the HP Elite products Adjust to new and future requirements relating to the chemical and materials composition of its products, their safe use, and the energy consumption associated with those products, including requirements relating to climate change HP may modify or develop new go‐to‐market practices in the future, which may result in changes in selling prices HP long‐term strategy is focused on leveraging their portfolio of hardware, software and services as we adapt to a changing and hybrid model of IT delivery and consumption driven by the growing adoption of cloud computing and increased demand for integrated IT solutions. STRENGTHS WEAKNESSES HP is a worldwide brand Strong R&D activities Strong distribution channel globally Strong presence in China Solutions for the home, office and publishing environments 
As a result of the separation in two companies, a decrease in employee morale and the failure to meet operational targets OPPORTUNITIES 


THREATS Expansion in alternative client computing architectures and other emerging mobile computing devices gives a good opportunity for HP Focus on emerging markets Capitalize on important market opportunities in cloud, big data and security 


High level of competition Decreasing PC market Rapid technological changes in the sector 3.2. DELL turned private and focused on end‐user computing DELLindicators
Indicator
2009
2010
2011
2012
2013
2014
2013
vs.
2009
Revenue,inMUSD
61,101
52,902
61,494
62,071
56,940
n/a
‐7%
No.ofemployeesworldwide
78,900
96,000
103,300 109,400 111,300
n/a
41%
R&Drate(%ofrevenue)
1.1%
1.0%
2.2%
1.0%
1.5%
1.2%
In 2013, DELL returned into a private business back, with founder Michael Dell buying out shareholders for a total of $24.9bn alongside private equity firm Silver Lake Partners. The company claims the private ownership structure allows it to “be more flexible and Chapter 7 – Computers 139 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” entrepreneurial” with a “single‐minded purpose [to] drive the innovations that will help them [customers] achieve their goals”. Dell ceased all manufacturing in Europe in 2009. Dell has effectively unloaded its manufacturing operations in Europe to the world’s largest electronics manufacturer, the Taiwanese firm Foxconn. The company had winded down its Limerick manufacturing plants, with the loss of 1,800 jobs and shipped these functions to a new operation in Lodz, Poland. Following the transfer, Dell continued to source desktop and notebook computers, servers and storage systems for EMEA customers from Lodz via Foxconn.51 In 2014, reports showed that Dell intended to reduce workforce by around 15,000 on a global scale, but some sources claimed that it effectively reduced its headcount by 2,000 to 3,000 persons. On the other hand, in July 2015, Dell has revealed its plan to supplement its business with 1,000 new employees globally, with almost half being spread across Europe, the Middle East and Africa. Now that the company is private, information on its workforce and results is no longer public. STRATEGY 





to become a leading provider of scalable end‐to‐end technology solutions, o continue shifting the portfolio to products and services that provide higher‐value and recurring revenue streams over time expanding Enterprise Solutions Group (ESG), software, and services offerings focus on the most attractive areas for profitable growth in the IT business include data center and information management, cloud computing, and software End‐User Computing ("EUC") — EUC includes desktop PCs, thin client products, notebooks, tablets, third‐party software, and EUC‐related peripherals is believe to be critical to DELL long‐term success and continues to be an important of their strategy STRENGTHS WEAKNESSES DELL is a worldwide brand Dell is a computer maker, not a computer manufacturer allowing him focus on marketing and logistics. Selling at low‐costs. "build‐to‐order" or "configure to order" approach to manufacturing—delivering individual PCs configured to customer specifications 



OPPORTUNITIES 
Market opportunities in cloud, big data and security The company has such a huge range of products and components from many suppliers that there is the occasional product recall. Dell is a computer maker, not a computer manufacturer. The company is reliant on a few large suppliers. THREATS 

High level of competition Rapid technological changes in the sector 51
https://www.siliconrepublic.com/companies/2009/12/02/dell‐ceases‐all‐manufacturing‐in‐europe 140 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 3.3. Apple has a limited manufacturing presence in Europe Appleindicators
Indicator
2009
2010
2011
2012
2013
2014
2014
vs.
2009
Revenue,inMUSD
42,905
65,225
108,249 156,508 170,910 182,795
326%
SalesinEurope,inMUSD
11,810
18,692
37,883
36,323
37,883
40,929
247%
%salesinEuropefromtotal
28%
29%
35%
23%
22%
22%
No.ofemployeesworldwide
34,300
46,600
60,400
72,800
80,300
92,600
170%
R&Drate(%ofrevenue)
3.1%
2.7%
2.0%
2.0%
3.0%
3.0%
Apple's headquarters for Europe, the Middle East and Africa (EMEA) are located in Cork in the south of Ireland. The company owns a manufacturing facility in Cork, Ireland that also houses a customer support call center. 52 The majority of the European workforce is involved in marketing, distribution and sales. While substantially all of the Company’s hardware products are currently manufactured by outsourcing partners that are located primarily in Asia, the Company also performs final assembly of certain products at its manufacturing facility in Ireland. The supply and manufacture of a number of components is performed by outsourcing partners in the U.S., Asia and Europe. The Company continues to develop new technologies to enhance existing products and to expand the range of its product offerings through R&D, licensing of intellectual property and acquisition of third‐party businesses and technology. Total R&D expense was $6.0 billion in 2014, up from $4.5 billion in 2013 and $3.4 billion in 2012. The corporation continued to receive significant criticism regarding the labor practices of its contractors, as well as for its environmental and business practices, including the origins of source materials. In December 2014, the Institute for Global Labour and Human Rights published a report which documented inhumane conditions for the 15,000 workers at a Zhen Ding Technology factory in Shenzhen, China, which serves as a major supplier of circuit boards for Apple's iPhone and iPad. STRATEGY 

unique ability to design and develop its own operating systems, hardware, application software and services to provide its customers products and solutions with innovative design, superior ease‐of‐use and seamless integration to expand its platform for the discovery and delivery of third‐party digital content and applications through the iTunes Store. 52
Apple Annual Report 2014 Chapter 7 – Computers 141 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 




building and expanding its own retail and online stores and its third‐party distribution network to effectively reach more customers and provide them with a high‐quality sales and post‐sales support experience. continual investment in research and development, marketing and advertising is critical to the development and sale of innovative products and technologies. STRENGTHS WEAKNESSES Enjoys a high level of brand loyalty Continuous and strong R&D activities Its own operating systems, hardware, application software and services According to the 2014 edition of the Interbrand Best Global Brands report, is the world's most valuable brand with a valuation of $118.9 billion 

Depends on its own power to innovate both hardware and software OPPORTUNITIES 
THREATS Expanding its market opportunities related to personal computers and mobile communication and media devices 

High level of competition Rapid technological changes in the sector 3.4. IBM exited PC business and focuses on cloud, big data and cognitive computing IBMindicators
Indicator
Revenue,inMUSD
No.ofemployeesworldwide
R&Drate(%ofrevenue)
2009
2010
2011
2012
2013
2014
2014
vs.
2009
95,758
99,870
106,916
59,453
57,655
55,673
‐42%
399,410 426,750 433,360 434,250 431,210 379,590
‐5%
5.9%
10.6%
10.0%
9.8%
In 2005, IBM sold its personal computer business to Lenovo and has decided to concentrate of cloud solutions, big data and revolutionary cognitive computing. In accordance with its strategy, IBM has developed its European activities in software related businesses: cloud, analytics, mobile solutions, security. The company has very limited manufacturing presence in Europe (one factory in Hungary). 2014 was an important year for IBM as the company cut workers and divested units. The year 2014 saw the creation of the Watson business unit, the sale of its commodity server business to Lenovo, a partnership with Apple in the enterprise and the build out of its cloud services. IBM also divested its unprofitable chip design and manufacturing business to GlobalFoundries, to which IBM will pay $1.3bn net for the takeover of the “bad asset”. GlobalFoundries, a technology investment fund wholly owned by the government of Abu 142 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” Dhabi, said i twas more interested in acquiring IBM’s engineers and intellectual property than the factories. In the last years, IBM had a very strong external growth, acquiring a range of companies specialized in the cloud segment. These purchases are going be supplemented by investments: 

1.2 bn USD in 15 data centers, including one in London and one in Paris 1bn USD in the construction of the cloud platform Bluemix. IBM announced that it targets 7bn USD in sales on cloud computing in 2015. By 2018, IBM targets 40bn of sales increase due to its strategic branches: cloud, Big Data, mobile and security. The cognitive computer Watson is already marketed in Europe, but its applications in the European markets are limited by its dependence on English language. The implementation of Watson in other European languages would require investment in highly qualified personnel and could be one of the future challenges of IBM in Europe. The number of IBM employees in Europe has remained relatively stable in the last years, but the turnover of the personnel was very high. For instance, in Germany on a three years horizon the retention rate is of only 50%. The profound shift in strategy has translated into a high turnover of its personnel in the last years. IBM has deployed a strategy of creating Competence Centers, concentrating personnel with similar functions in big clusters which offer services on a multinational scale. At the beginning of 2015, media reports have claimed that IBM was going to implement massive personnel cuts as part of the new strategy. According to company officials, “IBM has already announced […] $600m charge for workforce rebalancing. This equates to several thousand people, a small fraction of what’s been reported.” STRATEGY 



Profound shift of the business to more lucrative, higher‐margin technologies, such as cloud and mobile technology High investments in R&D and development of revolutionary products such as the cognitive computer Watson Shifting resources and spending to areas where the company sees most opportunity, including Watson, SoftLayer, Bluemix, and in support of our Apple partnership. The company is likely to be laying off workers in slower growth areas (or outright sells businesses such as the x86 server unit) and hiring in other units such as Watson and cloud Chapter 7 – Computers 143 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRENGTHS 

WEAKNESSES IBM is a worldwide brand 
“Hybrid Cloud” ‐ Ability to connect new 
technologies with the currently running systems in enterprises is a key value‐added service and market differentiator for IBM. Strong R&D activities to build its capabilities in big data and analytics. 
Focus mainly on corporate solutions Need to pay for divesting “bad assets” OPPORTUNITIES 
THREATS Market opportunities in cloud, big data and security Investing in analytics that can use data for all industries and professions Cognitive computing Watson Partnership with Apple 



Increasing competition in the cloud computing market 3.5. Atos expands through the acquisition of Bull and Xerox ATOSindicators
Indicator
2009
2010
2011
2012
2013
2014
2014
vs.
2010
Revenue,inMEUR
5,021
6,812
8,844
8,615
9,051
80%
No.ofemployeesworldwide
48,884
48,278
73,969
76,417
76,320
85,865
78%
Atos underwent major changes at European level in the last years, as it expanded its activities following two major acquisitions: 
The acquisition of Bull has opened new prospects for the development of Big Data & Security businesses  The acquisition of Xerox ITO will help Atos to develop its activities in the American market, providing data centers, cloud and workplace services According to the company, Atos will leverage the Xerox ITO customer centric approach and Atos’ industrial capacities and portfolio of cutting‐edge services and technologies, particularly in Cloud, Big Data, Cyber‐security, and in High Power Computing to support clients handle the massive volumes of data generated in the digital world. The increase of the perimeter, though positive for the business, does not promise much in terms of employment in Europe. Synergies between the companies will result in job cuts. Traditionally, unlike many other companies of the sector, Atos was a real “European company”, with most of the workforce concentrated in France. However, in search for savings, many functions were transferred to lower cost countries. The trend does not for the moment represent a risk for high skilled and competent workers, but lower qualified functions are threatened. 144 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRATEGY 







Concentrate on new digitalization and virtualization markets Deliver the whole value chain of Big Data, from service to technologies, and achieve high results in the sectors acquired from Bull Maintain proximity with the European (French) clients Maintain and improve the quality of the traditional Atos products and services Enter the American market through Xerox client base Generate the necessary free cash flow in order to sustain external growth STRENGTHS WEAKNESSES Strong brand Specialized in Systems Integration services, Cloud operations Strong political support in France Proximity with clients in Europe (France) 


Integration of the newly acquired companies can be demotivating for employees Growth is mainly external 
OPPORTUNITIES 
THREATS Accessing the American market through the acquisition of Xerox New operations in big data and security acquired from Bull, with possibilities of synergies with Atos products Cloud technologies 


Loss of competencies due to relocation of workforce Increasing competition in the cloud computing market 
3.6. Fujitsu business shrinks in Europe, focuses to services Fujitsuindicators
Indicator
2010
2011
2012
2013
2014
2014
vs.
2010
Revenue,inMUSD
54,662
52,960
46,614
46,569
46,237
‐15%
RevenueEMEA,inMUSD
10,590
10,203
9,835
8,150
8,990
‐15%
%EMEAfromtotalrevenue
19%
19%
21%
18%
19%
No.ofemployeesworldwide
R&Drate(%ofrevenue)
172,438 172,336 173,155 168,733 162,393
4.8%
5.2%
5.3%
5.3%
4.6%
‐6%
According to its Annual Report, Fujitsu is shifting the focus of their business portfolio in continental Europe from hardware such as PCs and servers to services. This transition had an impact on the workforce, as Fujitsu has performed reductions in continental Europe, more than 1,5k workers being laid off last year. STRATEGY 
Modernization of existing business systems, expand ICT Usage Areas for Enterprises Chapter 7 – Computers 145 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 

Focus on end user services, which provide customers with tailor‐made solutions made of classic, virtual, mobile and collaborative workplaces – complemented by Application, Data Center, Cloud, and Service Desk Services Social innovation 3.7. Hitachi has a broad range of activities in Europe, including Enterprise Storage System Hitachiindicators
Indicator
2010
2011
2012
Revenue,inMUSD
87.0
90.4
93.8
No.ofemployeesworldwide
2013
2014
2015
2015
vs.
2013
87.7
93.3
81.5
‐7%
329,703 323,919 336,670
2%
Hitachi Group's operations in Europe employ about 10,300 people in total. Taken together, these operations represent around 8% of Hitachi Group's global net sales. Hitachi group in Europe is expanding its already significant presence through organic growth of its four strategic sectors. These sectors include Power Systems, Rail Systems, Construction Machinery and Enterprise Storage System53. The activity of Enterprise Storage System is based in France. As the leader in storage virtualization, Hitachi Data Systems offers platforms that abstract data so it can be accessed for a broad range of business needs. Hitachi Computer Europe France (HiCEF), as a part of the division "Storage Systems" of Hitachi Global, supplies the entity Hitachi Data System (HDS) with high‐capacity data storage systems to sell them on the European market. HiCEF is in charge of IT platforms and the assembly of servers and storage solutions with high capacities. These storage devices meet the needs of large enterprises and SMEs in terms of storage solutions. STRATEGY 

Maintain market share of storage solutions in EU Improve the supply chain in order to reduce costs 53
http://www.hitachi.co.uk/about/hitachi/ 146 Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” STRENGTHS 

Reliable products Strong ties with clients in Europe WEAKNESSES 


OPPORTUNITIES 
Market demand for storage capacities Production limited to assembly Controller boards for data storage devices produced in Japan Dependence on the distribution center located in the Netherlands THREATS 
Competition from cloud solutions 3.8. Trends for employment in Europe According to the interviewed worker representatives, employment in the sector in Europe is characterized by: 




Relocation of jobs from Western Europe into other regions such as Asia or Eastern Europe. The relocated jobs usually require lower level skills, which are less expensive in other regions compared to Western Europe. Most of the support centers are located in India. However, not all service centers are transferred outside of Europe, as it is difficult to find workers that speak other languages than English. Within the European Union there is trend of relocating support functions to Eastern countries. Back office functions are concentrated in countries such as Czech Republic, Poland, Romania, and Bulgaria. Western countries maintain competence centres, sales and client support functions. However, employment in Eastern Region is not secure for the long term, as shown by the recent divestment of an IBM Service Center in Bulgaria. Big outsourcing deals also affect some support functions of some companies. The sector was confronted with restructuring and reorganization measures. In many companies, redundancies are taking place with regularity. The profound shift in strategy has translated into a high turnover of personnel in the last years. The low retention rate is explained by the presence of numerous young employees, who tend to be less attached to their first employer, are more volatile and have higher expectations. Some companies, as for instance IBM, have created Competence Centers, concentrating personnel with similar functions in big clusters which offer services on a multinational scale. As stated by an employee representative, these companies are “no longer multinational, but global”. The issue of competencies According to an interviewed trade union representative, skills provided by Universities are one generation behind high market requirements. The technological acceleration has widened this gap, making it more difficult for companies to find necessary competencies at the level of public higher education. In order to overcome this issue, in some countries Chapter 7 – Computers 147 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” mechanisms have been put in place allowing young personnel to attend formal education and work in parallel, scholarships being provided by the companies. Otherwise, young employees are going through comprehensive internal programs that help them adapting to technologies used by their companies. Facing a need for new competencies, many companies prefer to replace older employees with young workers, considering that they present more advantages, such as: 
Reduced costs – young people are cheaper than employees with several years of experience;  Higher adaptability to new technologies and fast learning.  Mobility – young people are more willing to relocate in other parts of the Europe (especially to Eastern Europe) The development of revolutionary products such as cognitive computing (Watson IBM) requires high end skills and a correlation with skills developed in the United States. The cognitive computer is already marketed in Europe, but its applications in the European markets are limited by its dependence on English language. The implementation of Watson in other European languages would require investment in highly qualified personnel and could be one of the future challenges of IBM in Europe. The development of cloud business also require new qualifications, and bigger companies are sometimes able to get them by acquiring smaller players. The case of IBM is relevant in this respect. In 2013, IBM purchased for 2bn USD Softlayer, an American specialist of hosting and services for public cloud infrastructure. Later, the company also bought Cloudant, a supplier of data base services in cloud for mobile applications and Big Data. Specialized employees are still hard to find, and most companies offer high salaries and benefits in order to attract them. Business headhunting is also used for finding key personnel. Social dialogue Most of the worker representatives said that the social dialogue in their companies is rather correct. All in all, the social dialogue improved over the years, but there are still things that can be done better: 



148 The quality of the received information is not always good enough. The confidentiality is an excuse often used by the management for not providing information. Information and consultation processes often take place after the decisions are taken or even implemented. It is difficult to have management representatives from relevant levels of decision making. Inclusion of new employees from the acquired companies in the social dialogue is not easy. Chapter 7 – Computers IndustriAll project "Strategic study on anticipation of changes in the European ICT sector” 
Participation of Eastern European representatives in EWCs is limited, and their are no trade union structures in many new member states. The unionization rate in the sector is low (5%‐10%) because of the high turnover in personnel. This is an important issue for the unionists, and they have great difficulties in attracting new members. Prospects for the development of the sector in Europe In a business as usual scenario, we expect a further 10% decrease of the number of employed persons in the European computer industry until 2020. Workforce should gradually decrease if the following factors are not countered: 

Continued restructuring plans and optimizations Relocation of employees to Asia and other low cost areas, especially affecting lower qualifications  Low retention rates in the sector, pressure from other ICT sectors  Redundancies related to synergies created from market consolidation  Continued divestments of big PC players in Europe  Disruptive technologies will continue to be developped outside of Europe (Watson) In a desired state scenario, we expect a stable number of workers until 2020, and even an increase of workforce could be expected, given the low base effect. In order to achieve growth, the sector could benefit from the following developments: 






Deployment of cloud computing, big data and security solutions in Europe Higher demand for local content (servers) due to security reasons Emergence of smaller actors in cloud and security business Development of R&D competencies in Europe Cooperation between companies and formal education institutions Fiscal incentives from EU or national level to support job creation and retention Establishment and consolidation of Global Competence Centers in Europe Chapter 7 – Computers 149