KN40012

KEY NOTE ELECTRICITY : March 2002

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This report covers: electricity industry, electricity, utilities, power, power generation,

Companies covered include: Aquila Energy, British Energy, Centrica, Edison Mission Energy, Innogy, LE Group, Magnox Electric, The National Grid Company, National Power, Northern Electric, Powergen, Scottish Power, Scottish & Southern Energy, SEEBOARD, TXU Europe, WPD Holdings, United Utilities, Yorkshire Electricity Group,

EXECUTIVE SUMMARY

The UK market for electronic-component distribution declined in value in 2001, following strong growth in 2000. Key Note estimates that the market was worth £7.9bn in 2001 — less than its 1999 value. However, it seems likely that volume demand for components remained steady, and that price erosion was responsible for the fall in sales value. Both active and passive components have been through difficult times. Overcapacity in the marketplace has been exacerbated by falling raw-material prices, especially for the metals used in the manufacture of these components.

Passive components are discrete pieces of hardware which, when introduced into an electronic circuit, modify the operation of that circuit by virtue of their physical presence. A good example of this would be a resistor, which restricts the flow of current. An active component is any item which, when introduced into an electronic circuit, modifies the operation of that circuit not just by its presence but also by active software/control commands received from elsewhere. Semiconductors account for the largest share of the active-components sector by value.

The recent strength of sterling has been a serious cause for concern for both manufacturers and distributors of electronic components. Export markets are more difficult to penetrate with sterling at such high levels, and competition in domestic markets is intensified by foreign competitors taking advantage of the relative weakness of their own currencies. Some manufacturers and distributors have been able to reduce their costs by sourcing components from abroad, which have become significantly cheaper in sterling terms.

Others are protected by contracts with suppliers, which last 2 years in some cases. During 2001, the electronic-component market in Europe was affected both by the worldwide imbalance between supply and demand and by general economic uncertainty in the region. More specifically, the European distribution market is believed to have declined during 2001 — a development that appears to have coincided with the bottom of the semiconductor market cycle.

Demand for digital goods such as digital video cameras and mini-disc players has been strong. Sales of products such as TVs and video-cassette recorders (VCRs), however, remain subdued. Demand for most kinds of industrial electronic equipment continues to be strong, but demand for telecommunications — both fixed and mobile — was very poor in 2001, and this has seriously affected the sector. Sales of computers and peripheral equipment have also been slow.

Key Note expects no growth in the UK market for electronic-component distribution in 2002, as the current oversupply situation in some market segments corrects itself. However, between 2003 and 2006, there will be steady growth in the market's value.

TABLE OF CONTENTS

Text © 2002 Key Note

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