The market for power electronics – applications that supply the electric power to control motors and enable the conversion of direct current to alternating current or vice-versa — is experiencing rapid growth.
Experts from Roland Berger estimate the growth of the global market at 7 percent per year for the period through 2018. The market looks set to reach a total volume in excess of 200 billion dollars and offer the prospect of margins ranging from 15 to more than 20 percent.
There are three main growth drivers behind this development: higher productivity caused by increasing levels of automation and digitization in industry, greater regulation, and the growing awareness of environmental issues. All of these combine to create ever more applications for power electronics, as found by the new study conducted by Roland Berger Strategy Consultants: “Powering ahead – Developments in power electronics mean a prospective bonanza for smart players”.
However, as Roland Berger partner, Michael Alexander, points out, “Market players need to be aware that this growth in power electronics is not a sure-fire promise of success.”
He explains: “Established suppliers and new players in the market face different challenges. They need to position themselves appropriately in the international market and increase their capacity for innovation if they want to profit from the developments in this industry. New suppliers will need to have a lot of staying power.”
Industry 4.0 and automotive sector are growth drivers
Two fields are going to see particularly intensive application of power electronics products in the coming years: industrial manufacturing, currently experiencing a further productivity boost owing to Industry 4.0, and the automotive sector.
Power electronics are absolutely essential for continued automation in the wake of the digitization of production and supply processes in numerous industries. The robotics market alone has grown from some $6 billion to $34 billion in the past 15 years, with the global volume set to double and reach almost $70 billion by 2025.
“We anticipate further growth impulses for the power electronics market coming from the automotive industry,” explained Roland Berger partner, Wolfgang Bernhart. “The strong development of electromobility in a push to meet CO2 targets and the trend toward automated driving are going to fundamentally transform the automotive sector and open up brand new applications for power electronics.”
Even though electromobility is still in its infancy, one quarter of power electronics revenues are already generated in the automotive business. Increasing penetration rates will make the automotive sector the most significant customer industry by the end of the decade.
Having said that, the anticipated market opportunities cannot hide the presence of certain risks. One such risk might arise if the focus of Industry 4.0 were to shift toward software and smart algorithms, where many of today’s suppliers currently have limited expertise.
Then, there are the physical limitations of today’s power electronics technologies and their possible replacement by new and alternative materials like silicon carbide or gallium nitride. In the automotive industry, the considerable pressure on costs could also lead to component standardization.
“The growing competition in the market and the OEMs’ focus on economies of scale could create a substantial squeeze on profit margins for power electronics suppliers,” said Ralph Lässig, partner at Roland Berger.
Established and new players face different challenges
In their latest study, the Roland Berger experts analyzed a range of scenarios for the industry and came up with specific suggestions – for established players and new suppliers of components and system applications alike.
Established suppliers should focus primarily on close customer contact to enable them to exploit potential synergies and even launch shared R&D projects.
“Demonstrating innovative products and agile, efficient development processes is a way for established market players to emphasize their technology expertise and sustain their quality advantage,” explained Michael Alexander. “Aside from that, players should increase their software competency and keep their cost base flexible to make them quicker able to adapt to sudden changes.”
Another important factor is the smart choice of suppliers so as to avoid becoming dependent on any one company for raw materials or input products and to ward off the risk of supply bottlenecks.
New suppliers, on the other hand, need a good capital base, a long-term strategy for a specific market niche, and innovative solutions if they are to hold their own in the market. They could also enter into close partnerships with established companies to help them venture into the market.
Over and above that, new suppliers of system applications need to develop products that offer good value for money.
“As far as new market players are concerned, we recommend starting out with sufficient resources to enable long-range actions. The competitive power electronics market is an environment where it pays to take the long view,” emphasized Wolfgang Bernhart
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