Confidence Survey: European divide

Europe's av economy is growing again, although market confidence is wavering as suppliers, analysts and users wait to see what austerity measures the eurozone governments put into effect.

What's more, the definite (if delicate) recovery in the larger EMEA region is not spread evenly across the markets, causing av business leaders to foresee an industry categorised by the 'haves' and the 'have nots'.

AV's 2010 European Market Confidence Survey - an online research project carried out with vendors and analysts in June - reveals a mixed bag for the industry. Some markets - including the Benelux countries, the Nordic states, Germany, France and the UK - have picked up after a 'disastrous' 2009. But others - including much of Southern Europe, Ireland and Iceland - are struggling.

Projectors and displays

'The projector business across EMEA has come flying back,' says Mike Fisher, a senior analyst at Futuresource Consulting. 'The first signs of recovery came in Q3 last year. Q4 was really strong, as was Q1 of this year.'

For the first time in two years, Futuresource has revised its projector sales forecast upwards, anticipating that EMEA sales will climb from 1.94m units in 2009 to 2.37m units this year, a 20 per cent jump. That is well up on its predictions this time last year, when it expected 2010 EMEA sales to reach 2.13m units.

The growth pattern appears to have a solid basis, says Fisher. 'We were initially worried that there was a bubble based on latent demand, stock shortages and the Fifa World Cup,' he admits. 'But component orders are now strong.'

There is, however, a downside. Market volumes are being concentrated on entry-level projectors, including SVGA models (up from 27 per cent of sales in 2009 to 32 per cent in Q1 of this year). 'Brands focusing on the high end have suffered, although demand for higher-end and rental projectors is improving,' says Fisher.

The emphasis on basic projectors (and entry-level B2B flat panels) suggests that the markets are still being propped up by educational buyers, and Fisher confirms that is the case. For example, spend in the education sector has counteracted the decline in corporate sales in countries such as Spain (where projector volumes rose 18 per cent year-on-year in Q1 2010), Ireland and Portugal.

That could be an issue for vendors in the long term. 'We are forecasting a peak in corporate projection sales in the UK, Germany and the Nordic countries by 2013-14,' says Fisher. Which means any growth will have to come from the public sector.

Systems and integration

A similar pattern is emerging in the systems and control market, where volumes are rising and manufacturers are having to sell more product merely to maintain their revenues.

'So far, our business has been unaffected by the eurozone troubles,' says Crestron International sales director Robin Van Meeuwen. 'The UK and German markets are stable in comparison with 2009, but still challenging. We are doing good corporate business in Norway - especially in the oil, military and government markets - and residential business is growing in Sweden and Denmark.

'We have also seen significant growth in France, where government initiatives have led to increased university and public sector spending.'

But things are not so good in Italy and Spain. There, Van Meeuwen says, the economic problems have 'had a severe negative impact on sales'. Meanwhile, the residential market - which represents 50 per cent of Crestron's sales in those territories - has 'ceased to develop'.

In other countries, such as Greece and Ireland, the market has simply plateaued. 'There is business in Ireland still, but our resellers are saying it is going to take five years for us to get back to the levels of two years ago,' says Van Meeuwen.

Much of Eastern Europe - notably the Balkan countries and the Baltic states - is also in difficulty, although Crestron reports good work coming out of the Czech Republic, Slovakia and Poland.

Overall, Van Meeuwen is positive about the situation in Europe. 'We are not seeing a decline in business, although there are fewer systems being installed, so we are selling more products and more peripherals into each project,' he says. 'In the UK, for example, the market is more buoyant than it was, but we face increased lower-end competition.

'I don't see the markets changing much over the coming 12 months. We are still expecting to encounter five per cent growth in France, Germany, the UK and Benelux.'

He adds: 'It is the newcomer markets that have problems.'

Suppliers v buyers

So what do vendors and users think about the prospects for Europe's mature av markets?

Sixty per cent of the trade in the UK, Germany and the Benelux countries expect the av market to grow in the next year. The majority of them - nearly a third - expect 0-10 per cent growth; a quarter expect more than 20 per cent growth; and a fifth expect the market to remain static.

Users are less optimistic. Eighty per cent think that the av market will remain static or contract in the next year - a statistic that reflects the fact that most of the user respondents to this year's survey came from the public and education sectors, where economic nervousness is reaching a peak.

Taken together, then, the figures suggest that the most likely outcome is slow market growth, with some 55 per cent of all respondents expecting the pro-av market to be static or to achieve growth in the 0-10 per cent range. Overall, only 30 per cent of the sample expected the market to decline.

The austerity effect

With European governments seeking to cut public spending, it is currently hard to predict the effect their policies will have on the av markets.

However, 40 per cent of respondents expect cutbacks to new projects (against 46 per cent expecting the same two years ago). Public sector clients - including those in schools and higher education - are particularly concerned about budgets, which is highly significant for an av industry which derives a high proportion of its revenues from these areas.

InfoComm's Global Market Definition Survey (GMDS), released at ISE 2010, indicates the scale of the problem. Globally, says the GMDS, government/military and education/training accounted for $14.5bn of the total $68bn av spend (21 per cent) in 2009. Across Europe, government/military and education/training accounted for $3bn of the total $16bn av spend (19 per cent).

Government-imposed spending cuts in sectors that have such large direct av spends - and the InfoComm figures exclude the events sector - could have an unpleasant impact on suppliers' turnovers.

There is only anecdotal evidence of the extent to which public sector funding accounts for av turnover in Europe, but even some non-specialist resellers estimate that the education/government markets account for between 40 and 55 per cent of their systems integration revenues. In some countries, it is higher.

Business effects

Even after two years, the economic changes are having negative effects on av businesses.

Less than 60 per cent of this year's respondents said that expenditure on new projects was going ahead as normal (against 75 per cent in October 2008), and only two-thirds (66 per cent) said they were carrying on with refurbishment of existing facilities (against 80 per cent two years ago).

'As normal' planned equipment replacement was down to 52.5 per cent from 64 per cent; sales and support numbers, meanwhile, were only being maintained by 37 per cent (against 66 per cent).

Confronted with this new wave of realism, the survey respondents have also significantly re-evaluated the drivers behind their future av investments. Two years ago, increasing productivity and staff communications were joint leaders. Now, increasing productivity is still the top driver, but the next most important are trade customer communications and cutting travel budgets.

So what happens now?

This time round, respondents were more negative than they were in 2008, with 15 per cent contemplating delays to replacement programmes (against 0 per cent in 2008) and 10 per cent expecting all expenditure to be frozen (against 0 per cent two years ago).

Historically, the fate of the av markets has seldom been in government hands, but judging from the survey responses this year, a lot is going to depend on what European governments do in the next few months.

Sunnier prospects in the Middle East

Prospects for av markets in the eurozone are shrouded in mist, but those in other areas are looking definitely healthy. The market expectations of dealers and distributors attending Crestron's first-ever Middle East Forum, held in Dubai in June, showed that despite the region's much-publicised problems, they were optimistic.

InfoComm reckons the av market in EMEA has an above-average growth rate of 13 per cent a year and will be worth $3.15bn by 2012 - representing a 43 per cent increase over three years.

In the Middle East and Africa, control system sales are set to rise from $212m in 2009 to $316m in 2012; conferencing equipment sales from $171m to $253m; and installation/integration service revenues from $365m to $574m.

Asked which markets they expected to grow the most, the 30-plus Crestron partners - who came from countries as far distant as the Lebanon, Tunisia and Egypt, as well as the Gulf States and Saudi Arabia - cited hotels, higher education, healthcare and residential av.

The technologies and product areas they expect to grow fastest include IP distribution of audio and video, integrated audio systems and meeting room control systems.