MARKET FORECAST
Feast and Famine
The key to the future is understanding inventory, component manufacturing capacity and end-market demand ByMichael Knight, TTI
Virtually everyone in the electronics component industry, whether amanufacturer or a distributor, is currently experiencing an unprecedented and unnerving upswing in demand. This is happening inmost endmarket segments,most geographies, and most component categories. After four quarters of steep, nerve- racking industry decline, beginning in Q3 2008,most industry participants are rocketing back up at a rate that, if sustained, will shortly get the industry back to historical peak-performance rates. While no one wants to look a “gift horse” in themouth, one can’t help but fret about howmuch longer this will continue, and what the other side of this ramp up looks like.
There is no doubt that what the industry is experiencing now is
the result of inventory rebuilding following the panic of 2009, which is being exacerbated by drastic capacity reductions caused by downsizing, and unexpected endmarket demand recovery. The key then to developing an informed opinion about what the near future has in store for us is an understanding of what inventory levels throughout the supply chain look like, what is happening with componentmanufacturing capacities, and what are the trends in endmarket demand.
all eyes on inventory
There are number of analystswho followthe electronics industry and track component and finished goods inventory levels in the
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EMS, ODM, and manufacturer and distributor businesses. After the inventory shock of the 2001 tech recession, there has been a very close eye kept on inventories in all sectors. With nowmore than two quarters of extremely strong growth behind us, the analyst data still shows that days-sales-in-inventory is still running at near all time lows. Over the past eight years inventories have beenmanaged down to where they are less than 30 days sales at many points in the supply chain. Even aftermore than sixmonths of strong shipments, component inventories throughout the chain are just now starting to tick slightly up.
TTI's Michael Knight Therewas virtually no inventory overhang going into the recent
downturn, and so far, no signs of a newoverhang being built. Checks by TTI of component inventories at its customers also show that customers are consuming parts as fast as they come in. A significant part of TTI’s business involves some sort of electronic swapping of datawith the customer on their production forecast, their on-hand inventories, and theirwork-in-progress, all ofwhich
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