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Front End I AFDEC The clouds gather

Adam Fletcher suggests that the second half of the year is likely to see a slowing down of activity but current global instability means that it is getting much harder to forecast, with any great accuracy, which way the global economy is set to go


rowth in the UK (and European) electronic components industry was stronger in the first half of 2011 than indicated by the global economic climate but the latest raft of economic and industrial figures from the US, the UK and until recently the booming German economy, suggest the second half of the year is likely to see a slowing down of activity as customer demand begins to wither.

The global economic instability of the last few years has hampered the ability of almost all industries and organisations to accurately forecast activity in their markets. The global electronic components industry has been no exception. However all organisations undertake some form of market intelligence gathering - often primarily based on inputs from their customers – which they use to forecast their business activity over a ‘rolling period’ of typically twelve months, broken down by quarters. Obviously the accuracy of the forecast is (usually) better for the early quarter(s) than for the third and fourth quarters, as unidentified variables emerge as the year progresses. In the UK and Eire authorised distributor (afdec) members of ecsn collaborate to arrive at an objective assessment of the electronic components market and generate a meaningful twelve-month forecast. As an independent industry trade association ecsn takes confidential inputs from its members and aggregates them into a draft forecast that it then submitted for discussion and refining by executives across the electronic components supply network and by independent economic advisors, before arriving at a final forecast. A published industry forecast provides a best insight into the most likely performance scenario and enables member organisations to benchmark their own forecasts and business performance against a peer reviewed document. In December each year ecsn publishes its detailed annual forecast to its members. A significant amount of detail from the forecast is also communicated to the industry trade press, who are asked to

8 September 2011

disseminate the key data from the forecast information throughout the entire electronics industry as an aid to wider business forecasting and planning. In periods of severe economic turbulence the organisation provides regular updates to members and the electronics industry highlighting any key issues with the objective of communicating the best quality of information to all. In its forecast issued last December ecsn

predicted the Distributor Total Available Market (DTAM) by quarter and stated that it was likely to grow in the range 1% to 8% in 2011. The forecast for the first six months was growth in the range 2.5% to 11.6%. As things turned out the actual growth in the first half was 13.2% relative to the same period in the prior year, 1.6% stronger than originally forecast. Ecsn’s forecast for the second half of

2011 remains unchanged at 7% growth in the third quarter and 3% growth in the fourth quarter, which will result in a net growth figure 9.2% for the full year, which would represent a 1.6% increase over the association’s original forecast.

Good news….and bad The good news is that the UK and Eire electronic components markets grew more strongly in the first half of 2011 than

Components in Electronics

forecast, which suggests the entire electronic industry also experienced strong growth despite the global economic turbulence and the impact that the Great East Japan Earthquake had on component availability.

The not so good news is that this

growth is not being sustained. In fact returns from ecsn members confirm that this process is already underway in the UK and Eire, with the all-important “Book to Bill Ratio” in June 2011 falling back to below unity to 0.93:1, the lowest level since November 2008. (See the June issue of CIE for further information on the B2B ratio). This was not unexpected. It seems likely that “Bookings” (net sales orders entered) will continue to decline and will in turn impact “Billings” (net sales invoiced less credits), which will also decline to reflect actual customer demand. The perceived wisdom in recent years has been that the growth of the UK/Eire electronic components markets has been much more closely related to overall economic GDP growth than any electronics industry drivers. The current forecast for UK GDP growth is only 1.4%, not great but at least it is a positive number, however it could be derailed by the latest round of global economic turbulence created by the ongoing impact of the

banking crisis, which is stalling economic growth, increasing inflation, and furthering concerns over sovereign debt and the future of the Euro. A quick review of the electronic components markets in greater Europe reveals a negative Book to Bill Ratio and declining Billings in a pattern very similar to that being experienced in the UK, leading some economic commentators to suggest that a double dip recession is now a possibility. Possible it may be, but I tend towards the belief that UK and European GDP is merely experiencing a period of very low growth, which in turn is triggering lower growth in the electronic components markets.

As we enter another period of global economic uncertainty, with demand weakening I’m increasingly convinced of the necessity for all organisations across the electronic components supply network to effectively communicate their real needs to their supply partners. Over the last two years our industry has successfully managed a hugely fluctuating demand and I’m confident that we are well positioned to manage it once again.

Afdec | ECSN |

Adam Fletcher is chairman of Afdec/ECSN

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