Front End I Electronic Components Supply Network
Still waiting for recovery
According to Adam Fletcher the inventory correction that began in May 2011 together with the weak economic environment combined to slow growth in the second half of last year, and he believes that’s a trend that will continue into the first half of 2012
G
lobal electronic components markets had to contend with another white knuckle ride in 2011, with supply meeting - then overtaking – demand, while at the same time the supply network was disrupted by the natural disasters suffered by Japan and Thailand. Despite that the industry managed to cope with the disruptions surprisingly well. However, the inventory correction that began in May together with a declining macro-economic environment slowed growth significantly in the second half of the year, and that’s a trend that is likely to continue into the first half of 2012. ecsn was remarkably accurate in its UK
and Eire 2011 electronic components market forecast issued in November 2010. The predicted 4.4% growth has proven to be spot on but given the range of unforeseeable factors that occurred in 2011 the accuracy should probably be put down more to good fortune than insight! It’s even been suggested that economists and market analysts include decimal places in their forecasts only to demonstrate that they have a sense of humour! When measuring the sales revenue generated in the electronic components market ecsn refers to the sum of all the revenue generated as the TAM (Total Available Market). Sales through the Authorised Distribution channel are referred to as the DTAM (Distributor Total Available Market). The graph shown plots the sales revenues of UK/Eire distributors over a 27 year period. In the 1980’s PC’s were the primary market driver but were displaced by the telecom and data-communications markets following a period of high growth in the 1990’s leading to the ‘dotcom bubble’ in 2001. As we moved further into the new decade the market driver became consumer products, initially dominated by mobile phones, MP3 players and digital still cameras etc. From the mid 1990’s onward the move to outsourced manufacturing in Asia started to gain momentum, which coupled with the change of market driver, pushed the
8 February 2012
UK/Eire DTAM down from its £1.8bn peak in 2000 to around £1bn, a 64% decline that then persisted for most of the next decade. The TAM over this period declined by an even greater percentage as many of the largest tier-one electronics system manufacturers moved production offshore. In 2000 the DTAM as a percentage of the TAM stood at 30%. Last year (2011) it was closer to 45%. Distributors are serving many more customers and have effectively gained market share at the expense of components manufacturers.
Macro-economic conditions Since late 2009 macro-economic conditions have been very unstable following the banking crisis which resulted in a deep recession followed by very low growth in Western economies. The Organisation for
experiencing recessionary conditions in the first half of the year. The US appears to be performing a little better, with economists forecasting that GDP will have grown by a little over 2% in 2011.
Members of the BRIC (Brazil, Russia, India and China) countries refer to the current economic conditions as a “North Atlantic Recession”, primarily because China, the engine of their growth, is believed to have grown GDP by 9.3% in 2011 and is forecasted to grow GDP by a further 8.5% in the current year.
Semiconductor market industry analysts
also offer diverse opinions on the prospects for the global semiconductor market in 2012: Future Horizons +8%; Gartner +4.6% and WSTS +2.6%. In the 1980’s and 1990’s growth in the
electronic components markets was far higher than GDP. However the electronic components industry is beginning to mature and growth levels, especially in the semiconductor industry, now much more closely track global GDP. Fortunately semiconductor revenue growth is generally a few percentage points positive in relation to GDP growth, reflecting the increasing use
for export, primarily into Europe and US markets. It is also important to recognise that 5% - 7% of electronic components sold by UK/Eire distributors go indirectly into Asia in support of domestic customers who manufacture off-shore but wish to retain control of their supply network. Analysis of the “aggregate demand” for
electronic components in the UK/Eire market based on changes in GDP growth suggests that GDP growth in the UK will be flat in 2012, while EU GDP will decline, US GDP will improve and China GDP will remain strong.
The global market
It is also important to consider what is happening in the global electronic components market where there was a peak in both Bookings and Billings in March 2011 as many customers sought to rapidly increase their inventory in response to the natural disaster in Japan. By May 2011, however, supply exceeded demand on a global basis probably because many manufacturers had ramped up their production to meet anticipated demand based on a stellar growth performance in 2010 and in the hope of gaining market share. As a result a global inventory correction started in Q2’11 and is likely to continue into Q1’12.
The natural disaster in Thailand has primarily impacted the PC markets as the reduced availability of hard disk drives (HDD) has restricted the output of many PC manufacturers, which has had a knock on effect in electronic components markets primarily in Asia where the bulk of PCs are manufactured. The latest results of some large global semiconductor manufacturers suggest that December 2011 was the “inflection point” that marked the return of true growth.
The factors I’ve outlined here have made
Economic Co-operation and Development (OECD) forecast that UK Gross Domestic Product (GDP) would grow by 0.9% in 2011, increasing slightly to 1% in 2012. While the figure for 2011 proved correct latest growth predictions for 2012 suggest growth of just 0.6%. 2011 growth levels in the EU were a little better at 1.6% but are forecast to be only 0.2% in 2012, with a vast sway of economies in the Eurozone
Components in Electronics
of electronic products and systems. In the UK/Eire the electronic components market experienced growth of 4% in 2011 whilst the UK economy as measured by GDP, grew by only 0.9%. This suggests that the UK/Eire electronics market experiences positive growth at approximately 3% above GDP. However this is not the full picture as a significant proportion of the electronic systems manufactured in the UK are sold
forecasting the UK/Eire electronic components market extremely difficult, but the consensus opinion of ecsn members is that the most likely outcome in 2012 is a decline of 5%, a decline faster than the changes in GDP in the UK, EU and US. However, I remain optimistic and hope that the final outcome will be closer to “flat” i.e. in line with UK GDP.
ECSN |
www.ecsn-uk.org Adam Fletcher is Chairman of Afdec/ECSN
www.cieonline.co.uk
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