Front End I Electronic Components Supply Network


The tenderest of green shoots


Now that the first cut of the UK and Ireland electronics components market data for Q1 2013 is to hand Adam Fletcher reviews the figures in the light of the provisional results of surveys completed by other organisations and ‘guesstimates’ what is likely to happen later in the year


A


rriving at their 2013 forecast in November last year afdec members believed that the low point in the


UK and Ireland electronic components market would occur in Q4 2012 due to the prolonged global economic slowdown, and some six months further on than the association originally forecast. ecsn believed that the UK and Ireland


electronic components market would start a slow recovery quarter-on-quarter throughout 2013. Compared to the same periods in 2012 the forecast predicted a decline of (6%) in Q1, (2%) in Q2, growth of 2% in Q3 and 6% in Q4. The


Q4 2012 was indeed a low point in the current economic cycle and is very welcome news. However, the last four years cannot be described as a normal economic environment and accordingly, the statistics have not been following their historic trends, which would have indicated significant growth in quarters 1 & 2 and a flattening out in quarters 3 & 4, (see the graphic). It is also interesting to note that the last couple of quarters have seen ‘passive components’ replace ‘semiconductor components’ as the lead market indicator.


which is broadly in line with afdec members’ expectations.


The latest seasonally adjusted data


from Markit/CIPS UK Manufacturing Purchasing Managers Index edged higher to 48.3 in March 2013, an improvement on February’s four-month low of 47.9 but insufficient to raise the headline index back above the neutral mark of 50.0. The average reading over Q1 2013 as a whole (49.0) was slightly below that for the final quarter of last year (49.2).


Again, this information is much in line


overall outcome was forecasted to be a flat market (no growth or decline) compared to the previous year. I’m delighted to report that we’ve started the year reasonably well. In Q1 2013 the UK and Ireland electronic components market performed slightly better than our forecast, declining by approximately (4%) over the same quarter last year. The sales growth of 11% over the preceding quarter suggests that the


8 May 2013


Whilst the UK and Ireland electronic components markets have performed much in line with afdec members expectations the macro economic outlook still remains weak. And customer demand visibility (forecast) remains very limited. The Government published UK GDP figures for Q1 last month, which proved to be stonger than many had expected - up 0.3 percent. However, UK Manufacturing Output remained weak


Components in Electronics


with returns from afdec members and helps to confirm the limited visibility in the UK & Ireland electronic components market. I’m confident that the current afdec forecast for the UK and Ireland Electronic Components Market remains the best industry guide available. The provisional electronic components market data for the European markets provided by IDEA (International Distributors of Electronics Association) suggests that the German market continues to decline whilst the French, Italian and Nordic markets remain flat, but all returns reflected a significant improvement in March 2013 when compared to the previous quarter. Anecdotal data for the U.S. electronic components market provides mixed messages: A good month is followed by a declining month, but the underlying trend looks quite encouraging. There is however evidence of an increasing trend towards ‘re-shoring’, the transfer of production from Asia to primarily Mexican-based contract electronic manufacturers. Analyst’s opinion of the latest version of the US Federal Reserve’s “Beige Book” (a survey compiled by the banks from the opinions of a wide range of business leaders) confirms that business confidence is higher (stronger) than the current lacklustre financial numbers suggest. China remains the largest market for


electronic components, accounting for over 50% of the global sales revenue, but growth there has also slowed. It is difficult to gain accurate data on the Chinese electronic components market but the best local estimate is that growth is in the


+3% to +6% range. Such a performance would be considered very satisfactory in most global markets but for China it represents a decline of 50% over recent historical trends.


At least the Markit HSBC Purchasing Managers Index is now back in the ‘increasing growth’ area, having languished for some time in negative territory.


The Chinese government continues to encourage domestic consumption to boost GDP growth, which in 2011 was approximately 10%, and thereby maintaining employment opportunities. However GDP continued to decline throughout 2012 and fell back slightly to 7.9% in Q1 2013. When growth in the Chinese electronic components market slows it has a knock- on effect on all of the other markets. Inventory availability increases and component manufacturers reduce capacity, which all contribute to a reduction in confidence. But the indications are that China is moving back towards historical growth trends, so expect that excess inventory will be quickly burnt off, which in turn will drive market demand and lead to extended components lead-times as component manufacturers strive to catch- up.


Prior to the 2009 financial crisis the maturing global electronic component markets, and particularly the market for semiconductors, had begun to track global GDP and seemed likely to exceed the growth in GDP by two or three points. In fact this growth has not been realised over the last few years, but appears likely to in the longer term. And if we are about to enter a phase of modest but sustained growth all participants in the electronic components supply network need to recognise that success might well depend on effective, positive collaboration with their partners up and down the network.


ECSN | www.ecsn-uk.org Adam Fletcher is Chairman of Afdec/ECSN www.cieonline.co.uk


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