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Did the projections for the passives market made at the beginning of 2013 come true? John Denslinger, ECIA president and CEO, reviews the year

The passives market proves the adage: ‘the only thing constant is change’. Just one year ago, component manufacturers were forecasting flat to very low single­ digit growth rates for 2013. Was it a reflection of market vitality or a cautious appraisal of so many unknowns: real market demand, strength of consumer confidence, Fed QE2/3 policy, the “sequester” and an increasingly regulatory government? On the other hand, manufacturers and distributors rolled into the New Year with appropriate inventory positions, available manufacturing capacity and great lead times. Everyone could also see there wasn’t that blockbuster product on the horizon bending the demand curve upward. There were also clear signs that a few market segments like Mil, alternative energy and medical were losing steam, at least for the short run.

So how did passives perform in 2013? For a perspective on

North America, let’s first look at two key industry benchmarks (in USD): US electronic equipment orders and semiconductor shipments.

According to 2013 YOY stats, electronic equipment

orders actually fell by 3.7 per cent, while semiconductor shipments bucked the trend up a robust 11.8 per cent. Content, content, content and fortunately for our industry it’s electronic content!

So which passive components faired best in North America

shipments, in dollar terms? SMD resistors registered 7.0 per cent growth, followed by ceramic capacitors at 6.4 per cent and connectors at 5.6 per cent. At the opposite end of the spectrum, aluminum electrolytic and tantalum capacitors fell by 3.8 and 7.1 per cent respectively. Among passive suppliers, history suggests passives sales lag semiconductor by 3­4 months. Did we miss the lag? Did the explosion in memory demand change the

correlation? Why did passives grow half that of semiconductors?

As Paul Harvey once said: “… and now for the

rest of the story” … unabated price erosion. The capacitors numbers are substantially more impressive if one considers the impact of erosion: ceramic saw a decline of 9.4 per cent, aluminum 6.9 per cent, and tantalum 7.1 per cent. From my investigation, SMD resistors and connectors remained relatively flat. Combining the two factors tells the rest of the story.

As it turns out, 2013 forecasts were ECIA president & CEO, John Denslinger

conservative and, as usual, the industry adjusted seamlessly to the unpredicted demand ‘change’. But the real story here is

changing the myth that has existed for some time. Every passive component mentioned above experienced significant price erosion that exceeded real shipment growth. Anyone with the slightest business acumen can judge that this model is not financially sustainable, nor is it one that furthers a strong investment in our industry. So it begs the question, is there a consequence looming?

This past October, ECIA held its annual Executive Conference,

where our introductory and keynote speakers both touched on this same observation. In their view, maybe traditional business models that coupled services, logistics and technical support were not as highly valued by customers as before? Perhaps our products had become so commoditized that price was the only true differentiator, rendering even the most basic face­to­face relationships as an unaffordable luxury? We often talk about the impact of ‘disruptive technologies’ to our industry. Could this be a similar disruptive tsunami? In the end there were no answers, just possibilities to ponder.

As 2013 ends and 2014 begins, the challenge to the electronic

components industry remains constant, proving once again: “the only thing constant is change.” February 2014 | 33

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