Front End I Electronic Components Supply Network
Faster-than-forecast growth in electronic components market
All the indications are that the faster-than-forecast growth experienced by the electronic components markets in the UK and Ireland in the first quarter 2017 will have extended into Q2. This welcome trend is being reflected throughout the global electronic components supply network but is also contributing to extended manufacturers' lead-times. Some particularly pessimistic commentators are forecasting actual product shortages in the second half of this year. From his unique perspective as chairman of professional community the Electronic Components Supply Network (ecsn), Adam Fletcher provides CIE readers with an update on the current market influencers and considers how the second half of the year might pan out
Q1 2017 when compared to the same period the previous year.
What’s driving this faster billings growth?
Adam Fletcher D
uring the last quarter of each year members of the Electronic Components Supply Network (ecsn) collaborate to establish an industry consensus opinion for the year in prospect. Always something of a challenge, this process was made slightly more complex for 2017 thanks to numerous ‘Known Unknown’ influencers, particularly those surrounding BREXIT. Despite the difficulties a consensus was arrived at: The association forecast that the UK / Ireland electronic components market would see an improvement in Billings (sales revenues) in the range of one to four per cent with a mid-point of 2.5 per cent, meaning that in essence 2017 would be a year of slow but positive growth. In the event the first quarter proved to be somewhat different. Consolidated returns from ecsn members showed actual growth of 17 per cent in
10 June 2017
The underlying demand in the UK electronic components markets has improved faster than forecast primarily as the result of a surge in export sales from domestic manufacturing industries driven by the significant depreciation in £Sterling following BREXIT. At the same time the ‘input price’ of many products imported into the UK increased. Almost all electronic components are base priced in US$ and as existing inventory is sold the replacement inventory has been imported at a higher price with the new pricing being passed on within the supply network. This however does not tell the entire story. The impact of the currency decline must be subtracted from the calculation in order to arrive at the actual UK Q1 2017 Billings growth. ecsn members believe that exchange rate decline contributed to 10-to-12 per cent of the 17 per cent growth, but the underlying five to seven per cent growth that remains is still twice the rate of ecsn members' original forecast.
What’s happened in Europe and beyond in Q1 2017? The average growth rate across the entire European electronic components supply network in Q1 2017 is 7.9 per cent compared to the first quarter of 2016 (see graphic: “IDEA Quarterly Trend Statistics Q1 2017"). Looked at over the entire year the European average is four per cent, confirming that the estimated underlying growth rate for the UK electronic components market of between five to seven per cent was realistic and that the UK market is growing slightly faster than the European trend. The US electronic components market also improved significantly in the first quarter of 2017: The reported growth in
Components in Electronics
the range of five to six per cent driven by an improvement in the overall US manufacturing sector is very similar to what we've been experiencing here in the UK. The Japanese electronic components market also experience growth, albeit at the slightly more modest three to four per cent range, thanks to increasing activity and orders in their manufacturing sector. Conversely, Q1 growth in Asia-Pac, the world's largest electronic components market, was disappointing. Estimated growth in the range of one to two per cent reflects the continued slow-down in demand for consumer goods in Asia-Pac, particularly for mobile phones and all variants of PCs.
Q2 2017? UK and Ireland electronic components markets were forecast to grow in the range of one to five per cent in the second quarter of 2017 compared to the same period the previous year, with a mid-point of three per cent. As CIE went to press, ecsn was still processing its member returns but indications are that the actual result for Q2 2017 will reflect the forecast i.e. underlying real growth in the range of five to seven per cent. There is no hard data from the other global regions yet but my discussions with industry leaders in other markets indicates a widespread anticipation of “more of the same”, which suggests that the global electronic components market will have grown in the range of four to six per cent in the first half of 2017.
Market headwinds
As always 'headwinds' have the potential to hold back growth in the global electronic components market. Faced by uncertain demand over the last decade many manufacturers of electronic components quite understandably reined back their capital investment and with the removal of a lot of the supply chain resilience that ensued the modest global growth we're currently experiencing has had a negative impact on the general availability of all electronic components. Quoted manufacturer lead-times are today migrating towards traditional industry norms with availability of the majority of components on 8-to-10 weeks lead times. Some parts however are on 12-to-16 week lead times and manufacturers of a very small number of components are already extending lead-times beyond 20 weeks. Fortunately, demand in the global
electronic components market remains geographically cyclically. Generally speaking, Western economies experience growth in the first half or the year while growth in the Eastern economies occurs in the second half. This goes somewhere towards smoothing out availability but it's apparent that manufacturers need to bring mothballed capacity back into service, contract out some manufacturing
services or in some circumstances add new capacity in order to meet the growing global demand.
2H 2017 and beyond ‘Transport Systems and Infrastructure’ (predominantly electronic systems for hybrid vehicles and driver assistance) is set to replace consumer products as the principal electronic components market growth driver. Whilst the automotive market has been growing rapidly for the last five years pundits are predicting a small 6-to-12 month decrease in global demand for vehicles. A little ‘cooling’ in the automotive market may serve to free up some limited capacity in the short term but the impact of this slowdown has already begun to impact inventories held by companies that supply components to the major vehicle manufacturers. In my opinion much now depends on demand in the Asia-Pac electronic components market in the second half of the year. A slowdown will reduce lead times a little but if demand remains at the current level lead-times will firm up further. If growth exceeds forecasts then many of the component manufacturers may struggle to meet demand. We've already seen substantial increases in average selling prices of Flash Memory products, a trend that is likely to continue into Q4 2017 shipments and further impact capacity in the semiconductor market A stable electronic components supply network is in everyone's interest. Instability just adds cost and frustration! I suspect that a reasonable level of equilibrium between supply and demand will be achieved in 2H 2017 but there may well be a few bumps along the way. I encourage all organisations to communicate their needs to their component manufacturers and their authorised distributors honestly and effectively and work with their supply partners to help maintain market stability.
www.ecsn-uk.org
www.cieonline.co.uk
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