Front End I Electronic Components Supply Network Meeting our industry forecast… just…
Despite the strong headwinds that continue to hamper the UK's macro-economic environment the electronic components markets in the UK and Ireland have managed to meet the Q1 2016 consensus industry forecasts. ecsn chairman Adam Fletcher welcomes this good news but will it continue? Here, he provides CIE readers with an update on the electronic components markets at home, in Europe and further afield and shares his thoughts on the likely outcome of the next couple of quarters
T
he industry consensus for the UK / Ireland electronic components market in 2016 predicted Billings (sales
revenues) growth in the range (two per cent)-to-two per cent, with a mid-point of 0 per cent, essentially a year where there is no or little growth. ecsn's analysts were rather more upbeat in November 2015, when they suggested that after a slow first half, the UK and Ireland electronic components market would grow sequentially into the second half of the year. They were aware however that this forecast had little historical precedent: as records indicate that most growth occurs in the first half of the year. ecsn's forecast for Q1 2016 was that Billings would decline in the range three per cent-to-one per cent, driven by a particularly poor Bookings (sales order input) performance in Q4 2015. In the
event, the actual outcome was at the top end of our guidance range with Billings declining by just one per cent when compared to the same period last year, but growing by 14 per cent over the previous quarter. As an industry previously accustomed to strong quarter-on-quarter double digit growth, a one per cent decline could hardly be greeted as welcome news, but it’s a much better result than some of our members thought possible given the UK's current unstable economic situation. The ‘Book to Bill' (B2B) ratio (an important industry metric that helps forecast decline or growth) was close to unity in Q1 2016, suggesting that any growth in Q2 2016 would also be disappointing. ecsn's AFDEC members' Q2 2016 forecast for the UK / Ireland electronic components market was for growth in the range (three per cent)-to- one per cent, which at the time of writing looks achievable.
Authorised distributors are currently holding stock sufficient to meet approximately 2.5 months of the forecasted demand and with the current lead-time for most electronic components remaining low, typically two to four weeks, any ‘Turns Business’ (short-term upside demand within the period) can be easily met.
pan-European electronic components markets Data provided by IDEA indicate that average Billings in the pan-European electronic components market grew by six per cent in Q1 2016 compared to the same quarter last year. Only the UK and
Nordic regions returned negative or declining results.
So why is it that Billings in the UK/
Ireland are declining compared to other European nations, some of who's overall economic performance measured by Gross Domestic Product (GDP) is significantly lower than our own? There are several possible reasons for this: Predominant is that the amortised decline in the pound/euro exchange rate in Q1 2016 was approximately six per cent, which flattered all euro-based results. The same effect was experienced by the Nordic countries which trade primarily in their local currencies and are not in euro. If this anomaly is stripped away, the UK result looks much more realistic, but still shows Italy racing ahead and Germany doing somewhat better. It must be noted however that the demand for electronic components in the UK / Ireland from within the “Industrial” market sector has remained sluggish and has yet to recover to pre-2008 recession levels, leaving me wondering if we've lost this business to other markets for good. Some manufacturing has undoubtedly been transferred to other locations, due in part to the flexibility in UK labour legislation compared to other EU countries, which makes it easier and less expensive for manufacturers to downsize as they attempted to ‘right size’ their capacity. The politicians tell us that this flexibility encourages greater inward investment but that probably isn’t much consolation for those who have lost out in one way or another.
Rest of the world Many semiconductor industry analysts are now reining back their original growth forecasts for 2016. In April 2016 Gartner revised its 2016 global semiconductor forecast down from 1.9 per cent growth to 0.6 per cent, citing lower than expected growth in mobile phones and portable computing. A quick comparison of
12 June 2016 Components in Electronics
the Q1 2016 results released by the US's Semiconductor Industry Association with the results for the same period last year confirm that Billings declined by 17 per cent, which indicates a significant cooling in the US semiconductor market. The semiconductor market in China showed essentially ‘flat’ (no change) in Q1 2016 compared to the same quarter last year and a decline on the previous quarter of five per cent. Our Chinese colleagues will probably see this as a return to stabilisation, as their market generally cools in the first quarter before picking up in the rest of the year. The European semiconductor market has declined by eight per cent which, given an approximate decline of the euro against the US dollar of two per cent over the period, agrees closely with the results IDEA returned for Europe. All-in-all the outlook and industry sentiment for the global electronic components industry is very slightly more negative than it was when ecsn's AFDEC members compiled their UK / Ireland market forecast just before Christmas last year.
The negative sentiment that persists in global electronics markets is principally due to an overall slowing of growth right across the global economy, particularly in the previously growth-reliable BRIC economies, where many countries are today either in - or close to - technical recession. There is, quite rightly, considerable concern about the continuing slowdown in mobile phone development, the one remaining 'killer app' for the electronic components industry. However, given the level of competition and innovation in that market it is to be hoped (expected?) that subtle improvements in the hardware and/or software will continue to drive demand. If there is a breakthrough in mobile phone functionality supported by an improvement in power management or battery technology then I expect the market to pick up quickly. I remain optimistic that the outcome for the UK and Ireland electronic components markets in the current year will be close to the positive range of our original industry forecast, but in the event of new or additional market turbulence occurring... We shall have to wait and see.
www.ecsn-uk.org www.cieonline.co.uk
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