Front End I Electronic Components Supply Network
Has spring ‘sprung’ in electronic components markets?
Global components markets are showing signs of solid growth. The UK/Ireland is no exception, with members of the Electronics Component Supply Network (ecsn) reporting continued positive customer sentiment across all market sectors. In this article the association’s chairman Adam Fletcher precedes a review of recent M&A activity and the potential impact the new import tariffs the US recently announced will have on UK/Ireland electronics manufacturing with an update on the Q1 UK/Ireland market
components markets are reporting very similar Billings growth patterns to the UK, which is why components manufacturers are struggling to keep up with demand and lead-times are extending.
Ongoing acquisition activity as forecast
Adam Fletcher I
Growth and extended lead-times continue
n December 2017 ecsn members forecast that the UK & Ireland market for electronic components would grow in the range 10 per cent to 12 per cent in Q1’18 compared to the same period in the previous year. In the graph, the green and orange bars in the graphic indicate the forecast range. The year started well with Billings (Net Sales Entered Less Credits) growing by 15 per cent in January ‘18 and by seven per cent in the following month compared to the same months 2017. As Components in Electronics went to press audited data for March ’18 was still not available but preliminary figures suggest that the trend is being maintained. ecsn members forecast that growth rates will slow somewhat in the remaining three quarters of the year in line with historical trends but will remain positive. If proved to be accurate this will represent 11 consecutive quarters of growth, the longest period of sustained growth the UK / Ireland electronic components market has experienced since 2000. Globally, electronic
10 April 2018
The flurry of acquisition activity in the electronic component industry forecast by ecsn analysts and others shows no sign of ending any time soon. On 1st March this year, Microchip Technology Inc agreed to acquire Microsemi Inc for $8.5 billion. This was the latest move in the company’s strategy of growth by acquisition: it picked up SST for $292M in 2010, SMSC for $939M in 2012, and bought ISSS for $328M and Supertex for $394M in 2014. The company then went on to acquire Micrel for $839M in 2015 before buying Atmel for $3.56B the following year. Whilst there is some overlap of products in the data centre and communications markets, the increased access to complementary analogue and mixed signal products, and advanced FPGAs that resulted from the Microsemi acquisition promises to extend Microchip’s appeal in the general market and increased its reach into military and aerospace markets. Not that Microsemi is any stranger to
growth by acquisition. Over the last decade Microsemi has acquired more than 40 manufacturers (or divisions of manufactures) of semiconductors and related products, including notables such as; Actel, Zarlink, Vitesse and PMC-Sierra, which can only have boosted its attraction to the Microchip board. Wolfspeed, a division of Cree Inc has extended its leadership in GaN-on-SiC technologies used primarily in power amplifiers for mobile communications by spending €345M to acquire the RF Power business of Infineon Technologies. Undoubtedly designed to further Wolfspeed’s position in the power amplifier market as cellular base-stations transition from 4G to 5G technology, the agreement is slightly unusual as Infineon will continue to provide Wolfspeed with IP, wafers, assembly and test services.
Components in Electronics The green and orange bars indicate the forecast range
The market remains fascinated by the ongoing Qualcomm / NXP merger proposal. There appears to be sensible synergies for both organisations and seemingly the deal continues to progress, as Qualcomm is reported to have increased its offer price to $44B. However, Broadcom’s planned $117B ‘mega- acquisition’ of this newly combined organisation has been blocked by President Trump, citing concerns about US national security. Although this decision sent shockwaves through financial markets, it is probably a sensible course of action for all parties. Why? The combined organisation would hold a potentially unfair market position in some sectors and the increased debt burden may have been difficult to service and might even have forced the sale of important business units along with substantial intellectual property.
Ongoing industry consolidation – passive components… In October last year AVX moved into the passive and active antenna systems market with its acquisition of Ethertronics for $142M. And following its acquisition of InvenSense for $1.3, TDK has furthered its ambition to become a leading provider of sensor technology by acquiring Chirp Microsystems, a promising start-up in the MEMS ultrasonic sensor market. Chirp Microsystem’s technology is initially being developed for distance measurement applications but reportedly, can also be used to detect movement.
…and EMS providers In February ‘18 TT Electronics plc agreed to acquire Stadium plc for £45.8M. The underlying driver of this deal appears to be a desire to increase the size and scale of the TT operations in the UK’s ultra- competitive EMS market.
New US tariffs The US Trade Representative had determined that the acts, policies and practices of the Government of China
related to the transfer of intellectual property and innovation are unreasonable or discriminatory and burden or restrict US commerce. After a period of consultation, the US plans to redress this imbalance by imposing tariffs (import duty) of 25 per cent on a wide range of items imported into the country. Steel and aluminium have recently grabbed the headlines but other products that could be affected include electronic components such as lithium batteries, relays, capacitors, resistors, connectors, LEDs etc…
Conclusion
Despite ongoing M&A activity (a process that always carries a risk of some disruption), the proposed imposition of tariffs on US imports and uncertainties over Brexit, my best analysis of the current international electronic components markets is that an extended period of modest growth has been firmly established. It is however unlikely that this growth will be linear and we must expect the odd bump along the way. Due to limited manufacturing capacity and the impact of acquisition actions in the market availability of most electronic components is likely to remain around eight to 10 weeks for the foreseeable future, and you’ll still be quoted 20+ weeks lead times for a very small number of components. The price of commodity memory will probably decline later this year as additional manufacturing capacity comes on-line and events such as Apple’s decision to halve production volumes of the iPhone X might well precipitate a sudden change in the demand / supply equation I encourage all organisation operating in the electronic components supply network to actively engage with their partners both up and down their supply network. Good communication of your organisation’s needs will help all parties to maintain supply equilibrium across the electronic components market.
www.ecsn-uk.org www.cieonline.co.uk
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