Front End I Electronic Components Supply Network Out with the old and in with the New Year
Change is inevitable in the electronics industry but change always throws up ‘challenges’ and by any measure 2020 was a ‘challenge’ ridden year for everyone involved with the electronic components supply network: “We have to hope that 2021 will prove a much better year”, says ecsn chairman Adam Fletcher. In this article Fletcher takes a sideways look at the magnitude of change that occurred in 2020 and in the early weeks of 2021 and cautions, “it’s the ‘unknown unknowns’ that throw up the new ‘challenges’ that components manufacturers, authorised distributors and their customers will have to contend with in 2021”.
A
t the end of each year the Electronic Components Supply Network (ecsn) publishes its manufacturer authorised distributor (afdec) members’
consolidated Forecast for the year in prospect. A general lack of visibility in the global market compelled our members to limit our Forecast for 2020 to the fi rst half of the year and provide ‘guidance’ only for the second half. Regretfully we’ve had to do the same for 2021 as if anything, our members’ market visibility has declined, primarily due to the impact of the COVID-19 pandemic. We hope to be able to update our Forecast for the full year towards the end of the fi rst half of 2021 but as always, you’ll be able to read the latest ecsn updates in the pages of Components in Electronics
The ecsn / afdec UK Electronic Components Forecast - 2021 The graphic “DTAM By Quarter for 2015 – 2021” shows the actual sales revenue achieved by ecsn’s manufacturer authorised distributor (afdec) members until Q3 ‘20 (the blue bars), their Forecast for the fi rst half of 2021 (the yellow and red bars) and then their ‘guidance’ for the second half of the year (the hatched yellow and red bars). At ecsn’s Forecast launch in December ’20 we had to estimate what the likely Q4’20 outcome will be in advance of having the actual data and the consensus was that this would settle in the range (6%)-to-0%, with a midpoint of (3%), strongly suggesting that the UK electronic components market would experience a sales decline for full year 2020 in the range (10%)-to-(6%), with a midpoint of (8%). At time of writing the fully audited fi gures weren’t available but all the indications are that the predictions were pretty accurate. Coming up to date, our members’ forecast for 1H ’21 is an outcome in the range (2%)-to-4%, with a midpoint of 0.5% growth and their 2H ’21 ‘guidance’ is for much stronger growth, prompting hopes for full year fi gures in the range 0%-to-6.5% growth, with a midpoint of 2.7%. Albeit fairly modest, this performance if achieved will be an improvement over the 2020 decline but underlines the expectation that 2021 is only likely to be a year of slow recovery, where most growth occurs in the second half of the year.
10 December/January 2021
The graphic “Forecast Billings – 2021” shows the actual Billings (sales revenue) performance for the UK and Ireland electronic components market to the end of Q3 ’20, while the green line shows the upper range, the purple line the midpoint and the blue line the lower range of our 2021 forecast. The shape of the pink line clearly illustrates how the UK historically performs more strongly in the fi rst half of the year than in the second but note how all three lines are currently running counter to the historic trend, which could be an early warning of supply problems in the second half of the year. Brexit apathy ruled in the UK in 2020 as many customers had been repeatedly through the government’s abortive planning process during the year and had frankly run out of patience. They were however forced into a fl urry of activity at the end of Q4 as shipments due to customers in the fi rst weeks of January ’21 were pulled forward in a bid to mitigate against possible Brexit delays, providing an artifi cial boost to Q4 ’20 electronic components “Billings” that will inevitably be negatively refl ected in the fi rst quarter of 2021.
European demand refl ecting demand in global electronic components markets The structure of the electronic components supply network in Europe has much in common with that in the US and Japan. All three regions have broadly similar historical business cycles, with the strongest growth experienced in the fi rst half of the year, typically peaking in Q2 before dropping off into the second half of the year. European electronic components markets experienced a modest recovery in demand in Q4 ‘20, primarily due to a return to growth in automotive manufacture after the economic crash in the fi rst half of the year. . There was similar but stronger growth pattens in the US and Japan and other market sectors in these countries also reported a modest improvement.
Strong Growth in Asia-Pac… The electronic components markets in the Asia- Pac countries run counter-cyclical to those in Europe, the US and Japan in that these economies invariably experience their strongest growth in the second half of the year, generally peaking in November before tailing off into the fi rst half of the following year. The electronic components supply networks in far-eastern economies continue to be dominated by the manufacture of mobile handsets
Components in Electronics
and mobile infrastructure products together with a vast range of computing and consumer goods. China alone is responsible for almost half of the global consumption of electronic components and the remaining Asian economies account for almost a further 10%. There is no doubt that China has seen a much stronger growth in 2020 than have other major technology markets and this trend looks certain to extend into 2021 at least. That said, many Global Tier 1 organisations are moving to reduce their dependence on Chinese technology manufacturing, citing both commercial and political reasons.
Looming Supply Problems…? The different business cycles in the east and the west help balance out the global demand for electronic components throughout the calendar year, but it now looks likely that in the second half of 2021 the European, US and Japanese electronic components markets will all plot a very similar trend line to Asia-Pac. This is very likely to throw global demand for electronic components out of balance this year as unusually, all major markets will experience a strong uptick in demand at the same time. When the growth in demand driven
by the rollout of 5G handsets and infrastructure - which is likely to occur around the same time - is factored in it becomes all too apparent that Global component manufacturing capacity won’t be suffi cient to meet demand in 2H ’20, causing manufacturer lead-times to dramatically extend. In a worst-case scenario manufacturer lead-time for most components might rapidly extend to well over twenty weeks. All organisations in the UK electronic components supply industry are well advised to closely and carefully monitor manufacturer lead-times in 2021 as they could fl uctuate very quickly. Purchasing and Logistics professionals must ensure that they have suffi cient in-house inventory of all the electronic components they need to meet their production needs and that their material pipeline has suffi cient order cover to meet forecasted business requirements. It’s preferable and much easier to reschedule back deliveries on orders than it is to fi nd new suppliers of essential parts when lead-times are extending.
www.cieonline.co.uk
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