European Components Markets Enter a Technical Recession
The consolidated returns from European member companies in the International Distributor of Electronics Association (IDEA) reveal that that growth in European electronic component markets slowed to a small decline of just (0.9%) in the first three quarters of 2019 when compared to the same nine months last year. But it’s an escalating trend: Average ‘Billings’ (sales revenue invoiced, less credits) declined by (0.3%) in Q2’19 compared to the same period last year and by (7.5%) in Q3 - again compared to the same calendar period last year. Two consecutive quarters of decline is referred to by Economists a “technical recession”… In this article, Adam Fletcher, Chairman of IDEA and the Electronic Components Supply Network (ecsn) reviews the industry’s performance YTD and shares his view for the future.
B
ack in Q4’18 most analysts were predicting that European electronic components markets would grow in the range 4%- to-6% in 2019, a slightly more modest forecast than in previous
years as it was already apparent that the German market (the largest in Europe) was beginning to slow. The current outcome for the first three quarters of 2019 was a decline of less than (1%) which is by any measure a small value, but it was not expected and is significantly below the IDEA members forecast. Historically the final quarter of the year is always weak, primarily because organisations are minimising their in-house inventory as they approach the end of their financial year, and working days are reduced as a result of traditional Christmas manufacturing shutdowns in Europe, so a reversal of the current trend doesn’t look likely in the closing months of this year.
Slowing global electronic components market Customers for mobile phones – the primary electronic components market driver – are holding off purchasing new models until faster 5G products and services become available. The Automotive sector has also been slowing since mid ’18 and is not forecast to recover substantially until the second half of 2020, at which point it’s likely to start to overtake mobile telephony as the principle electronic components market driver due to the rapidly increasing electronics content of cars. Deployment has been slow in the IOT sector due to customer concerns about the lack of an international security standards, but these issues are now being resolved. The Aerospace, Computing, Industrial, Medical sectors are in good health but are “flatlining” in the current economy, however the Military and Server Computing sectors continue to show growth.
Trade War Slows Growth
The ongoing trade dispute between the US and China has had a negative impact on both global trade and GDP growth. The dispute centres around the abuse of US based organisations intellectual property rights by Chinese organisations (and thereby the state). Swinging import tariffs of between 15% and 25% were initially imposed on electronic components and advanced technology but quickly escalated to almost all goods traded between the two nations. The dispute has severely disrupted growth and caused a great deal of economic uncertainty, particularly in Asia. China still accounts for over 40% of global demand for electronic components but its market slowed over 2019, freeing up manufacturing capacity and easing global electronic components manufacturer lead-times. Although both
vi
the USA and China have made concessions, it looks unlikely that this dispute will be resolved anytime soon but when the two countries do eventually reach an agreement production will ramp up and a spike in demand for electronic components will probably be triggered. From mid-2017 the average manufacturer lead-time for electronic components increased from 2-to-4 weeks to a peak in mid-2018 of 16-to-18 weeks, with a very small number of critical components on 26+ weeks. The manufacturing lead-time is an important value in the ERP systems of all customers, which as it extends, automatically increases in-house inventory and order cover on suppliers to ensure continuity of supply. The average manufacturer lead-time for electronic components sharply declined in Q2’19 and by October ’19 had reduced close to 6-to-8 weeks, although a few passive components remain on 26 weeks. As a result, customers’ ERP systems continue to reduce their inventory and order cover in line with the revised lead-times and their projected demand. The impact of this lead-time reduction is to effectively remove 6-to-10 weeks Billings from electronic components markets, hence the current slowdown.
Bookings Billings & the Book to Bill Ratio - IDEA Graphic T1 – Q3’19
A quick look at the IDEA Graphic T1 shows the Bookings, Billings and Book-to-Bill (B2B) ratio visually for the past three years. In a normal market it is generally accepted that a B2B ratio of 1.04 is the minimum required for slow stable growth. The B2B ratio fell to unity = 1.0 in Q4’18 and then declined to 0.93 in Q1’19, 0.86 in Q2’19 and
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128
