If all key markets in the world experience a strong uptick in demand at the same time the global electronic components market will almost certainly be thrown out of balance. The electronic components supply networks in Asia-Pac economies continue to be dominated by the manufacture of mobile handsets and 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 Asia-Pac economies account for almost a further 10%. There is no doubt that China has seen much stronger growth recently than have other major technology markets but it’s difficult to see exactly where this growth is coming from, particularly as many Tier 1 organisations continue to reduce the risks associated with single sourced electronic components by diversifying their supply base out of the country. Definitive data on the Chinese electronic components market is notoriously hard to come by and most of the information in the short-term must be considered anecdotal at best, but the Q4’20 outcome is almost certain to be adversely affected by the Chinese government’s extension of the traditional national ‘Lunar New Year Holiday’ by three days last year in a bid to mitigate the spread of COVID-19. Many Chinese regions unofficially extended the holiday to a whole week so unsurprisingly most Chinese manufacturers took steps to maximise their output in the run up to the lengthy shutdown, which has resulted in a spike in demand and (hopefully) a short-term increase in component lead-times for the rest of the world.

Semiconductor Foundry Capacity Tightening & Components Lead Times Extending… The demand for capacity at leading component foundries, packaging, and test equipment suppliers - all primarily Asia-Pac based - ramped up steadily last year, driven primarily by concerns over the US China trade war and its impact on large Chinese manufacturers of 5G infrastructure and handsets. The roll-out of 5G is probably twelve-to-eighteen-months behind schedule but when it does arrive, probably in 2H’21, the uptick in demand for electronic components is expected to be huge and therefore potentially destabilising, as the output at electronic components manufacturers will surely be insufficient to meet global demand. In a worst-case scenario manufacturer lead-time might rapidly extend to well over twenty weeks, which will make the extended manufacturer lead- times that we’re currently experiencing appear marginal. Component manufacturers have already started to notify the authorised distributors (ecsn members) that represent them in the UK and Ireland to expect a significant lengthening of their manufacturing lead- times. An extension in average manufacturer lead-times beyond twelve weeks suggests a tightening of availability due to increased demand, limitations on capacity or a combination of both, but quoted lead-times beyond twenty-six weeks are a strong indicator of looming supply problems that could significantly impact customers. Predictions are that average lead-times for passive and semiconductor components will extend from fourteen to twenty weeks during 1H’21 but on the plus side, interconnect and electro-mechanical products seem likely to remain stable at around eight weeks. If demand for electronic components in Asia-Pac slows substantially in Q1’21 manufacturer lead-times for UK and Ireland customers might re-stabilise close to Q3 ’20 values, but there’s little consensus about this among ecsn members and industry commentators, so only time will tell. Even modest growth in the first half of this year could see the global

electronic components market heading towards a major supply problem in the second half that could push lead times for most “proprietary” semiconductor products out to twenty weeks, a situation that will probably be mirrored by “merchant market commodity” products and almost certainly by the oft overlooked “C” class inventory items, without which production output simply stops. All organisations in the UK would be well advised to closely monitor all manufacturer lead-times in 2021 as


they may start to extend very quickly. Purchasing and Logistics professionals should ensure that they have sufficient in-house inventory of essential electronic components and that their organisation’s material pipeline has sufficient order cover to meet forecasted business requirements. It’s preferable and much easier to reschedule back deliveries on orders than it is to find new suppliers of critical devices when lead- times start to extend. In the short term at least, extended lead-times should not prove to be a problem for customers in the UK and Ireland because of the increased inventory that ecsn authorised distributor members have maintained as a “buffer” against potential Brexit issues. In the middle of January 2021 their inventory holding equated to approximately ten to twelve weeks average UK customer demand.

Pandemic Issues… I’m pleased to report that ecsn members continue to take very pragmatic and sensible steps to maintain their customer-service levels while ensuring the wellbeing of their workforce and their families during the current emergency. Companies are insisting that employees who can work from home do so and on a strict rotational basis, are limiting access to the workplace/office for those that cannot. All staff members are adhering strictly to the latest medical guidance on social distancing and are undergoing cross-training to enable them to cover the responsibilities of colleagues who nevertheless become unavailable for work. A more contagious COVID-19 variant may call for increased separation distances and boosted ventilation systems in the workplace that minimise the risk posed by wide-spread airborne infection that could cripple the business operation. The rollout of the various inoculations is of course to be welcomed, but I fear that it will take much longer to immunise the entire UK population than is currently being suggested and in any case, the future health of our populace is also dependent on other countries vaccinating their population in a similar timeframe. Further “lock-downs” - be it in specific areas, UK wide or in other countries – are all but inevitable and electronic component supply network members and administrations may have to impose additional and even more draconian measures in terms of workplace security and freedom to travel.

Concluding thoughts…

The COVID-19 pandemic, supply and demand imbalances, remaining and emerging import/export uncertainties and “unknown unknowns” are just some of the factors that we’ll all have to contend with in 2021. Once again, I urge all organisations to engage effectively with their supply network partners. Sharing business intelligence is a simple but effective way to boost performance, both in your partner organisations and in your own… Stay Safe…

For information

Adam Fletcher is Chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to arrive at and share best industry practice.

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