Front End I Electronic Components Supply Network
Trade Body Releases Full Year 2020 Forecast For UK Electronic Components Market
It feels like a very long time ago but in fact it was only a mere 32 weeks since the Electronic Components Supply Network (ecsn) released its members’ consolidated opinion on how the UK and Ireland electronic components market was going to perform in 2020. Two things were certain in December last year: The market was challenging and the outlook for the year in prospect was for more of the same, which was why for the fi rst time in a great many years the association decided to limit its Forecast to the fi rst six months of the year and merely provide its ‘best guidance’ for the second half. In this article ecsn Market Analyst, Aubrey Dunford and Chairman, Adam Fletcher provide their insight into the outcome year to date, their members forecast for 2020 and beyond...
1H’20
The main problem reported by ecsn members in December last year was the lack of forecast data coming from their OEM customers due to the almost total absence of visibility that their customers had of their future component requirements: “The global geo-political uncertainties that pertained at the time, not least the ongoing trade war between China and the US, had already reduced demand in Q4’19”, said Aubrey Dunford, ecsn Market Analyst. “OEMs were rushing to de-stock in the face of increasing component availability triggered by tumbling lead-times and their customers’ weakening order book”. Despite this the association took the bull by the horns and forecast that the UK & Ireland electronic components market would grow in the range (3%)-to-2% in 1H’20 compared to the same period the previous year, and show a probable mid-point of (1%) decline. In the event the outcome for the first half of 2020 was that the UK electronic components market declined by (10%) when compared to the same period 2019: “There is no doubt that this rapid decline in growth in 1H’20 can be attributed primarily to the global economic slowdown caused by the COVID-19 pandemic, something that couldn’t have been on the table during forecast discussions in 2019”, Dunford continued. “Everything changed in Q1’20: Customers who had been happily destocking in Q4’19 rushed to increase their in-house inventory and order cover as manufacturer lead-times for components started to rapidly increase and with it, the potential risk of product shortages due to the population lock-down and manufacturing industry closures imposed by the Chinese government. This drove the
10 July/August 2020
‘Book to Bill’ ratio positive in Q1’20, but as supply issues eased it then experienced a modest decline in Q2’20. Returns from ecsn members indicate that the low point in the existing cycle was reached during Q2’20”.
2H’20 and Full Year Forecast… Eight months on and ecsn is now able to revise the “best guidance” it shared with the market in its original Forecast document and has firmed-up its predictions for the second half of the year. The association now believes that the B2B ratio will remain positive in the near future and that the market decline will slow. ecsn members are now forecasting that the market will decline in the range (9%)-to-(3%) in 2H’20 when compared to the same period in the previous year, and a decline of (6%) will be revealed at the mid-point. Please refer to the graphic “DTAM by Quarter for 2012 – 2020”. The blue lines in the chart show the actual results and the brown and orange lines show the forecast range.
According to ecsn chairman Adam Fletcher the association has always strived to provide the electronic components markets, its customers and investors with a balanced and evidence-based forecasts: “Our Forecast for the second half of the year reflects the careful analysis of our members’ statistical data, reports from industry analysts and empirical data collected from a wide range of sources, careful analysis of which has led us to conclude that the UK & Ireland electronic components market will end 2020 showing a full year decline in the range (12%)-to-(6%) compared to 2019, and will reveal a mid-point decline of (9%), Fletcher said. “If we’re proved correct then
Components in Electronics
history may well record the performance of the UK electronic components market and the wider electronic industry in 2020 as ‘reasonably good’, given the dreadful economic environment in which we are all currently operating”.
And Beyond….
Fletcher remains confident that stronger underlying growth will return although the odd ‘bump’ along the way must be seen as inevitable: “Last year I predicted that any growth in our market would adopt a hockey- stick shaped improvement curve towards the end of 2020 and into 2021 but I now believe that the upturn has been pushed back by a further 18 to 24 months, due primarily to the US China Trade War delaying the inevitable 5G roll-out but also reflecting weakness in the automotive market - which was set to return to growth in 2020 but has now been delayed by 12 months. Further influencers include the impact of COVID-19 on the commercial avionics sector, which likely to continue well in to 2023 and slower than anticipated growth in IOT applications: That said, in the cloud computing and military markets growth remains strong, while PC / laptops, medical and industrial markets look set see continuing modest growth”.
Concluding Thoughts…
Looking even further ahead, Fletcher fears that stronger international economic growth, the impact of mega mergers and acquisitions alongside continued underinvestment in capacity for the manufacture complex electronic components will once again drive extended lead-times and shortages of some electronic components: “The pendulum of
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supply and demand continues to swing very erratically and will continue to cause a ‘stop-start’ effect on our industry”, Fletcher concluded. “Until the entire electronics industry starts to really collaborate effectively and share business intelligence throughout the network we will all be at risk from these extreme market oscillations. I’m certain that stability will return, but I will need a crystal ball to predict just when…!”
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 share best industry practice.
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