Front End I Electronic Components Supply Network Back to (A New) Normal…?

As Covid-19 regulations begin to be lifted and the global economy embarks on what promises to be a period of strong growth, organisations operating in the electronic components supply network are beginning to come to terms with a ‘new normal’ business environment and the rapid changes they’re going to have to manage, including the fluidity of the current supply situation, the impact of effective competition and the complications occasioned by further Chinese semiconductor self-sufficiency. In this article Adam Fletcher, Chairman, the Electronic Components Supply Network (ecsn) shares his thoughts on how the current situation might eventually pan-out with CIE readers.

Known Knowns…

The current ‘challenges’ in the global electronic components markets are well known and primarily relate to components availability, pricing and logistics. These are constantly moving targets, but the good news is that the global electronic components market is extremely competitive and it is this competitive pressure that drives change. Currently most management effort is being focused on getting components to where they are needed and the effective communication of shipment data to enable all in the supply network to plan effectively. The greatest difficulties concern international logistics of raw material, work in progress and finished goods, all areas in which components manufacturers, their suppliers and sub- contractors have little direct control and where they are almost totally reliant on third party organisations.

Interestingly, overall manufacturer lead-times have recently eased slightly and will probably have declined by 20 per cent across all components during Q2’21. However, a lead-time decline of six weeks - from 26 weeks to 20 weeks - probably doesn’t offer much comfort to an organisation a long way back in the queue, but it does at least indicate the direction of travel. The outcome for Q3’21 and into Q4’21 remains uncertain, with many components manufacturers striving to meet their customers’ current demand, a situation that is likely to be exacerbated when manufacturers of 5G infrastructure and handsets begin their roll-out. High Performance Computing is certain to drive an additional spike in demand, but much of this has already been ordered and built into the planning scenarios so the lead-times may have already peaked. The availability of most proprietary (single sourced) components will recover more quickly and stabilise earlier than commodity (multi-

10 July/August 2021

sourced) components because manufactures of these devices have to support and maintain their relationships with their customers or risk being designed out and replaced by a competitor.

The gradual lifting of Covid-19 legislation is being accelerated in the UK, with England, Scotland, Wales and Northern Ireland moving to end most restrictions on their citizens and corporations within a few weeks. Polls indicate that most people will welcome the removal of the legislative burden at least in the short term but how things pan out in the medium to long-term really isn’t known. There is a distinct possibility that defined areas, some possibly quite large such as entire UK nations, may have new restrictions imposed to protect public health should there be further viral outbreaks.

Known Unknowns...

Throughout the Covid-19 pandemic the global electronic components supply network, and the wider electronics industry has strived to continue their normal operations while complying with the legislation and guidance designed to protect their workforce and the wider community. In this they have been largely successful: In 2020 the consolidated UK sales revenue for electronic components declined only by (8 per cent), indicating that significant business activity was maintained. Wherever possible ecsn members deployed their staff to ‘work from home’ and successfully implemented changes in their process and procedures for staff who needed to be based ‘on-site’. The ‘work from home if possible’ directive from HM government will shortly be lifted and there will be a short period of adjustment for ecsn members as they sit down with their employees and negotiate how to proceed in the ‘new normal’ environment. You can be certain that ecsn members will again take pragmatic and positive steps to ensure the needs of their organisation, their staff, suppliers and

Components in Electronics

customers, continue to be fully met. The wider international response to a post Covid-19 business environment is very complex with each country and regions within them, having different legislation and public health rules. These rules are constantly changing, and this is unlikely to stop anytime soon so many European organisations and individuals can look forward to a further period of primary reliance on IT and video conferencing systems to engage with their supply network partners.

The US and China have implemented a much stronger move to return to the workplace and I predict that most US-based organisations will have well over 80 per cent of their staff operating in an almost ‘pre-Covid-19’ environment by the end of Q3’21. Many people in Europe will be shocked to learn this but it is really concern about their competitors and their economies that is driving the removal of the regulations. If your competitor is visiting customers and suppliers and attending industry events do really want to limit your staff to using video calls...? That said, technology does have an important future role to play when interfacing with customers and suppliers. It’s probably more efficient but it remains to be seen whether it’s more effective.

Unknown Unknowns...

The ongoing trade war between China and the US appears to have claimed another major Chinese technology casualty. Tsinghua Unigroup (TU), the parent company of many Chinese semiconductor companies and the flagship and cornerstone of the country’s “Made in China 2025” policy is now the subject of bankruptcy proceedings. The company has debts of almost $31Bn and has defaulted on repayments of bonds worth $3.6Bn, forcing the Hong Kong listed Huishang Bank to take proceedings in the Beijing Court.

I suspect the Chinese government will find a way of maintaining the liquidity of TU by some ‘innovative’ restructuring within its financial markets. It should however be a wake-up call to other governments considering new investment in semiconductor manufacturing. Fortunes can be made or lost so capital allocation is best left to the market to determine. There will be more “challenges” for the electronic components supply network. We just have to ensure our organisations have the capability to effectively deal with them. Recent events across the global electronic components supply network have proved that supply difficulties can be mitigated by effective engagement with partners both up and down the supply network. Suppliers and customers are managing to work through current and emerging challenges collaboratively. Please ensure your organisation is ‘playing its part’...

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.

“…Promoting Positive Collaboration Throughout the Electronic Components Supply Network to Benefit Members and the Economy…”

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