Front End | Electronic Components Supply Network Headwinds threaten to blow us off course
Given the storms that the global electronic components markets have had to contend with in the last eighteen months or so we could be forgiven for hoping for cooling breezes this summer. Instead, we’re presented with new and unforeseen headwinds, including a period of further political instability and industrial disruption here in the UK. In this article Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn), shares his insight into what these headwinds could be blowing our way, but by way of light relief (and boy don’t we need it?) also revisits industry thinking a decade or so ago in the light of what materialised...
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n my contribution to CIE last month, I suggested that the availability of semiconductors and associated electronic components was getting easier as the actual supply situation begins to synchronise with real customer demand. Generally speaking, the latest market data confirms this view, but the underlying situation remains unclear. Many OEMs would like to reduce their in-house inventory holding, which has grown significantly over the last twenty-four months but they’re fearful of doing so because of uncertainty about manufacturer lead-times and the global economic outlook due to current geopolitical tensions.
Impact of sanctions
The Russian invasion of Ukraine and the associated sanctions applied by many countries upon the aggressor are impacting everyone. In a move designed to apply pressure on western European economies Russia is now severely restricting its supply of gas into Europe, particularly into Germany and it’s likely that some form of energy rationing will be imposed on German industrial and domestic consumers in Q3 and Q4’22. The spectre of German industries being reduced to a three-or- four day working week is spooking the currency markets and there’s a very real risk that the country could slide into a full-blown recession if sufficient supplies of gas cannot be secured. No surprise then
14 July/August 2022
Impact on electronic components markets
The majority of raw materials, manufacturing processes and finished goods used in the electronic components markets are priced in U.S. dollars. The exchange rate variable is beyond the control of organisations in the electronic components market and changes in the exchange rate will inevitably lead to an increase in pricing of electronic components in the UK / Europe and will drive inflation up even further. On the plus side, when selling prices of electronic components and systems in domestic markets increase it has the effect of reducing the price of the finished goods
Components in Electronics
that the Euro exchange rate against the US dollar has declined by 15 per cent, and now stands at its lowest level for twenty years. The political turmoil in the UK together with our strong economic links to Europe has pushed £Sterling back to £1 = $1.19, a decline of a further 16 per cent against the US currency in the last six months or so. It’s unlikely that central banks in the UK and Europe will want to live with the reduced exchange rate, so they’ll increase their interest rates (in line with the actions of the US Treasury) and hope that this will trigger some form of recovery or stabilisation but in the longer term the Russian threat to further restrict gas and oil supply is the stuff of economic nightmares.
we export, particularly of those destined for the US, and should therefore boost export orders on UK and European based manufacturers.
10 years ago
When canvased in 2012 organisations that comprised the membership of the International Distribution of Electronics Association (IDEA) believed that the most important trends for manufacturers of electronic components and authorised distributors that represent them were the: ● establishment of appropriate presences in online social networks
● increased use of the Internet as a knowledge platform
● increased focus on emerging energy efficiency market segments: lighting, power management, embedded solutions, design tools and building management
● provision of the technical and commercial training necessary to enable employees to participate in technically challenging vertical markets
● careful attention to market convergence (e.g., e-Mobility)
In common with other industry insiders
IDEA members saw the 2012 Megatrends as the increased globalisation of industry and the benefits to society promised by Industry 4.0 and the introduction of Web2.0. Our government believed that advanced economies like the UK would continue to move up the “value chain” and
become more involved in the innovation, design and support of new products. They considered manufacturing as a low skill activity that could be off-shored to lower factor cost economies and saw an increased role for the ‘value-added’ services sector. Indeed, many international organisations gamed the system, accepting huge financial incentives to relocate their manufacturing activities to the other side of the world. Globalisation did continue, if you’re happy to define the term as the continuing march of production out of Europe and North America primarily to China, a strategy that is now accepted as being deeply flawed. Today we’re experiencing a dramatic reversal of this trend and now believe that salvation lies in geographically dispersed manufacturing operations, where securing security of supply is seen as more important than securing the lowest price possible. Despite concerns about privacy protection and copyrights in 2012 and the effect it could have on social behaviour, the adoption of social networking (Web2.0) was forecast to increase dramatically, which it did. Web2.0 gave all consumers a dramatically improved opportunity to compare and evaluate brands, products and prices – if not always the underlying quality and service. As a result, consumer and industry behaviour changed dramatically and continues to develop in terms of individualisation, socialisation and engagement. It’s difficult
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