Front End I Electronic Components Supply Network Electronic Components Supply Network Q1’18 update


Sales revenues in electronic components markets continue to grow, manufacturer lead-times for electronic components continue to extend and the European Commissioner for Trade starts an action against China for unfair IP practices. Interesting times or what? In this article ecsn chairman Adam Fletcher shares the latest intelligence on these key topics and reflects on their likely implications for the UK electronic components market


Adam Fletcher I


t’s a sad fact that manufacturer quoted lead-times continues to extend across almost all electronic components both


here in the UK and internationally. Some commodity passive components have been particularly badly affected. On the plus side however, the supply network has proved remarkably robust and has been able to meet demand – just! There may be some relief for us all in 2H’18. I’m forecasting a reduction in growth rates across Europe and North America and only modest growth rates in Asia, which is likely to trigger a short-term reduction in the lead- times quoted for some components. But


before we get too complacent I believe stronger growth will see a spike in lead- times in the first half of next year, probably just as the bulk of the expected new capacity comes on-line. Because of increasing demand, extending lead-times and increasing pricing, several passive components manufacturers have embarked on cautious investment in additional manufacturing capacity. Their caution is understandable. No organisation in the electronic components markets invests to sell at a loss but in recent times manufacturers of commodity passive components have bowed to the market’s demand for established commodity products only to find their parts selling at a loss in the market. At the same time accurate demand forecasting has become something of a lottery. Some customers are double ordering their commodity passive component requirements from multiple suppliers, cancelling outstanding orders as soon as one supplier has made the delivery. This practice really muddies the supply waters and manufacturers and their authorised distributors have systems in place to detect it, at the same time striving diligently to ensure that their customers’ real demands are fulfilled.


UK growth continues… The UK electronic components market is currently experiencing sustained ‘quarter- on-same-quarter-the-previous-year’ growth. In fact, the last eight quarters have seen the longest period of sustained growth in the UK since 2000 (see Figure 1).


ecsn members forecast that the UK & Ireland market for electronic components


would grow in the range 10 per cent- to-12 per cent in Q1’18 compared to the same period in the previous year (the green and orange bars in Figure 1 indicate the forecast range). In the event UK and Ireland electronic components markets made a strong start to the year but the nine per cent growth over the same period last year was lower than ecsn’s guidance, highlighting slowing growth in the UK manufacturing sector.


As for Q2’18 ecsn members


forecast growth in the range eight per cent-to-12 per cent, which given current market conditions looks achievable. Their forecast for the entire year is for growth in the range 6.5 per cent-to-10.5 per cent compared to 2017 but given the deteriorating economic outlook in the UK in the run up to Brexit and constraints on lead-times the actual outcome is once again likely to be towards the lower range of this guidance.


Figure 2


European growth The European electronic components DTAM (distributor total available market) continued to grow in Q1 2018 with members of the International Distributors of Electronics Association (IDEA) reporting Billings growth of seven per cent when compared to the same calendar quarter 2017. These figures are the latest in a period of continuous growth spanning 19 calendar quarters and an ongoing period of double digit growth going back to Q4 2015. IDEA members are upbeat about the immediate future and believe that the European electronic components market will continue to grow throughout 2018/19 but at a slightly slower pace (see Figure 2).


EU China IP complaint to WTO On 1st June ‘18 the European Union launched a complaint at the World Trade Organisation (WTO) against Chinese Government legislation and regional policies that unfairly restrict foreign organisations’ access to their market and hamper their business operations in China. This follows very similar findings published by the United States Trade Representative, which in March ’18 resulted in the imposition of a 25 per cent tariff on Chinese steel and aluminium products and


many electronic components, a move that has been temporarily delayed by President Trump whilst negotiations continue. The EU complaint focuses on many aspects of national and regional legislation used to grant technology ownership and/or IP usage rights to Chinese organisation’s and joint venture companies formed to gain compliance and market access. The recent decision of SoftBank Group – owner of UK based microprocessor IP developer ARM – to sell a 51 per cent stake in ARM Baby China (its Chinese based joint venture, which has rights to ARM’s entire IP portfolio) to Chinese investors has been the catalyst to the EU action. It’s a pity the UK government didn’t take a more proactive role during SoftBank’s acquisition of ARM in 2016.


If the consultations at the World Trade Organisation fails to reach a satisfactory conclusion in 60 days the EU can demand that the body establishes a panel to investigate the situation and arrive at an appropriate judgement. Either way, the EU’s action can only add to the US pressure on China to significantly rethink how it acquires IP and the way it trades with external partners, or risk severe sanctions which will inevitably hamper the growth of Chinese organisations by adversely impacting their access to key enabling technology and restricting their exports


Conclusions


After almost 16 years the electronic components pendulum has swung from a Buyer’s market and seems to have settled at the Seller’s end of the arc. Despite all the political uncertainty in UK and internationally the demand for electronic components is currently driving sales revenue growth in the sector at a much faster rate than global GDP and the trend trajectory for the next few years appears to be generally up and to the right. But all in the electronic components supply network would be wise to realise that movements in the market are always dynamic and fierce competition will inevitably erode any short-term gains. Timescales are the only unknown. In the meantime, I urge everyone in the


electronic components supply network to actively engage with their partners both up and down the network, I’m convinced that collaboration can be a major contributor to longer-term synergistic gains for all parties.


Figure 1 10 June 2018 Components in Electronics www.ecsn-uk.org www.cieonline.co.uk


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