Front End I Electronic Components Supply Network
What’s Happening in Electronic Components Markets…?
In their forecast launched in December 2018, members of the Electronic Components Supply Network (ecsn) predicted that growth in the UK / Ireland electronic components markets would slow in the first half of 2019 but would then experience something of a resurgence in the second half. The Q1’19 outcome is that growth was even slower than predicted, not helped by an escalating trade war between the US and China and the ongoing Brexit debacle. In this article, the association’s Chairman Adam Fletcher reviews what’s happened in the first quarter of this year and shares his thoughts on the likely outcome for the current year and beyond
I
n December last year, ecsn members predicted that the UK Distributor Total Available Market (DTAM) would continue
to grow in 2019. They forecasted growth in the range 3.4% to 8.5% for the year, which would mean that the market will have achieved an unprecedented fifteen quarters of sustained growth. The blue bars in the graph “ecsn / afdec – UK DTAM Growth 2013 to 2019”. show actual performance, whilst the green and orange bars indicate the forecast range. Growth in the range 5% to 11% was
predicted in Q1 2019 but a preliminary review of the statistical data returned by ecsn members suggests that only 3.5% growth was achieved compared to the same period 2018, a result just below the forecast range. This is confirmation (if confirmation was needed?) that trading conditions in the UK and Ireland electronic components markets were tougher in Q1 2019 than originally forecast. ecsn members were however correct in forecasting that their - and their customers’ - inventory levels in the UK would rise by approximately 4 to 6 weeks average demand in Q1 2019, as a buffer against any supply issues that the Brexit process might throw up. They expected that this buffer inventory would be consumed during Q2 2019, resulting in temporary
slowing before the market stabilised and returned to a pattern of stronger growth in the second half of the year. Now that the Brexit timetable has extended way beyond the planned end of March date, this inventory buffer will remain in place for longer, increasing costs for all parties, before eventually being consumed. This is likely to result in slower than forecast growth in the 2H 2019.
An Escalating Trade War In previously articles I have been careful to refer to the on-going actions between the US and China as a ‘trade dispute’ but recent developments indicate that this spat is now rapidly progressing in the direction of an all-out trade war. The initial US actions - under what is snappily referred to as “Section 301 Tariffs – Lists 1 and 2” - targeted imports of many electronic components, together with industrial goods and agricultural products. The increases in import duty were planned to be phased in, starting at a 10% tariff in September 2018 increasing to a 25% tariff in January this year, but the January implementation date was later deferred to March 2019. Confusingly, the recently announced “List 3” does not extend the list of products affected by increased tariffs, but rather is just confirmation of the
25% uplift in tariffs applied to the goods set out in the first two lists. However, on May 14th the US authorities proposed “List 4”: In contrast to List 3 the new document significantly widens the range of goods affected by a 25% tariff to include almost all consumer goods, speciality chemicals and even more agricultural products. The Chinese government was swift to impose generally similar “tit-for- tat” tariffs on goods it imports from the US and now both countries are threatening to apply tariffs to almost everything they trade between them. For the record the US imports roughly $540bn worth of goods from China, while some $120bn of goods make the journey each year in the other direction. In what has been interpreted as a
further escalation of this dispute on May 15th President Trump invoked the International Emergency Economic Powers Act to draft an Executive Order on “Securing the Information and Communications Technology and Services Supply Chain”. This Order effectively bans US organisations from using products or services from organisations that appear on a ‘table of denials’ list. The full ‘table of denials’ list has not yet been published but is thought to include over 70 organisations or countries and it is widely believed and reported that this includes Huawei and in particular, technology related to core 5G infrastructure. It further bans the acquisition of US based organisations, technologies or services by certain foreign adversaries. There is currently a debate about the ability of US based technology organisations (components manufacturers, systems integrators and software providers) to supply their products to organisations on the ‘table of denials’ lists without explicit government export waivers to do so. There are indications that the Chinese government is now bringing forward legislation to enhance the legal protection of third-party IP rights, which when enacted may go some way to helping to resolving one of the key fundamental issues of this rapidly escalating trade war, but we shall have to wait and see.
Into the future…… In the short term the global electronic components industry is slowing as customers for mobile phones – the primary market driver - hold off purchasing new models until faster 5G products and services become available. Customer concerns about the lack of an international security standard are slowing mass deployment in factory automation (IOT) markets while automotive sales have been slowing since mid 2018 and are not forecast to recover substantially in Europe until the second half of the current year. The electronic components market has accepted higher prices for many ‘commodity, merchant market’ passive products that were on greatly extended manufacturer lead-times, which has
10 June 2019 Components in Electronics
resulted in some additional manufacturing capacity being put in place. The slowdown in the mobile phone handset market has also released additional capacity for legacy passive product production but this will be a temporary respite and I expect these lead-times to increase again as demand ramps-up. The current trade war is likely to reduce global GDP growth and delay the planned global roll out of 5G services. In the UK the delays and uncertainty about Brexit are likely to slow growth in the UK electronic components market in the 2H 2019.
The Longer Term The wider forecast for the UK, European and Global electronic components markets remains “up and to the right” driven by the convergence of a multitude of new applications for technology, particularly in 5G handsets and infrastructure build out, the transition towards electric and autonomous vehicles and the vast array of IOT deployments. The industry sentiment is that there will be a return to stronger growth in 2H’19 and for continued progress into 2020 and beyond, but this growth will be predicated both on a continued upswing in global GDP and a speedy resolution of the current trade war between the US and China. Here in the UK the outlook for the economy and all those operating within it will continue to be dependent on a successful conclusion of the BREXIT deliberations. I encourage all organisations to
communicate effectively both up and down their electronic components supply network. Reacting diligently and efficiently to signals sent and received will help all achieve their goals, particularly in the (hopefully) short period of uncertainty that we all currently face. 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 chair of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to share best industry practice. Further information about The Electronic
Components Supply Network and afdec may be found at the following website:
www.ecsn-uk.org with regular industry updates available to all on the Breaking News pages.
ecsn-uk.org
www.cieonline.co.uk
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
