Front End I Electronic Components Supply Network Electronic components market update Q1 ‘21
Ensuring the availability of electronic components is essential for the survival of technology OEMs and their customers. It also ensures the continuation of employment opportunities for employees and helps maintain the contribution our industry makes to the national economy. Members of the Electronic Components Supply Network (ecsn) have done sterling work to provide outstanding customer support during the COVID-19 pandemic and are ramping up their supply security measures now that the emergency is easing and global economic activity is increasing. In this article Adam Fletcher, Chairman of the UK’s ecsn and the International Distributors of Electronic Components Association (IDEA) reviews the unusual performance statistics the European electronic components market returned in Q1’21, which he believes is primarily a result of escalating lead-times and fears about looming components shortages...
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urrently turmoil rules across the Global electronic components supply network and unusually, I’m sharing proprietary graphics and data this month along with
some explanatory comments to help CIE readers make sense of what’s going on.
European electronic components markets Q1 21
IDEA graphic T3 Q3 '21
compared to the preceding quarter (which was almost certainly due to the Brexit effect, as customers increased their inventory to avoid any possible delivery delays), but has grown by a further 6.1% compared to the same period last year.
IDEA graphic T2 Q1
Let’s make a start by taking a look at the wider European outcome summarised in the IDEA graphic T2 Q1. It shows the total components “Bookings” (new orders entered) trend reported by manufacturer authorised distributors across Europe in Q1’21. The Bookings fi gure is generally a good indicator of what’s happening in the market and in a ‘normal’ market is generally a few percentage points higher (indicating future growth) or conversely, a few points lower indicating a decline. European authorised distributors reported an average increase of almost 60% in Bookings in Q1’21 compared to Q4’20, and an average of 52% when compared to the same quarter last year. Forgive the vernacular, but his is “just nuts” and simply doesn’t refl ect reality. The IDEA graphic T3 Q1’21 shows the “Billings” (goods shipped and invoiced to customers) by authorised distributors across Europe in Q1’21. The average European Billings trend reveals growth of 21.3% in Q1’21 when compared to Q4 last year but a decline of (1%) when compared to Q1’20. In the UK the Billings growth was 12.6%
10 May 2021
The Book to Bill (B2B) ratio is a very important metric for our industry. IDEA graphic T1 shows the B2B ratio trend line for the last three years, revealing that until recently it’s hovered around 1:1 (i.e. close to parity), indicating only modest single digit growth. In Q4’20 however the B2B ratio started to increase rapidly and in Q1’21 it jumped to 1.61:1. This is a startling number and the highest I can remember.
electronic components industry associations had been warning customers and the market in general that overall customer order cover was too low. They repeatedly asked their customers to review their order cover but in the grip of the COVID-19 pandemic few were willing to do so. In July ’20 IDEA members started to warn customers that semiconductor (and to a lesser extent passive components) manufacturer lead-times were beginning to rise sharply and by September, started to highlight the lead-time issue to the wider industry.
IDEA graphic T1 B2B
Why is this happening? Customer demand continues to outstrip supply throughout the global electronic components supply network, an imbalance that has been exacerbated by generally poor industry forecasting, a much stronger than anticipated economic recovery and multi-year underinvestment in components manufacturing capacity. Following several quarters of negative B2B, IDEA and all
Components in Electronics
In December ’20 the European electronics industry realised that the industry was entering into a real exponential extension of both semiconductor and passive components manufacturers lead-times. Customers duly updated their ERP systems with this new lead-time information and in the process triggered a step change in the essential safety stock-, and order-cover. The net result was a further extension of lead-times – - and so the cycle repeats! The reporting of line stops and shortages of electronic components in the media encouraged customers to try to load more and more orders, which only served to exacerbate the problem. The placing of orders at over 50% of the likely electronics industry growth rate is just going to end in tears for all... No surprise then that that many components manufacturers will now only accept new orders on NCNR (Non Cancellable, Non Returnable) terms. Customers are bound to be frustrated when they’re told that they cannot get the components that they require on time or without the imposition of swinging conditions.
Longer term
IDEA and ecsn members together with many respected industry analysts are forecasting that the current Supply & Demand supply imbalance is likely to continue until Q2’22, when equilibrium should start to return before swinging into overcapacity, when
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once again suppliers will be drowning in unwanted inventory. Forecasting what will happen to demand in the intervening months is anyone’s guess. My personal advice is that organisations should plan for supply to remain tight throughout 2022 and keep everything crossed that something closer to Demand & Supply equilibrium will return to the electronic components supply network at some point in 2023, but 2023 is a long way off!
The global electronic components supply network simply must improve their collaboration, and effectively communicate their real demand with all their partners up and down their supply networks. This improved communication activity costs virtually nothing and is a lot less expensive that the alternative, as I fear all organisations in the global electronic components supply network are about to fi nd out. Please ensure your organisation is doing “its bit” honestly and effectively to boost collaboration and ensure all partners in the electronic components supply network win....
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.
ecsn-uk.org
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