Front End I Electronic Components Supply Network
Ongoing shortages will impact electronic components markets
Although audited figures for the final quarter of the year have yet to be released its clear that 2018 has been a year of continuing growth for global electronic components markets, but pundits’ optimism for the year in prospect is being tempered slightly in the US and Europe by the increased risk of shortages of some ‘merchant market’ commodity passive components, particularly legacy, large-case size MLCC, chip resistors. In this article ecsn chairman Adam Fletcher reviews the latest industry data and wonders why this problem is not being properly addressed by manufacturers of these components or in most cases, by their customers
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International electronic components markets
n all likelihood global electronic components markets will end the year showing strong positive growth. The personal computer market is rising as a replacement cycle gets underway, but otherwise consumer demand has been lacklustre in 2018. The industrial market remains strong and the server market is being buoyed by the increase in demand for cloud and edge network services. International statistical data for Q3’18 is not yet available but preliminary data suggests that sales in electronic components markets (excluding commodity memory) continues to be strong with estimated growth of 12 per cent in the US, five per cent in Japan, 12 per cent in China and seven per cent in Asia-Pac. Growth in the US was particularly strong in Q3’18 as authorised distributors, OEMs and EMS providers increased their electronic components inventory in advance of possible increases in import duty.
UK electronic components market The UK electronic components market is currently experiencing sustained ‘quarter- on-same-quarter-the-previous-year’ growth. In fact, the last ten quarters have seen the longest period of sustained growth since 2000 (see the graphic “ecsn / afdec – UK DTAM By Quarter for 2012 to 2018”). ecsn members forecast that the UK &
Ireland market for electronic components would grow in the range 7.8 per cent to 12 per cent in the period Q1 to Q3’18
when compared to the same nine months 2017. In the event they were able to report actual growth of 9.6 per cent for the first three quarters of the year, almost exactly matching the forecast midpoint of 9.7 per cent growth. Their forecast also predicted that growth would slow in the range 2.5 per cent to six per cent in the final quarter of the year, which is in-line with historical performance patterns (the green and orange bars in the graphic indicate the forecast range). Taken all together, ecsn members are confident that the UK / Ireland electronic components market will finish 2018 showing 8.5 per cent year-on- year growth, a great result!
European electronic components markets
Graphic T1, IDEA Total Components shows the shape of European market growth by quarter and reveals that overall the European electronic components market grew by seven per cent in 2018. The historical trend is for stronger growth in the first half of the year followed by a slowing second half but growth in 2018 remained strong into Q3. Individual country markets reported the following growth in the first three quarters of the year compared to the same nine months 2017: Austria 14 per cent, Italy 12 per cent, UK 10 per cent, France five per cent, Germany five per cent, Switzerland one per cent. The Nordic region however reported a (one per cent) decline. All European markets however are forecast to decline in the final quarter of 2019.
Declining lead-times?
The weaker global consumer demand is likely to result in manufacturer lead-times declining this quarter, in fact the quoted lead-time on many components is likely to decline by a few weeks but this is all relative from a customer’s perspective. Whilst as a reduction from 20 weeks to 16 weeks is to be welcomed it is still a long way from the 10 week lead-times being quoted at the beginning of the year and the six weeks being quoted back in 2016. It will have absolutely no impact whatsoever on the manufacturer quoted lead-times for legacy large case size MLCC, chip capacitors or other passive products that are already on lead-times beyond 26 weeks i.e. those effectively ‘on allocation’.
Market failure The current shortages, extended lead-times and allocation of legacy large case size MLCC, some chip resistors and other ‘merchant market commodity passive components’ are the result of a market failure. I’m certain that the manufacturers of these ‘merchant market commodity passive components’ believe that they have taken the correct course of action for their shareholders by only producing the latest, high-volume, smallest case size, high performance proprietary or near proprietary products demanded by their largest customers. Whilst these manufacturers may be able to divert some very limited manufacturing capacity back to produce legacy products, there is little evidence of this happening or financial justification for doing so because the profitability is low and it takes resources away from their core activity.
Customer responsibility and investment This is a customer responsibility too, few have followed the market or trends and believed the legacy components will always be available when they want them at competitive prices. They were content to purchase their organisations needs in this ‘merchant market’ at the lowest price they could negotiate with little or no
10 November 2018 Components in Electronics
commitment to the manufacturer or suppliers who have been largely neglected. The largest customers invest significant efforts in developing their supply networks to maximise the value of their spend but also to ensure timely supply of products to agreed quality standards. A few very large customers are now making multi-million dollar direct financial investments in manufacturing capacity at their passive component manufacturing partners to secure an agreed share of the output for their exclusive use. What this really demonstrates is that they believe that there is a looming potential capacity shortage within the passive components markets and they are trying to reduce their exposure to this risk.
Unpalatable as it may be the best solution for SMEs and mid-sized organisations could be to review their existing products within their planned lifecycle and where practical, redesign them using the latest generation of smaller case size MLCC, chip resistors or other passive technologies with better availability. Discussions with their supply network partners’ application engineering team can help identify the optimum solution. The large engineering effort and expense this engenders is a lot lower than the lost revenue of a line stop for components costing a few cents that simply are not available.
Outlook for electronic components markets in 2019 and beyond For the next few years the global electronic markets are poised for increased growth. In fact this is likely to be an accelerating trend, the trajectory is now firmly set as ‘up and to the right’ but that’s not say that there will not be the odd quarter where expectations are missed. I’m convinced that collaboration can be a major contributor to longer-term synergistic gains and I urge all in the electronic components supply network to actively engage with their partners both up and down their supply network.
www.ecsn-uk.org www.cieonline.co.uk
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