Front End I Electronic Components Supply Network
Gazing into our crystal balls for forecast guidance
for the entire year. This came as something of a surprise because the entire industry was anticipating stronger growth. The consensus of leading forecasters suggesed that UK GDP would grow by a mere 1.3 per cent in 2019, whilst ecsn members forecast sales revenues for electronic components markets growing by 5.5 per cent in the same period. However the outcome year to date for the UK electronic components markets is a decline of (1.5%) and its looking likely that the outcome for the full year will only be “flat to 1 per cent growth”. So our members forecast was incorrect for the first time in many years. Internationally the availability of
Adam Fletcher M
uch management time is invested in the final quarter of each year as senior company executives try to analyse their organisation’s position in the markets in which they operate and forecast what is likely to happen to sales revenue growth, profitability, employment and new opportunities over the next twelve months. Accurate forecasting is always a challenge but at times of great fluctuation in macro and micro economic factors aligned to geopolitical tensions it really does become an uphill struggle. In this article, Adam Fletcher, Chairman of the Electronic Components Supply Network (ecsn) reviews some of the wider market intelligence available to executives and suggests how this information contributes to best-guess forecasting within electronic components markets. Visibility within electronic component markets has been significantly restricted over much of the last decade, primarily due to the inability of customers in the electronic systems markets to accurately forecast their demand due to an almost total lack of foresight into what's likely to be happening in their customers' market. Sadly, there is no sign that this situation will change in 2020 and if anything, things seem set to become even more difficult.
Growth stalls
After a five-year period of sustained sales revenue growth, global electronic component markets unexpectedly stalled in 2019 and look likely to show only single digit growth
10 November 2019
electronic components continues to remain good with average manufacturer lead-times hovering around six to eight weeks, albeit at the lower end of industry norms. There are still some outliers - particularly some legacy MLCC parts - that remain on 20 weeks+ lead- times and availability of these parts is unlikely to improve. Manufacturer Authorised Distributors continue to hold significant inventory, that is well profiled to meet the anticipated needs of their customers. In the UK additional buffer stock is available to overcome any delivery issues that may result from the Brexit process. Growth data from the Chinese markets is at best unreliable but the reported slowdown in their market is impacting the export from the rest of the world of capital equipment, cars, machine tools, robotics etc., all of which have a significant electronics content. This situation has not been helped by the trade war between the USA and China and is likely to be further impacted by a trade war between Japan and South Korea. And in Europe we have Brexit, but currently this debacle has only had a marginal effect on electronic components markets.
GDP and industry drivers Some analysts have suggested that growth in a more mature global electronic components market is now merely tracking global GDP. Although evidence is available that broadly supports this view over the current decade, it can be disrupted by factors such as pricing swings in the commodity memory market or by the introduction of new technology that drives stronger growth. This is most obvious in semiconductor markets, where innovation is critical to high growth in new product sectors. Initially these drivers where mainframe computers, then PCs, then telecoms infrastructure and then over the last five years, highly integrated consumer products, principally smart mobile phones.
Components in Electronics
However, there is now significant convergence between automotive electronic systems, 5G handsets and infrastructure, networked servers and IOT, all of which seem set to collectively become the principal market driver for the next few years. It’s important to note that these very
high growth rate industry drivers often mask a much more stable if slower- growing base of electronic components that find their way into products in the military, avionics, automotive, industrial, medical and consumer products. These market sectors are much more closely linked to the local country manufacturing capacity and therefore to European, North American and Japanese GDP.
Ongoing consolidation Consolidation in the semiconductor market continued in 2019 as manufacturers strove to increase their shareholder returns. The need to acquire particular technologies triggered numerous small deals but these were almost totally eclipsed by, for instance; Apple’s $1Bn acquisition of Intel’s Cellular business and NXP’s acquisition of Marvell’s Wi-Fi connectivity business for $1.7Bn, a deal that enabled Marvell to subsequently acquire Global Foundries’ ASIC operation for $650M and Aquantia for $475M. This consolidation activity looks likely to continue into 2020 with even more ambitious purchases planned, typified by Infineon’s announcement that it is prepared to spend $10Bn to acquire Cypress Semiconductor.
The huge investments in the internet as a sales portal has prompted changes to the way some manufacturers go to market. Texas Instruments, for example, believes that it can adequately serve a greater proportion of their customers directly and as a result has cancelled its channel partner agreements with three of the largest international distributors. Fortunately, Authorised Distributors are used to working through ongoing challenges such as these and are well versed in minimising the potential disruption to their customers.
To 2020 and beyond The ongoing trade wars and increasing threat of geopolitical tensions in the Middle East continue to impact the global economy. There is little we can do to influence these factors but we do need to recognise that any escalation could have significant effects. The rollout of 5G infrastructure has been put back by at least 12 months, but that will allow a breathing space to seek a resolution of some of the interoperability standards and might enable research into the effects that 5G
handsets - which operate at higher RF frequencies - may have on public health. The drive to greater factory automation and the interconnection between things, the system and people will continue in 2020. The automotive market is likely to continue to make progress as the penetration of electronic systems into conventional vehicles continues and the move to electronic powertrains increases. Over the last six months, the manufacturing sector of the UK economy has slowed faster than anticipated as a result of both the global GDP decline and Brexit delays and these changes have been reflected in most European electronic components markets. The implications of a Brexit outcome have so far been generally positive for UK manufacturers, mainly as a result of the sharp decline in exchange rate between £sterling and the €euro and US$, which has made British exports very competitive. Personally, I see 2020 as a year of consolidation and low growth for the electronic components markets in the UK and worldwide, but I’m optimistic that we’ll see much stronger growth in 2021, trade wars permitting. I look forward to sharing the consensus thoughts of ecsn members and their forecast with CIE readers in early January with the aim of providing helpful guidance for the wider industry in the coming year. In the meantime, please consider how your organisation can share its business intelligence effectively with its supply network to help all organisations with their forecasting process and accuracy. 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 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
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