Front End | Electronic Components Supply Network Dancing between the raindrops


The supply and demand cycle in the electronic components markets is continuing to ‘normalise’ but electronic components manufacturers across the industry and the manufacturer authorised distributors that serve them, are “Dancing Between the Raindrops” and are being selective with their acknowledgement of the changes occurring, and with the reporting of their financial results. In this article Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn) examines some of the changes currently occurring, paraphrasing the conclusion of the Michael Nesmith song, “as [we] tumble headlong into the storm…”


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rganisations across the electronic components supply network are undoubtedly being selective with their acknowledgement of industry changes and with their financial reporting, but I don’t think they are being disingenuous. Change is undoubtedly occurring, but the effects are being felt at different points at different times. Merchant market commodity memory semiconductors for instance, are currently seeing the sharpest price decline due to the global slowdown in the sales of mobile phone handsets, PCs, and the wider computing market. Automotive markets remain in recovery mode and continue to struggle to obtain a number of the key components


needed to ramp up their production to full volume. In contrast, the high-performance computing and broader industrial market, which represents a wide cross-section of the demand in Europe and North America, currently continues to show strong growth but I fear, going forward, will also be impacted by changing macro-economic conditions.


Manufacturing organisations Whilst the overall electronic component supply situation is experiencing a welcome upswing, all OEMs in the electronics sector, and in many other industries regardless of where they operate in the global market, are still having to contend with significant shortages of many


of the chemicals, services, components, labour and logistics etc., essential to their operations. The availability ‘mix’ changes almost daily which combined with heightened political tension and deteriorating macro-economic conditions is inevitably adding up to heightened commercial risks that business needs to mitigate, at least in areas where they have a measure of direct control such as the selection of suppliers and service partners, their order backlogs and their inventory holding strategies. I’m confident that the majority of technology OEMs have made very rational choices, staying loyal to their existing supplier base, increasing their order cover in-line with current supplier lead-times, occasionally using new third


parties, and allowing their entire inventory pipeline to artificially inflate in an effort to fulfil their manufacturing requirements and thereby customer orders.


Global political tensions rising whilst macro-economic conditions deteriorate


The International Monetary Fund (IMF) forecasts that the level of global GDP growth will peak at 3.2 per cent in 2022 and drop to 2.7 per cent in 2023, its lowest point since 2001. It also predicts that global inflation will peak at 8.8 per cent before declining to 6.5 per cent next year and to 4.1 per cent in 2024. The primary measure available to world banks to combat inflation is to directly increase (or otherwise influence the raising of) the rates of interest paid on both deposits and borrowings, thereby restricting money supply and curtailing demand. This somewhat crude method of inflation control can be very effective but can also have a range of unwelcome consequences, not least a negative impact on currency exchange rates between countries and the risk of economic recession or ‘stagflation,’ defined as the inability to generate growth within an economy. An anticipated consequence of Russia’s invasion of Ukraine was that the supply of natural gas to Europe would be restricted, thereby driving up the cost of all energy to consumers and manufacturers alike and leading to significant inflation in the price of all goods and services in Europe. The UK and much of the Eurozone is likely to be entering a long period of mild (low single digit) recession in 2023 and 2024 and may need some further fiscal stimulus to recover. Global political tensions such as the Russian / Ukrainian conflict have to date only indirectly impacted the global electronic components supply network – although in


12 November 2022 Components in Electronics www.cieonline.co.uk


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