Front End | Electronic Components Supply Network
European electronic components market update
The latest consolidated data from members of the International Distribution of Electronics Association (IDEA) reveals that European electronic components markets are still showing strong growth, but according to the association’s chairman Adam Fletcher, there are signs of impending change as demand and supply begins to move back into balance. In this article Fletcher reviews the three primary metrics the association’s number crunchers use to arrive at the figures and provides his thoughts on how the rest of 2022 is likely to play out
A
ccurate, timely statistical market information is vital in business planning. For over thirty years the International Distribution of
Electronics Association (IDEA) has collated the statistical data returned by individual manufacturer authorised distributor associations throughout Europe. These returns are used to compile very detailed pan-European market reports that are subsequently used by member companies to both compare the performance of their organisation with current trends and assist them in determining their future business directions.
Primary metrics
There are three primary market analysis metrics used in the electronic components supply industry: ‘Bookings’ (net new orders entered), ‘Billings’ (sales revenue invoiced, less credits), and the ratio of the two known as the ‘Book to Bill’ (or B2B) ratio. The difference between ‘Booking’ and ‘Billing’ figures represents order ‘Backlogs’ (which are effectively future ‘Billings’). Ideally, ‘Bookings’ should always be a little greater than ‘Billings’, as illustrated in a B2B ratio of 1.05:1, which is indicative of modest growth in the market. A B2B of 1.2:1 (typ.) reflects unusually strong growth while a negative figure suggests a declining growth trend.
Total components booking, billing and book to bill – Q2 ‘2022
This graphic is a visual representation of twelve consecutive quarters of consolidated European ‘Bookings’ and ‘Billings’, together with the corresponding B2B ratios. A glance at the chart quickly indicates that something unusual is happening in our market, but I’m getting ahead of myself.
The B2B under the lens
In the period Q3’19 to Q2’20 the B2B ratio (the light blue line in the graphic) had on average been slightly negative as OEM customers strove to reduce their inventory and order cover. A major change occurred in June ’20 when “Bookings” started to increase significantly
faster than ‘Billings’ indicating unexpectedly strong market growth. I highlighted this change in my discussions with the wider electronics industry and suggested that OEMs stop de-stocking and consider increasing both their order cover and inventory holding by perhaps 10 per cent. My guidance met with a mixed response and by Q4’20 the B2B ratio had jumped to 1.22:1, but this very strong growth was dwarfed over the next six quarters by a B2B figure that at its peak reached an unprecedented 1.67:1! The ratio declined twice in H1’22 whilst remaining in strong growth territory, but the trend line suggests that we might now be entering a period of declining or even negative B2B.
‘Bookings’
Customers began seeing a steep increase in manufacturer lead-times early in Q3’20. It coincided with a huge increase in demand that peaked in Q4 with delivery delays of 26+ weeks, led by semiconductor and passive components. No surprise then that orders on suppliers (Bookings) went through the roof as the orange bars in the graphic show, but unfortunately much of the growth proved to be the result of customers’ ERP (enterprise resource planning) systems reacting to the extended lead-time data, automatically setting higher general inventory levels and increasing order cover on suppliers. This false or ‘phantom’ demand was compounded by procurement departments cynically placing orders for the same requirement on multiple suppliers with the intention of cancelling once any one of the suppliers received inventory and was able to deliver. Fortunately, sanity has returned and for the first time in eight quarters ‘Bookings declined slightly in Q2’22’ when compared to the previous quarter.
12 October 2022 Components in Electronics
www.cieonline.co.uk
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