Front End | Electronic Components Supply Network Back in the doldrums?


“In the doldrums” is a nautical term used to describe the Inter-Tropical Convergence Zone approximately five degrees either side of the equator where surface winds are often insufficiently strong to propel a sailing vessel. It’s also a fair way to describe the current state of the UK’s electronic components supply industry. In this article for CIE readers Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn) suggests that “the doldrums” is inevitable in the supply and demand cycle and perhaps not a bad place to be after the turbulence of the past few years as it provides our industry with a welcome period of reflection and recuperation but he warns, it won’t last long.


T


he UK electronic components market is currently transitioning away from “industry indigestion” as it repositions itself for a return to modest growth, but the direction of travel is not yet being defined by strong domestic demand in the primary industrial, medical and aerospace markets. Customers (largely system integrators) are holding off from placing orders and are instead concentrating on ‘consuming’ their inflated post-COVID in-house inventories, a situation that will likely persist into the final quarter of 2024. We should see a significant pick up in the first half of 2025, when OEMs and CEMs will need to replenish their inventories and add order cover in-line with the needs of their customers. It could be a very straightforward process if supply and demand are reasonably balanced, but in common with many other industry analysts I’m concerned that we may have to contend with either a glut or a shortage of components, neither of which will result in a positive outcome for anyone in the electronic components supply network.


Global electronic components markets


The primary demand driver in the global electronic components markets has been and is likely to continue to be advances in cellular mobile phone and related infrastructure technologies, but this sector is currently also in “the doldrums” as is the automotive sector, the second largest demand driver. Interestingly, the number three position is occupied by what until recently was referred to as “High


12 October 2024


Performance Computing” and is now known as the “Hyperscale Computing (HSC)”, comprising “Cloud, Datacentre and Edge Computing Enterprises” that are themselves currently transitioning from the high performance CPUs predominantly supplied by IBM, Intel, AMD and ARM towards “Graphics Processing Units” (GPUs) required to meet the “step-function” change in processing performance demanded by Artificial Intelligence (AI) services supported by large language models like the ubiquitous ChatGPT. Predominant suppliers of these devices include Nvidia and AMD but in-house SOC designs from a host of rapidly rising semiconductor start-ups are hot on their heels. Whilst the individual GPUs are expensive (rightly so given the massive investment required to design, manufacture and test them) it’s really the huge increase in the very high-performance memory required to support them that is driving current revenue growth in electronic component markets. Whilst traditional DRAM and Flash memory continues to hold a substantial market share the demand for Double Data Rate 5 Synchronous Dynamic Random Access Memory (DDR5) and High Bandwidth 3D Stacked Memory Dynamic Random Access Memory (HBM3E) is currently exponential due to their smaller form factor, larger capacity and much faster read/write speeds. The market demand for this new generation of commodity memories is outstripping the manufacturers’ ability to supply and whilst they struggle to add this “bleeding edge” capacity in an overheating market


Components in Electronics


they are not producing other products customers need. Pricing will almost certainly crash at some point but no one can forecast when this will happen!


Inherently unstable?


In common with many semiconductor industry analysts I’m concerned that whilst the headline sales revenue number is growing the corresponding volume of components shipped is falling, suggesting that the current growth cycle is inherently unstable. It’s not unusual for a semiconductor market recovery to be led or driven by commodity memory and sales of logic, analog and discrete products in previous cycles have followed the trajectory. Sadly, this trend has not been apparent in the current growth cycle and as I write demand for these products is very disappointing. Other leading components markets are also languishing in the “doldrums” due to poor visibility caused by a lack of accurate forecasting by OEM and CEM customers.


Outlook for the UK


The good news is that the addition of AI features into cellular mobile phones, and into consumer and business computing devices and infrastructure will almost certainly knock on to drive the commodity memory market and increase demand for a much wider range of semiconductor and electronic components. Whilst current availability of the wide and diverse range of electronic components required by UK customers is generally good some low- level sporadic shortages of components remain. These shortages are generally


resolved quickly, only to be replaced by other minor shortages. Sadly, these frustrations are the nature of a recovery in a geopolitically unstable and challenging economic environment. To add to the long list of supply challenges, our industry is currently bracing itself for the planned industrial action at US ports, which will inevitably trigger shipment delays as vessels and containers are constrained (in the doldrums?) and could well knock- on to impact a much wider geographic market.


Concluding thoughts The growth curve for electronic components supply network over the short-, mid- and long-term remains “up and to the right”, even if predicting the level of growth in the short-term is something of a challenge. ecsn members are actively collaborating to determine their collective thoughts on the outlook for the UK / Ireland electronic components market, a process that will culminate in the release in December of the association’s forecast for 2025. I anticipate a robust debate with a wide range of views and significant discussion and analysis, which as always, will be shared with readers of CIE. In the meantime, I applaud the efforts made by many customers’ procurement professionals to actively increase their involvement in wider industry collaboration and stabilisation, both up and down their supply networks. Collaboration costs very little but when well-managed, offers both parties great returns for the time and effort invested.


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