Front End I Electronic Components Supply Network
Electronic Components Markets Race into Q4…
The fi rst nine months of 2020 have been a ‘challenging’ period for all in the global electronic component markets. But as we begin to embrace what is now the ‘new normal’ it’s time to take a look at what the remaining three months of the year and beyond hold in store. According to ecsn Chairman, Adam Fletcher there’s good news and not-so-good news: Beyond the impact of the COVID-19 pandemic ongoing trade wars could be problematic and continuing merger and acquisition activity may prove to be mildly disruptive, but a new legal ruling on intellectual property (IP) rights looks likely to benefi t innovators holding patents on their ideas. In this article, Fletcher provides his thoughts on how these issues are likely to impact the market in the short- to medium-term.
China - US Trade War Despite all of the economic and social problems caused by the COVID-19 pandemic the US – China trade war continues to escalate. The US has imposed sanctions on US operating systems and design software but is also beginning to severely impact semiconductors, semiconductor manufacturing and all related IP. The manufacturers of several large Chinese semiconductor infrastructure projects have been heavily affected and many US and European organisations in the semiconductor industry who, having helped their Chinese customers by stockpiling components now fi nd themselves needing extensive documentation from the US Commerce Department before they can ship their products into China. The irony is that the organisations that these sanctions are primarily set to benefi t are concerned that - in the short-term at least - their revenue will be adversely affected. That said the US actions do appear to be having the desired effect of propelling China towards the adoption of accepted international legal and commerce standards. I guess it’s a case of “no pain, no gain”.
There is clear evidence that Chinese organisations are attempting to source their technology needs from domestic suppliers, extensively supported by Government backed investment. Some analysts are suggesting that this could be leading to a ‘one world two systems’ environment where Chinese industry standards are forced to compete with rest-of-world industry standards. This may be tried for a year or two, but I think long-term success is unlikely as it’s just too diffi cult and expensive to achieve. I predict that both sides will impose further sanctions and that commercial ‘peace’ probably won’t break out until a comprehensive agreement is arrived at, but we may have to wait for the outcome of the upcoming US Presidential elections for that. However, organisations have learnt that their dependence on China as the primary source of manufacturing and
10 September 2020
assembly has exposed them to too much risk and they will continue to disseminate their supply networks across multiple countries in order to reduce their exposure in China. I’m sure that this is a positive outcome in terms of spreading infrastructure investment and might even encourage some multinationals to invest back into Europe!
China V ROW
The more aggressive approach by China towards the UK and Australia has led to an increase in trade tensions and the application of new or increased tariffs. This is a cause of concern, as is the escalation of China’s military activities in the South China Sea that are threatening Taiwan and triggering actual combat between armies on the India / China (Tibet) border.
Japan - Korea Trade War I’m happy to report that the dispute between Japan and Korea has cooled somewhat. Behind the scenes diplomatic negotiations have resulted in the Korean court’s decision not to order the seizure of joint venture assets of Japanese companies based in their country. The Japanese government was prepared to further restrict the supply of Fluorinated Polyimide, Photoresist and Hydrogen Fluoride used in the manufacture of semiconductors and displays, which would have severely disrupted manufacturing at LG, Samsung, SK Hynix and a myriad of other Korean technology manufacturers. However, political analysts believe the recent resignation of the Japanese Prime Minister, Shinzo Abe who was vocal in this dispute, is unlikely to infl uence any change in Japanese policy and its thought likely that the dispute will continue to simmer on for many years yet. The Korean government is trying to establish domestic manufacturers of key chemicals to reduce its industries dependence on Japanese suppliers but his will be expensive to achieve and will probably require IP licences from the Japanese producers. If they do succeed in establishing Korean based manufacturing of these products
Components in Electronics
many other global technology companies will also be able to benefi t from multiple sources of supply.
Mega Merger Activity
Despite the current volatility in the global economy Analog Devices Inc (ADI) have been bold in making a $21B bid to acquire Maxim Integrated, a move that will enable the company to increase its market share to 14% and consolidate its position as the second place supplier behind TI in the global analogue market place. This does appear to be a very expensive acquisition, but the financial analysts are highly positive suggesting that the synergy of combining both organisations will result in improved earnings, but there will inevitably be some disruption to their combined staff and product portfolios if the cost savings and synergies are to be achieved. There is also likely to be changes within the supply network as each organisation has a near exclusive relationship with a single competing leading globally authorised distributor. The oft neglected but very important part of the M&A process is effectively supporting and communicating with the very wide and diverse customer base that exists for the analogue components supported by ADI/Maxim and their competitors, all of whom will be trying to adapt to this change and maximise their market share.
UK Supreme Court Uphold IP Legislation… On the 26th August ‘20 the UK Supreme Court ruled that the Intellectual Property rights of holders of Standard Essential Patents (SEP) licenced on Fair, Reasonable and Non-Discriminatory (FRAND) terms can insist that organisations using them licence them on a worldwide basis. This is a complex but vitally important ruling as it not only protects the rights of innovators but will be helpful in the seamless migration to ubiquitous 5G communications networks, which looks set to have a such a significant impact on society.
Concluding Thoughts
Despite all of the political, economic and supply network disruptions suffered so far in 2020 the global electronic components markets have performed signifi cantly better than many other industries and we have been fortunate that customer demand has remained strong. It’s never easy to predict what is going to happen in the domestic or global electronic components markets but I suspect that the market will slow a little in Q4’20 and be muted in Q1’21. Manufacturer lead-times will remain extended into 2021 and as a result unit pricing for most components will generally remain stable, but ‘merchant market commodity products’ will probably come under pressure as supply tightens and a slight price increases is to be expected. The best way to maintain your organisations competitive edge is by engaging and collaborating both up and down your organisations supply network. It costs little and will go a long way to ensuring we all keep the show on the road.
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.
www.cieonline.co.uk
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