Distribution
One way or another, it manages to grow
Up to now, the market has almost always managed to insulate itself from macroeconomic influences reasonably successful. However, 2019 presents several major stumbling blocks that could change this. And yet demand for components continues to grow
W
hen compared with 2017 – a year that saw double digit growth – the European
component distribution sector actually had little cause for complaint in 2018. Starting from a very high level, it managed to achieve further growth in the medium to higher single digit percentage range, with some areas such as passive components even making it into double digits. It is clear that growth in the EU as a whole cannot match that of China, India or the US. However, even ‘problematic candidates’ such as Italy or France have displayed astonishing resilience, at least in the industrial electronics field, which is the main customer of the distributors. Looking at the sector in detail, DMASS Ltd, collator of distribution market data, measured growth in the semiconductor distribution market in Europe at over 6 per cent to reach just under 9 billion euros. Germany, one of the largest markets, saw slightly weaker growth of around 4 per cent to 2.7 billion euros. At the moment, it is difficult to gauge what this means in specific market volume. The semiconductor distribution market is likely to be around 10 billion euros in 2018 and the IP&E market somewhere between 4 and 4.5 billion euros (DMASS only represents 90 per cent of semiconductors and perhaps 65 per cent of IP&E).
On this basis, what can we expect for 2019? There are two blocks of factors to
be considered here: The macroeconomic or known stumbling blocks, which include primarily Brexit and its as yet uncharted consequences, and the trade dispute between the US and China. Then there is the market itself. But first things first. While the trade dispute is currently in full swing and corresponding tariffs have already been imposed on products manufactured in China, industry in the US is trying to contain to at least limit the extent of the administrative chaos. It is not yet clear how this conflict will develop. However, it is the issue actually at stake that has rather fallen by the wayside in the debate concerning market consequences: China’s lax approach to IP and the unfair trading practices it has been operating for years. No country in the world cooperates with China on an equal footing and credit is due to the US for highlighting this thorny issue (it should also be noted that many accusations aimed at the EU are similarly justified). Therefore, there is not yet any need for emergency plans for the electronics market in Europe.
Brexit means…what? Brexit represents yet another great unknown. Nobody can really predict what will happen in the event of a no-deal scenario. However, it is entirely possible that the consequences will not be nearly as severe as they are currently being portrayed. And as far as the electronics
market is concerned, the UK is no longer the major producer it was during the 1980s. Most electronics production has migrated either to China or to Eastern Europe. Of much greater interest is the aspect of innovation: If the innovations or IP emanating from the UK is good, it will find its way onto the market.
In supply chain terms, the priority is to apply the correct export scenario for future deliveries to the UK (in the same way as for Norway or Switzerland). For deliveries from the UK, the focus must be to reduce costs in such a way that either nothing is delivered from the UK unless necessary or that shipments are first sent to a central EU hub before continuing to the individual countries. Across this entire area, experts are working through all scenarios so as to minimise possible supply, taxation and other problems as well as any consequences for customers.
problems or changes are thrown into the mix. There are no indications of major problems on the horizon in this area in 2019. Apart from a few isolated exceptions, problems relating to long delivery times are easing at the moment. Given that lion's share of general demand for semiconductors is driven by the computer and smartphone industry – and that production is largely based in Asia – the industrial electronics and automotive industries that are dominant in Europe often become the collateral damage of the above-mentioned mass-produced articles. If a new iPhone needs 40 per cent more MLCCs than its predecessor, it is rather clear where ‘this product’ will land and who will draw the short straw. But let’s return to the question as to what we can expect for the European market and the distribution sector in 2019. If we assume that we are currently
The market itself, often free of political influence, experienced a prolonged period of growth with corresponding supply bottlenecks, some of which (in the case of capacitors) will also persist in the new year. Growth in 2017 was driven largely by price increases while 2018 appeared relatively normal, at least in the semiconductor field. Then again, the semiconductor market is not homogeneous and there is an important dividing line between storage/memory components (which experienced a massive capacity expansion) and processors (mainly Intel) on the one hand and the remaining semiconductors on the other. The bottlenecks were equally lacking in homogeneity. Semiconductors represent a highly complex combination of IP, design, manufacturing technology (in-house or foundry), testing and packaging. Each of these areas can generate its own supply bottleneck – all the more so when
experiencing a soft correction to the supply chain, with stock adjustments and backlog movements, then 2019 is likely to start slowly compared to 2018, in the low single-digit percentage range, before gaining momentum from the fall of 2019 onwards. In USD terms, the European semiconductor market grew by around 13 per cent in 2018, although this figure takes currency effects into account. It is no surprise that the distribution sector lagged behind because availability problems probably had a greater impact on distribution and since quite a number of major manufacturers started to support key distribution customers themselves. For 2019, the WSTS in Europe is
predicting just under 2 per cent growth in USD, which is likely to run at a similar level in Euros. Major differences between the general market and distribution are unlikely. What actually happens will become clear in due course.
www.cieonline.co.uk
Components in Electronics
March 2019 33
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