08 Jan 2013

2013 Electronic Component Supply Forecasts

Our Editor, Ian Poole speaks to some industry leaders to see the forecasts for electronic component distribution and manufacturing and see some improvement.

Like all industries globally, the electronics industry has been flat and seen little growth in many areas of the globe over the past few years.

Although trends will vary around the world, there is a similar trend in many countries as a result of the pressures from forces such as the European debt crisis, the US debt problems and many others.

As the world is so interlinked these days, issues in one country will affect another, and upturns in one area will be felt globally.

Within the UK, and organisation called ecsn, the Electronic Components Supply Network undertook research and released its forecast for 2013.

In essence, the report believed that the market would be nominally flat in 2013, although with growth returning to the industry in the second half of 2013.

To back these conclusions ecsn analysed the returns from their association’s membership and this indicated that within the UK and Ireland, a figure known as the Distributor Total Available Market or DTAM in 2012 was likely to have declined by approximately 14% when compared to the previous year. In 2012 DTAM was expected to be £1.01bn, with the Total Available Market (TAM) also expected to decline by over (16%) to £2.6bn.

2013 forecast

Aubrey Dunford, ecsn Market Analyst confirmed that in 2012 the decline in the UK / Ireland electronic components markets continued a quarter beyond the association’s expectations, reaching a low point in Q2 2012 and had experienced an unusually slow recovery

Dunford commented: “The year ended 9% lower than our original forecast but in-line with our revised mid-year forecast,” said Dunford. “Returns from our members forecast that the UK / Eire electronic components markets will continue to improve sequentially throughout 2013, with positive growth returning in the second half of the year. We’re likely to see a slight reduction in the TAM (down by 1% to £2.58bn), however the DTAM will remain around the same and therefore a larger share of the total, as customers consolidate their use of manufacturer authorised distributors.

Aubrey Dunford

Aubrey Dunford - market analyst with ecsn

On a positive note, Dunford confirmed that the ‘Book to Bill ratio’ an important industry indicator, started trending up in March 2012: “The Book to Bill became positive in July ‘12 confirming an improving trend in overall demand and suggesting that there is momentum towards a recovery.”

Dunford said, “We have been witnessing an extended period of weak demand resulting in a continued inventory correction right across all global electronic components markets. The lead-times for modest volumes of most electronic components is currently less than four weeks with many manufacturers reducing spare production capacity, which will take time to bring back on-line as demand increases”.

According to ecsn chairman Adam Fletcher the well-publicised macro-economic problems in the Eurozone and beyond have contributed to a continued deterioration in both consumer and business confidence, resulting in very limited supply network visibility. “Most ecsn members are beginning to conclude that uncertainty is the ‘new normal’ and along with their supply network partners are adapting their systems and processes to cope with greater dynamic change”.

The effect of all the economic problems can be seen on the UK as output dropped significantly at the end of 2008.

UK Manufacturing Output

UK Manufacturing Output

Since 2008, growth has been minimal and this can be seen in the graph. There have been many predictions for the overall economic growth, but only now does it seem likely that some will be evident, even if weak in the second half of 2013.

Distributor comments

With distributors themselves seeing he trends at first hand, their comments and inputs are of great value.

In addition to this, there is a growing trend to use distributors to manage supply chains. While this was previously a task undertaken by large purchasing departments in the various companies, many are now seeing advantages of utilising the much greater buying power of distributors.

This allows methods of working such as ship-to-stock and just-in-time to be implemented on a more reliable basis. With economies of scale being available through distributors, this makes them the ideal choice for supply chain management in many situations.

Ben Green, Technical & Marketing Communications Manager at Harwin commented: “Although overall the forecast may be flat, electronics is vital in many emerging sectors – such as UAVs, robotics, oil & gas exploration and alternative energy. These markets demand constant innovation and fast response, which is why we maintain comprehensive, state-of-the-art, design and manufacturing facilities here in the UK for our high performance connectors and PCB hardware components.”

"Though the ecsn forecast shows that the market in 2013 will be little different from 2012, Omron is seeing much more encouraging interest from our focus markets. Innovative products like the D6T IR sensor which helps manage energy use in buildings and the G9EN which simplifies the design of electric and hybrid vehicles are exactly what the European electronics market needs at the moment.” Alex Grout, Distribution Manager EMEA, Omron Electronic Components Europe.

“In our opinion there still are strong growth elements to the electronics business to be exploited in the UK and rest of world over the next year and beyond, and as a more specialized electronics business we see a strong future going forward in most of our divisions. However, as the UK and EU economies are changing and having to compete in a different way we must expect some companies to experience mixed fortunes over the next year.” Nick Lidington, Managing Director Sequoia Technology Group.

“The somewhat lack lustre market-growth forecast must encourage our industry to accept what’s become the true role of the UK and Ireland in the global electronics market place. In common with the rest of Europe, and the USA, we have become a ‘design centre’ for manufacturing operations in the low cost Eastern economies and the Design Win revenue generated in the UK & Ireland in 2013 will probably be worth more than twice the actual sales revenue” said Nigel Watts, Managing Director, Ismosys.

“Though I suspect that the ecsn forecast calls the general market correctly, Avnet MEMEC is in a good place. Our vertical market focused demand creation model means that we’re able to provide customers in key growth segments with a real advantage, as we have access to some very innovative technologies supported by a team who can work with them effectively”, said Chris Shipway, Country Director, Avnet MEMEC UK

ecsn chairman Adam Fletcher believes the continued inventory correction has been exacerbated by weaker than anticipated global consumer demand, which has significantly reduced electronic components market growth in China from historical norms of 8% to 10% growth to probably less than 5% in 2012, “Unfortunately when the largest market sneezes we all catch a cold, if it wasn’t for the huge volumes being driven by smart-phones and tablets we may well have caught pneumonia”, Fletcher concluded.

Summary

It seems as if it will be some time before we return to the sort of growth we saw prior to economic collapse in late 2008. However it does seem as if the market will see some form of growth even if it is weak. This at least is a glimmer of hope in what may be a long road to global recovery.

Those companies that are able to withstand this long downturn will be well placed to make the most of the recovery when it does come.

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About the author

Ian Poole is the editor of Radio-Electronics.com. Having studied at University College London to gain his degree he went on to undertake a career in electronic development working for companies including Racal. He became the hardware development manager at Racal Instruments where he was in charge of the hardware development activities within the company. Later moving in to freelance work as a consultant he also developed Radio-Electronics.com to become one of the leading publications for professional electronics engineers. He is also a Fellow of the Institution of Engineering and Technology and is an author of over 20 books.

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