08 Dec 2015

Electronics Component & Industry Forecast for 2016

Ian Poole, Editor Radio-Electronics.com looks at the outlook for the electronic components manufacture, distribution and supply industry for 2016

Predictions of components supply and demand provide not only an interesting insight into the state of the electronics industry but the they also very important for manufacturers, distributors and anybody in the industry needing to set plans for the future.

Predictions are always difficult and they are not always totally accurate, but nevertheless these predictions help considerably in planning and being aware of the likely demand for components, equipment demand and the like.

At a recent meeting in London, the UK ecsn - Electronic Components Supply Network released their forecast for 2016 which was presented by Aubrey Dunford. These electronic components predictions for 2016 revealed some interesting trends, not only for the UK and Europe but also for the global electronics industry.

2016 components predictions background

When making any predictions it is necessary to look at the global industry as a whole. Looking at the drivers for many of the conditions for the global economy, it is then possible to see what effect this will have on the global electronic components and electronics industry markets.

In recent months the global economy has seen a slowdown. The UK the forecast of growth for 2015 by the OECD fell from 2.9% from its original prediction in November 2014 to 2.4% when calculated in November 2015. The USA held constant at 2.4% but many other countries have seen their growth levels fall. China has fallen from 7.3% to 6.8%. Although this is a small fall in percentage terms, the size of the Chinese market means that the absolute figures are very large and this has a knock on effect to the economies of other countries. This the figures for the global economy fell from 3.9% to 2.9% for 2015.

The fall in the level of Chinese growth has impacted many European countries. With China being the powerhouse behind electronic equipment manufacturing, a fall in their economy means a reduction in the level of investment in new manufacturing equipment, much of which comes from areas like Europe and the USA. As a result many countries are feeling the reduction in orders and this is reflecting in their figures.

Another major driver for the global economy is that of oil production. The World Economic Outlook report in October 2015 from the IMF foresaw lower global growth compared to 2014 with a modest pick-up in advanced economies and a slowing in emerging markets. This was said to be a reflection of the weakness in some large emerging economies and oil exporting countries. The oil exporting countries have had their income reduced by the reduction in oil prices.

Also the impending increase in US interest rates will have global repercussions, especially for those countries whose debt is in US dollars - where they may have difficulty in replaying loans. This will naturally reflect into the global economy and result in increased levels of uncertainty which always slows growth.

Predictions for the electronics market

With world economic growth having a major impact on the electronics industry the indications are that there will be a similar slowdown in the electronics market - growth is likely to be flat for 2016. This results in many other issues within the electronics market.

According to Dunford, the continued slow-down in particularly the Asia Pacific market has meant that the whole supply network remains overstocked and it will take some time for manufacturers to adjust their production levels in-line: The ‘Book to Bill' ratio, which turned negative in May ’15, has stubbornly remained below unity and looks unlikely to recover until Q1 ‘16: “Until the B2B ratio recovers beyond 1.1:1 for a sustained period there's no way growth can return to the market,” said Dunford. "We believe that it will take some months for the supply network to come back into balance. In the

In terms of the Electronic Components Supply Network, ecsn in the UK, this means that analysis of the consolidated returns from the association’s membership shows that the overall UK / Ireland Distributor Total Available Market, DTAM, in 2015 and will show a decline of approximately 1% when compared to 2014. The association provided a flat forecast for 2016 and this points towards a DTAM value of around £1.1bn within a Total Available Market, TAM, value of circa £2.9bn.

Despite the forecasts and predictions of flat growth for 2016, the situation remains very volatile. Periods of low growth where there is no overriding trend are more difficult to predict. Therefore the predictions for the electronics industry in 2016 could show a small fall or a small rise.

Exchange rate changes have also had a major effect on some economies and as a result these variations have a major effect on the electronic component and electronic industry predictions for 2016. The Euro against the dollar has seen a 26% change since June 2014 and the GBP, Sterling has seen a 12% fall against the US dollar and an increase of 16% against the Euro over the same period.

Seeds for growth

Despite the fact that low growth is being predicted in the electronics industry for 2016, there are many good signs on the horizon.

The automotive industry is seeing a huge level of growth in the amount of electronic input to vehicles. Although much of the manufacturing of these boards is carried in Asia, it does have an overall positive effect on the industry and support infrastructure and equipment is needed. Increases in this industry provide a global impetus to the industry. The summary for this industry is that it is buoyant but cautious.

Another major factor that will impact on the predictions for the electronic component supply and the electronics industry as a whole is the growing area of the Internet of Things. With predictions of billions of connected devices being in operation in the next few years, this provides a major opportunity for the electronics industry as whole. Much of the production will go to Asia, but there will undoubtedly be a large amount of equipment development and system development in Europe and the USA.

Other trends

One trend that was mentioned by a number of distributors at the ecsn meeting was that of ‘re-shoring.’ In previous years, the manufacture of many products from Europe and the USA had been manufactured offshore in Asia.

With costs in Asia increasing, and many companies seeing he full cost of off-shore manufacture, this trend is reducing and many companies are seeking different areas to manufacture offshore, or even bringing manufacture for some products to within the same country.

Within Europe, Eastern Europe is being seen as an increasingly favourable area for manufacture, although for low volumes, much more manufacture is being undertaken within the same country.

Summary

As a result of all of these factors, it is anticipated that 2016 will be flat with little growth. However, 2017 and 2018 are likely to show improved growth, both within the UK, Europe and beyond. Whilst it is difficult to predict one year ahead, and even more so for two or three years, it does seem as if after a year of flat growth, there will be improvements on the horizon.

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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 the author of over 20 books.

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