Electronic supply has a major impact on manufacturers and as a result it is an aspect of the industry that many are keen to forecast and prepare for and changes in the industry.
The state of the electronics component market has a huge impact on electronics manufacturing. Slack demand for electronic components results in shorter lead times and lower prices, whereas greater demand gives rise to much higher prices, but more importantly the lead times extend well into the future. Some components may be on 52 week lead times or longer. This can have a major impact on manufacturing.
Each year the manufacturers’ authorised distributor (afdec) group within the Electronic Components Supply Network (ecsn) prepares a forecast for the UK and Ireland industry. This is obviously of great interest to those in the UK and Ireland, but it also reflects the state of the global market.
This year ecsn predicts that the UK & Ireland electronic component market will grow in the range 3.4%-to-8.5%, achieving a mid-point of 5.9%. Compiled from individual returns from the association’s member companies the forecast further revealed that the market is likely to have grown by 9.2% in 2018, and Distribution's share of the TAM (Total Available Market) in the UK will have grown to about 41%, encouraging the consensus opinion that the recovery in the high-tech manufacturing sector of the economy will remain strong and despite the many uncertainties, is likely to outperform the macroeconomic environment.
Electronic component market analysis
Aubrey Dunford, ecsn Market Analyst commenced his presentation of the association's 2019 Forecast by announcing that the UK / Ireland electronic components market results for the current year (2018) will conclude at the higher end of the guidance range provided by the association in December last year. According to Dunford, the market grew strongly throughout 2018 and should show a growth of about 9% over 2017 compared to the forecast, which predicted a growth range of 6.5% to 10.5%: "Every quarter of this year saw sales growth when compared to the same quarter in 2017”; said Dunford.
“Growth was not quite as strong as had been expected in the first half of the year but has continued to show stronger than predicted growth in the second half”. The ‘Book to Bill’ ratio remained above unity throughout the first half of 2018 but has softened somewhat in recent months: “The level of billings remained high in the second half, so we must expect that the growth rate will slow a little as we enter 2019, but our members are forecasting a further four quarters of growth at least”.
ecsn/afdec believes that the outlook for 2019 is positive with growth continuing, although the rate of growth might dip especially in the second quarter, but the association expects growth will pick up again during the second half: “The global electronics market is set on an expansion path with automotive systems and new mobile standards such as 5G leading the way, but these will all need a huge investment in infrastructure which is where UK companies can really make a mark”, Dunford said.
ecsn/afdec members remain confident that there are opportunities for further growth in 2019, despite numerous factors that simply cannot be predicted with any certainly, not least Brexit and continuing trade wars, even if at present they seem to be abating. He concluded, “whatever the final outcome of our Government’s negotiations with the EU we are certain that UK companies will be preparing to participate fully in that growth”.
At the end of 2017 ecsn/afdec reported six quarters of ‘quarter-on-same-quarter-the-previous-year’ growth, which at the time was the longest period of sustained growth seen since 2000: “We’ve now achieved ten quarters of continuous growth and are forecasting that we’ll achieve fifteen quarters of growth by the end of 2019, a performance unseen since we started collecting the data way back in 1984”, Dunford observed.
The growth period started in early 2016 but really accelerated during 2017 and has continued in each quarter of 2018: “It is now clear that there are a number of factors behind the upswing, among which the upturn in the global electronics markets predominates,” Dunford continued. “The seed change in electronics markets has enabled more competitive pricing of manufactured goods in export markets now that the use of electronic systems has finally come into economic use enabled by the IOT and inexpensive WiFi connections, which together are transforming control systems the world over”.
According to Dunford UK companies find themselves in an ideal position to capitalise on the opportunities presented, most of which are within the market sector served by authorised distributors. He acknowledges that this Global growth has also caused lead times to extend on some product lines, especially in the more commodity product areas, which does threaten to limit some of the growth in the first half of 2019, but manufacturers are beginning to expand production: “It is clear that customers who work in close co-operation with authorised distributors are able to meet their production requirements even although overall availability is becoming restricted”, Dunford said.
Commenting on the 2019 Forecast ecsn / afdec chairman Adam Fletcher welcomed the continued growth in the global economy and the likely consistent growth in the global electronic components market, which he believes will surge as 5G is rolled out: “The trajectory for the electronic components markets continues to be up and to the right and underlying growth has become the new normal but growth will probably not be linear and we must anticipate the odd bump along the way”, Fletcher said. “I’ve been predicting that the growth curve will adopt a hockey-stick shape towards the end of 2019 and into 2020, causing further supply network problems as components manufacturers scramble to keep up with the increased demand”.
He believes that growth in the UK, Europe and US will lag behind China and Asia-Pac economies who will be the primary beneficiaries of the 5G roll out and the increased demand for handsets: “I’m confident that UK electronic components markets will continue to grow over the next few years but at a rate lower than the global average rather than at the top of the growth. That said, I fear that we may to be negatively impacted by long lead-times and shortages of some components.” Fletcher added.
Fletcher believes that merger and acquisition activity in the electronic components markets will slow in 2019 but that this will be replaced by increased activity in collaboration, cross-licensing, joint ventures that accelerate market access and strategic investment in order to secure capacity or access to technology: “Manufacturers are desperately filling the gaps in their product portfolios to address the emerging technology needs in high growth markets, including 5G infrastructure, industry 4.0 and automotive, but they continue to be conservative in adding manufacturing capacity to meet demand in these new markets", Fletcher concluded.
Despite all the issues with the global economy, the uncertainties across the globe and also Brexit, which seems to get ever more bogged down int he political process, the outlook seems to be broadly optimistic. manufacturers need to be aware of the long lead times on passive components, and also keep an eye on semiconductors, but overall the outlook is positive.