Low growth at best for components in 2016

13 January 2016

This year’s prediction from Electronic Components Supply Network (ecsn) finds the UK component market is likely to remain flat in 2016.

Although the ecsn prediction is flat, ecsn’s Market Analyst, Aubrey Dunford, said that due to a number of factors it was the most difficult prediction he’d had to make in over a decade and at the end of the year we could see it swing either way. He also stated that there was a clear divide between distributors’ opinions; with commodity distributors being generally more pessimistic and value-added distributors being more optimistic. One of the main reasons for the commodity distributors pessimism is that, similarly to the steel industry, Chinese manufacturers are dumping low cost electronic components onto the market. Another big concern in the market is squeezed margins, with distributors dropping prices to gain market share, often passing some of the dropped costs onto suppliers in the process.

This year’s predicted figures are in the range (-2%)-to-2% with a 0% mid-point, confirming members' concerns that any recovery in the manufacturing sector of the economy will be gradual and is only likely to continue in-line with improvements in the macroeconomic environment.

Analysis of the consolidated returns from the association’s membership indicate that the overall UK / Ireland Distributor Total Available Market (DTAM) in the current year (2015) and will show a decline of approximately (1%) when compared to 2014. The association's 'flat' forecast for 2016 points towards a DTAM value of around £1.1bn within a Total Available Market (TAM) value of circa £2.9bn.

For last year, in the UK / Ireland electronic components markets results for 2015 will end just beyond the lower end of the range of guidance provided in the association’s forecast delivered in December last year. According to Dunford, the first half of the year saw a recovery in growth in-line with the association's guidance but this growth trend stalled in the second half of the year, principally due to sluggish growth in the global markets, especially in the key European markets. "Whilst Automotive, Aerospace and Defence markets have recovered well the critical Industrial components market on which much of Europe relies on to drive growth has continued to falter,” Dunford said.

"Higher growth in some sectors of the market such as Automotive where Distribution lacks a firm foothold suggests that the TAM should increase by more than the DTAM but many of these electronic systems are designed in the UK but manufactured in Eastern Europe so in real terms, the TAM has declined by (5%) to £2.74Bn,” Dunford continued. “The information provided by our members indicates that the UK / Eire electronic component market is  likely to have a modest first half of 2016, recovering in the second half of the year as macroeconomic conditions improve and inventory across the global electronic components supply network is rebalanced to meet the actual demand. We’re likely to see a corresponding recovery in the TAM, meaning the distributor share will only increase slightly in 2016.”

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 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 meantime with good inventory availability and short lead-times, the electronic components market is well positioned to support its customers' requirements,”

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