Paradise Regained? …Well Possibly

Author : Mike Green - Editor, EPDT

04 December 2023

With orders firstly drying up, then suddenly coming back all at once, huge backlogs, lengthy lead times and customers on allocation, the electronics supply chain has been through a tumultuous 3 years.

Now it looks like calmer times might be returning at last. Quoting the late Douglas Adams, rather than Milton, ECSN’s Chief Analyst Aubrey Dunford stated; “We have normality,” when he presented the organisation’s annual forecast for UK & Ireland at an event held in London towards the end of last week. His projections for 2024 suggest that the shockwaves caused by the global pandemic, along with other factors like war in Europe, have finally subsided - though admittedly it still seems like we are in for a couple of fairly lean years ahead. 

The overall picture
Dunford set his presentation against the backdrop of current UK economic data. Some gross domestic product (GDP) growth seems to be likely in 2024, but (much the same as in Germany, France and Italy) this will be fairly modest. Projections from the Office of National Statistics (ONS) expect that growth figures will stay below 2% until at least 2026. Car production in the UK (similarly to Germany) is still below pre-COVID levels. Other sectors, such as telecommunication networks and industrial automation, should fuel greater electronic components demand though.
In terms of expansion of the distributor total available market (DTAM) during 2023, is going to come out at around 9.5%. Semiconductor shipments were up on the previous year, as were electro-mechanical devices, while demand for passive components was down. After a prolonged period of weak shipment levels, the memory market is now starting to see some promising signs. A revival in its fortunes looks certain during the year ahead (driven by the need for data storage to support AI activities). 

Burning through existing inventory
Original equipment manufacturer (OEM) production output in the UK is currently reasonably strong, but as yet the distribution sector is to really benefit from this. Book-to-bill ratios are still negative in all components categories. They are starting to stabilise and should reach parity again sometime in mid-2024. This is better than for most European economies, where they are still in a downward trajectory. Generally speaking, lead times are now at around the 10-12-week mark. There are still cases, most notably certain microcontroller units (MCUs) and power discretes, where OEMs are having to wait a lot longer though.

Semiconductor revenues may have been high since September, however there still an overall slowdown being witnessed in market, and this will probably persist through much of 2024, while the glut of stockpiled inventory gets used up. Nonetheless, Dunford commented; “The underlying demand for electronics in virtually every area of modern life continues to increase, which is why ESCN is forecasting a return to growth in the later part of 2024.”

Reasons to be cheerful
Despite the inventory level corrections that will make growth sluggish in the next 12 month’s, Dunford is still upbeat. “Many areas are continuing to grow as innovation creates new market opportunities. In the UK, and indeed in most of Europe, the component market is driven by the industrial, professional equipment and increasingly the automotive sectors. Military and aerospace will for obvious reasons remain strong, but growth in areas such as electronics infrastructure and EV charging are also an opportunity for the UK. The continuing roll-out of 5G handsets and related infrastructure, IoT, AI, cloud computing, high performance computing and automotive are the likely ‘primary demand drivers,” he concludes.   

Also ESCN Chairman, Adam Fletcher, is of the opinion that continuing trade disputes between the United States and China, alongside the recent hostilities in the Middle East and political tensions in relation to Taiwan, are likely to be a catalyst for greater ordering activity. Such factors are making OEMs worried about medium-term component availability in the year ahead, so many are likely to want to keep more stock than they usually would.

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