Finding an electronics industry executive at Electronica 2016 who isn’t gung ho about the prospects for the sector in 2017 and over the next several years won’t be impossible but it’s certainly not going to be easy. On the second day of the biennial exhibition that brings together designers, suppliers and manufacturers to the high-tech market from all corners of the globe, the stands are packed, meetings rooms are booked solid, events and even press events are seeing standing room only crowds and executives are cheerfully stretching their hours to accommodate more appointments.
Optimism is in the air and palpable in the voices of attendees, many of them eagerly testing fancy new gadgets or components and hauling bags filled with fat brochures, catalogs, storage devices and promotional gift items home or to their offices. Even late in the evening as the closing hour draws near the exhibition grounds remain chockfull, a sign of participants’ determination to squeeze the most out of meetings and presentations. The electronics industry hasn’t seen this level of optimism in quite a while.
Industry executives say they believe a firm and possibly swift transition from several years of sluggish to negative growth is taking place and they cite anecdotal evidence of improving business conditions from discussions with suppliers and customers in addition to strengthening order pipelines, stretched lead-times and an overall sense that the market has turned a corner and could see a performance surge over the next six months. There is undisputable evidence today’s market conditions are quite different from two years, or even six to 9 months ago, according to industry sources.
“Suppliers and customers are highly optimistic today and they are telling us things that make it clear they are prepping for strong growth,” said Mike Galinski, CEO and founder of America II Electronics Inc., during an interview at the company’s booth at the Electronica event. “Everybody is increasing something, whether these be investments or purchases in preparation for growth. People are coming to us and letting us know they are on a growth trajectory.”
Galinski could barely take time away from a packed schedule for the interview, a scene replicated at other component distributors and suppliers. Companies like Arrow, Avnet, Digi-Key, Future Electronics, Mouser, TTI and RS Components took large booths at the exhibition and stuffed these with their display components and finished goods. Hundreds of attendees thronged these booths, holding meetings with executives and exploring interactive devices.
“We are busy, busy, busy,” said Lindsley Ruth, group CEO at Electrocomponents PLC, parent of U.K.-based RS Components and North America-headquartered Allied Components.
Similarly, America II was getting more visitors than the company had anticipated. The company said sales have improved strongly over the last year and it has begun adding sales personnel in Europe, Asia and in Latin America. Galinski said 2017 would most likely bring higher sales across the industry as new products under development over the last few years finally hit the market and on rising economic confidence in its core market segments.
“Everyone is busier, they appear to be happier and their forecasts are better,” Galinski said. “At America II we are building up inventories to ensure we have enough stock to service customers in 2017. This is in addition to beefing up our supply chain support services to engage with them at a deeper level. The demand is going to be strong and I won’t be surprised if within the six months we begin to hear about allocation and scarcity of some standard components.”
Allocation. It’s a word the electronics market hasn’t used in a while. In fact, some younger purchasing/procurement and supply chain management employees at OEMs and electronics manufacturing services (EMS) providers may not have encountered such an event in their career or at least not of the level that crippled the market in the 1999 to 2000 timeframe. If component shortages hit the market anytime soon, OEM purchasing managers may run into problems resolving the demand-supply imbalance, observers said.
“The market is primed for growth,” said Brian Ellison, president of America II. “Interest rates are low, there’s pent up demand across the global economy, which is itself getting better and we are see technology overlap across industries that could further fuel growth.”
Two factors could prove to be intractable obstacles in the event of a market shortage for components. The first is the industry’s currently low manufacturing capacity, a direct result of the wave of supplier consolidation that has swamped the components market in recent years and especially since 2015. This has resulted in a sharp reduction in available manufacturing capacity at suppliers, which could further stretch out lead times should demand for components ratchet up faster than anticipated.
Secondly, in situations of unanticipated demand, the biggest OEMs and EMS providers typically have the financial resources to lock down supplies at vendors either by prepaying or simply due to their large volume purchases that may prove enticing to suppliers.
But allocation does not appear to be a concern at Electronica 2016. Deals are being forged or strengthened behind closed doors. Represented at the exhibition this year are all the top chipmakers, embedded software firms, interconnect, passives and electromechanical (IP&E) component vendors, small to medium companies, tiny suppliers from China and other Asian locations, contract manufacturers, PCB makers and other supply chain services providers. Even Tunisia, which is not usually associated with electronics production is represented, offering contract manufacturing services.
Going by the foot traffic, the density of the crowds inside the halls, the packed restaurants and the variety of offerings alone, it’s clear that the mood has changed in the electronics industry from that of a fearful anticipation of a possible market downturn or flat growth to expectations for solid to hyper-growth. In this environment, investments will proliferate and new products will be launched, according to industry sources who said the results of the activities discussed and deals signed at the Electronica exhibition will show up later in a surge of production at centers like China and Eastern Europe over the next year.
“Our outlook is very positive for all parts of the world and especially for China where we are expanding sales and new product development activities,” said David Valleta, head of sales at Vishay Intertechnology. “That’s why we’ve hired more sales engineers there and looking outside the traditional OEMs for new sales opportunities.”