By most accounts, 2017 is shaping up as a good year for component sales. Data from the ECIA, gathered from its distributor members; and the world’s largest global distributor, Arrow Electronics Inc., point to an uptick in demand for the first quarter of 2017.
The ECIA reported its Q4 book-to-bill (btb) ratio was 1.05; Arrow reported a btb of 1.09. That’s the highest btb Arrow has seen in five years, said Mike Long, CEO of Arrow, during a conference call with analysts. Arrow ended Q4 and fiscal year 2016 with component sales growth across all geographic segments, he added.
Arrow’s 2016 fourth-quarter sales of $6.44 billion decreased 5 percent from sales of $6.75 billion in the prior year; net income of $165 million increased compared with net income of $158 million in the fourth quarter of 2015. For the year, sales of $23.83 billion increased 2 percent from sales of $23.28 billion in 2015; and net income for 2016 was $523 million, compared with net income of $498 million in 2015.
ECIA members reported a slight sales decline—1.5 percent -- for calendar 2016 as well. Fourth quarter sales, however, were up 0.9 percent compared with the same quarter the previous year. Q4 sales declined by 1.7 percent from Q3; and Q3 sales declined 1.5 percent from Q2.
The positive btb indicates new orders are on the rise. "With positive book to bill in Q4, there is reason for optimism as we move into 2017," noted Jim Bruorton, ECIA vice president, industry statistics and business analytics. "January’s PMI for the Americas reached a 23-month high at 55.1. Another positive sign for growth in 2017, electronic components have consistently shown a strong correlation between the PMI and component shipments. There is optimism around American infrastructure development, expanded resource development, and defense spending under the Trump administration," he continued. "These are all positive signs for growth opportunity in 2017."
Arrow executives reported design activity out of the Asia-Pacific region continues to grow. “It’s no longer fair to assume innovation happens in the West and moves to the East,” Long said. Sales in Asia-Pacific, however, tend to be less profitable than other regions of the world. “We expect Asia to improve profitability-wise,” Long said. “We are seeing more opportunities in engineering and design-wins in Asia and the biggest increase we had in Asia was in the industrial power market [a sweet spot for electronics distribution]. It will take some time,” he added, “but we have shown that as we migrate upstream there are more profitable opportunities.”
China is rapidly becoming a hot spot for global sourcing, according to IHS Markit. Component prices in the region tend to be lower than elsewhere in the world, IHS reported, but companies are also spreading their risk by sourcing across a wider range of geographies. China is arriving as a hub, or even the hub, of global supply chains, according to IHS.
So far Arrow hasn’t suffered from semiconductor supplier consolidation, executives said. The pace and dollar value of mergers and acquisitions in 2016 were the highest the industry has seen in years. IHS Markit and other analysts have posited that M&A might prompt component shortages sometime this year. Companies with overlapping product lines often phase out products which makes some buyers uneasy. On the other hand, customers and distributors are dealing with one supplier instead of two—that often saves on operating costs. “We see [M&A] as positive,” Long said, adding that Arrow's volume sales are increasing while the company has stabilized its operating costs.
Arrow’s global components Q4 sales of $4 billion grew 9 percent year over year. Fourth-quarter sales, as adjusted, grew 10 percent year over year. Americas components sales grew 4 percent year over year. Asia-Pacific components sales grew 22 percent year over year. Europe components sales declined 1 percent year over year. Sales in the region, as adjusted, grew 2 percent year over year. “Global components sales exceeded the high end of our expectations and were propelled by our investments in customer-facing sales and engineering resources,” said Long.
“Our digital transformation and IoT solutions spanning from sensor to sunset helped drive record full-year sales and earnings per share,” Long concluded. “Our customers value our comprehensive portfolio of electronic components and embedded computing, datacenter, cloud, and reverse logistics solutions.”