Component Sales Rise in Q2; Lead Times Stretch

Players in the electronic components industry agree that sales have increased steadily in the first half of 2017. Strong demand across all sectors, particularly industrial automation and automotive, has led to increased lead times across several component segments.

ECIA’s latest North American distribution report for the first half of 2017 indicates that lead times for many semiconductor devices, including power discrete and memory devices, and passive components, specifically resistors and capacitors, have continued to stretch since the third and fourth quarters of 2016.

North American sales in the distribution industry showed healthy growth in the second quarter (Q2) of 2017, according to the ECIA. Sales were up 3.3 percent compared to Q1 2017 and up 7.8 percent compared to Q2 in 2016.

However, book to bill was negative at 0.96 after three consecutive quarters of positive book to bill, said Jim Bruorton, ECIA vice president industry statistics and business analytics, in a release.

"It is interesting that distributors have experienced negative book to bill in the second quarter for the last three years, with positive book to bill for the quarters that followed," he added.

Semiconductors continue to account for the biggest share of the North American distribution market at 58.5 percent, followed by interconnects (16.2%), passives (12.8%), electromechanical devices (10.5%), and displays (2.1%).

In the Americas, June 2017 sales for semiconductors were up 5.1 percent compared to last month and up 33.4 percent compared to June 2016, according to the Semiconductor Industry Association (SIA).

SIA reports global sales of semiconductors in the second quarter of 2017 increased by 5.8 percent compared to the previous quarter, and is 23.7 percent higher than the second quarter of 2016, reaching $97.9 billion in Q2. Year-to-date sales in the first half of 2017 were 20.8 percent higher than they were at the same point in 2016.

“The global semiconductor industry has enjoyed impressive sales growth midway through 2017, posting its highest-ever quarterly sales in Q2 and record monthly sales in June,” said John Neuffer, president and CEO, Semiconductor Industry Association, in a release. “Sales into the Americas market were particularly robust in June, and all regional markets saw growth of at least 18 percent year-over-year. Conditions are favorable for continued market growth in the months ahead.”

SIA recently endorsed the WSTS global semiconductor sales forecast, which expects the industry to grow 11.5 percent in 2017, reaching $377.8 billion in 2017.

Similarly, market research firm IC Insights increased its semiconductor growth forecast from five percent in January to 16 percent in July, primarily due to “exceptional growth” in the DRAM and NAND flash memory markets.

"With the Semiconductor Industry Association forecasting continued growth for the second half of the year, the continued growth opportunities around American infrastructure development, and the projected growth across most all business sectors, distributors have reason for optimism," said Bruorton.

"Add to that a strong PMI from the purchasing community through the first six months of the year, and distributors are feeling positive about business for the balance of 2017,” he continued.

Component manufacturers also are optimistic about growth in 2017. Vishay Intertechnology, which offers a broadline of semiconductors and passive components, reported six percent growth in the second quarter of 2017. Global sales reached $644.9 million in Q2, compared to $606.3 million in the first quarter.

Dr. Gerald Paul, Vishay’s president and chief executive officer, attributes the improved results to continued strong demand from virtually all markets, particularly industrial and automotive markets. “Supported by excellent business conditions in most of our markets and for most our product lines, and based on efficiencies, Vishay had a successful second quarter and also a very successful first half,” he said during a Q2 earnings call.

“The high order level was driven by distribution, in particular in Asia and Europe,” said Paul. “Shortages of supply and long lead times for certain product lines still raise concerns at customers. At the same time, sales of our products by distribution to end customers continued to increase resulting in increased inventory turns at distribution.”

He further noted continued strong demand for resistors and inductors, which grew by three percent in Q2 2017 compared to Q1. Sales were 10 percent higher compared to the prior year.

To help ease the tight supply for some of these products, Vishay is investing in increased manufacturing capacity for power inductors, Metal Strip resistors and resistor chips. “Lead times stretched for many product lines in particular power inductors,” said Paul.

Vishay’s diodes and MOSFET businesses also grew in the second quarter. Diode sales were up seven percent in Q2 versus Q1 and 11 percent higher than the prior year. MOSFET revenue increased by eight percent in Q2 compared to Q1 and grew by 12 percent compared to the prior year. Industry reports indicate that lead times in general for these products continue to stretch with some at deliveries at 24 to 30 weeks.

“The MOSFET business has seen a very strong uptick recently supported by the continued strength of the automotive sector,” said Paul.

“There has been ongoing shortages and long lead times for diodes and MOSFETs. We added capacity but it will take some time. From our perspective the shortage situation will not be turned around quickly,” he said.

“We are currently working on maximizing the output of our plants, foundries, and subcontractors, and we continue to invest in critical manufacturing capacities,” said Paul.

Vishay increased capital spending to approximately $165 million in 2016.