Tight supply across component segments coupled with high demand in several sectors, led by industrial and automotive, have resulted in higher tags and extended lead times in 2017. For distributors this has translated into higher component sales as buyers scramble for component supply.
Gerald Paul, CEO & president of Vishay Intertechnology reported during a third quarter earnings call that all markets, in particular automotive and industrial, continue to do well, and high order rates were driven by distribution primarily in Asia and Europe. He also noted that sectors in the American markets continue to improve with moderate growth in the industrial segment and strong growth in military and automotive segments.
Distribution orders in Q3 continue to be “extremely strong,” up 28 percent compared to the prior year, said Paul. He expects continued growth in the channel in the upcoming quarters.
The components industry still faces “longer lead times and even shortages of supply” even as the industry is in the process of increasing its manufacturing output, Paul added.
According to a new report from ECIA, distribution sales in North America are up nine percent in the first three quarters of 2017, compared to the same period in 2016. Sales in the third quarter of 2017 were up two percent compared to the previous quarter and up 12 percent compared to the third quarter of 2016.
Book to bill showed strength in the third quarter rising to 1.29 from 0.96 in the previous quarter. Distributors in North America had four positive book-to-bill quarters out of the last five, according to ECIA.
Kemet Corp. reported that inventory and the distribution channel increased seven percent or remained stable relative to POS growth in the second quarter of FY2018, ended September 30, 2017.
“The strong book-to-bill in the Americas continues and while all channels are positive, the strongest channels are distribution and OEM,” said Per Loof, CEO of Kemet Corp., during a recent earnings call.
However, Loof attributes a lot of the growth to the company’s digital initiatives that include “direct engagement through our web properties or through micro services to our distribution partners. This has made a significant difference in our marketing and a disproportionate growth in our distribution channel.”
Loof said one of its catalog distributors grew Kemet sales 37 percent in Q1 FY2018 compared to the prior year.
Arrow’s third-quarter sales increased by 17 percent, reaching $6.95 billion, compared to $5.94 billion in Q3 2016. Global component sales in Q3 grew 25 percent year over year, reaching $4.86 billion.
Mike Long, Arrow’s CEO, said there is a substantially higher percentage of customers that report not having enough inventory compared to the 2011 to 2016 timeframe, during an earnings call. Long said this indicates that the underlying demand for the business continues and if there is a slowdown, it will be slower than in past years.
Long also noted that lead times remain the same as the last two quarters across Arrow's line card. He reports continued extended lead times for discrete, standard logic, embedded and passive components.
“We're seeing broad-based market strength across all major geographies and across all major verticals and that's really driving those more standard mass market products into extended lead times,” added Andy King, president of Arrow’s global components business.
Avnet also posted double-digit sales growth. Avnet’s first quarter 2018 revenues, ended September 30, 2017, exceeded expectations, rising 13.2 percent year over year, reaching $4.7 billion in sales, driven by strength in EMEA and Asia as well as Premier Farnell.
Avnet’s CEO William Amelio noted during an earnings call that sales in the Americas were hurt by a combination of supplier program changes and ERP disruption but those issues are behind them now.
“There are two factors that contributed to the Americas' performance this quarter; first, the ERP disruption; the second, the supplier channel change,” said Amelio. “When our new ERP system went live in the fourth quarter of fiscal 2016, we experienced failures and basic handoffs in our sales-related process and we lost visibility of many key performance metrics. Inaccuracies in our data flow and communication with customers and suppliers led to some frustration and dissatisfaction.”
He continued: “The other challenge that hit the America region hard was supplier channel and program changes that impacted both revenue and demand creation margin. The billion dollars of revenue that shifted to competitors disproportionately impacted the Americas regions because of higher loss of demand creation revenue.”
With extended lead times for some components in the 20 to 30+ week range, distributors report strong demand signals across several sectors for the remainder of 2017 and into the first half of 2018.
North American sales of passive components and semiconductor products – driven in part by high demand for memory devices - experienced double-digit growth in the third quarter of 2017, increasing by 13 percent and 17 percent, respectively, compared to Q3 2016. Year to date passive component and semiconductor product sales are up eight percent and 12 percent, respectively, according to ECIA.
Interconnect and electromechanical product sales also increased in Q3 2017, rising by two percent and four percent, respectively, compared to Q3 2016. Year to date interconnect sales are flat and electromechanical product sales are up 10 percent. Only display products saw a decline, dropping four percent in Q3 2017 compared to Q3 2016. Year to date display sales are up one percent.
Semiconductors still hold the lion’s share of North American distribution sales at 59 percent year to date, according to ECIA data. This is followed by interconnects (16%), passive components (13%), electromechanical devices (10%) and displays (2%).
ECIA expects sales in the fourth quarter will be strong driven by opportunities in infrastructure development, automotive and medical applications. High demand and growth is expected across most sectors globally through 2018.