Optimism regarding electronic component sales has tempered in the past few months, according to ECIA, although demand remains steadfastly high. The economy, inflation and supply chain constraints have likely contributed to softening expectations.
It's also possible that, after six months of chip allocation, OEMs are realistic about the number of parts they can expect to receive.
In March and April optimism peaked in the ECIA’s monthly survey of component sales trends (ECST). The index hit 157.7 in March, with any number above 100 indicating growth. The subsequent four months showed a steady loss of momentum. July’s index stood at 128.7.
In addition, survey participants expect a continued drop in the index with the outlook for August coming in at 121.6 overall. The decline in the index shows a clear softening in growth expectations through the summer of 2021, according to Dale Ford, ECIA chief analyst.
The assessment of the overall end-market demand has mirrored the electronic component demand perspective as it has dropped from an index score of 159 in April to 128 in July. Given the decreasing pressure on growth it would be expected that upward pressure on lead times might be reduced, said Ford in a statement. Unfortunately, that is not the case.
Expectations for end-market demand peaked in April, according to ECIA, with 60 percent of respondents saying month-to-month sales growth was “better.” Only 1 percent saw “worse.” Survey responses of “better” dropped to 35 percent in July; 7 percent saw the market as “worse.”
Concerns related to the economy and the emergence of inflationary pressure could account for the shifting sentiment in the index, said Ford. “In addition, supply chain challenges likely add to the concerns as supply constraints in one category have a ripple effect on demand in other areas. Within individual market segments, computers and telecom network equipment have seen the biggest decline in positive sentiment. On the other hand, the avionics/military/space segment is seeing improved expectations.”
Data released by the industry’s largest distributors, Arrow Electronics Inc. and Avnet Inc., showed record component sales growth in calendar Q2 and ongoing high demand. After six months of shortages, however, customers may be more realistic about how many parts they can actually get.
"We've been able to try to manage our customers' expectations along with our suppliers', so everybody knows what's coming," said Arrow CEO Mike Long on a call with analysts.
The semiconductor shortage is straining all U.S. manufacturing sectors, according to the Institute for Supply Management. Demand remains robust – ISM’s new orders index in July was 64.9; any number above 50 indicates expansion. Automotive companies have closed some production lines and Apple has reported the chip shortage will impact iPhone and iPad sales.
“Everything’s in demand—both old and new chips,” said Tim Fiore, chair of the ISM’s manufacturing survey committee. “It impacts anyone that has any level of electronics in their products. And it’s not expected to improve before 2022.”
It’s not just end-markets that are feeling constrained. Electronic component manufacturers and distributors said their calendar Q2 performance could have been better if it weren’t for supply constraints.
Intel Corp. CEO Patrick Gelsinger, during Intel’s earnings call, blamed supply shortages for restraining the computer chip maker's growth opportunities, saying the company would "have bigger numbers in the second half if we weren't limited in supply."
Long told analysts Arrow could ship an additional $1 billion worth of goods if it had a comparable level of inventory.
Semiconductor lead time pressure remains stubbornly high with 79 of respondents expecting increasing lead times, said Ford. DRAM, NAND flash and discrete semiconductors exhibit the strongest lead time pressure. Comparison between June and July lead times shows some slight relief in the electromechanical, connector and passive segments.
Chip industry experts have said the chip shortage may last until 2023.