Long-term demand for electronic components remains robust although sales expectations for the third and fourth quarters have moderated, according to the ECIA. Concerns and uncertainty related to the economy, inflationary pressure and the resurgence of Covid-19 with potential shutdowns could account for the continuing shift of sentiment, said Chief Economist Dale Ford in a release.
Yet there are no indications long-term demand for electronics will decrease. Chip makers – currently struggling with a shortage of supply – plan to bring more than 20 fabs online over the next few years.
The Institute for Supply Management’s manufacturing index grew in August – led by tech companies -- as the sector struggles with supply chain issues. The ability to deliver products to factories and end-users continues to dog the industry.
The ISM’s PMI rose to 59.9 percent in August. Any number above 50 indicates expansion.
ECIA’s component sales index remains above 100—the demarcation line between contraction and growth. Following a peak of 157.7 in March, sales expectations declined to an estimated 115.4 in September. The trend shows continuing but moderating growth through the end of the year.
Customer expectations may be adjusting to the fact that chips could be scarce for years but ECIA’s assessment of overall end-market demand remains encouraging. ECIA’s comparison between growth expectations for Q3 2021 and Q4 2021 shows continued optimism for sales growth in both quarters. The share of survey participants expecting growth in Q3 is 68 percent followed by continued optimism in Q4 but with 51 percent of respondents. Only between 2 percent and 4 percent of participants expect a decline of between -1 percent and -3 percent in Q3 and Q4. The remaining survey participants expect stable revenues for the second half of 2021.
Publicly traded distributors reported at the end of their most recent quarters – calendar Q2 – that they’re shipping inventory almost as soon as they receive it. The shortage is likely a positive for new customer growth in the channel.
“The way we are managing through this is we have such a broad line card we have a ‘buffer’ for many product lines and we are working with our customers to find alternative parts for them,” said Tony Roybal, president of Americas Electronic Components at Avnet Inc. “Customers that buy direct from suppliers are being told, or are deciding for themselves, that distribution will become part of their go-to-market strategy. We are being leveraged heavily, but customers in the industrial and consumer markets are figuring out the key programs and players that put together their supply chain.”
The more modest growth picture for the remainder of 2021 should offer some relief to suppliers and supply chain managers challenged by demand that has outstripped supply, resulting in inventory shortages and significantly extended lead times, said Ford. Two industry players recently cited DRAM lead times extending to a year.
Supply constraints in one category have a ripple effect on demand in other areas, Ford added. The semiconductor shortage has spilled over into the IP&E market. Within individual market segments avionics/military/space and medical equipment have the brightest outlook for September followed by telecom networks and industrial electronics.
Expectations for consumer electronics and telecom mobile phones are essentially flat. Automotive electronics saw the biggest drop in expectations for September compared to August.
Moderating sales expectations should reduce lead-time pressure and ECIA reported significant easing on product lead time across all categories moving from July to August. Discrete semiconductors and capacitors remain under the most pressure.
In a separate question on the level of inventories, survey participants reported low to extremely low inventories for as much as 93 percent of component categories. DRAM and data flash memory were under the greatest pressure.
The bottom line, Roybal said, is that too much demand isn't a bad thing. “Our book-to-bill has been incredibly strong and our backlog is insane,” he said. “It’s a good problem to have. At Avnet, what we’ve done operationally in the Americas – focusing on people, product and process – enables us to make smarter, faster decisions; optimize our inventory and materials management; and see significant returns on profitability.”
The August PMI also showed inflationary pressures easing. The ISM’s measure of prices paid by manufacturers fell to an eight-month low of 79.4 from a reading of 85.7 in July. ISM’s price index reached a record high of 92.1 in June.