Several research firms describe the electronics market environment as “stable” entering the all-important calendar Q4. Lead times, for example, have leveled out, according to LevaData and the ECIA, and demand shows no sign of abating. However, logistics experts continue to point to seemingly endless backups at international seaports and retailers are bracing for holiday shipping delays.
Stable, of course, is a relative term. LevaData estimates average component lead times are 22 weeks with some component categories leveling out; ECIA reports lead time pressures are beginning to ease.
The ECIA reports its electronic component sales-trend (ECST) index remains above 100, the line of demarcation between growth and contraction. The average growth expectations for components ranged between 120.0 and 127.0 between September and the October, according to Dale Ford, chief analyst for ECIA. Expectations for end-market growth ranged between 111.4 and 115.4 for the same period. At its height, the ECIA’s component sales index was 157.7.
While the ECST shows a significant difference in variability/volatility between various component sub-categories and end-markets, the overall picture of a more stable growth profile is encouraging for supply chain participants working to manage in a very challenging environment, said Ford. “The quarterly ECST survey results, which remain the same as presented last month, present a similar picture looking through the end of 2021.”
A comparison between Q3 and Q4 shows continued optimism for sales growth. Sixty-eight percent of respondents expect growth in Q3; that number declines to 51 percent in Q4. Only between 2 percent and 4 percent of participants expect a decline of between -1 percent and -3 percent in Q3 and Q4.
The more modest growth picture should offer some relief to suppliers and supply chain managers challenged by demand that has outstripped supply in many areas and resulted in inventory shortages and significantly extended lead times, said Ford. “The recent stable, yet positive, expectations measured by the index is a pleasant surprise given the growing concerns and uncertainty related to the economy, emergence of inflationary pressure, raw material supplies, the resurgence of Covid-19 with potential shutdowns, national and geopolitical instability, and increasing supply chain disruptions and lead times.”
ECIA notes, as does risk-management analysis firm Resilinc, that 2021 has been beset by a series of supply chain disruptions. “It seems that every stage and dimension of the supply chain presents a crisis: constrained cargo shipment capacity by sea or air; overwhelming port congestion, overflowing storage centers, limited trucking availability, lack of visibility and capacity in railroad carriers, etc.,” said Ford.
Data bears out the challenges of 2021. In the first half of 2020, 342 factory fires had an impact on businesses, according to Resilinc. In the first half of this year, 863 fires have been reported. Fires have been the leading disruptor in supply chains this year as Covid-19 shutdowns have deferred routine maintenance. Merger and acquisitions are second: In the first half of 2020 there were 210 M&As; in 2021 there were 847.
Farther down on the list are supply shortages, with 251 vs. 34; and port bottlenecks, 185 vs. 57.
Still, in a comparison between August and September, ECIA notes that lead time pressure may be easing. Discrete semiconductors, capacitors, and analog ICs continue to experience the strongest lead time pressure in August and September. Between 66 percent and 93 percent of survey participants in the quarterly survey reported low to extremely low inventories across component categories. DRAM and data flash memory were under the greatest pressure.
One factor that overrides these challenges, ECIA notes, is end-market demand. Looking toward October, industrial electronics and automotive electronics captured the strongest positive growth sentiment. Medical electronics continues to drive consistently strong expectations. After standing at the top of expectations in the last survey, avionics/military/space fell into the lower range in expectations in the September survey. Computers actually fell below the 100- growth benchmark for September growth sentiment but rebounds back above 109 looking toward October.
Should this demand see a significant decline due to a collapse in the economic environment, the growth profile could not sustain its positive sentiment in the face of all of the surrounding pressures, noted Ford. A recent survey by IPC determined that shortages are hurting downstream manufacturers.
“Strong demand is helping industry sales, but shortages are delaying shipments and increasing backlogs," said Shawn DuBravac, IPC chief economist, in a release. "Manufacturers are facing higher prices as they compete for limited supply."
“While there has been plenty of attention paid to the shortage in semiconductors, it’s important to point out that electronics companies around the globe are facing additional shortages and backlogs, experiencing diminished inventories, and paying higher materials prices,” added John Mitchell, IPC president and CEO. “The current situation is unsustainable. If the current shortages extend beyond 2022 as feared, they will continue to have serious consequences for all industries tied to electronics manufacturing.”