Friday 4 December 2015

Electronic component market to remain "flat" in Ireland & Britain in 2016.

According to the manufacturers’ authorised distributor (afdec) group within the Electronic Components Supply Network (ecsn) the Britain & Ireland electronic component market is likely to remain ‘flat’ in 2016. The forecast released by the association recently indicates that the market will at best achieve only slight growth and may even contract in 2016. Predicted figures in the range (2%)-to-2% with a 0% mid-point (i.e. ‘flat’) confirm members' concerns that any recovery in the manufacturing sector of the economy will be extremely gradual and is only likely to continue in-line with improvements in the macroeconomic environment.

Analysis of the consolidated returns from the association’s membership indicate that the overall UK / Ireland Distributor Total Available Market (DTAM) in the current year (2015) and will show a decline of approximately (1%) when compared to 2014. The association's 'flat' forecast for 2016 points towards a DTAM value of around £1.1bn within a Total Available Market (TAM) value of circa £2.9bn (€4bn)

Presenting the forecast, Aubrey Dunford, ecsn Market Analyst confirmed it’s now likely that the UK / Ireland electronic components markets results for 2015 will end just beyond the lower end of the range of guidance provided in the association’s forecast delivered in December last year. According to Dunford, the first half of the year saw a recovery in growth in-line with the association's guidance but this growth trend stalled in the second half of the year, principally due to sluggish growth in the global markets, especially in the key European markets. "Whilst Automotive, Aerospace and Defence markets have recovered well the critical Industrial components market on which much of Europe relies on to drive growth has continued to falter.

"Higher growth in some sectors of the market such as Automotive where Distribution lacks a firm foothold suggests that the TAM should increase by more than the DTAM but many of these electronic systems are designed in the UK but manufactured in Eastern Europe so in real terms, the TAM has declined by (5%) to £2.74Bn,” Dunford continued. “The information provided by our members indicates that the UK / Eire electronic component market is likely to have a modest first half of 2016, recovering in the second half of the year as macroeconomic conditions improve and inventory across the global electronic components supply network is rebalanced to meet the actual demand. We’re likely to see a corresponding recovery in the TAM, meaning the distributor share will only increase slightly in 2016.”

According to Dunford, the continued slow-down in particularly the Asia Pacific market has meant that the whole supply network remains overstocked and it will take some time for manufacturers to adjust their production levels in-line: The ‘Book to Bill' ratio, which turned negative in May ’15, has stubbornly remained below unity and looks unlikely to recover until Q1 ‘16: “Until the B2B ratio recovers beyond 1.1:1 for a sustained period there's no way growth can return to the market,” said Dunford. "We believe that it will take some months for the supply network to come back into balance. In the meantime with good inventory availability and short lead-times, the electronic components market is well positioned to support its customers' requirements,”

Adam Fletcher
ecsn / afdec chairman Adam Fletcher, believes that the problem for the electronic components market is not ‘if’ but ‘when’ and ‘how strong’ the recovery will be: “We have seen a much wider than normal range of opinions from our members, other industry associations and industry analysts, who are all seeing positive signals in terms of opportunity," but he remains concerned that this optimism is not yet feeding though to the real numbers. Fletcher councils continuing caution: "The frenetic pace of merger and acquisition activity in the electronic components markets is likely to slow in 2016 but the outcome of this consolidation will take another 18 months to work through. I suspect that in 2016 we will continue to bump along at the bottom of the recovery cycle with much stronger consistent growth likely into 2017/8."

ecsn Member’s Comment…
Steve Rawlins, CEO of Anglia Components says the market has increased by as much as 10% in volume terms, but the pressure on Average Selling Prices (ASPs) means it has remained flat in terms of value. He believes that the only way to grow faster than the market is to be smarter than the market and this means building up your knowledge and understanding: “Sometimes there are two, three or even four intermediaries before the end user and each one will have an impact on the design,” Rawlins said. “An effective demand creation distributor needs to understand not only what the direct customer is looking for but also what drives their customer.”

Chris O'Neill, Senior Sales Manager - North Europe at Omron Electronic Components says, “Although the ecsn is forecasting a flat market, Omron views 2016 positively. We believe that innovative new products, and market trends such as the reshoring of production, will help boost demand during the year.”

Commenting on the ECSN forecast John MacMichael – Managing Director emphasised that Solid State continues to see strong design activity in the UK and consequently focuses its efforts on supporting the design community: "The reliance of focused distributors like Solid State on their ability to design product in and support end customers in the design process necessarily dictates that the company takes a longer term view of the market." Solid State will continue to invest in educating and training customers in the latest technologies as it attempts to keep its customer base ahead of their competition. Macmichael believes that this is particularly true where customers choose to partner with Solid State to ensure that innovative products make it to market ahead of low cost Far Eastern versions. However in the near term a softening in the market is making forecasting more unpredictable than usual with short term ordering replacing the more usual long term schedules. Solid State expects to out-perform the market through the extension of its technical franchise base and the consolidation and cross selling opportunities that its recent acquisitions have presented.

ISMOSYS Managing Director Nigel Watts agrees. He attributes his company's continuing success to the implementation of true demand creation initiatives combined with the effective use of a sales team that focus on those customers judged to have already 'met the grade.' He sees further significant growth both in terms of designs and production revenues in 2016 and beyond but he believes that sales, marketing and design support teams in the UK electronics industry need to do more to identify, drive and secure the next tranche of high growth emerging customers and do everything in their power to ensure the eventual revenue remains 'local' by introducing them to partners with the ability to serve their interests in Europe rather than scour the globe for 'low cost' options that often ultimately prove to be anything but low cost.

Forecasting customer demand is proving problematic for 2016 says Peter Hannon – Managing Director – Harting Ltd: "We see some growth opportunities in project business, in particular infrastructure projects. However the gestation period can be long with design and funding changes. We have to take a longer term view to the business whilst continuing to develop innovative products and solutions for our customers. As we continue to evolve into a inter connections solutions company the demands and complexities of our customers will increase. We need to ensure we have the right skills and resources to satisfy the needs of our customer going forward."

CamdenBoss also enjoyed steady growth both nationally and internationally in 2015 but is finding that the longer term forward order book is still struggling to build at levels previously seen. Long term projects are materialising at a much slower pace than the project was often targeted at and roll-out dates to full production are frequently moving out: "The complexities of projects for enclosures and inter-connections are increasing and our customers are definitely demanding total solutions to help minimise their overall costs," said the company's MD, Nicki Kay: "This is coupled with a clear nervousness amongst the global distributors to risk investing in stock and affecting cash-flow so making forecasting difficult for the first half of 2016." Kay believes that the slowdown in China is benefiting the UK to a certain extent as companies are becoming nervous about placing new products and production out there whilst the Chinese economy is suffering. "The potential risks about how the China government and workforce are going to react in the medium term is unknown."

ecsn / afdec chairman Adam Fletcher concluded by stating his belief that all organisations right across the electronic components supply network must continue to improve their collaboration and forecasting to mitigate supply problems: "Well managed open, honest, communication throughout the supply network costs virtually nothing but provide great value for everyone, not least by increasing confidence in our own capabilities.”

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