"The strong growth that global electronic components markets saw throughout 2021 dwarfed the Forecast we issued at the end of last year,” said Adam Fletcher, chair of the Electronic Components Supply Network (ecsn) at the latest forecast. “We did caution that if strong demand returned to the global economy in the second half of 2021, the resulting demand could trigger a supply imbalance in global electronic components markets. We were right but surprised when the imbalance occurred earlier in the year than we predicted”.
“The recovery happen much faster than expected and the shortages led to higher prices that contributed to the growth,” said ECSN Market Analyst Aubrey Dunford.” Shortages in materials such as copper and gold led to higher prices and longer lead times. There was a boom in q2 in connectors, there’s been a huge growth in sales in the non-semiconductor areas as well.”
“We believe growth will continue through 2022, we think there is a growing and pent up demand for applications around 5G but the key question is on the supply side and how quickly supply of components can be ramped up,” said Dunford. “Overall we expect to see 10 percent growth, this is our best estimate of a realistic forecast for the year. Q2 and Q3 will be best quarters distributors have seen for many years.”
This will see a market of £1.4bn in the UK in 2021, back to levels of 2018, with ten percent growth in 2022, says Dunford.
The shortages in chips and other components, particularly connectors, has led to over-ordering and a rise in the use of the grey market with the risk of counterfeit devices, says Fletcher.
“Product availability has to be the main uncertainty. We are sure the global order book is over inflated but how much of that will disappear is unsure,” he said. “There are places in the world where people have stuffed the order book with double ordering, particularly with CEMs ordering as they are confident they can use the parts.
“That’s not what we see in the UK and we are confident that the UK order book is far more realistic and rational without the huge increases we have seen in other countries and that is a key part of the forecast,” he said.
The forecast only covers authorised distributors in the UK, and the shortages have led customers to look to other routes for parts.
“Our recommendation is to work with the existing supplier but sometimes people move outside of that and take unrealistic risks and source products from places they know they shouldn’t,” said Fletcher. “I think it’s a very risky strategy and customers we have talked to acknowledge that their spend in the grey market is significant and that has allowed them to get output. Authorised distributors try very hard to balance delivery to the guys that really need it with conversations about what they can do.”
“People are going out to the grey market but the real danger is not to allow counterfeit product to be returned to the distribution channel. We have a massive set of return procedures to make sure we don’t see counterfeit product back in the channel, recently every single device has to be inspected thoroughly to make sure it is genuine,” said John Macmichael, Managing Director Solid State Supplies & Pacer Electronics.
“What troubles me much more is the passive market,” said Fletcher. “This is the largest product with trillions of components every year and its all skewed to the smallest package sizes for smartphones. In Europe and the US we have many customers who want legacy case size products in MLCCs and film chip resistors – that’s where the problem will go as there are only 3 to 5 manufacturers,” he said.
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