Electronic Component Demand Shows Signs of Softening

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Following two years of positive sales growth, electronic component sales sentiment fell into negative territory in June. Separately, there have been signs of softening demand in certain electronics end-markets and for international cargo capacity. The drop could be seasonal, according to ECIA Chief Analyst Dale Ford, but other economic and industry indicators and expectations dim that prospect.

June’s Electronic Component Sales Trend Survey (ECST) dropped below the benchmark of 100, indicating negative growth. The index for all major component categories measured below 100 driving an overall average of 97.5 in June, ECIA reported. Similarly, the end-market sentiment registered at 93.2 for June, in line with forecast expectations in the May survey.

Inventories have been building and demand softening for a number of electronics products, according to research firm TrendForce. Prices have declined in consumer-spec MLCCs, NAND Flash, DRAM and LCD monitors. Inflation is weighing heavily on the electronics market, according to IPC, with 9 out of 10 manufacturers reporting rising materials costs. The last time the ECST dropped below 100 the overall economy was very different, Ford said in a release.

“Two years ago, when the index dropped below 100 in July 2020, the index saw a strong rebound above 100 in the following month of August. However, that rebound came during a period of strong economic growth and overall consumer and industry optimism. The current economic environment is a polar opposite from two years ago. While it can be hoped that the June results only reflect seasonal market behavior, other economic and industry indicators and expectations dim that prospect. In fact, the July ECST outlook remains essentially flat compared to June, only rising to 98.1.”

The semiconductor market is expected to rebound in in July to more then 111, ECIA said. Other major component categories continue their slide in July as well as the end-market outlook.

“Bottom line – both the cyclical behavior of the electronic components industry and the current economic picture point to the possibility of a sustained negative month-to-month sales trend,” according to Ford. “On a hopeful note, the Q2 ECST survey sentiment results paint a clearly positive sales growth picture for Q2 and Q3 2022.”

Only two out of eight individual end-market segments sustain a positive outlook for July. The avionics/military/aerospace and automotive electronics sectors reflect a strongly positive sales sentiment in both the June and the July outlook. Industrial electronics is slightly positive for June but slips negative for July. Consumer electronic, mobile phones, and computers shift sharply negative for June; mobile phones and computers have trended negative for a number of months, according to ECIA. The June results show a dramatic negative movement in these markets as well as consumer electronics.

“Terminal demand remains weak due to repercussions of the Russian-Ukrainian war, rising inflation, and China’s pandemic lockdowns as monitor brands began to reduce purchasing of LCD monitor panels in 2Q22,” TrendForce reported. “LCD monitors panel shipments in 2Q22 are estimated at 42.5 million units, down 11.3 percent [quarter over quarter].”

Still, the medium-term outlook is positive through Q3 of this year. More than half of respondents to the ECIA survey expect growth in Q2 and Q3 – roughly 25 percent expect growth above 3 percent. Nobody saw any possibility of a decline in semiconductor sales in Q3.

This is not necessarily bad news for buyers. Component lead times are stabilizing, ECIA reported, with 74 percent of respondents seeing that trend in June.  Overall, this is a 13 percent improvement compared to May. Still, 34 percent of respondents see an increase in semiconductor lead times. Buyers may still face product-mix issues where they are able to procure most of the components needed for a final assembly but are still waiting on chips.