Electronic component sales in February moved into positive territory for the first time in 21 months, driven by momentum in interconnect, passive and electromechanical (IP&E) devices.
The ECIA’s Electronic Component Sales Trend (ECST) index reached 100.8 last month, exceeding the 100.0 threshold between growth and contraction. The index languished at an average of 85.2 for 2023, unable to sustain any meaningful improvement until a positive surge started in January. This momentum carried over into February with the encouraging outcome of an overall positive sentiment score, said ECIA Chief Analyst Dale Ford in a statement.
Source: ECIA
The electronics industry’s headwinds include excess supply chain inventory and soft demand for components. Inventory appears to be continuing to improve across most segments, and prospects of at least some demand recovery in CY24 should enable further rebalancing, according to Edgewater Research’s March supply chain newsletter. The one exception was semiconductors.
The ECST index score for semiconductors dropped by more than 18 points in February to a score of 93.3. “This pessimism is consistent with the generally gloomy Q1 guidance reported by major semiconductor manufacturers,” said Ford. AI remains the standout, Edgewater reported, but beyond AI there have been signs of pickup over the past two quarters in storage but [activity is] still muted in standard compute and PC chips.
Inventory levels are at the “right amount” for 44 percent to 69 percent of ECST respondents, depending on the category. “Excess inventory” is reported by 26 percent to 48 percent of respondents for these same categories. The overall assessment of the supply chain shows a stable environment where a significant level of inventory remains to be reduced, said Ford.
ECST scores for IP&E components jumped by 14.2 and 12.3 points, respectively. Positive momentum is projected to carry into March with an improvement of 9 points in the overall average to nearly reach 110 points. The index scores for all three major component categories are projected to top 100 in March.
Supply chain constituents are also optimistic. In the March outlook, distributors’ and manufacturers’ overall scores are both projected to top 100 index points. Manufacturer representatives’ outlook reaches 91.7 points. “While it was difficult for actual sentiment scores to achieve very optimistic outlooks in recent months, the projection of a 9-point improvement between February and March would seem very doable,” said Ford.
The longer-term outlook presented by the Q1 2024 ECST survey delivers more positive news for the electronic components industry. In Q1 2024 the overall net index score delivers a positive 1 percent outcome. This is boosted significantly by net positive scores of 16 percent and 6 percent in EM and passives, respectively. Semiconductors, however, project a net negative growth score of -17 percent.
The outlook for Q2 2024 is positive: EM components report a net positive sentiment of 46 percent; passives, 37 percent; and semiconductors, 17 percent. “It is clear that this positive sentiment is dominated by expectations of growth between 1 percent and 3 percent,” said Ford.
End-market strength
Avionics/military/space, medical and industrial electronics continue to be the strong drivers of positive sentiment in the end-market index. Improved ratings in most of the end-market segments drove an overall market index improvement of 11.4 points in February, pushing the index above 100 to 104.3.
Automotive and telecom network equipment are projected to join the 100+ club in March, ECIA reported. Computers and consumer electronics will also see favorable improvements above 95 in this outlook. Only mobile phones languish around 85.3 in the March forecast. This broad-based improvement in the end-market forecast drives an overall index score above 117 for March.
ECST participants report lead times continue to stabilize. In February, overall stable lead time reports expanded from 66 percent to 73 percent between January and February. This comes at the expense of decreasing lead time reports that fell from 28 percent to 19 percent in this same time. Increased lead time reports grew by 3 percent to reach only 8 percent in February.
In the U.S. manufacturing market, demand slipped in February after a January rebound. The U.S. PMI has yet to break its 50.0 growth threshold, but the Institute for Supply Management said the sector is set for a soft landing after 16 months of contraction.
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