Positive momentum continues to build in the supply chain following market reports that point to growth across the electronics industry. The March Electronic Components Sales Trend (ECST) index exceeded its threshold of 100, growing to 106.9, reported the ECIA. The big 3 component categories – semiconductors, passives and electromechanical (EM) devices – reached at least 100 in March. The EM category reached 118.6.
All three component segments are projected to see a dramatic jump of between 14.7 and 17.9 points in the April sales sentiment index. The scores for the major segments are expected to register between 117.8 and 133.3 in April. This would drive an overall average of 123.7 in April, the highest score since February 2022.
Source: ECIA
Likewise, sentiment among electronics manufacturers remains positive, with demand reaching the highest level in a year, according to IPC’s March Sentiment of the Global Electronics Manufacturing Supply Chain Report. In regard to the outlook for the next six months, electronics manufacturers expect labor costs to come down slightly, with material costs holding steady. While profit margins and backlogs are expected to improve, recruitment is likely to remain challenging.
Additional IPC survey data show:
- Cost pressures remain consistent: The material cost index rose 3 points but was offset by a 3-point decline in the labor costs index.
- The new orders index rose to the highest level since July 2022.
- Industry outlook improves: The demand outlook index approached an all-time high while the outlook for profit margin also hit an all-time high.
- Orders, shipments and capacity utilization are all expected to rise significantly in the near-term.
Separately, the U.S. manufacturing PMI exceeded its growth threshold for the first time in 16 months, the Institute for Supply Management reported.
End market outlook
The ECST survey results for end markets match the positive sentiment reported for the product segments with the March end-market index improving to 108.9. Positive momentum is expected to continue in April with an index score of 120. Avionics/military/space, medical and industrial electronics continue to be the strong drivers of optimism. All three segments registered scores indicating positive sales sentiment in March. However, much more impressive is the forecast that every market except one will top the index threshold of 100 in April. Only telecom/mobile phone falls short at 93.8 in the April outlook.
The key takeaway from the latest ECST survey is that positive overall sales sentiment has been sustained for a second month and survey participants are enthusiastic about future prospects in April. Also notable in the latest survey results, according to ECIA chief analyst Dale Ford, is the exceptionally strong improvement in sentiment among manufacturer representatives. This group has been more pessimistic compared with component manufacturers and distributors.
In the March survey manufacturer representatives registered a jump in their overall index score of 23.6 points to reach 101.2. Their April outlook jumps up by 19.6 index points resulting in strongly positive sentiment for March and April that is closely in line with the other groups. This broad-based optimism among all three supply chain groups lends support to the overall positive sentiment in the electronics components industry, said Ford in a statement.
Prices and lead times
In general, component prices are declining, said Ken Bradley, founder and CEO of spend analysis platform Lytica. “I think it’s fair to say that prices have been coming down pretty steadily over the last several months,” he said. But unlike previous cycles, prices are not declining as quickly or as steeply as customers would like.
“Many [end] customers are still struggling with too much inventory,” Bradley explained. “Many customers are trying to negotiate for better prices and they’re not necessarily able to get them. So there is still some some hesitation, I guess, for component makers to pass on some cost reductions.”
Typically, during an inventory glut, excess components are sold at a discount to the open market where prices fluctuate based on supply and demand. “Use data, whenever you can, to validate whether you are getting fair pricing,” Bradley advised.
Product lead time results continue to portray a very stable environment in all major component categories, reported the ECIA. The share of survey respondents reporting stable lead times in the supply chain grew from 73 percent in February to 81 percent in March.
Reports of both increasing and decreasing lead times shrank in March with only 6 percent reporting increasing lead times. The only exception to the overall view of lead times is found in the DRAM and NAND Flash markets. These segments averaged increasing lead time reports by 25 percent of survey respondents. Still, even in the memory segment with its surging markets, stable lead times were reported by 66 percent of participants.
The IPC asked its survey base about how the current interest rate environment impacts their businesses. Firms that rely on borrowed capital indicated they are seeing an impact on material costs, inventories and orders as a result of higher interest rates, which then filters down to reduced capex spend and the ability to grow and invest in other areas of the business. Among firms operating in markets outside of the United States, exchange rates can also be negatively impacted by higher U.S. interest rates.
Still, the overall picture presented by its sales sentiment survey results for March actuals and April forecasts for electronic components is extremely encouraging, the ECIA concluded, as the industry moves through 2024 and recovers from the lows of 2023.
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