Electronic components maintain an upward selling trajectory
Electronic component sales continue to defy headwinds as ECIA The monthly sales trend indicator beat expectations in May, six points above the previous month’s forecast. Component manufacturers, distributors and manufacturers’ representatives continue to maintain a positive assessment of component sales growth through June.
The ECIA’s ECST (Electronic Component Sales Trend) survey reached 117.6 in May and fell slightly to 115.4 in June. Any reading above 100 indicates growth.
Over the past nine months, all major component categories have achieved strong and positive selling sentiment. Semiconductors hit a high of 123.1 during this period; passives averaged below 112.5. Only 10 points separate the two, the ECIA pointed out.
The current global shortage of semiconductors will keep demand signals strong and for any chip designed into a product, dozens of interconnects, passive and electromechanical (IP&E) are needed to support it. Yet economic concerns continue to weigh on the electronics market.
“It would appear that there is a general feeling of concern about the impact of the economy on the market, while judging specific end markets always gives more optimistic expectations,” said the chief analyst of ECIA, Dale Ford, in a statement.
The end-market outlook presents an interesting anomaly in the overall picture, Ford added. Assessing the outlook for June, overall sentiment falls below 100 at 96.1. However, the individual market outlook averages 107.8, with only the Computers and Consumer Electronics categories falling below 100. The medium-term outlook as measured by the quarterly ECST paints a solid picture. positive until the third quarter of this year. More than half of respondents report growth expectations in the second and third quarters, with about 25% expecting growth above 3%. An average of just 13% sees a decline in Q2 and that drops to 9% in Q3.
As Ukraine continues to struggle against Russia, the avionics/military/aerospace sector continues to see improved sales expectations. Industrial electronics and automotive electronics are also generating very positive expectations. Telecommunications Networks and Medical Electronics are seeing lower sales expectations while Consumer Electronics maintains a mostly flat outlook. Mobile phones and computers continue to see sales decline in the index with readings well below 100 for several months now. The outlook for mobile phones is improving slightly to a stable outlook for June.
Semiconductor growth expectations jumped significantly in the third quarter, with growth expectations rising from 43% in the second quarter to 59% in the third quarter. No one sees the possibility of a drop in chip sales in the third quarter, the ECIA reported. Sentiment in passive and electromechanical sales becomes slightly more conservative in Q3 compared to Q2 – but remains very positive overall.
Unfortunately for end customers, expectations for extended lead times increased significantly in May across all component categories. On average, 39% of ECIA respondents saw an increase in lead times in May, and only 7% saw a decrease in the average. In semiconductors, 46% see longer lead times. In liabilities, the average was 28%. The combination of strong end market demand and supply chain challenges continues to stress delivery times.
Inflation, a major concern
The IPC, which also tracks industry sentiment, reported that nine out of 10 electronics makers surveyed are currently experiencing rising material costs, while 86% of electronics makers are concerned about inflation. Three main forces are pressing the economy, and conversely, the electronics manufacturing industry, IPC said: geopolitical uncertainties, inflationary pressure and China’s shutdowns exacerbating supply chain disruptions.
“Last month’s economic data makes the U.S. economy look worse than it probably is, while the reverse is potentially true for Europe and China,” said Shawn DuBravac, chief economist at the IPC, in a press release. “While Europe avoided a decline in the first quarter, it will continue to face a host of headwinds in the coming quarters.”
U.S. industrial production rose 1.1% in April, IPC reported, continuing its strong post-pandemic recovery. End markets, driven by the automotive industry, also grew. Manufacturing rose 0.8% in April. Automotive production jumped 3.9% while non-automotive manufacturing rose 0.5%. The mining sector (ie oil rigs in the Gulf) also continues to post gains, increasing output by 1.6% in the month. High oil prices should lead to further gains for the mining sector. Industrial production is now 4.2% above pre-pandemic levels.
EU manufacturing output fell 1.2% in March, the first drop since October 2021. Manufacturing output rose 0.7% year-on-year and 1.7% since the start of the pandemic. The electronics industry, which includes categories such as components, loaded boards, computers, communications equipment and consumer electronics, saw output rise 0.8% in February. The sector is up 16.6% from pre-pandemic levels.
According to IPC, many parts of China are just beginning to emerge from the extended Covid shutdowns that began in April, suggesting the economy likely slowed sharply in the second quarter. China’s zero Covid policy likely means more lockdowns in the future and further supply chain disruptions.