The component market’s annus horribilis has come to an end.
Some estimate that the components market shrank by as much as 45% at the low point of last year. But by the summer there were signs of things starting to turn around.
Suppliers and distributors are now reporting six to eight months of steady sales growth.
“We have now seen eight months of sales growth,” says Graham McBeth, president of Avnet Abacus. “Frankly, that is longer than we thought it would go on and there are no signs yet of it ending. The month of May was a cracker for us.”
This view is not limited to Avnet Abacus, or indeed the passives and e-mech market in which it operates.
According to Acal’s group chief executive Nick Jefferies, the market bottomed in June last year and has been “climbing steadily since then”.
Jefferies says orders in the electronics division in March were 22% higher than a year ago.
“We are seeing a very broad-based recovery in the market across all product areas and geographies, and that is a good sign that the recovery is sustainable,” says Jefferies.
RS Components is another broadliner which is saying that sales have been picking up dramatically in the last six months.
In the January-March quarter the catalogue and online distributor saw sales growth running as high as 15%.
And growth in the market is still accelerating.
In April and May, group revenues grew by around 23%, the UK by around 11% and the international business by around 29%.
Growth is good, but too much growth may not be, as manufacturers experience increasing supply problems following a dramatic cutting of production during the downturn.
While rising prices and talk of components already on allocation may not worry distributors too much right now, they know uncontrollable growth could eventually backfire on the market.
Acal’s Jefferies is wary of the market overheating if the growth rates keep accelerating to unsustainable levels.
“But I have seen signs that the growth rate is easing, which will reduce the risk of any overheating,” he says.
McBeth at Avnet Abacus is also fighting to keep the optimism in check. “Even with the growth we have seen we must remember that the market is only where it was in 2008,” he says.
“Suppliers are now struggling to satisfy the demand in the market. They reduced capital investment and their workforces in the downturn and have not yet brought it back.”
The industry is looking for sustainable growth and the worry is that will not be possible unless there is some new investment in manufacturing capacity in the second half of the year.
“This investment is needed, but I am not yet convinced it will happen,” says McBeth.
However, he does see some supply stability coming back to the market after a large and uncontrollable surge in demand at the start of the year.
“Suppliers are meeting commitments, so we have been able to increase inventory in the last six weeks. Billings are also growing, which obviously wouldn’t come through if there wasn’t enough stock, so it is kind of working,” says McBeth.
But is it sustainable? “Maybe,” says McBeth.
Everyone seems to agree that the bounce in the market is being driven by new designs and new demand from OEMs.
“I see no evidence of customers building stock, so I have no worries that the market will dip back down again,” says Steve Rawlins, managing director at Anglia.
Rawlins says he is seeing a new confidence among his UK-based customers, which are predominately small and medium-sized companies.
“Clearly there are supply issues on some components, and there are components on allocation that I have never seen on allocation before, but all in all I would describe the market as vibrant,” says Rawlins.
And he is hiring sales staff again. “It is good to be hiring after 18 months. Right now our sales are 33% up on last year – we’re flying,” says Rawlins. ?