Is the market heading for a double-dip recession?
With encouraging growth in the components market since the start of the year, fears for a double-dip recession had receded.
This has changed with fresh signs that the components market is ‘growing’ too quickly for demand to fulfil.
According to figures from industry body, afdec, the component distribution market in the UK and Ireland jumped by a huge 24% in June.
“I’m sorry to be the ‘party pooper’ but the current billings growth trend exhibits all the signs of an “it’ll all end in tears” scenario,” says afdec chairman, Adam Fletcher.
We contacted a number of UK-based component distributors last week and they were reluctant to put such a dramatic spin on the situation.
All distributors contacted said bookings were running significantly ahead of billings, but none were particularly surprised or concerned buy this.
“The rate is absolutely what we would expect, based on manufacturers lead times averaging 30 weeks,” said one distributor.
Another factor is the UK market’s strong focus on design, which is no always matched by production orders.
“Volumes from UK-based designs are still ramping, although the manufacturing is predominantly off-shore, something that the UK book/bill numbers will not reflect,” said another distributor.
“Right now the design total available market (TAM) is approximately treble the consumable TAM in the UK,” said one distribution executive.
Afdec’s figures show that there was a 23.8% increase in billings compared to the previous month and a 37.9% improvement over the same period last year.
There was an 87% increase in semiconductor bookings and 58% growth in the passives in June.
“This exceptional level of bookings growth is unsustainable and increases my fears about double ordering by customers,” says Fletcher.
The big worry amongst distributors is not current growth rate, but how long the growth spurt will last.
Most distributors we spoke with were confident the market would show positive growth for the rest of this year, but there was real uncertainty about what would happen in 2011 as component production capacity ramps and supply constraints ease.
“We are preparing for negative book-to-bill for the first half of 2011 as the supply lead times soften and the strong order books are delivered,” said one distributor.
There is still an acceptance that this year’s business turn around is simply a correction for what was a very bad year for the components market in 2009.
Distributors are still looking for signs of sustainable long term demand growth.
The views were summed up: “I believe it is extremely unlikely to be sustainable past end of this year, certainly for the UK, as I am not sure what the drivers are for such growth?”
But there was a reluctance to paint a doomsday scenario.
“Of course there are concerns but we are not expecting it to “end in tears”,” said a distribution manager
“We expect a market correction of bookings (which will be “large” as 24% is not sustainable) and a “smaller” correction in the billings in 2011.”
“Remember that right there is very little inventory in the supply chain, everything shipped is being consumed,” he commented. “While this trend continues, we are “ok”.
See: Capacity, yield issues to hit DRAM growth, hiking prices