Last week, distributors gathered in Las Vegas for the annual EDS Summit. Here’s what we learned about the electronics industry from their perspective. Plus, results of the Bishop & Associates 2019 survey of distributors.
About 80% of electronics designers and manufacturers source the components they need from electronics distributors. That makes this part of the electronics ecosystem uniquely positioned to observe trends and predict future areas of growth in the markets they serve. Representatives from 200 electronics distributors and manufacturers gathered in Las Vegas to share insights at the EDS Leadership Summit on May 7–10. The mood: Cautiously optimistic.
“Everyone had a wonderful year last year,” said Mike Morton, CEO of TTI, Inc., at the company’s annual presentation, which reported on the performance of the various companies under the TTI name, including Mouser, Sager, and TTI Semiconductor. As a whole, the company reported 28% organic growth. Michael Knight, CEO of TTI Semiconductor, said his company has experienced double-digit growth for the past three years, the first time this has happened since 1999.
The outlook for 2019 is tempered by a few headwinds, including a 1.0% book-to-bill ratio in the Americas and below 1.0% in the EMEA region, reflecting an easing of demand and stockpiling of inventory. “The supply chain needs some time to rebalance now. Massive book-to-bill ratios for 10–12 quarters are not sustainable and there are some concerns about inventory in the channel. It was inevitable that it would reverse and now we need to work through that inventory buildup,” he said. Trade tensions between the US and China also intensified during the week of EDS, a reminder of geopolitical uncertainties that could impact businesses.
The Electronic Components Industry Association (ECIA), co-sponsor of the EDS Summit, along with Electronic Representatives Association (ERA), echoed these concerns. ECIA president and CEO Bill Bradford noted a slow start to 2019. “While ECIA surveys show inventories continuing to rise and lead times dipping, we have seen an improvement in bookings and reduction in cancellations, which bodes well for a rebound in the second half of the year.”
Knight said he isn’t worried about an eminent recession for the electronics industry, despite historical patterns that indicate a 10-year recession cycle coming due in the next 18 months. “I think the past isn’t as useful an indicator of the future as it’s been historically,” he said, due to the massive proliferation of electronic content now in the world. “This largely decouples our industry from the economy.”
Other issues to keep an eye on:
- Large inventories mean that customers expect buyer’s market pricing. Price degradation could be a risk.
- Demand is down for tablets, phones, and laptops, reflecting an over-saturated market.
- 5G’s impact will be further out than expected, particularly for phones.
- Korea has a glut of passive components, which will impact pricing and demand in other regions.
On the positive side, Knight said the transition to electric vehicles will have a profound impact on the electronics industry in the near future. The tremendous volume of electronic content in these vehicles will drive the future of the automotive and transportation industries, as well as every part of the electronics industry. This transformation will occur on a mass scale, independent of the global economy, driven purely by innovation. “It’s going to happen. There is technology in development that is going to get us there more quickly than we realize. We are about to reach the tipping point,” he said. “It’s been slow to get here, but in my mind there is no question that the future of automotive is electric power.”
Distributor of the Year
In other distributor news, Bishop & Associates, in partnership with ConnectorSupplier.com, has completed its 2019 survey of customer perceptions of electronics distributors. For the seventh year in a row, Heilind Electronics has been awarded Most Preferred Electronics Connector Distributor of the Year.
More than 1,000 responses from original equipment manufacturers (OEMs), contract electronics manufacturers (CEMs), electronics manufacturing services (EMSs) and cable assemblers provide a snapshot of this critical sector of the electronics industry. We asked questions pertaining to the distributors’ line cards, level of customer support, delivery practices, and more. More than 70% of the responses came from purchasing managers, engineers accounted for the second most, and nearly all respondents came from North American companies. The survey also found that 43.5% of the respondents purchase more than 90% of their connectors used through distribution. They said that factors such as price, delivery, and customer service throughout the entire buying cycle determined what companies they prefer to work with when procuring components.
Congratulations to Heilind, and to all the distributors who help keep the electronics industry vital, growing, and innovative.