Uncertainty is the new norm. Presenting ecsn’s 2016 forecast for the UK component distribution market – it’s flat to put you out of your suspense – Aubrey Dunford, ecsn’s market analyst observed, “For the first time it has been difficult to get a consensus view from members – some see good signs, some are more pessimistic.”
The outcome is a conservative flat forecast valuing the UK market at £1.1bn in 2016. Improved economic conditions will at best produce a 2% uptick, slower economic growth may cause the market to dip 2%.
Dunford says any growth will come in the second half of 2016 as macroeconomic conditions improve and bloated inventories scale back to meet actual demand.
ecsn puts the UK components total available market at £2.9bn.
With three quarters-worth of figures in, it looks as if 2015 distribution sales will slip one per cent. A promising first half to the year was stymied in the second half by sluggish growth in global markets which included key European markets.
The automotive, aerospace and defence markets staged a recovery, but these are markets where distribution has a smaller footprint. The industrial components sector – distribution’s heartland – has faltered. Passive components sector have been a drag as average selling prices take a beating, mostly as a result of China-sourced products flooding into the UK market.
Dunford reckons UK industry is at a turning point and there will be opportunities for distributors to grow sales. He highlights a shift to onshoring as manufacturers bring production back to the UK from the Far East, notably China. The UK’s traditional strengths in design should also pay dividends especially as some of the key product growth will be around sensors, optoelectronics and connectivity based around the burgeoning Internet of Things market, though there is some concern amongst distributors on the length of time it is taking design projects to move to production.
“In some cases it can be as long as nine months to a year,” says David Blissett of Ismosys. “Companies are still cautious on commitment.”
Camden Boss managing director Nicki Kay concurs. “Long term projects are materialising at a much slower pace than the project was often targeted at and roll-out dates to full production are frequently moving out,” she says. "The complexities of projects for enclosures and inter-connections are increasing and our customers are definitely demanding total solutions to help minimise their overall costs. This is coupled with a clear nervousness amongst the global distributors to risk investing in stock and affecting cash-flow making forecasting difficult for the first half of 2016."
Kay believes that the slowdown in China is benefiting the UK to a certain extent as companies are becoming nervous about placing new products and production out there whilst the Chinese economy is suffering. "The potential risks about how the China government and workforce are going to react in the medium term is unknown," concluded Kay.
Steve Rawlins, CEO of Anglia Components says the market has increased by as much as 10% in volume terms, but the pressure on Average Selling Prices (ASPs) means it has remained flat in terms of value. He believes that the only way to grow faster than the market is to be smarter than the market and this means building up your knowledge and understanding: “Sometimes there are two, three or even four intermediaries before the end user and each one will have an impact on the design,” Rawlins said. “An effective demand creation distributor needs to understand not only what the direct customer is looking for but also what drives their customer.”
ecsn / afdec chairman Adam Fletcher, believes that the problem for the electronic components market is not ‘if’ but ‘when’ and ‘how strong’ the recovery will be: “We have seen a much wider than normal range of opinions from our members, other industry associations and industry analysts, who are all seeing positive signals in terms of opportunity," but he remains concerned that this optimism is not yet feeding though to the real numbers.
Fletcher counsels caution: "The frenetic pace of merger and acquisition activity in the electronic components markets is likely to slow in 2016 but the outcome of this consolidation will take another 18 months to work through. I suspect that in 2016 we will continue to bump along at the bottom of the recovery cycle with much stronger consistent growth likely into 2017/8."
John Macmichael, Managing Director emphasised that Solid State Supplies continues to see strong design activity in the UK and consequently focuses its efforts on supporting the design community.