What’s the real deal on market growth?

European director of supplier marketing for connectors at TTI, John Sandy, asks whether current growth in the market is real? And if it is – is it sustainable? After a tough year, the electronics industry faces another challenge: it appears that orders are plentiful but many suppliers are finding it hard to meet demand. This is because there are no real drivers for this growth spike and most manufacturers are therefore being cautious when it comes to bringing additional capacity on-line.
Previously, when the effects of the general economic crisis were compounded by significant destocking in the supply chain, it created an artificially low demand that resulted in plants being shut or mothballed. Now there is limited stock in the pipeline, so distributors and producers are placing orders because without parts nothing can be built, but component manufacturers are reluctant to turn on production lines because they are not convinced that what we are seeing is a sustainable trend.
In past recessions, there has always been a killer app that drives the market to recovery, but so far such a stimulus has failed to appear. While emerging markets such as alternative energy and LED lighting are promising, in Europe, its always been sectors such as telecoms, consumer and automotive that have produced the big numbers and driven sustainable growth.
TTI has taken an aggressive approach during this challenging period, with a focus on maintaining high, broad and deep, stock levels across all product technologies. The company believes it is a distributors job to stock product and this commitment continues to benefit customers and suppliers alike. This is even more important when demand picks up quickly and supplier lead-times move out accordingly.
As a distributor, if we could ask one thing of customers which would make our lives easier, it would be to provide as much forward vision of requirements as possible, as well as quantifying whether that vision is based on forecasts or real orders. I appreciate that is difficult, but forecasted numbers create artificially-high demand levels, which in general only make availability worse.
Nonetheless, on connectors TTI has seen book-to-bill ratios improve consistently over the last six months, with both October and November continuing to provide positive indicators as we move into Q1, 2010.
Leadtimes are now becoming problematic. In some component technologies, parts that were on 12 weeks have moved out to 24 weeks and sometimes higher. With connectors it is not that bad and leadtimes have only slipped by an average of four weeks, from 8 to 12 weeks. Connector prices are generally flat and there were no price cuts during 2009. TTI expects prices to continue to rise through 2010.
When TTI began to see an upturn in orders in June, it didnt over-analyse the market situation – it immediately placed orders and having stock on the shelves has helped win business. Around 68 per cent of the company’s connector inventory is available to sell (ATS). Customers benefit from TTI’s ability to support upsides from stock and minimise the effects when leadtimes move out, as they are today.
Unfortunately, the big problem for customers, manufacturers and distributors alike remains the crippling lack of visibility. As a result of the recent upturn TTI sees an increasing number of orders for immediate delivery. It has adjusted its buying patterns accordingly and at the moment, it doesnt appear to be much of a problem with interconnect suppliers, but if increased capacity is not turned on soon and order patterns continue upwards, then shortages will occur across all product and market areas.