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Mapping the electronics supply chain in 2023

Electronics

Electronics component lead times are improving faster than prices as demand deteriorates in some markets, inventories are at historical highs.

John Ward, senior director at Commodity IQ, (part of SupplyFrame), offers some market analysis and data insights of the 2023 electronics supply chain.

In early May 2022, Supplyframe predictive intelligence identified the sharp downturn in consumer electronics, PC, and smartphone demand by analysing the engineering design actions, demand sourcing signals, and contract pricing for specific electronics components widely employed in these sectors like DDR4 DRAM in PCs. We are still experiencing this downturn and weakened hyperscale and enterprise server demand, Ward reported at NapierB2B.

The Supplyframe Commodity IQ solution – which provides always-on, holistic electronics supply chain analytics and analysis – has revealed that the electronic components value chain is getting some pricing and lead time relief for the first time in several quarters. However, price reductions are still hard to achieve despite lower demand and lead times. While inventories may have peaked in some categories in Q4 2022, electronic component lead times remain more prolonged than historical norms, and specific semiconductor devices still have factory lead times of over 48 weeks.

Nevertheless, there is reason to be optimistic. Commodity IQ operational metrics reveal that component availability has largely improved, and prices have stabilized across many commodities and sub-commodities, particularly for passive components. Additionally, Commodity IQ data exposes opportunities for enhanced supplier negotiations, better-timed sourcing events, and 360-degree supply chain visibility.

Commodity IQ forecasts for the first quarter of 2023 point to an eight per cent decline in the number of rising lead times and commodities with part allocations for active and passive components.

Similarly, according to the Commodity IQ Price Index for Q1, the number of component pricing dimensions will be reduced by 14 per cent. Moreover, and unsurprisingly, global electronic component demand and sourcing activities quarter-on-quarter in Q1 will be down by two per cent, while engineering design will be off by 20 per cent – further evidence of demand erosion.

Component inventories, while bloated for some components like memory and small case-size ceramic capacitors, for devices like automotive-grade micro-controllers and FPGAs remain far below the Commodity IQ Inventory Index baseline.

For example, micro-controllers/microprocessor distribution and supplier inventories in December 2022 were nearly 50 per cent lower than in December 2021. Analogue ICs, micro-controllers, and discrete ICs (especially power MOSFETs) will remain constrained and high-priced in Q1 and beyond.

With global macroeconomic and political uncertainty in the foreground, we have entered the new year with positive signs for normalising supply-demand balance and reduced pricing and availability pressure. For H2 2023, excluding memory devices, the forecast is for 85 per cent of semiconductor pricing dimensions to be stable and the remainder to move squarely in the buyer’s favour.

Extended lead times will endure into the year’s second half for semiconductors, including programmable logic devices and passive components like automotive-specific resistors. Yet, as world economies exhibit remarkable resiliency in the face of inflation and threats of recessions, Q3 2023 lead times for all electronic components are forecast to ebb dramatically from Q3 2022.

Nearly 60 per cent of lead time dimensions are projected to decrease in Q3 versus about one per cent in Q3 2022, and none are expected to increase in Q3 compared to a massive 73 per cent in the same quarter of 2022.

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