Apr 23, 2024   SOURCE: BusinessWire

Supplyframe Commodity IQ Reveals Mixed Market, Commodity Growth for Electronics Supply Chain – Breeding Both Optimism and Doubt

Supplyframe today announced that the electronics supply chain continues to face semiconductor demand doldrums and elevated inventories, which will linger into the second half of 2024. Otherwise, largely positive developments such as steadily normalizing interconnect and passive inventories and sales momentum are anticipated.

“Supplyframe Commodity IQ indicates that perplexity is the watchword for the electronics supply chain, raising the question of whether electronic component demand diversity signals real recovery or a false summit for the second half,” said Supplyframe CEO and founder Steve Flagg. “But Supplyframe Commodity IQ provides previously unavailable electronics supply chain intelligence to enable procurement teams to optimize procurement strategies by making informed decisions about cost reduction, strategic planning, and assurance of supply.”

Hills, valleys, and plateaus

Supplyframe Commodity IQ reveals demand activities for all components spiked by 18% from February to March, after falling below the Commodity IQ Demand Index in November 2023. Interconnects and passives led the demand charge in Q1, with 85% of the commodities experiencing greater than 10% demand increases on average. Less than half of semiconductor commodities were flat or trending upward for the same period, rising on average by 5%.

The Commodity IQ demand forecast for Q2 across all electronic components will completely erase the 4.3% average sequential growth for Q1. H1 is anticipated to close flat, with less than 7% of semiconductor, passive, and interconnect devices set to experience growth through Q2.

AI becomes the new EV

Electric vehicles (EVs) used to be considered one of the hottest opportunities for semiconductor and end-user demand. But EV end demand continues to stagnate. Nearly 30% of new EV projects in North America remain on hold, and Chinese EV demand got off to a slow start for 2024, though plug-in hybrids and pure EVs sales were up 33% year-on-year for March, according to the China Passenger Car Association, as buyers benefited from stiff price competition.

Meanwhile, growth opportunities related to AI abound. Multiple market researchers report that leading U.S. hyperscalers are each anticipated to increase capital spending by double-digit percentages in 2024, driven largely by AI-related data center applications. Hyperscaler Microsoft recently indicated that it will invest $2.9 billion in data centers in Japan. The shortages of high-bandwidth memory (HBM) needed to support the GPUs at the heart of AI processing, and the widely reported growth of Nvidia in the space, bolster the forecast for AI.

Demand overall appears muted

In-market feedback and Commodity IQ analysis suggest select end markets like aerospace & defense and medical are experiencing regular if fragile demand growth into H2.

Ultimately, analytics and qualitative analysis mark 2024 to be a year of muted demand, further delayed recovery, and normalization while 2025 is positioned as the year of growth.

The devil is in the details

However, the devil is in the details. So, global EMS providers, suppliers, and OEMs need advanced analytics to make the right tradeoffs on inventory, lead time, pricing, and other factors to combat complexity, identify risk, manage ambiguity, enable supplier accountability, and achieve their targets.

On the inventory front, Supplyframe intelligence indicates that interconnects and passives are faring better than semiconductors. Over twice the number of semiconductor commodities analyzed by Commodity IQ were above the inventory index baseline for March versus the interconnect and passive commodities. For the first quarter of 2024, semiconductors on average were 1.6 times the Commodity IQ Inventory Index baseline; interconnector and passive values were just slightly above the baseline. Inventories will likely peak late in the second quarter; however, slower-than-anticipated normalization translates into a healthy supply environment, with channel inventories still expanding at a slower pace.

Meanwhile, lead times are declining for the most part. Lead times for all electronic components across the Supplyframe DSI network in March were just 5% above the Commodity IQ Lead Time Index 2020 baseline. Lead times for interconnects and passives are approaching the bottom, with about a third of these commodities having inflated sequentially for the last four months.

Nearly 85% of contracted at-volume semiconductor lead times for the second quarter are expected to be 25 weeks or less. Continuing lead time declines for many IC commodities notwithstanding, over a quarter of these commodities through March have remained at well over two times the Commodity IQ Lead Time Index since October 2023 – yet, through the first quarter, including memory ICs, just 15% of factory lead time dimensions are characterized as stable or declining.

The Commodity IQ lead time dimension forecast for the first half of 2024, including memory and solid-state storage, indicates stability, with 11% of dimensions rising, suggesting severe supply constraints. The second half of 2024 is projected to reveal 90% of all dimensions stabilizing, but the 2% that will expand and the shortages will most exasperate sourcing teams.

On the pricing front, things are beginning to solidify, with some increases. While pricing overall is declining or flexible for high-volume and long-term orders, the Commodity IQ Price Index rose by 6.7% sequentially in March and has been at twice the index baseline since December.

Some component manufacturers are sensing a somewhat delayed demand recovery, still providing some price flexibility, but seeking increases wherever possible to counter margin and revenue losses. Distributors are continuing to offer pricing concessions to reduce excess inventories, but decreases remain selective.

Distribution and supplier-direct prices will continue to stand firm or rise into the second quarter for specific components. Through the third quarter pricing generally is expected to remain high at two times the index baseline. For the second half of 2024, electronics commodity pricing (including memory devices and SSDs) is projected to be stable for 82% of all price dimensions.

Supplyframe Commodity IQ is an annual SaaS subscription offering delivered in a continuously updated online environment. It includes quarterly summaries with actionable assessments and critical alerts across direct and indirect commodities in the electronics supply chain. Integrated into other Supplyframe Design-to-Source Intelligence SaaS offerings that include buy- and supply-side workflow solutions, Commodity IQ augments enterprise data with unique, industry-leading, and independent in-market comparison views to identify risks and rewards in advance.

About Supplyframe

Supplyframe’s unmatched industry ecosystem, and pioneering Design-to-Source Intelligence (DSI) Solutions, are transforming how people and businesses design, source, market, and sell products across the global electronics value chain. Leveraging billions of continuous signals of design intent, demand, supply, and risk factors, Supplyframe’s DSI Platform is the world’s richest intelligence resource for the electronics industry. Over 12 million engineering and supply chain professionals worldwide engage with our SaaS solutions, search engines, and media properties to power rapid innovation and optimize in excess of $150 billion in annual direct materials spend. Supplyframe is headquartered in Pasadena, Calif., with offices in Austin, Belgrade, Grenoble, Oxford, San Francisco, Shanghai, and Shenzhen. To join the Supplyframe community, visit supplyframe.com and follow us on LinkedIn, Twitter, Instagram, and YouTube.