Developments in the component market: what will happen to active and passive components in 2024?
While we were still in the midst of an acute component crisis almost two years ago, the situation on the semiconductor market has eased somewhat since then.
Delivery times for many active components are now back to 3 to 4 months, and no longer 1 to 2 years. Stocks are well filled again, whether at manufacturers, distributors or us EMS service providers. Active components can be ordered again at reasonable prices and delivery times, which makes us as an electronics manufacturer and, above all, our customers very happy. However, new problems are already looming on the horizon, which we have discussed with our strategic purchasing department.
The problem: manufacturers are reducing production capacities
Our distributors are beginning to hear the first voices speaking of a temporary easing of the situation, both for active and passive components. The pendulum could now swing in the opposite direction. In recent years, production capacity at major manufacturers such as Texas Instruments has been fully utilized, with demand outstripping supply. Production was running at full speed and yet not all requirements could be met promptly. The opposite is now more likely to be the case.
The order situation in the electronics industry already recorded a slight decline last year. At the same time, warehouses are full, meaning that fewer components are being ordered. Large semiconductor manufacturers in Asia and the USA are reacting to this by reducing their own production capacities. Specialist staff are being laid off and fewer components are being produced as a result. This is how prices for components are being kept stable or even increased in the face of a falling order situation. A worrying factor for us is that these capacities cannot be built up again immediately if the order situation in the industry changes.
And the probability is high: the trend is to manufacture electronic products more regionally here in Europe again. To this end, new products are constantly being developed and manufactured by EMS service providers. Demand from manufacturers will therefore increase again in any case. However, it is questionable whether it will then be possible to meet demand. If the order situation increases again and production cannot start due to a lack of components, major problems are inevitable.
How quickly can manufacturers' production capacities be increased again?
Estimates for the passive components market indicate that it will take around 6 months for component manufacturers to fully ramp up capacity again. Specialist staff who are currently being laid off will have to be rehired and trained. It will take another 2 to 3 months for the changed capacities to reach us in electronics production. All in all, you have to reckon with an adjustment window of nine months.
Possible forecast: deterioration in the 4th quarter of 2024
For our Strategic Purchasing department, making an accurate forecast is like gazing into a crystal ball. To date, there have been vague indications and warnings from our distributors and experts. But we are also noticing: While the stock levels of components in our distributors' systems still looked positive at the turn of 2024, stocks are already thinning out in some places and are not being restocked quickly enough.
Even if the current market situation does not yet clearly show it, shortages may occur again in the fourth quarter of 2024, this time artificially caused by the low production capacities of component manufacturers. We are providing this information on the basis of current estimates, which are of course subject to change.
Our recommendation: Plan 1 year in advance
This is not a new recommendation that we are making to our customers. We have been advocating long-term planning for the last few years - and this is not changing. Active components can currently be ordered at good prices and delivery times. And if components are missing, the gaps can still be closed at short notice. It is very difficult for us to predict how things will look towards the end of the year. But what we do know: Distributors are warning of a new, this time artificial, shortage.
At A+B Electronic, we are well equipped thanks to our strategic purchasing and our warehouse and can still react flexibly to market developments. It is advisable to take advantage of the current reasonable conditions now and think long-term. Companies should be aware that timely procurement of components could be crucial in order to avoid potential bottlenecks.
It is important to emphasize that there are currently signs that the situation may deteriorate, but there is no definitive evidence of this. Nevertheless, you should plan ahead and be aware that the situation can change quickly. Overall, it is important to monitor developments closely and take timely action to prepare for potential challenges. Please do not hesitate to contact us if you have any questions or require further information.
