Report Says Electronics Value Chain Is Still in Transition

Uncertainty continues to cloud the market outlook. But the ‘power of intelligence’ can help companies increase resiliency, according to Supplyframe

December 27, 2022

PASADENA, Calif.—For the first time in several quarters, the electronic components value chain is getting some pricing and lead time relief, according to a 2022 year-end report by Supplyframe in December.

Bloated inventories have led to plummeting memory device lead times and pricing, and the equalization of lead times and pricing for some passive components, according to insights from Supplyframe Commodity IQ. This shift has occurred amid slowing demand in many end markets, as central banks continue to raise interest rates to curb inflation and economies worldwide teeter on the edge of recession. But Commodity IQ data indicates that automotive and other sectors that rely on mature process nodes will be plagued by elevated prices and lead times through most of 2023, Supplyframe said in a release.

“Component availability is improving, and prices are stabilizing across many categories, especially in the area of passive components,” said Supplyframe CEO and founder Steve Flagg, in a statement. “But we continue to see significant challenges related to other components and raw materials. And the economy, energy costs, and escalating geopolitical instability have dampened user demand and sourcing activity and cast a cloud of uncertainty over the electronics value chain outlook.”

Uneven, but now significant, component supply chain improvements continue

According to Supplyframe, its Commodity IQ forecast for the first half of 2023 indicates that only 27 percent of semiconductor pricing across all major commodities will increase, compared with 76 percent in the first half of 2022.

From the first quarter through the third quarter of 2023, less than 20 percent of semiconductor pricing is projected to rise, and just over three-quarters of semiconductor pricing will stabilize. Nearly 30 percent of semiconductor and passive component pricing dimensions will decrease in the initial half of 2023, according to Commodity IQ.

Although long lead times will persist into 2023 for components like microcontrollers and analog ICs, according to Commodity IQ data, 23 percent of all component lead time dimensions in the first quarter of 2023 are expected to decline. For the third quarter of 2023, Commodity IQ data indicates that half of lead times will stabilize, with just 3 percent of dimensions increasing, the company said.

End-market demand has softened, and component sourcing activity has taken a hit

Recessionary fears, central banks’ monetary policy actions intended to thwart inflation, and China’s souring economy are all impacting downstream demand for electronic components across multiple industry segments.

Supplyframe said that in early May of 2022, its predictive intelligence identified the sharp downturn in consumer device demand that is still present today, as well as the softening in the enterprise data center arena. These insights helped Commodity IQ users proactively adjust their sourcing strategies and inventory levels accordingly, the company said.

The Commodity IQ Demand Index shows that global component sourcing activity was down nearly 22 percent in November 2022 versus November 2021, due in part to easing lead times for constrained components and less spot buying. Global component sourcing activity was down 7.4 percent from October through November this year. After peaking in March with commodities like microcontrollers at over three times the Commodity IQ Demand Index baseline, November 2022 found 40 percent of the top passive and active component commodities below the baseline, according to the release.

Activity for the top 30 component types in November shrank month-on-month by an average of 12 percent. Year-on-year growth in November was positive for most passive devices and negative for most semiconductors, with programmable logic devices reported to be leading the declines at 34.8 percent.

The Americas region saw the largest decline (15 percent) in sourcing activities in November. This was said to be driven by a 16.1 percent downturn in the United States. Sourcing activity for Asia-Pacific and Europe ebbed by 3.1 percent and 5.8 percent, respectively, but all regions experienced decreases in sourcing in November, according to the release.

Examples of volatility, uncertainty, strife, challenge, and change are everywhere

This is all happening amid an environment in which global output contraction (real GDP) is projected by the International Monetary Fund (IMF) at 3.2 percent (annual change) in 2022, versus 6 percent in 2021. More than a third of the worldwide economy is poised to contract in 2022 or 2023, the company said.

Meanwhile, oil and natural gas price volatility, coupled with soaring energy costs overall—especially in Europe—have added to production and logistics woes across industries. That includes, but is not limited to, raw metals and resins used throughout the electronics value chain. Heightened energy costs impact end markets, muting electronic component demand, according to Supplyframe.

Recurring COVID-19 outbreaks and related containment protocols, climate change, and a global shortage of electrical engineering talent are also said to be among the myriad disruptions adding to the macroeconomic, interconnected impacts of the complex electronics supply chain.

The U.S.’s restricting shipments to China of graphics processors and AI accelerators used in high-performance computing, and the sweeping U.S. export controls supported by other nations that effectively prohibit China’s chipmakers from procuring semiconductor production equipment required to move to smaller IC geometries, is expected to further disrupt supply chains and add to the uncertainty, Supplyframe said in the release.

Additionally, Beijing is reported to be challenging the U.S. and other nations’ supporting the chip restrictions by bringing suit via the World Trade Organization (WTO) while reportedly crafting a 1 trillion yuan ($143 billion) plan to counteract the restrictions for its semiconductor sector, further adding to the market anxiety.

“The world has become an increasingly unpredictable place,” said Richard Barnett, chief marketing officer and SaaS sales leader at Supplyframe, in the release. “That elevates the need for businesses to use the power of intelligence to best position their companies and products for resilience and success.

“Supplyframe Commodity IQ is a transformed approach to electronics supply chain information that provides unique, predictive, and prescriptive intelligence for electronic components, systems, and associated commodities based on operational analytics. This always-on SaaS solution from Supplyframe pairs expert analysis and context with global electronics design, demand, pricing, lead time, and inventory indices to help companies connect the dots.”

Supplyframe is headquartered in Pasadena, California, with offices in Austin, Belgrade, Grenoble, Oxford, San Francisco, Shanghai, and Shenzhen.