EDDI and Me – When numbers and chatter go together EMSNow
By Philip Spagnoli Stoten, with advice from Georg Steinberger, President of FBDi eV (Professional Association of Component Distribution)
Sometimes it seems like the stats don’t match what you hear in the industry, in conversations, in interviews and panels, and on LinkedIn. That’s not the case here ! For once, the numbers and the chatter seem aligned. And the good news is that both point to an easing of the supply chain shortages we struggled with in 2021 and the first half of 2022.
We’re not out of the woods yet, but we feel like we’re closer. An EMS VP of Operations told me last week that it’s been like “night and day”, with huge relief from the shortages they’ve seen, faster delivery times for new orders and a general relaxation. As he explained, this is good for customer satisfaction, good for business morale and, of course, good for cash flow as products are shipped, inventory is reduced and cash requirements turnover are reduced.
As always, my starting point is twofold. First, I listen to what those on the front lines say when asked directly. And second, I’m looking at the data provided in this month’s EDDI (Electronics Design to Delivery Index) provided free of charge by these kind folks at Nexar, a business unit of Altium, providing information on millions of electronic components and millions of daily user interactions through design. , supply chain and manufacturing. I’m a big fan of this report and the mix of big trends and in-depth data it provides.
So what’s cooking this month?
Let’s start with the offer:
- The Industrial Supply Index continued its upward trend throughout the year, rising six points and approaching its most recent high of 99 seen in November 2020.
- The rise in the ISI (Industry Supply Index) was led by supply increases across all commodity categories. The IC supply index saw the largest increase of eight points. This is the second consecutive month of increased supply in this category.
- Three other commodity categories (Power Products, Passive Components and Circuit Protection) continued to exceed their all-time highs.
On the demand side:
- The industrial demand index decreased by four points in July 2022 to reach a value of 155.
- Sourcing activity for all categories was down except connectors and circuit protection.
- The Integrated Circuits index continues to fall significantly by 16 points. Activity in this category remains the highest of all commodity subcategories, but the index has fallen 12.7% from its all-time high in February 2022.
- Discrete semiconductors continue to be the category with the second highest demand index value over the past 12 months.
So what does this all mean? In simple terms, if the demand decreases and the supply increases, we return to a more stable, more normal situation. And that’s what people in the component industry, supply chain and manufacturing are telling me too.
EDDI divides integrated circuits into dozens of different categories, highlighting five. All increased supply in July, while supply activity for the same five categories all fell. They are still out of balance, but they are moving in the right direction.
Meanwhile, this supply chain guru, former M+T publisher, former Avnet vice president of communications and good guy, George Steinberger shared some data from the German electronic component distribution industry. Data that shows six consecutive quarters with order-to-bill ratios above 1.5. In short, in the first half of 2022 the industry shipped 2.3 billion euros and increased its order books by 3.5 billion euros, this is a huge delta which probably reflects the continuation of orders to term as well as a continued increase in demand for electronics in general.
Georg comments: “A brilliant second quarter of 2022 continues to keep the German component distribution industry dreaming of a ‘record’ year. Revenue from distributors reporting in the FBDi increased by 43% to 1.12 billion euros, incoming orders increased by at least 21% to 1.71 billion euros, almost as high as at T1. Although the book-to-bill ratio could not reach last year’s all-time high, it still remains above “normal” at 1.52.
“What is most surprising in the second quarter is the fact that bookings have so far remained considerably above a healthy level. Traditionally, the market starts talking about shortages at a rate of book- to-bill of 1.2, and we have stayed above 1.5 since the start of 2021 (six consecutive quarters).Looking at it more differentiated, you can already see normalizing trends in almost all product areas outside of semiconductor components What this means for the rest of the year or next is open to speculation – bets are already on a slowdown already this year or a structural shortage continues in individual product segments until next year,” added Georg.
Thanks Georg, some answers, but many more questions!
Not out of the woods yet!
Let’s not get too excited, there are still plenty of parts in short supply and EMS businesses are still experiencing record levels of inventory and work in progress, and the cash flow issues that follow. Some are also still very concerned about the potential for cancellation of overorders or double orders placed by customers. Since we know OEM demand forecasts are notoriously unreliable, why should their orders be any different?
All in all, this looks like good news. But we’re used to disruptions by now, so expect more! Expect supply chain instability to continue into 2023. Expect geopolitics to continue to impact the industry in many parts of the world. Do you expect brands to seek to reduce risk in their supply chains where they can? Basically expect disturbances, even embrace them and roll with the hits!
That’s all for this month’s “EDDI and me” meeting. More when the August numbers drop in a month or so. If you want to receive the report when I receive it, follow this link.