Many people in the electronic components industry were surprised by the rapid rebound in demand for electronics products in the first quarter of this year – demand that resulted in pressures on the electronic components supply chain that have been widely reported.
We’ve seen extending lead times for many product categories in recent weeks as the challenges that manufacturers have seen in acquiring semiconductors for automotive electronics spread to other end markets.
This higher demand for not just semiconductors, but other electronic components as well, in transportation is due to the greater electronic content now being included in vehicles, from driver-assist to infotainment systems. The automotive industry and the broader transportation segment will continue to be strong, especially as demand for electric vehicles grows and companies break down the technology, cost and infrastructure barriers to electrification.
Demand Spreads Beyond the Automotive Industry
We expect the current shortages of automotive components that are impacting production in that industry to improve by late Q3 and heading into Q4. However, overall demand for electronic components in many industries will remain strong through 2021 and beyond.
The very broad industrial segment continues to grow above seasonal rates, tallying mid- to high-single-digit growth while the seasonal normal would be around 2 to 3 percent. This growth has come as somewhat of a surprise, and we see it being driven in large part due to a desire for industrial IoT connectivity and digital transformation goals.
The defense sector continues to be strong and driven by previously-funded objectives. Defense has been very strong for a few years and we expect that to be the case into 2022 as funded programs are completed, after which we believe that defense spending will likely be reduced.
By contrast, commercial air has been hard-hit by the pandemic which resulted in production stoppages on top of other issues related to air travel. We believe that recovery in commercial air will be a long process that’s measured in years, not months.
Other aerospace segments are strong, with new satellite communication networks, the commercialization of space exploration and increased space travel are driving spending in this segment to record levels. SpaceX and Blue Origin may get the most press, but many other firms are doing amazing things in spaceflight, leading us to believe that the spend in this segment will increase greatly in the years ahead.
Communications, driven mainly by the rollout and adoption of 5G, is a very robust market and should continue to be strong for the next one to two years.
The medical sector saw significant increases as technology was brought to bear in fighting the Covid-19 pandemic. While demand for components in the medical industry has lessened since the end of 2020, it remains at higher-than-normal levels.
Although the North American market is not the largest for consumer technology or computing, both of these segments are growing at double-digit rates. We do expect these to return to normal later in 2021.
Preparing for Future Supply Chain Challenges
While things are unpredictable now, I believe that the market will improve over the next 6 to 12 months.
However, when it comes to long-term demand, you can sum it up in the word “increase.” Expect more electronic functionality in automobiles and commercial vehicles; more electric vehicles; more 5G handsets and towers; more connected medical devices for monitoring our health – and all of these devices connected via the internet. In short, the prevailing trends in all these industries will combine to drive demand for electronic components for years.
All told, the 2020s will be an unparalleled decade for electronic component demand. The pandemic just delayed the start a little.
What we cannot predict for sure is when, where and how demand in these various industries might lead to constraints on IP&E components that go beyond one industry, impacting the entire supply chain.
This is where the benefits that authorized distributors provide your operation cannot be understated. Your distribution partner can help you navigate rapid changes, minimize uncertainty and keep your lines running. Many manufacturers adjusted their inventory focus to assurance of supply as opposed to piece price variance after the MLCC constraints we experienced in 2018. While these long-term strategic changes are important, our specialization allows us to react with agility to short-term challenges. As we see potential shortages, we adjust our inventory strategy to compensate.
Distributors also have the technology that helps remove uncertainty from your outlook, with APIs that deliver huge efficiency benefits with greater visibility into our available inventory. We help you by providing assurance of supply and much greater predictability in the supply chain. Distributors service tens of thousands of customers, building inventory profiles and gathering data that we use to smooth these demand surges – both now and in the future.
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