Current Market Conditions in The Global Passive Components Industry: November 2013

Lead Time Trends:

The collective lead time index for passive electronic components has been in an anemic state for almost two years now, primarily as a result of austerity in Europe and the sequester in the United States. The lead-time index, which shows the average time in weeks that it takes for a passive electronic component manufacturer to deliver an ordered part to a customer, is extremely sensitive and responds to various impacts on the supply chain, both natural and man-made. For example, in the past the index has responded to the global economic stimulus packages of 2010 and 2011, and has also responded to the impact of the Tohoku earthquake in Japan and the flooding in Thailand in 2011. For all of 2012 and the balance of 2013 the lead-time index has expressed an anemic trend of relative inactivity. In the September 2013 quarter, the lead-time index showed a slight increase in activity as a result of certain distributors restocking components, and a supply chain disruption impacting resistors manufactured in Israel.

Source: Paumanok Publications, Inc.

Tracking 50 Components:

The Paumanok lead-time index for passive electronic components tracks the time it takes for manufacturers to deliver 50 individual product types to customers. The granular data associated with passive component lead times adhere to the macroeconomic environment of stimulus packages, natural disasters, regional and government austerity measures, but also reveals individual component types, configurations and case sizes that are experiencing variations in their individual supply chains. In the September 2013 quarter, the granular data pointed toward an increased activity level on a month-to-month basis as certain major component distributors refreshed their inventories in anticipation of the holiday buying season. However, we do not believe that this is a major trend of improvement because the December quarter is typically a slow quarter due to the slowdown in the markets in December.

Source: Paumanok Publications, Inc.

Raw Material Price Indicators:

The raw material price index for passive electronic components is also an excellent indicator of economic conditions in the supply chain. Paumanok looks at key raw materials that are consumed by passive electronic component manufacturers and are major contributors to their overall cost of goods sold. Raw material price increases can have a major impact on the operating profit margins of component manufacturers. The types of materials that are tracked include base metal aluminum, nickel, copper, zinc; and precious and rare metal materials; palladium, ruthenium, silver, tantalite; as well as crude oil prices. What is interesting about these materials is that they are also used in many other end-use market segments as primary, secondary and additive materials and therefore their supply and demand influences prices. The passive component raw material index has been trending downward for the majority of 2013, which bodes well for helping to boost profit margins of passive component manufacturers; however, it also indicates the weakness of the greater global economy.

Source: Paumanok Publications, Inc.

Change In Vendor Revenues:

Quarter-to-quarter revenues for the world’s top 10 manufacturers of passive electronic components, which are shown in the chart below, indicate the difficult market conditions in 2012 and 2013. However, it is also important to note that in the June and September quarter of 2013 that demand began to shift toward Japanese manufacturers of passive components because of the currency translation of the yen, which favored yen-based production of passive components. There was also an increase in demand for high capacitance ceramic chip capacitors for applications in Smartphones and computer tablets, the majority of which are manufactured in Japan. So while many American, European and Chinese manufacturers of passive components continued to struggle in 2013, Japanese manufacturers, with emphasis upon those producing high capacitance MLCC were recording some of their best revenue increases in their respective corporate histories. So while the market remains anemic for many vendors worldwide, demand has shifted to Japan.

Source: Paumanok Publications, Inc.

Summary and Conclusions:

The lead-time indicators for passive electronic components have demonstrated anemic market performance for the past two years suggesting lackluster demand from end-use markets. Raw material pricing has been trending downward, which bodes well for the operating margins for passive component manufacturers, but also suggests weakness in the larger global economy, which is a negative indicator for component sales. Vendor revenue data suggests improvement over the past six months, but this is consolidated to Japan due to the valuation of the yen to the US dollar (and other world currencies) and the growth of the high capacitance MLCC, which is outperforming all other passive electronic components when it comes to revenue generation. The outlook for the December 2013 quarter suggests a market slowdown, which is historically accurate due to the holiday season. Longer term growth depends upon the revival of the European economy, which will in turn spur manufacturing growth in China. While we expect key end-markets to remain healthy, including automotive, commercial aerospace, medical, railroad, oil & gas , wireless handsets, tablets, data communications and storage, we also expect other key end markets, such as televisions, notebook computers, desktop computers, cameras, GPS devices and MP3 players to continue to struggle in the new year.

Source: Paumanok Publications, Inc.

Tracking 50 Components:

The Paumanok lead-time index for passive electronic components tracks the time it takes for manufacturers to deliver 50 individual product types to customers. The granular data associated with passive component lead times adhere to the macroeconomic environment of stimulus packages, natural disasters, regional and government austerity measures, but also reveals individual component types, configurations and case sizes that are experiencing variations in their individual supply chains. In the September 2013 quarter, the granular data pointed toward an increased activity level on a month-to-month basis as certain major component distributors refreshed their inventories in anticipation of the holiday buying season. However, we do not believe that this is a major trend of improvement because the December quarter is typically a slow quarter due to the slowdown in the markets in December. 

Source: Paumanok Publications, Inc.

Raw Material Price Indicators:

The raw material price index for passive electronic components is also an excellent indicator of economic conditions in the supply chain. Paumanok looks at key raw materials that are consumed by passive electronic component manufacturers and are major contributors to their overall cost of goods sold. Raw material price increases can have a major impact on the operating profit margins of component manufacturers. The types of materials that are tracked include base metal aluminum, nickel, copper, zinc; and precious and rare metal materials; palladium, ruthenium, silver, tantalite; as well as crude oil prices. What is interesting about these materials is that they are also used in many other end-use market segments as primary, secondary and additive materials and therefore their supply and demand influences prices. The passive component raw material index has been trending downward for the majority of 2013, which bodes well for helping to boost profit margins of passive component manufacturers; however, it also indicates the weakness of the greater global economy. 

Source: Paumanok Publications, Inc.

Change In Vendor Revenues:

Quarter-to-quarter revenues for the world’s top 10 manufacturers of passive electronic components, which are shown in the chart below, indicate the difficult market conditions in 2012 and 2013. However, it is also important to note that in the June and September quarter of 2013 that demand began to shift toward Japanese manufacturers of passive components because of the currency translation of the yen, which favored yen-based production of passive components. There was also an increase in demand for high capacitance ceramic chip capacitors for applications in Smartphones and computer tablets, the majority of which are manufactured in Japan. So while many American, European and Chinese manufacturers of passive components continued to struggle in 2013, Japanese manufacturers, with emphasis upon those producing high capacitance MLCC were recording some of their best revenue increases in their respective corporate histories. So while the market remains anemic for many vendors worldwide, demand has shifted to Japan. 

Source: Paumanok Publications, Inc.

Summary and Conclusions:

The lead-time indicators for passive electronic components have demonstrated anemic market performance for the past two years suggesting lackluster demand from end-use markets. Raw material pricing has been trending downward, which bodes well for the operating margins for passive component manufacturers, but also suggests weakness in the larger global economy, which is a negative indicator for component sales. Vendor revenue data suggests improvement over the past six months, but this is consolidated to Japan due to the valuation of the yen to the US dollar (and other world currencies) and the growth of the high capacitance MLCC, which is outperforming all other passive electronic components when it comes to revenue generation. The outlook for the December 2013 quarter suggests a market slowdown, which is historically accurate due to the holiday season. Longer term growth depends upon the revival of the European economy, which will in turn spur manufacturing growth in China. While we expect key end-markets to remain healthy, including automotive, commercial aerospace, medical, railroad, oil & gas , wireless handsets, tablets, data communications and storage, we also expect other key end markets, such as televisions, notebook computers, desktop computers, cameras, GPS devices and MP3 players to continue to struggle in the new year.