Component demand recovery strains supply chain

EL SEGUNDO, USA: Rising demand and increasing prices normally are a good thing for the electronic component business. However, because of uncertainty regarding fourth-quarter demand levels, component makers are reticent to expand capacity or build inventories, placing strains on the global electronics supply chain, according to iSuppli Corp.

Prices for most major categories of electronic parts tracked by iSuppli’s Component Price Tracker (CPT) service rose in the third quarter compared to the second. Lead times in the third quarter also increased or were on an upward trend for nearly all parts categories tracked by iSuppli, i.e., analog parts, capacitors, standard logic ICs, discretes, filters/crystals, oscillators, connectors, resistors, magnetics and most memory devices.

“For component suppliers, these strains have resulted in increased utilization rates and improved bottom lines,” said Eric Pratt, vice president for pricing and competitive analysis at iSuppli.

“These companies in the first half of 2009 cut staffing, reduced capacity and slashed inventory levels to adjust to lower demand levels amid the global economic meltdown. Normally, as demand improves, these companies would move to boost capacity and expand inventories in anticipation of further sales gains.

“However, with the underlying economic forces that caused the downturn still not having been fully corrected, component companies are wary of increasing capacity and inventory until the seasonal, fourth-quarter uptick passes.”

While electronics market visibility has improved, considerable uncertainty lingers regarding the market outlook in the first half of 2010. Most suppliers are likely to continue to hold off on significant capacity increases until their outlook improves.

This type of pricing analysis, plus an executive summary of the market’s change and direction, is available every month to clients of Component Price Tracker (CPT).