Supply of commodity parts remains tight amid conservative capacity management

EL SEGUNDO, USA:While the end of 2009 brought improved availability for many commodity electronic components, supply for most parts remains tight, according to iSuppli Corp.

“As iSuppli has been reporting for several months, the recovering economy has brought renewed demand. However, component suppliers have yet to jump in with both feet when it comes to ramping up capacity,” said Eric Pratt, vice president of pricing and competitive analysis at iSuppli “And moving forward, component manufacturers will continue to take a very conservative approach to capacity expansion.”

Given the ongoing vigilance among manufacturers, inventories will remain lean for the foreseeable future. Despite Days of Inventory (DOI) remaining close to historical lows at nine of the 10 supply chain nodes tracked by iSuppli, many suppliers have no qualms with their current inventory position and remain quite comfortable at their current levels. Among the nodes, only Electronic Manufacturing Service (EMS) providers have shown an increase in inventory.

One reason for the lack of interest in expanding production is that fourth-quarter earnings for component suppliers were exceptionally high. With earnings looking good at the moment and suppliers having taken a beating in late 2008 and most of 2009, companies possess no reason to embark on risky expansion alternatives—including ramping up inventory—that might land them in trouble.

Nonetheless, the conservative approach to inventory won’t last, said Pratt, and component suppliers eventually will have to be more aggressive in order to improve market share. “As demand continues to rise and global macroeconomic trends become more visible, iSuppli believes the attitude of ‘do nothing’ will slowly change,” he added.

iSuppli predicts change will occur near to the third quarter when suppliers aim for increased market share while at the same time maintaining the profits they had acquired in late 2009 and early 2010. The achievement of those goals, however, is contingent on sustained market demand, Pratt noted.

Source: iSuppli, USA