Component Distribution Supply Chain Digest - March 2024

Uptick in IP&E M/M, Semiconductors Remain Muted

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Overview of Industry Movements

• Current Status: We are noticing a monthly increase in IP&E, though semiconductor growth remains subdued. For the full Insights report, please contact us to schedule a discussion.

Key Insights from the Report

1. First Quarter Review:
   • The first quarter point-of-sale (POS) is expected to finish slightly ahead, a minor decrease from quarter to quarter compared to an anticipated 7-8% decline. This includes a slight uptick in China for IP&E and semiconductors.
2. Second Quarter Forecast:
   • Predictions for the second quarter are looking stable, with potential for low single-digit growth quarter over quarter, driven by increases in China and the Asia-Pacific region. Conversely, the Western markets may see a slight decline due to ongoing inventory adjustments.
3. Order Dynamics:
   • Orders are generally increasing quarter over quarter, led by a rebound in global IP&E. Semiconductor orders remain stable at low levels, but there are emerging signs of improvement. Business-to-business (B2B) transactions are improving, though still hampered by semiconductor performance.
4. Market Optimism:
   • Early signs suggest the distribution industry might reach its lowest point in the first half of the year. Despite minimal demand growth expected for the remainder of 2024 due to limited visibility and ongoing inventory issues in Western markets, there is a cautious optimism.
5. Regional Demand:
   • China shows renewed activity starting mid-March, continuing into April, particularly in the automotive sector and select consumer segments. Demand in Western markets remains soft but stable.
6. Inventory Management:
   • Companies like Arrow and Avnet have successfully reduced inventory quarter over quarter in Q1. Supplier-led improvements in rotation programs are aiding distributors in refreshing slow-moving stock, first in Asia-Pacific and expected soon in Western regions.
7. Cost Management Efforts:
   • Arrow is cutting costs by reducing staff in Taiwan and restructuring its IP&E segment. Avnet is also managing costs through early retirement packages for some employees.
8. Industry Restructuring:
   • Companies like Future/WT are eliminating redundancies, primarily in corporate functions across Taiwan and other parts of Asia.

Channel Feedback

• The distribution market may have bottomed out in the first quarter, or it is close to doing so in the second quarter. The main focus now is the pace of recovery, with promising signs in IP&E and stable but low B2B ratios for semiconductors.

Sales Overview

Conclusion

As we gain confidence that the first quarter will mark a turning point for distribution fundamentals, the overall pace of the recovery remains a concern for the second half of 2024. Distribution inventories are still above pre-COVID levels, which could continue to challenge sales. A strong focus on inventory reduction and cost control is expected to remain a priority for the industry throughout the remainder of 2024, aiming for more normalized growth levels in 2025 and beyond.