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Mark Larson, President & COO, Digi-Key |
As the UK economy begins to lose momentum Neil Tyler talks to some leading distributors about how 2010 has panned out for them, and how they see the market developing in 2011. According to economists the UK economy is likely to slow over the coming winter months and the chances of a double-dip recession remain a possibility although, according to the Ernst & Young ITEM Club, a fall back into recession is unlikely.
According to Peter Spencer, the chief economic adviser at ITEM, "the economy is likely to slow over the winter following a surprisingly positive first half of the year, but I think this will be a soft-patch, not a double-dip."
The economy is expected to grow by around 1.8 per cent in 2010 and to show growth of just over 2 per cent next year.
In terms of the electronics market all areas seem to have sprung back to life over the last 12 months. The industry is enjoying a generally strong recovery from what were the brutal business conditions confronted in 2009.
According to Glen Jarrett, head of Electronics Marketing at RS Components, “RS has seen a market recovering strongly across 2010. We’ve seen a strong take up of our design resources in the UK and Europe, with small design-led companies leading the way.”
For a number of distributors the recovery, or rather the strength of the recovery, from the deep recession of 2009 has come as somewhat of a surprise.
“I think few people expected the speed or size of recovery that we have seen across the EMEA region in 2010. As a result, the market has outperformed against the expectations that most companies and industry commentators had for it at the end of 2009,” says Arrow UK’s General Manager, Dean Hassell.
“The good news is that the acceleration in the recovery has occurred across a wide variety of applications – the industrial segment is the largest in EMEA distribution and has been very strong. Other sectors showing even stronger growth are transportation, lighting and alternative energy.”
The strong recovery seen since the autumn of 2009, however, is set to come up against the government’s Spending Review which many fear will stunt the economy, and it’s not just in the UK that government is taking the axe to public spending. Which begs the question is the market recovery we’ve seen, along with the broader economic recovery, sustainable?
Mark Larson, President and Chief Operating Officer at Digi-Key believes it is.
“The sustainability of the market recovery is certainly possible, but it will rely on a number of macroeconomic factors external to the electronics industry. If you view industry performance over the past several years, the dismal negative sales growth in 2009 appears to be an anomaly. If sales from 2008 to 2009 to 2010 had followed historic trends, 2010 sales performance would be viewed as a good year, but not a super year. Considering that scenario, sustainability would have been viewed as probable. I believe the market has recovered and there is a good chance that the industry will return to growth rates that more closely approximate historic levels.
“Although cutbacks in public spending will tend to negatively impact sales, this impact might be positively modified or offset by the forward momentum of non-public spending. It is non-public spending that we must ultimately rely on to drive the economy of Europe as well as the economies of the other major world regions. I believe spending in the private sector will continue to gradually gain greater strength and offset the lack of government stimulus spending. “
If we focus on the UK, in particular, it is accepted that the upcoming review, which is expected to take £80bn out of the economy over four years will certainly hurt. The question for economists and businesses alike is can the UK take the punch or is it, as one commentator suggested, a boxer with a glass jaw? Jarrett makes the point that, “in the UK and Europe much electronics industry growth is driven by the development of key markets such as industrial, telecommunications, lighting, medical and defence/aerospace, which helps to reduce exposure to any cutbacks in direct consumer spending.” As the recovery build up steam many in the distribution space came up against the problem of insufficient production capacity to meet surging demand. TTI’s Geoff Breed, VP Marketing Europe, believes that: “Not only is the lack of availability of raw materials causing an ongoing problem, but China and other parts of Asia did not experience the same level of economic downturn that impacted Europe and America. The massive growth that is being experienced in Asia is consuming a huge percentage of the available components leaving other parts of the world experiencing severe shortages.” According to Steve Rawlins, CEO, Anglia, however, “Production capacity is already rising and more product is becoming available. Lead-times have already started to come down and I think this will continue.”
Alan Jermyn, VP Marketing at Avnet Abacus agrees. “Customer demand is now becoming more aligned with inventory levels which are taking the pressure off the supply chain. Production capacity has been increased by a number of our major suppliers in order to meet the growth in demand. This is best demonstrated in high capacitance MLCC and Aluminium electrolytic capacitors and film capacitors. We would expect this increased production in some products and improved supply of raw materials to have a positive effect on lead-times for many commodity lines from the end of this year and into 2011. As lead-times on components reduce we expect to see a similar knock on effect on power products and cable assemblies.”
This year has seen many distributors roll out new online services and applications. Flexibility and breadth of support are seen as vital as is the ability to offer 24 hour access to data support.
According to Larson, “The Internet-based element of Digi-Key’s business has been a very significant factor in growing our sales. The development of online communities has the potential to allow heightened communication and relationships within the industry. The evolution of these communities and other social media is in its earliest stages. We see them as a positive way for us to gain a greater understanding of the needs and wants of design engineers.”
As for the next twelve months Breed believes that “we’ll see a strong market, although there is bound to be some inevitable flattening out from the extraordinary growth we have experienced during this last 12 months.
“Mergers and acquisitions are a natural occurrence in all businesses, and as the strong players reap the benefits of the sensible and bold strategies they adopted during the challenging period from 2008 to 2009, I expect to see further consolidation. Distributors must deliver a real service, which means holding appropriate inventories of the best parts, and supporting that with a strong design-in expertise and first class logistics.”
According to ITEM’s Spencer uncertainty is the main problem facing businesses and once that is lifted and Government spending plans are made clear then companies can relax and increase investment. The next 12 months will be all about peeling away layers of uncertainty and re-building business confidence.
