Meet the new-normal trading conditions
Author: EIS Release Date: Mar 29, 2023
Despite geo-political uncertainty, the UK component distribution market remains positive in outlook, reports Caroline Hayes.
The latest ECSN UK/Ireland electronic components market forecast for 2023 indicates the market is ‘back to normal’, although still subject to geo-political issues and reliant on the management of the grey market and readjusted inventory.
Aubrey Dunford, market analyst at ECSN, declares that for the UK components distribution market things are as expected. Quoting the Hitchhiker’s Guide to the Galaxy’s Trillian Astra, he says: “We have normality. I repeat, we have normality. Anything you still can’t cope with is therefore your own problem.”
Dtam growth
After research based on interviews, questionnaires and data from other trade organisations, ECSN was in a positive mood, predicting growth in the dtam (distributor total addressable market) over the next two years, dominated by semiconductors.
For the UK and Ireland it describes the market as positive, with component market sales of £1.7bn in 2022 and £1.75bn in 2023. Although tam will drop back as product from the grey market falls away.
Growth in the first half of 2023 is predicted to be 3.5-6%, but in the second half of the year it is expected to drop, although growth will still be just under 3%.
The biggest casualty is likely to be memories used in phones and computers, sales of which rely on consumer confidence. This sector is expected to decrease by 17% in 2023. In contrast, discrete and optoelectronics are predicted to increase by 2.8% and 3.7% respectively, according to World Semiconductor Trade Statistics.
Managing inventory
The industry will have to contend with several factors next year and beyond.
Members believe that 2023 will continue to see growth in the UK market “although not at the rate seen in the past two years”, according to Dunford.
Globally, order books are inflated, but European data suggests that over-inflation in the areas that affect the UK (discretes and optoelectronics) is limited. The only question is how much will remain when availability improves.
There needs to be a managed drop in the advanced inventory, says ECSN’s chairman Adam Fletcher. He speculates that as much as 25% of the book-to-bill ratio is double ordering, adding that managing the inventory will keep inventory levels relatively low.
Pricing and buying
Pricing is expected to remain at 2022 levels next year and ECSN members expect that growth will continue throughout the first half of the year with a fall in book-to-bill ratios as lead times return to more normal levels, albeit with some component shortages even as the global market declines.
Consumer confidence is dropping, but new projects using electronics, such as infrastructure improvements, edge computing and the 5G roll-out, may boost demand and partly compensate for low consumer confidence restricting spending.
Political and trade tensions around Ukraine-Russia, US-China and China-Taiwan are not expected to be resolved quickly and the 2024 US presidential campaign will be in full swing at the end of 2023, adding further uncertainty. Dunford says that customers will be confident when lead time are reduced. There are indications that manufacturing is improving, but ECSN’s customers may hold more inventory due to lack of consumer confidence next year.
Anglia Components at 50
Cambridge-based distributor Anglia Components celebrated its half century in 2022 and began 2023 with some investment announcements.
A £2m investment expanded the original site into an adjoining building, increasing the floor area from 43,000sq ft to 70,000sq ft and increased inventory storage space by 40%.
“Anglia achieved a compound annual growth rate of 25% over the last two years despite the challenges in the economy and in the tech industry,” says CEO Steve Rawlins. Explaining the distributor’s resilience in “one of the most difficult markets any of us have experienced” he credits Anglia’s high inventory levels relative to the size of the business, adding that the company is investing further with the expansion.
The company is recruiting more than 20 additional members of staff. Rawlins says half of today’s workforce have been with the business five years or more and nearly 25% have been with the company for more than 20 years. Rawlins joined the field sales team in 1976, then progressed to sales director, managing director and CEO in 2006, before acquiring the company from president and majority shareholder Bill Ingram in 2011 to create the UK’s largest privately owned distributor.
As part of the staff recruitment and retention drive, the company has introduced benefits such as loyalty bonuses, a comprehensive health plan, company life insurance, additional flexible leave for important family events and the opportunity for flexible salary access. It has also increased annual leave to 27 days (pro-rata for part-time staff) and has introduced a longer weekend, finishing at 1pm on Fridays, without affecting salaries.
Carbon goals
The company has achieved Carbon Neutral Scheme accreditation, in partnership with ClimatePartner. It offsets carbon emissions due to its business operations and is committed to further emission reductions.
It also maintains an ISO 14001-compliant environmental management system.
“When customers started to ask us about carbon offsetting, we took the decision that this was a concept we needed to embrace,” says Anglia compliance manager Claire Stevenson.
ClimatePartner assisted in calculating the carbon footprint, including direct emissions (heat generation, vehicle fleet and fugitive gases), emissions from purchased electricity, and indirect emissions from purchased energy, business travel and employee commuting.
“By establishing a baseline for their corporate carbon footprint, they have a platform for building a science-based climate action strategy,” says ClimatePartner sustainability consultant Andrew Pridding. “We believe carbon accounting will soon become as ubiquitous as financial accounting. It isn’t currently mandatory to report corporate GHG emissions, but we believe it will be soon.”
Anglia’s staff chose an offsetting scheme that includes forestation in the UK and the protection of areas of the Amazon rainforest.