April 2024 component distribution insights by Edgewater Research shows uptick in interconnection and passives electronic components (IP&E) month to month, semiconductors remain muted.
Key Takeaways:
1. 1Q POS seen finishing slightly ahead, down MSD Q/Q vs. expectations of down 7-8% on IP&E and semi uptick in China.
2. 2Q POS projected flat to up low single digit Q/Q on uptick in China/APAC and flat to down West on continued inventory digestion.
3. Orders seen upticking Q/Q driven by rebound in IP&E globally, semi orders stable at low levels with pockets of green shoots. B2B viewed up Q/Q but remaining at 0.8-0.9x level dragged by semis, while IP&E B2B noted at 1.
4. Uptick in IP&E and green shoots in semis seen driving initial optimism of disti industry bottoming out in 1H. Demand growth, however, projected as minimal through the rest of 2024 on limited 2H visibility, and continued inventory headwinds in the West.
5. China demand showing signs of life starting mid-March and continuing into April on uptick in Auto and pockets of Consumer. Demand in the West still soft but stable, projected to hover around the bottom into 2H.
6. Arrow and Avnet are seen to be successful in drawing down inventory Q/Q in 1Q. Improved rotation programs by suppliers seen helping distis refresh slow moving inventory, initially in APAC and soon in the West. Arrow is still noted as selectively enforcing NCNRs.
7. Arrow seen as continuing to prune costs, cutting staff in Taiwan in April and restructuring in IP&E despite a recent trend of investments.
8. Avnet also seen as continuing to manage costs, offering early retirement packages to some employes.
9. Future/WT noted as eliminating redundancies, likely corporate functions, etc., predominately in Taiwan/rest of Asia.
Top 3 Channel Comments:
• We think the disti market either bottomed in 1Q or will bottom in 2Q, the question in our mind now shifts to the pace of the recovery. We see good signs in IP&E with B2B improving now for several months and returning to parity; semis remain weak with B2B <1.
• Arrow says Microchip orders are still NCNR and we can reschedule only up to one quarter; after that we have to take delivery. It is not clear whether distis are protecting their revenue or Microchip not allowing cancellations.
• IP&E B2B returned to 1 for us in distribution in 1Q for the first time in 4+ quarters. We see clear signs of a rebound.
Conclusion:
While we are gaining confidence that 1Q will mark the bottom for distribution fundamentals, we remain concerned about the overall pace of the recovery in 2H24. Progress is underway, but distribution inventories remain broadly above pre-COVID levels and will likely continue to hinder sales in the near term. We expect inventory reduction and a strong focus on costs to remain a priority for the industry throughout the remainder of 2024 before returning to more normalized growth levels in 2025 and beyond.
Full report available from: Dennis Reed, Sr. Research Analyst, Edgewater Research