October 2023 component distribution supply chain insights by Edgewater Research.
Outlook Ticking Down While Competitive Dynamics are Increasing, Arrow Making Operational Changes
Key Takeaways:
1. 3Q POS seen in-line, down low to mid-single digits Q/Q, with seasonal EMEA, downside in Americas, and slight upside in APAC.
2. 3Q booking seen missing expectations globally; recovery in orders not projected until 2Q24.
3. 4Q outlook weaker M/M on soft bookings, backlog flush, continued inventory headwinds and increased cancellations in China.
4. Avnet seen outperforming Arrow in 3Q in Americas and APAC on strong execution and Arrow headwinds from TI moving direct.
5. Arrow/Avnet/others courting Future customers/suppliers with Arrow offering aggressive pricing. Asian/Private distis seen turning more competitive buying market share via terms/prices. Arrow seen trimming costs more aggressively than Avnet.
6. Infineon considering consolidating large (>$50M) programs to Avnet from Future; timing noted as potentially 6-12 months away.
7. Avnet seen consolidating Apple programs from Asian distis.
8. Feedback points to more customers aggravated by Arrow’s aggressive tactics; Avnet/others’ aggression noted as more modest.
9. Arrow seen making additional changes to GC mgmt., dividing APAC to two divisions. Supply chain sees changes as positive, potentially stabilizing Arrow’s execution in ST/MT, but unlikely to affect TI/Analog Devices trend of going direct.
Other Key Supplier Takeaways:
10. TI seen lowering threshold for direct target accounts to >$5M in annual demand from >$15M at the beginning of the year.
11. onsemi/STMicro seen relaxing order withdrawal windows/NCNR policies in Asia, resulting in wave of cancellations in China distribution.
12. Microchip 2H23 disti orders in Asia viewed as minimal, mostly outside of PSP, creating gaps in 2024; designs in Asia noted down 50%.
13. Didoes POS viewed as still searching for a bottom in Americas; weaker orders seen driving 4Q outlook lower.
14. Diodes noted scrubbing orders and design pipeline amid increasing TI pressure/share losses.
Conclusion:
Distribution fundamentals remain subdued, as POS trends continue to moderate and inventory levels remain stubbornly high driving a step down in outlooks for 4Q and early 2024. While the outlooks continue to moderate, consensus is growing that the inventory burn will continue through 1H24 at the earliest and will likely extend in 3Q and overall customer inventory is elevated, and the demand outlook remains uncertain. We remain cautious on fundamentals overall and continue to look signs for signs of inventory bottoming/improvements in bookings before getting more optimistic on industry fundamentals.
Full report available from:
Dennis Reed, Sr. Research Analyst, Edgewater Research