Component Distribution Supply Chain Component Insights – October 2024 by Edgewater Research shows still mixed fundamentals and recovery expectations remain muted, recovery timelines now extend until 2H25.
What’s Changed/What’s New?
1. CY3Q global POS seen in-line with product push at quarter end and stronger Sep in China offsetting softness through the quarter.
2. Semi B2B up Q/Q but still below 1, IP&E B2B stable Q/Q and ~1; order improvement seen as muted globally.
3. CY4Q POS projected flattish with Asia flattish, EMEA/Americas flat to down on extended customer shutdowns in Dec.
4. POS recovery seen pushing out on muted orders/end demand cuts; CY25 projected up LSD/MSD with muted demand through 1H.
5. EMEA feedback more cautious, Americas stabilizing but with limited upward momentum. China recovery underwhelming.
6. Distributors seen continuing to take down inventory Q/Q. Arrow seen in better position than Avnet though both appear to struggle with elevated inventory for some semi suppliers with destocking projected to last into 1H25.
7. Some analog suppliers seen warning distis to place orders for 1H or else supply won’t be guaranteed.
8. Arrow seen continuing to optimize costs by reorganizing suppliers’ services while upping investments to improve demand creation.
9. Arrow viewed as remaining aggressive, offering lower margins to suppliers for volume consolidations. Aggression appears driven by TI/Analog Devices losses; The strategy has yielded wins like Lattice last quarter, with several programs noted in the pipeline.
10. Disti margin pressure noted still elevated with catalog distributors appearing more impacted than broadline.
11. Design activity/registrations seen strengthening, though conversion to POS noted as lagging on delays in new programs.
Top 3 Channel Comments:
• We finished 3Q in-line, but we had to force product to customers at quarter-end to meet our target. B2B remains below 1 in N.A. with no real sign of recovery. 4Q outlook is flattish – we will likely be forcing product to customers again at the end of the quarter.
• We are seeing a nice recovery in design registrations from distis. Our funnel opportunity is strong, but we are not seeing the POS conversion coming through. We probably have to wait until next year as new projects are being pushed out.
• We heard that Microchip has on avg still 5 months of inventory in the channel – some distis have 3 months, others have 5, while most inventory is in catalog where the level measures in double-digit in months.
Conclusion:
While distribution fundamentals continue to show signs of bottoming, the timing and pace of recovery continue to slip/disappointed despite a nearly two-year correction. With inventory levels still elevated, limited visibility, and signs of incremental end-demand weakness, we anticipate distribution fundamentals to remain choppy through the first half of 2025.
Full report available from: Dennis Reed, Sr. Research Analyst, Edgewater Research