Component Distribution Supply Chain Component Insights – September 2024 by Edgewater Research shows still mixed market conditions exiting 1H24, 2H outlook muted on inventory headwinds and mixed end demand.
What’s Changed/What’s New?
1. CY3Q POS seen tracking in-line with expectations, with Europe weakening, Asia improving in September, and Americas stable.
2. B2B up Q/Q but still <1 in semis; IP&E B2B flat Q/Q and near 1. Overall order trends muted with mixed performance by geo/market.
3. CY4Q POS outlook relatively stable/flattish. Recovery expectations firmly pushed out to 2025; some projecting 2H25.
4. Disti margin pressure seen up ticking or remaining elevated; private distis and catalog appearing more impacted than Arrow/Avnet.
5. Arrow and Avnet/Farnell seen cont. to optimize costs. Changes at Farnell focused on mgmt. structure and synergies w/ Avnet core; viewed as near term positive though medium term/long term challenges remain.
6. Analog Devices’ seen accelerating its shift direct since Jul. Supply chain estimates Analog Devices potentially shifting up to $1B direct in 12-24 months.
7. TI still noted engaging with other distis; seen likely as a strategy to pressure Arrow, and less likely a sign of changing distis model.
8. Arrow/Avnet seen as cont. to reduce semi inventory. Arrow seen in better position than Avnet though both appear to struggle with elevated inventory for some suppliers. Destocking of semi suppliers projected to last into 1H25
9. IP&E passive components inventory viewed as healthier; Arrow/Avnet seen focused near term on replenishing breadth of SKUs, rather than volume.
Top 3 Channel Comments:
• China POS was flat to down through early Sep but a surge in AI demand in recent weeks has pushed POS to up slightly in 3Q. We saw a pull forward in AI demand in 3Q and that reduces our 4Q outlook. Our semi B2B is still below 1, IP&E is at 1.
• EMEA is worse driven by end demand and elevated inventory. Americas is mixed across Industrial and Auto. China demand is relatively best, but the recovery is slow. Industrial is seeing some replenishment but macro is weak so that is not sustainable.
• We see Arrow becoming more proactive in driving design registrations, likely due to Analog Devices changes freeing up some FAEs. It’s unclear if this will result in lasting, material improvements.
Conclusion:
Component distribution fundamentals continue to stabilize, with late AI driven push in Asia leading to largely inline sales in 3Q. The outlook for 4Q remains subdued, with recovery timelines continuing to pushout. While consensus still calls for a 1H25 recovery, the drumbeat continues to grow for recovery in 2H25, likely keeping the recovery muted throughout the year as inventories continue to digest across the supply chain.
Full report available from: Dennis Reed, Sr. Research Analyst, Edgewater Research