Supplyframe Commodity IQ indicates that electronics component buyers currently have greater negotiation power than they have had in years

But as end-market demand ramps, electronics component sourcing challenges lie ahead

 New Commodity IQ data from Supplyframe indicates that procurement professionals are now enjoying a degree of negotiation power that they have not experienced in years due to an improved environment for the buy-side of the electronics supply chain marked by falling lead times, stubborn inventory, uneven demand, and mostly declining pricing. But sourcing challenges lie ahead, with low supplier capacity utilization rates as end-market demand – which is set to improve later in the second half of 2023 – ramps up.

“The electronics supply chain will remain a buyers’ market into 2024,” said Supplyframe CEO and founder Steve Flagg. “But given the uneven demand recovery across industry segments and electronics components, continuing macroeconomic volatility, and some raw material price increases, any swift uptick in component demand will threaten the ability of sourcing organizations to calibrate cost negotiation with continuity and assurance of supply.”

Most electronics component lead times will continue to decline this year

The Commodity IQ Lead Time Index shows that just over half of all lead time dimensions, including solid-state storage devices, are declining in the third quarter of 2023.

Most lead times will continue to fall in the second half of this year.

Excluding memory, a third of semiconductor lead times is set to drop in the second half. About the same share (34%) of passive components and interconnects will see lead time reductions.

Normalization is the watchword for pricing and lead times – at least through 2023

The pricing surges that began in July 2020 have diminished. Supplyframe Commodity IQ Price Index data show electronics component prices decreasing by 5% from Q1 to Q3 on average.

And normalization is the watchword for pricing and lead times for the remainder of 2023, when 76% of passive and 48% of semiconductor prices will be stable. Just 7% of pricing dimensions across all components and storage devices are forecast to rise in the second half of this year.

However, prices remain elevated for specific integrated circuits. And price increases are more than likely in 2024 as demand snaps back.

Electronics supply chain demand recovery is underway

Supplyframe believes, though uneven by end market and application, electronics component demand recovery has begun. According to Commodity IQ Demand Index, month-on-month demand declines contracted in July globally and in the Asia-Pacific region. China (including Hong Kong) and Taiwan sourcing activity decreases month-on-month in July ebbed by almost one and five percentage points, respectively. Singapore reversed its May-June decline of 15% with a 26% rise month-on-month for July while Malaysia and Thailand also shifted to an increase in sourcing actions.

Global semiconductor billings returned to growth in March, according to the latest data from the Semiconductor Industry Association, which is based on a three-month moving average. SIA data also indicates year-on-year monthly declines narrowed in June by three percentage points.

Taiwan Semiconductor Manufacturing (TSMC) recently preserved its semiconductor market forecast (excluding memory) of a decline of 4% to 6% – which is a lower loss than projected by industry trade groups and market researchers – for the semiconductor market for 2023.

And Micron’s fiscal Q2 2023 earnings commentary indicated that customer inventories in the PC and smartphone segments are approaching normal levels, and data center inventories are improving, with data center stockpiles expected to achieve “healthy levels” by the end of 2023.

But there is no new normal of stability – only a continuing confluence of supply-demand imbalances

A recovery in demand for PCs and smartphones is expected in the third and fourth quarters of 2023, as consumer electronics demand enters its peak period ahead of the holiday shopping season. However, with inventories declining more slowly than expected and China falling short of economic growth expectations, the recovery may be weaker than anticipated, restricting demand growth – and resulting in the continuation of favorable conditions for buyers.

“Macroeconomics and end-market impacts, volatile raw materials, the bullwhip effect of unrealistic component design and demand inputs, and mixed supply-demand situations within and across commodities create significant risk,” said Flagg. “But new forms of intelligence can help businesses in the electronics supply chain get ahead of risks associated with constrained supply, demand shifts, inventory fluctuations, geographic pivots, and legacy component issues. Commodity IQ aids electronics supply chain practitioners in knowing the unknowns.”

Supplyframe Commodity IQ is a unique combination of analytics and analysis that offers predictive and prescriptive intelligence for the electronics industry. Informed by more than $150 billion in annual spend and more than 500 Design-to-Source Intelligence (DSI) Network partners, Supplyframe Commodity IQ – fueled by billions of engineering and sourcing signals – enhances industry supply chain strategies from the point of design and supports everyday decision points.