A Time of Transition: Supplyframe Commodity IQ Indicates Shortening Lead Times, Stabilizing Prices, and Lower Demand for Select Electronic Components
New Supplyframe data shows an electronics supply chain that is in transition, with uneven changes for end markets and components. But while electronic component availability is improving and prices are stabilizing across many categories, Supplyframe Commodity IQ indicates global supply chain issues, extended lead times, geopolitical uncertainty, and elevated logistics and labor costs will remain problematic for the electronics ecosystem and specific end markets into the first half of 2023.
"The electronic component supply chain is improving slowly and unevenly," said Supplyframe CEO and founder Steve Flagg. "The multi-tier electronics supply chain exists within a complicated and volatile environment in which ever-evolving, unforeseen events continue to impact capacity, costs, lead times, and other considerations. Constraints and shortages are not over. And a rebalancing of inventories and component market corrections is in play."
Some parts are becoming more readily available, and memory prices are dropping
Decreasing lead times are a bright spot. Supplyframe forecasts 52% of all electronic component lead time dimensions to decline or stabilize in the third quarter - a significant improvement from the second quarter when 80% of lead times rose.
Lead times of ceramic capacitors improved markedly quarter-on-quarter, and electrolytic capacitor availability is on track to stabilize in the first quarter of 2023. Printed circuit boards lead times are poised to decline by the end of the year. And NAND flash availability is improving, positively impacting the lead times of solid-state drives (SSDs).
Commodity IQ analysis indicates that less than half of all electronic component pricing dimensions for direct commodities in the third quarter will increase, down from 74% in the second quarter.
Memory devices are in price equalization mode, with decreases for at-volume, contracted purchases. Blended DRAM average selling prices are on the decline.
"As things become more opportunistic, now is the time for manufacturers to build resiliency," said Flagg. "To do that, manufacturers of devices that rely on electronics components need to use new forms of intelligence to inform their decisions during new product design that could affect their downstream product lifecycles."
Demand is declining in some areas but remains robust in others
Demand activity across active and passive components and memory and storage devices declined from the first quarter to the second quarter, except for programmable logic devices, which experienced a 9% increase, according to the Commodity IQ Demand Index.
Softening consumer demand, particularly in China, and economic concerns are the main culprits, with quarter-on-quarter sourcing activities contracting by 7% and 11% from May to June, according to the Supplyframe Commodity IQ Demand Index. Capacitor and resistor demand shrunk by 12%, driven by order push-outs and cancellations as customers waited for long-lead-time semiconductors. Other passive componentssuffered a similar fate, contracting by single-digit percentages. Global demand was down 11% month-on-month in June versus historical 4% increases.
Meanwhile, overall memory demand dipped 6% from the first to the second quarter. It's forecast to decrease again in the third quarter by 2%, according to Commodity IQ analytics. Server DRAM demand is robust, but contracting demand in PCs, laptops, and smartphones impacts DRAM pricing. Supplyframe has identified evidence of PC OEMs reducing their H2 DRAM at-volume forecasts by up to 30% or more beginning in the second quarter. These oversupply indications for consumer devices are profound and have led component suppliers to limit their production and decrease their prices. Top memory suppliers SK Hynix and Micron are reassessing capacity investments for 2023, and leading foundry TSMC is reducing its expansion spending by as much as 9%.
"Sharp declines in PC and smartphone component demand are concerning, but we don't expect an oversupply of semiconductors, as demand in such sectors as automotive, industrial, and medical remains robust," said Richard Barnett, chief marketing officer at Supplyframe.
Commodity IQ provides decision-makers with the intelligence they need
Supplyframe Commodity IQ is a transformed approach to market research, focused on the inherent complexities of the electronics industry and powered by Supplyframe's Design-to-Source Intelligence (DSI) Network. It delivers rolling four-quarter forecasts for the crucial sourcing dimensions of market dynamics, pricing, and lead times. Commodity IQ provides numerical, supplier, industry, and overall context as insightful supporting commentary. And it identifies design and demand trends, including engineering design cycle patterns and predictions, as well as sourcing signals by commodity and sub-commodity.
In the second quarter of this year, Supplyframe implemented enhancements to Commodity IQ, including monthly pricing and forward-looking analysis and pricing forecasts for essential raw and precious metals, and went beyond factory lead times with real-world, at-volume lead time trends based on purchases. Additionally, the design and demand indicators in Commodity IQ were improved by providing monthly views with three-month forecasts.
Supplyframe's new, augmented insights and alerts are available this quarter and user-configurable for targeted commodities. New materials and operations commodities have been added to help industry professionals gain more visibility of market conditions and impacts on core commodities, including Contingent Labor and Transportation & Logistics. Materials commodities have been expanded to analyze raw and precious metals, solder, and resins. And quarter-on-quarter forecasts for pricing and lead times have been added based on real-world, at-volume purchases of electronic components at the commodity level.
"Building supply chain resilience to control risk in an increasingly volatile world requires that supply chain ecosystem players stop relying on static views of materials and parametric data and adopt solutions that provide an always-on, real-time view giving context about those components and the related supply chain," said Barnett. "These companies can then share this digital thread across different enterprise functions and with their key partners to make more informed decisions."
Supplyframe's unmatched industry ecosystem, and pioneering Design-to-Source Intelligence (DSI) Solutions, are transforming how people and businesses design, source, market, and sell products across the global electronics value chain. Leveraging billions of continuous signals of design intent, demand, supply, and risk factors, Supplyframe's DSI Platform is the world's richest intelligence resource for the electronics industry. Over 10 million engineering and supply chain professionals worldwide engage with our SaaS solutions, search engines, and media properties to power rapid innovation and optimize in excess of $150 billion in annual direct materials spend. Supplyframe is headquartered in Pasadena, Calif., with offices in Austin, Belgrade, Grenoble, Oxford, San Francisco, Shanghai, and Shenzhen. To join the Supplyframe community, visit supplyframe.com and follow us on LinkedIn, Twitter, Instagram, and YouTube.