Late 2017 and 2018 can be marked in the books as a record period for electronics manufacturing industry professionals, although not in the way anyone would like. Interconnects, passives, electromechanical devices, SMD resistors, and MLCCs, due to unprecedented demand in the automotive & IoT markets combined with component manufacturers’ inability to expand supply in a timely fashion, faced an extensive shortage that saw lead times for some components stretching beyond 40, 45, even 52 weeks. Such conditions saw even previously commoditized components face insurmountable lead times.

Now that 2019 has moved beyond the halfway point with the finish line in sight, supply chain analysts are in a solid place to determine what this year has meant for the industry, and where things are heading moving into 2020.

Improvement but Uncertainty

In a March study conducted by TPC of over 12,000 electronics manufacturing industry professionals, the market seems to be “normalizing” as bookings, demand, and even component pricing appear to be declining to more manageable levels. However, as demand decreases, there seems to be a surplus issue on the horizon as cancellations continue to rise and suppliers are caught escalating production at an inopportune time. Such a state is common immediately following a shortage, and mirrors the reaction to the state of the market at the turn of the century.

MLCC Issues Remain

A notable exception to this forecast appears to be MLCCs, which have been among the most affected components during the shortage. While prices have appeared to stabilize, TPC suggests that pricing relief resembling pre-shortage levels is not to be expected for the foreseeable future. Large case sizes, in particular, are being pushed out of production by a plurality of manufacturers converting to smaller sizes in newer products, which is adding an extra level of demand to the market and squeezing OEMs unable to commit to a product redesign. Although some component manufacturers such as Samsung have stepped in to mitigate the supply discrepancy somewhat, the declining numbers of suppliers willing to commit to filling the gap may eventually lead to resurging prices beyond 2020.

An Ideal Buying Opportunity for OEMs

As prices and lead times in most markets decline and distributors handle surplus inventory they are not equipped to store over extended periods, OEMs should find themselves in the coming months in prime position to leverage significant buying power in the marketplace to place large bulk orders including last time buys. As distributor storage issues are expected to worsen, manufacturers may even be able to negotiate significant bulk purchase discounts through means such as the Partstat Rapid RFQ System available to all Partstat members.

Even in times of limited relief, OEMs should feel compelled to react; not only does such a strategy result in short-term relief, but it also proactively insulates their supply chain from the next phase of the market cycle, where leverage will again shift toward distributors. As it stands, the wind appears firmly in the buyer’s favor, and they would do well to strike while the iron is hot to turn wariness and certainty about 2020 into assurance.