Distributors have seen continued growth for the past 8 quarters and the sector is in a much better position than it has been in a long time, said Adam Fletcher, chairman of both the electronic component supply network (ecsn) and the Association of Franchised Distributors of Electronic Components (afdec).
Mathew Thorpe, regional sales manager for the UK and Ireland at Premier Farnell agreed. “All forecasts point towards growth over the mid-term, albeit at a slightly lower rate than the global average. The Industrial Internet of Things (IIoT) and industrial sectors remain a key focus and the market continues to benefit from the UK’s strong engineering heritage.
“We are seeing businesses bringing R&D to the UK to take advantage of this strong skills base, as well as the return of some small volume production, which had previously been moved abroad.” He points to industries like robotics and autonomous vehicles as the main areas of growth, describing the UK as an “exciting place to be.”
With less than a year before the UK leaves the EU, many markets remain uncertain as to how it will affect trade. As for the electronics sector, Premier Farnell doesn’t see any immediate concern.
“We are confident in our ability to supply our UK customers,” said Ralf Buehler, SVP sales and marketing for Premier Farnell. This upbeat assessment comes from a number of investments made by the company. Firstly, a £60million investment in a larger distribution centre in Leeds, and secondly, in its inventory, which Buehler said is reviewed on a continuous basis.
The new distribution centre will service the company’s eight other centres globally, and mean that exports and imports can be minimised. Time-to-market will be unaffected despite the prospect of trade deals posing problems, explained Buehler.
Fletcher points to a marked increase in export sales for UK manufacturing companies, as a result of the devaluation of Sterling, post the vote to leave the EU in 2016. Currency exchange rates are a two-way sword, however. He warned, “While you might be exporting well because your prices are competitive, your input pricing goes up. That will affect your profitability unless you can increase your sell price.”
Buehler is sanguine about the possible impact of Brexit but also the over the potential of a possible trade war between the US and China, or with the EU. “The global economy is and has been dynamic for some time, and we aren’t more concerned about a possible trade war than other factors effecting global trading.”
“The actions of the US Government are a concern,” Fletcher countered, “but we are very much on the side-lines. We can’t influence it, all we can do is work with it as it comes.”
Fletcher mentioned that care would have to be taken so that products aren’t purchased in the UK and sold into the market to try and get around the duty American has imposed upon China. With regards to US tariffa on Europen goods, Fletcher hasn’t seen any signs that would lead him to think this may happen, but argues that this position could change.
MLCCs in demand
Supply and demand and component shortages remains a concern.
“At the moment the biggest issue for the components industry is with multi-level ceramic chip capacitors (MLCCs),” contended Fletcher. He described it as a ‘merchant-market commodity product’ – something that is so basic and a component so many make, that no one has ownership over it.
Over the last two decades, capacitor manufacturers have made heavy investment into material science to make denser products, he explained. The smaller MLCCs like 01005 are popular in applications such as mobile phones, but with the UK’s market focus being on industrial, the larger MLCCs such as 1206 are in much higher demand in Britain. The problem, according to Fletcher, is that smaller MLCCs are cheaper to make and have a wider global demand; and with no real ownership and no one willing to invest, MLCCs like 1206 are becoming obsolete, with demand far exceeding supply.
“We’re going to find that in North America and Europe, growth will be hampered or limited by the availability of MLCCs. If you can’t get the MLCCs, demand for semiconductors, connectors, LEDs and the like, will be affected,” Fletcher stressed.
He admitted that the UK has overcome shortages before, with the likes of memory and processors, but there have always been ways around it. For example, socketing processors in the end-line. “The only answer is to redesign MLCCs,” he suggested.
“On a macro level, the main challenge is the availability of key components,” Thorpe added, “some are on allocation with extended lead times, and we don’t anticipate significant improvements over the next twelve months.”
Trends and needs
The Internet of Things (IoT) has now become a key driver in the market, according to Cliff Ortmeyer, global head of solutions development at Premier Farnell.
AI and machine learning have become new growth areas, reaching into news areas such as transport and healthcare. So much so, according to Ortmeyer, that within the next 10-15 years we could be heading towards a position where this technology will drastically change the way in which we live and interact.
And as the IoT presents new opportunities, Buehler said a new type of customer is emerging: users who do not have prior development experience.
For example, Hanhaa, a London start-up specialising in IoT, has launched a platform, Sumbisa, that intends to enable quick and simple IoT device deployment and data monitoring that is accessible to anyone. It offers a new approach for developers and IT professionals to build IoT applications by using a Microsoft Excel add-in, and will be exclusively available from Farnell element14.
With the integration of technologies like 5G and automotive, distributors are having to reinvent themselves, becoming ‘technology providers’.
As part of the Avnet Group, Ortmeyer suggests that Premier Farnell is in a strong position to support every stage of the design and manufacturing process, and is well placed to help reduce time to market – a key driver in the distribution market. But not only that. It is well placed to assist start-ups and hobbyists and meet the demands of this fast-growing past of the distribution market – the maker market.
Fletcher questions whether this is the type of service customers want. “Most organisations, in my experience, want to have some flexibility. They want to be partners with a range of companies. They don’t just want one partner that dominates from the prototype stage through to commercialisation.”
Ortmeyer, disagreed, and argued that the Avnet ecosystem means that “customers spend less time having to identify the right partner or bringing them on board a particular project, all of which will help the customer get products to market faster.”
As for the future, Fletcher is upbeat. “They’ll be no stopping the market. Some shortages will hold us up for a while, but internationally the convergence of technologies like 5G, automotive, connected cities and IoT is going to drive the electronics market for at least the next five years. And it’s going to grow very quickly.”
While there are plenty of known ‘un-knowns’ to contend with, from looming international trade wars, to the unexpected twists and turns that make up the UK’s efforts to exit the EU, let alone anticipating how technology will evolve in the coming years all the distributors can do is watch, listen and prepare for what they think is likely to come.