2010 Q1 / spring electronics supply chain survey reveals guarded optimism

586 respondents from North America and across Asia and Europe were asked about expectations regarding the current and future business environment. Attitudes and positions measured across the supply chain say consumer electronics companies are most optimistic. Read why your company is seeing pricing and volume changes from technology vendors and suppliers. Are you planning accordingly?

Challenged by significant unemployment in developed markets, and the early stages of a recovery spurred by global government subsidies, the electronics supply chain seems to have weathered the worst recession in the post-war period.

Many companies in the supply chain have faced a difficult time forecasting demand levels and managing component inventories. As demand outpaced supply in late 2009, many firms have reported supply shortages limiting business opportunities

According to VentureOutsource.com’s most recent data from our Electronics Supply Chain Business Outlook Survey for Q1 2010, the near-term future outlook has improved since our last survey was published in August 2009.

Our respondents participated from North America, across Asia and Europe and indicated they expect to see continued improvement in the electronics supply chain in the second half of 2010.

A Future Index built by responses to several questions from the survey came in at a mean of 5.6 (this is up from 5.1 for our August 2009 survey) on a scale of 1 to 10.  While the improvement is welcomed news, it still shows a level of conservatism in decision makers’ attitudes.

In this survey, more than 85% of the respondents, ‘key decision makers’ for their organizations and those who ‘participate in the decision making process’, are optimistic about an improving macro environment. Additionally, our latest survey, which was sponsored by Digi-Key (www.digikey.com), one of the world’s fastest growing distributors of electronics components, we managed to source twice as many respondents (vs. effort with our August 2009 survey) who offer a broader industry perspective.

Visit Digi-Key at www.digikey.com

Tables 1 through 3 show the number of respondents by their type of company versus three other demographic categories.

In our previous survey, respondents from electronics manufacturing services (EMS) companies and original design manufacturers (ODM) plus OEMs represented 82% of those who participated while in this latest survey these company types constitute 67% of respondents.

Table 1: Responses by company type and product area

Q1 2010 Electronics supply chain survey responses by company type and product area

(Click for larger Table 1)

Table 2: Responses by company type and decision making role

Survey respondents by electronics company type, decision-making role

(Click for larger Table 2)

Table 3: Responses by company type and business level

Survey responses by electronics company type, business level

(Click for larger Table 3)

This survey also includes respondents from component manufacturers (i.e., printed circuit board companies, sheet metal fabricators and connector organizations…), and semiconductor companies. These company types comprise a smaller share of total respondents.

More than 23% of our survey respondents identified consumer devices as the primary product area for their company and approximately 13% identified computing / PC as their primary product area. This is a change from our August survey where 20% of respondents identified telecom and computing / PC as their primary product area. (Refer to Table 1)

The only primary product area that held constant was Medical with 8%, in both surveys. Networking and servers remained the smallest number of respondents, both tallying 5% of respondents.

Key decision makers influence survey results
Those respondents who identified themselves as ‘key decision makers’ in their companies made up 44% of the respondents (down from 50% from the previous survey) while 42% identified themselves as ‘participate in decision making’.

The ‘view into decision making’ category continues to make up 13% of the respondents, the same as in the August survey.

Just as in the previous survey, the results from this survey should prove significant since approximately 87% of the 586 survey respondents are active participants in the supply chain decision making processes of their companies. (See Figure 1)

Figure 1

Responses by decision making role

Survey responses by electronics company decision-making role

The mix of respondents answering for their whole company versus their business unit remains constant.

Of respondents, 62% said their answers were pertinent to their company while 38% indicated their responses relate just to their business unit. (See Table 3)

Electronics supply chain takes a bounce off the bottom
Overall, respondents’ outlook on the state of electronics supply chain has improved since August 2009.

Today, respondents view the current situation much more positively than they did in August, with an average score for the Current Index of 5.4 out of 10, this an increase of 17% from the August score of 4.6.

Respondents were a bit more hopeful about the future, as well, as the Future Index came in at 5.6 out of 10, 9% higher than in August. This leads us to believe increasing optimism may yet lead to a broad-based recovery of sorts perhaps as soon as early 2011.

Figure 2 shows the average score for three indexes calculated by averaging each respondent’s responses to different sets of questions:

Current Index
The average of each of the respondent’s scores for their current outlook regarding the economic situation; employment, inventory levels, business volume, and prices.

Future Index
The average of each of the respondent’s scores for their expectations regarding the economic situation; employment, business volume, and profits.

Overall Index
An average of the two indices above.

Figure 2

Supply chain outlook, Summer 2009 vs. Spring 2010

Electronics supply chain outlook comparison (Summer 2009 - Spring 2010)

The Overall Index, an overall measure of respondents’ opinions on the state of the supply chain, saw in an increase mean score to 5.47. This is an increase of 13% from the last survey.

Figure 3 shows little variation by end-market or by company type. Only computing / PC and semiconductors stood out with mean scores of 4.8 and 6.1, respectively. The low score from the PC segment may reflect the seasonal low following the surge in demand in the fall.

As for semiconductors, their higher score may be due to both supply shortages in specific markets, such as for analog components, and their place on the leading edge of the supply chain time horizon. Controlling for the shortages, this could be a harbinger of better times ahead for the whole supply chain.

Figure 3

Supply chain outlook Overall Index by company type and product area

Q1 2010 Electronics supply chain survey Overall Index

Respondents, according to Table 4, have indicated the worst of the recession maybe over but that does not mean the news is bright.

For example, the current economic situation has a mean score of 4.8 out of 10, an increase of 0.9 from August, but still low.

In contrast, employment and prices mean scores, 5.7 and 5.8 respectively, are the standouts.

Table 4: Average responses for Current Index and constituent elements

Electronics supply chain survey average responses for Current Index and constituent elements

(Click for larger Table 4)

The average mean score for the Current Index is 5.4, up from the 5.1 reported in August.

Telecom provided the lowest mean score for product area, as shown in Figure 4, with a mean score of 4.1.

Respondents who address the computing / PC, industrial, and networking end-market segments had the most positive outlook with mean scores of 5.8, 5.7, and 5.7 out of 10.  This may signal good times for capital equipment and enterprise end-markets.

One interesting note is respondents who address the automotive industry provided a mean score of 4.3 in August 2009 which has increased in the latest survey to a mean score 5.6. This may be explained by production gearing up for new model year products.

Figure 4

Electronics supply chain Current Index by company type, product area

Q1 2010 Electronics supply chain survey Current Index by company type, product area

OEMs have the lowest Current Index mean score while electronic equipment manufacturing and distribution / logistics have the highest mean score of 5.9 respectively. This may indicate different views tied to where companies fall in the supply chain. OEMs typically lag one to two quarters behind component suppliers in feeling the impact of demand improvements.

The Future Index increased to 5.6 out of 10, an improvement over the last survey and the Current Index. Table 5 contains the elements that combine to form the Future Index and shows there is little variation in how respondents answered each specific question.

Table 5: Average responses for Future Index and constituent elements

Q1 2020 Electronics supply chain survey average responses for Future Index and constituent elements

(Click for larger Table 5)

On the whole, respondents were more optimistic when compared to the results in the August survey. The future employment situation and profits have the highest mean scores of 5.8  and 5.6, respectively.  This is an increase from the August mean scores of 5.2 for future employment and 5.3 future profits.

The future economic situation had a mean score of 5.2, up only 2% from the last survey. This is one area for concern as well as was the business volume question, which had a mean score of 5.1%. However, the big picture reflects an improved outlook. But it is still significant that these two elements are trailing behind the others and may show respondents are still unsure of how the recovery will play out.

Figure 5 examines the Future Index by the type of company and end-market, showing, again, that attitudes are consistent across markets and positions within the supply chain.

The average response had a mean score of 5.6.

Medical and telecom remain the most pessimistic, providing mean scores of 5.2 and 5, respectively. The medical scores possibly are tied to uncertainty around the health care reform debate in the US. As for telecom, uncertainty about and the length of infrastructure projects may be depressing scores.

Networking and computing / PC were the most optimistic with mean scores of 6.2 and 5.9, respectively. As stated above, this may show that end-users are again looking to spend on new products.

Figure 5

Electronics supply chain Future Index by company type, product area

Q1 2010 Electronics supply chain Future Index by company type, product area

Driven by their position in the supply chain, these scores indicate respondents expect market conditions to improve, at least slightly, in the second half of 2010 or early 2011.

Responses across the different roles in the decision making process, as shown in Figure 6 were consistent. No matter what role they play in the decision making process, respondents have indicated the near-term future is on the road to recovery.

Figure 6

Responses by role in decision making

Q1 2010 Electronics supply chain survey responses by role in decision making

Those who ‘participate in the decision making process’ have a Future Index mean score of 5.5 out of 10 but those participants who describe having ‘a view into the decision making process’ were betting on a slightly quicker recovery with a mean Future Index of 5.7.

Opinions regarding the current situation were consistent across the various roles in the decision making process.

Those with only a ‘view into the decision process’ provided the highest mean score for the Current Index, 5.5. ‘Decision makers’ and ‘participants in the decision process’ rated the current situation with a mean score of 5.3. These scores show that those with responsibility are still concerned and may indicate component shortages may continue as executives remain concerned with allowing inventories to build up.

Survey respondent level of confidence
Respondents continue to be confident in their answers. In the latest survey, 85% of respondents rated their confidence at 7 or higher out of a scale from 1 to 10.  In the August survey, 78% of participants rated their confidence at 7 or higher. (See Figure 7)

Figure 7

Respondent confidence level in their responses

Q1 2010 Electronics supply chain survey respondent level of confidence in decision-making

Finally, Figure 8 presents the mean increase in respondent’s responses to three primary questions. Regarding the macro environment, respondents, on average, increased their scores between the current and future economic situation (31%) and how it impacts their business and the employment situation by 51% and 14%, respectively.

Figure 8

Average increase in ratings between current quarter and future

Q1 2010 Electronics supply chain survey average increase in ratings between current quarter and future

Respondents indicated by their ratings that overall, they are expecting an increase between the current quarter and the future.

Of the company types, the consumer electronics companies reported the greatest expected increase in economic conditions, 83% respectively, while electronics equipment manufacturers reported the strongest outlook for employment (45%) and business volume (90%).

Looking at economic conditions by product area computing / PC expected the greatest improvement (96%). Respondents from the automotive and military/ aerospace / avionics market also saw improving future economic conditions by 30% to 28% respectively.

Respondents from the computing / PC market indicated they expect an increase in employment by 62% respectively. While computing / PC respondents indicated they expected business volume to dramatically increase (105%), the medical and military product types also expect a dramatic increase in business volume (65% and 53%, respectively).

The survey ran for approximately eight weeks ending March 12, 2010 and generated responses from 586 people. Respondents were asked 12 questions about their expectations regarding the current and future business environment: employment, business volume, and product pricing environments.

Survey respondents were asked to rate their views on these questions on a scale of 1 to 10 (1 being the most negative and 10 for the most optimistic response).

VentureOutsource.com conducted a similar survey in April and August 2009 asking the same basic 12 questions. (View August 2009 survey results)

The survey also included questions that asked respondents to describe the type of company they work for; what product areas their business unit or corporation are active in; their role in the decision making process; and what level they can speak to (business ‘units’ versus overall corporation).

Methodology
VentureOutsource.com’s Electronics Supply Chain Business Outlook Survey for Q1 2010 was put online and made available to industry clients and Website readers on January 18, 2010. The survey was also sent directly to individuals in electronics corporations, organizations and agencies who use, offer and are employed in electronics contract manufacturing and / or technology supply chain and outsourcing services or subscribe to our opt-in e-newsletter INsight. Survey participation was voluntary. Survey questions designed to define survey respondent demographics did not collect any personally identifying information. The survey closed March 12, 2010. Survey questions focusing on indicators of respondent satisfaction or emphasis were posed with a scoring basis of 1 to 10 (1 = very negative experience or expectations and 10 = very positive experience or expectations) per survey question / criteria.

Future findings

Persons wanting to receive advance notice of future surveys / findings please send an email to insight [at ] ventureoutsource [dot] com requesting to be added to our monthly e-newsletter ‘INsight’ or sign-up directly for our monthly e-newsletter on the VentureOutsource.com Website.

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