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The Latest on Leadtimes

This week, both {complink 453|Arrow Electronics Inc.} and {complink 577|Avnet Inc.} reported their quarterly earnings and discussed a number of supply chain trends on their earnings conference calls. For buyers, two of the most important trends are leadtimes and pricing. Here's what the industry's two largest global distributors are saying.

Leadtimes are coming back in
From Arrow's standpoint, semiconductor leadtimes have moved back further than interconnect, passive, and electromechanical (IP&E) product leadtimes. “Right now, we are seeing leadtimes on the semiconductor side retuning to more normal levels,” said Mike Long, CEO of Arrow. “There are still products with extended leadtimes, and for those, customers are also giving us a longer-range of visibility into their needs.”

Avnet commented on the aggregate of product areas and described leadtimes as coming closer to normal. “If normal is eight weeks,” said Roy Vallee, CEO of Avnet, “and we got to 16 weeks, I'd say we are in the 12-week range right now.” Vallee said by the end of this calendar year, Avnet expects leadtimes will have worked their way all the way back to normal rates.

In Arrow's PEMCO business — passives, electromechanical, and connectors — leadtimes are still above normal levels, said Long. “They aren't coming in or are extended because of the [PEMCO] manufacturing processes,” he said. In general, the IP&E business isn't as volatile as the semiconductor business, so passive, electromechanical, and connector suppliers ramp their capacity upward or downward at slightly slower levels than chipmakers.

Prices have stabilized
As leadtimes began to stretch during the June quarter, average selling prices (ASPs), particularly in semiconductors, began to increase. They apparently have plateaued in the September quarter. Avnet Electronics Marketing global president Harley Feldberg said, “We are not seeing or feeling any degree of pricing pressure.” Feldberg added Avnet expects this trend will continue throughout the end of the year.

Vallee points out that prices tend to vary more widely during periods of excess capacity and excess inventory, which was the case earlier in the year. “When there's normal expansion — which is what we see happening now — we don't see as much ASP erosion,” he said.

The distributors' forecasts differ somewhat from their suppliers', who see business slowing down a bit more in the next quarter. Broadline distributors such as Arrow and Avnet carry a wide range of products — hundreds of thousands of stock-keeping units (SKUs) — and serve tens of thousands of customers. Since the distribution business is not concentrated in any single product base or in any single end market, their view tends to reflect the electronics industry as a whole. Arrow and Avnet both expect normal or better-than-normal cyclicality through the end of the year.

Arrow based this on interviews with 300 of its customers. “Their purchasing requirements are remaining positive, and if you look at 15- to 20-week leadtimes — and we are coming in closer to 15 — we still have some ways to go before we see the industry pulling back,” said Long.

What is your company's view on the market through the fourth quarter?

2 comments on “The Latest on Leadtimes

  1. bolaji ojo
    October 29, 2010

    Barbara, Only a few months ago many companies were screaming about extended delivery times for components. Now, the storm is dying and a different problem is brewing. We've gone from strong demand to normal demand and we are heading for . . . (nobody can really say.) Are lead times moving to normal range because companies added production facilities or is this because double-ordering has ended or more likely, in my opinion, because inventory replenishment pushed up demand after initial drastic cutback by OEMs and distributors and now we are seeing normal demand patterns?

    Boom, burst, boom, burst, boom, burst and boom, burst. Here we go again. If companies added manufacturing capacity to meet what they thought were strong demand and if this has now died down will see overage again only months after industry-wide shortages?

  2. Barbara Jorgensen
    October 29, 2010

    Hi Bolaji, This is a tough call. I think the industry is actually going to have supply/demand balance going forward. Here's why: suppliers were extremely cautious about adding capacity this past year and that's why we saw leadtimes stretch out. Rather than this being a boom, it's a return to “normalcy”. And the reason I think it happened so quickly is, for all its faults, the supply chain has improved its ability to respond to changing demand. So instead of seeing trends changing within a 6 month period, we are seeing change more on a 3 to 4 month period.

    The other thing–and I should have mentioned this in the blog–is distributors are not seeing any increase in order cancellations. If there was a sudden spate of order cancallations that could indicate there was double ordering going on earlier in the year and that would be a problem. I don't think this happened because buyers are also being more cautious. Everybody wants to believe the signals are real, but no one is willing to actually put money down on that bet.

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