FROM THE TOP
What does recovery look like?
by John O’Brien, CPMR
ERA Chairman of the Board
How many of us are asked in meetings, “What do you see for recovery of the electronics industry?” Let’s face it, everyone is skeptical about when a recovery will occur, most people not venturing out more than two quarters to look for the growth we all know will return. Our industry is so cyclical that we often go through great periods of growth followed by short periods on flat or contraction. For those who have been around awhile, we can look back at the dotcom bust or the allocation periods, for example.
What I believe we are experiencing this time around are multiple forces driving our industry, but not always in the same direction. Going back to 2019/2020 and the COVID-19 era, expectations when COVID-19 first hit and everything shut down were that our industry would face a big downturn. I remember a meeting in March 2020 when we discussed how we would adjust to an anticipated drop in sales and revenue. As our people moved to work-from-home, it drove a surge in the very products we supply to support his new work model. As concerns arose over testing and treatments, our medical markets began to thrive.
Then 2021/2022 hit and the disruption in supply chain started to take hold. Customers bought usages going out a year so they could try to maintain their production. Then when they couldn’t get parts, they opened up their BOMs to cover build demands.
2023 rolled around and everyone was sitting on too much inventory. Everywhere throughout the supply chain, distributors, CEMs and OEMs all had raw materials inventory and in many cases, finished goods, that outpaced the end customer demand. So, throughout 2024, we’ve been tracking inventory work-downs. We’ve been watching end customer shipments but up until recently, design efforts were limited to sustaining engineering. Recently, we’ve started to see an increase in new product designs. These new designs are definitely taking longer and there are fewer going on at the same time.
So do these factors signal a recovery? I’ll get back to my original premise, “How do we define recovery?” If we look at recovery as a return to sales numbers equal or greater to the heights we’ve seen (for us that was 2022), then I believe we are still a ways out from there. Price pressures from the OEMs are causing lower overall sales, but, with similar volumes we’ve seen prior. Most recently, I’ve spoken to a number of folks at principals, distributors and CEMs and many are looking at 2019/2020 as a comparative time frame to 2024 and beyond. Everything I outlined previously in the article “artificially” inflated our numbers, so a comparison to a more stable time may help provide greater insight into what’s happening.
No matter how you define recovery, we all learned a valuable lesson over the past four years. We are a resilient industry that touches so many markets that help offset downturns. We are also an adaptive industry that sees these changes and can react quickly. Working together as reps, manufacturers and distributors, we will recover and be stronger than before.