By Mike Slater, Vice President of Global Business Development at DigiKey
The last three years have been nothing short of chaotic around the world. Many business decisions seem to have been made reactively rather than strategically as the world navigated unprecedented times. As we move onto what’s next and begin to step back and assess the past three years, as well as look forward, what’s clear is that we’re at a point of transition.
As a distributor for electronic components and automation products, DigiKey has been in a unique position during the pandemic. Overall, our industry has been in an upcycle and now, along with the rest of the world, we’re looking at a downturn. However, while we may be in a slower growth period, at DigiKey we don’t pull back during these times; we build for the next cycle understanding it’s exactly that – just a cycle.
In my business development role, I have the opportunity to talk to and hear from customers, suppliers and rep organizations. So, I’m going to share what I’m seeing and hearing from people who have been on the frontlines of the industry.
Over the past 40 years, the semiconductor industry has gone through many cycles, just like any industry. While the past three years have felt anything but average, when you look at the last upturn cycle, or when billing overall was going up, it was actually pretty average.
On the flip side, since October 2022, the United States has been in a downturn. In contrast to the upcycle, this downturn has been more dramatic than previous downturns. The only downturn during the last 40 years that's been stronger has been the one coming out of 2018.
Experts are Predicting an Overall Market Slowdown
While no one has a crystal ball, experts are seeing an overall decline in the market. The World Semiconductor Trade Statistics (WSTS) predicts the semiconductor market is going to shrink by 4% this year. Gartner is a little less optimistic and is predicting a greater than 11% decline in the market.
According to the Electronic Components Industry Association (ECIA), sales of semiconductors have fallen across the world, most substantially in Asia, but America isn’t far behind.
What Customers are Saying
Overall, our customers are anticipating a slow market through the end of year, and common themes we’ve heard include:
• Inventory is at a record high, but orders are slowing. This is in contrast to the supply shortage many had experienced over the past couple of years.
• The industry is still experiencing supply chain issues with advanced semiconductor products and power supplies, and this continues to be a challenge.
• Demand for products is decreasing.
Even with the downturn, there are still market segments where we’re seeing growth, including medical, biotech, agriculture and energy.
What Suppliers are Saying
Similar to DigiKey customers, suppliers are expecting a slowdown, but not necessarily a steep drop. Suppliers and distributors have excess inventory – more than ever before. But there are still several markets that are strong and continue to show growth, including military and aerospace, medical and automotive.
At DigiKey we’ve also been talking with suppliers about their plans for the future, including planned product changes, introductions and retirements. The last thing an engineer wants to do is design in a part that is soon obsolete. We’re happy to be able to pass these insights along to customers and help them plan ahead.
We also use these learnings to evolve our frictionless digital service so procurement professionals can streamline their purchasing process. Digital tools like our myLists platform make it easy to create a product list, access part information, check the status of materials and more. Users also have access to alternative recommendations if a product is unavailable, soon to be obsolete or has a long lead time, along with detailed information on country of origin, manufacturer quantities available, the status of raw materials and product lead time.
By continuously gathering supplier and customer feedback, and listening to our internal experts, we can ensure procurement professionals have access to the most robust purchasing tools on the market, regardless of the economic cycle.
Doubling Down: Investing in the Future
While there is variation in what people are seeing and predicting for the market through 2023 and beyond, it’s widely agreed that the peak is over. How steep the drop, as well as how long and how dramatic this cycle will be, is still up in the air.
What we do know is that even with this shift in the market, DigiKey is ready for what’s ahead and isn’t slowing down. During downturns, we keep investing, we keep inventory on hand, we keep pushing big projects and we invest in technology that benefits our customers and suppliers. At DigiKey we recognize this is an opportunity to grow.
It's also a good time for customers to think ahead and plan for the future. While most electronic components and automation products are plentiful, it’s a good time to identify alternative parts through DigiKey’s myLists tool, our list management and parts solution, rather than wait until it’s crunch time or there’s another supply chain issue. Because, as we know, it’s always a cycle.
We exist to serve design engineers and customers worldwide. We’re committed to that purpose and aren’t about to slow down.
