LONDON The Association of Franchised Distributors of Electronic Components (AFDEC) sees the U.K. total available market (TAM) for electronic components falling 5% in 2006 to £3818million but distributors TAM (DTAM) will see them gain market share with their share of the market falling 2.4% to £1032million.
But things haven't been so good this year with final figures for 2005 predicted to show the TAM down 13.9% at £4017million and the DTAM down 10.8% at £1058million. The figures are released in the AFDEC forecast for 2006 and 2007 which also covers the current year.
The report details that the UK TAM for electronic components has declined significantly over the last 5 years from a peak of £10,204million in 2000.
According to the AFDEC this decline is due to a the combination of factors. High volume manufacturing capacity in the U.K. has migrated to lower factor cost economies of Eastern Europe and Asia, particularly China, and at the same time the remaining main demand drivers for electronic components in the domestic market are moving from lower volume, complex datacom / telecom centric products, to high volume, lower complexity, consumer products. The average selling price of many semiconductors, particularly FLASH memory, continue to decline.
The increasing stability of the political, economic, social and legal systems in both Eastern Europe and China are enabling the direct purchase and delivery of goods from abroad, rather than via purchase and consolidation in the U.K. Further says AFDEC, poor administrative control on the part of electronic component manufacturer and the establishment of 'brokers' who owe loyalty to no-one, is facilitating the import of 'grey market' electronic components back into U.K./Europe from Asia.
On a more positive note, AFDEC anticipates that the DTAM will continue to increase as electronic component manufacturers disengage with their direct customers and reassign them to their franchised distributors.
Significant additional consolidation within the U.K., European and Global franchised electronic component distributors during 2005 has, says AFDEC, resulted in the realignment by some electronic component manufacturers to new franchised distribution partners, with the consequent sales revenue reallocation. “Some Franchised Distributors are moving into new markets such as board-, or system-level integration of electronics sub-systems and software, sales revenues but AFDEC does for not currently record this data”, said Aubrey Dunford, who compiled the report for AFDEC.
According to Adam Fletcher, AFDEC's chairman, the UK is fortunate in that it benefits from a strong, diverse and vibrant electronics market of more than 5,000 organisations. “Whilst some of the leading high volume manufacturers have moved their production off-shore to remain competitive in world markets, those organisations that remain – principally active in lower volume, complex, niche markets – are significantly more stable”. The UK has a strong and innovative electronics research and development design base and its ability to make the transfer from academia to commercial organisations and products is becoming increasingly evident.”
The report concludes that the current structural changes in the UK and Global electronic components markets will have been completed in 2006 with the market stabilising in 2007 and then moving towards single digit growth.
All categories of components in the 2006 distribution market for devices used in non-IT designs will be affected with semiconductors sales down 2.8%, passives down 2.5%, electro-mechanicals down 2.2%, with both component assemblies and other products down 2.0%.
For 2006 AFDEC expect to see some additional manufacturing being moved off-shore, a year of little growth in the UK economy and limited growth in the European economy which is now the predominate driver for the UK electronics market. The cyclical nature of the global electronic components industry is likely to continue, albeit it is to be hoped without the dramatic swings that have been seen in the past. The influence of these cycles will still be felt within the UK as prices and lead times from the manufacturers vary.
AFDEC believes that Government spending on infra-structure is creating new markets and the threat of terrorism and the rise in crime rates are generating more opportunities in the security market. The automotive market remains strong as most of the major car manufacturers’ highly stringent requirements on quality and approved manufacturing techniques have restricted the use of off-shore facilities. However, there is emerging evidence that this is changing especially in non critical parts of the car system such as ventilation systems where such high quality levels are not required.
Although there have been significant shifts in the exchange rates between the pound and both the euro and the dollar, the effect of these has been relatively small during 2005. All companies interviewed for the report said that they are now becoming less sensitive to the shift in exchange rates, with many companies trading in Euros or dollars on key components. Most companies have developed contracts and ways of working that protect them from the effects of these changes.
U.K. Electronic Components Market at OEM prices
The 2006 AFDEC Executive Forecast is available to non-members for £275.