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Jabil's Global Commodity Intelligence Archive
Global Commodity Intelligence
Q2 2024 | APRIL- JUNE
Jabil's Global Commodity Intelligence Archive
Global Commodity Intelligence
Q2 2024 | APRIL- JUNE
DISTRIBUTION
MARKET OVERVIEW
- In Q1 2024, the distribution market is not fairing well. Revenues are down significantly compared to last year, and the larger players have started to tighten expenditures and trim resources. There is a consensus that 2024 will be a “correction” year. As the electronics market is projected to grow, there is optimism for a resurgence in demand during the second half of this year.
- There is a slight uptick in certain sectors. Over the last two months, customers have placed much shorter lead-time orders, which fuels optimism that the bottom is behind us. Revenue, net margins, and book-to-bills are still not positive, and Inventory figures are still high but reducing.
- Lead times have dropped significantly, allowing for greater flexibility in the supply chain. Distributor sentiment stays positive that demand is healthy, and they have shifted their focus to target growth end segments such as automotive, medical, and AI data centers, which are counted on to drive demand.
- The distribution market is seeing soft bookings, which worries them in the short term. They are, however, optimistic about the longer term.
- At present, distributors are trying to keep revenues from dropping too far, shipping out what they can. Visibility to long-term demand is not strong; however, there is a higher figure for short lead time orders, which brings them some optimism for the future.
- They see customers taking a more conservative approach to forecasting demand. Distributors are currently focused on inventory control and pricing fluctuations that come along with this.
SUPPLY
- Global supply chain pressures continue to decrease overall as certain end markets maintain a soft position. Most commodities ' lead times are reducing or steady, and distributors carry abundant inventory.
- Some product groups continue to be severely constrained (e.g., MCUs, crystals, or older technology products), and there’s no sign of alleviation in the short term.
- The memory market is beginning to heat up, and distributors are taking a stocking position to capitalize on this as pricing levels continue to rise.
MARKET DYNAMICS
- Distributors are still seeing customers bleed off excess inventory. Short lead time orders are dropping in from customers, keeping the distributors somewhat upbeat.
- Cancellations and pushouts continue; cancellations have decreased tremendously, but distributors are seeing more pushouts due to forecast changes and shortening lead times.
- Distributors continue to focus on new design activity. Many new projects/upgrades to the next generation of products result in increased design and engineering effort. This fuels optimism for demand returning to a higher level when these projects and models go into mass production.
- Inventory is still a focus as the figures remain high in the channel. The inventory is bleeding off; however, the objective is to reduce the overall formation to match the weakened demand. Downstream inventory is correct in Q1 2024 for Auto, Industrial, Datacenter, and Communications. Consumption is moving but at a slower pace. Inventory levels will likely return to an acceptable normal in the 2nd Half of 2024.
- Manufacturers are trying to keep revenue/sales numbers up by pressuring distributors to take in more inventory.
PRICE
- Distributor margins continue to trend downward. The reasons for decreasing margins include stronger competition, geopolitical conflicts, less opportunistic customer purchases, and the slowdown of general price increases.
- Pricing continues to move downwards on certain commodity items where there is abundant inventory in the market or where production lead times have decreased significantly.
- Distributors are lowering prices to move excess inventory; however, due to increases in raw materials, labor, etc., distributors are not seeing prices go significantly lower or reach pre-pandemic levels.
- Memory prices are increasing due to the major players in this space's recent cut in capacity.
Revenue and Book to Bill
- Overall, distributors’ revenues continue to show a downtrend. Americas are seeing flat figures, while Europe has seen a decline in distribution spending from Q3 2023 to Q4 2023 by 17.3% (USD 5.15 billion to 4.45 billion). This has not recovered in Q1 2024 and has continued to shrink. Asia is also extremely soft, given that geopolitical tensions have not eased.
- Notably, smaller specialized distributors seem to be fairer than larger distributors, suggesting that distributors with a more focused approach and customized solutions have captured more attention from customers and manufacturers.
- Book-to-bill overall was still below 1.0 for the portfolio in Q1 2024 and is expected to stay below one soon. A few of the bigger players are below 0.5, which is concerning.
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