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Jabil's Global Commodity Intelligence Archive
Global Commodity Intelligence
Q3 2024 | JULY - SEPTEMBER
Jabil's Global Commodity Intelligence Archive
Global Commodity Intelligence
Q3 2024 | JULY - SEPTEMBER
DISTRIBUTION
MARKET OVERVIEW
In calendar year Q2 2024, the distribution market demonstrated signs of decreasing revenues. Revenues are down significantly compared to last year, and larger players have continued to tighten expenditures and costs. The consensus that 2024 will be a correction year seems plausible, as the electronics market is still projected to grow.
- There is high optimism that the second half of 2024 will be better than the first, with several upticks in certain sectors. Although revenue, net margins, and book-to-bills are still not positive, inventory levels are declining.
- However, book-to-bill ratios have increased overall, with some distributors surpassing 1 for the first time in nearly two years. Lead times are stable, allowing for greater flexibility in the supply chain.
- Distributor sentiment remains positive now that demand is healthier. They continue to focus on target growth segments such as automotive, medical, and AI data centers, which are expected to drive future demand.
Revenue & Book to Bill
- Distributors' revenues continue to trend downward for the majority. The Americas are seeing some growth, while Europe remains flat in Q2 over Q1. Asia continues to be extremely soft, given that geopolitical tensions have not eased.
- Smaller specialized distributors continue to fare much better than larger broadline distributors, strengthening the belief that distributors with a more focused approach and customized solutions have captured more attention from customers and manufacturers.
- The overall book-to-bill ratio for the portfolio remained below 1.0 in Q2 2024; however, the figure is rising, which is a positive sign.
SUPPLY
- Global supply chain pressures are continuing to decrease overall. Lead times are either reducing or holding steady for most commodities.
- Some product groups remain constrained (e.g., MCUs, crystals, older technology products) with no sign of short- to mid-term alleviation.
- The memory market remains constrained, and distributors are taking a stocking position to capitalize as prices rise in this commodity.
Margin Trends
- Margins for distributors are on a downward trend due to increased competition, geopolitical conflicts, reduced opportunistic customer purchases, rising costs, and a slowdown in general price increases. These factors contribute to the decline in margins.
MARKET DYNAMICS
- Distributors continue to receive short lead time orders from customers. While cancellations and pushouts continue, cancellations have decreased significantly, and more pushouts are due to forecast changes and shortening lead times. Demand has also shifted geographically, with customers optimizing manufacturing locations where it makes the most business sense.
- Distributors are focusing on new design activities and bids. Many new projects and upgrades to next-generation products result in increased design, engineering, and bidding efforts. This fuels optimism for higher demand levels when these projects and models enter mass production.
Inventory
- Inventory remains a focus even as levels return to reasonable amounts. Revenue remains weak, making it crucial to move existing stock. Downstream consumption is improving but not yet at a pace that signals an uptrend. Manufacturers pressure distributors to take in more inventory to maintain their numbers.
PRICE
- Pricing decreases for commodity items with abundant inventory, significantly reduced production lead times or intense competition. Distributors are lowering prices to move excess inventory quickly; particularly as older date-code products approach the two-year mark. However, prices do not decrease significantly for non-commodity items due to increased raw materials, labor costs, etc. Memory prices are increasing due to capacity cuts by major players in the market.
SUMMARY
- The distribution market is experiencing an increase in book-to-bill ratios, which provides optimism for the year’s second half.
- Despite challenges, distributors are optimistic about longer-term growth markets. However, visibility into long-term demand remains limited.
- Customers are adopting a more conservative approach to demand forecasting.
- Currently, distributors focus on inventory control and managing pricing fluctuations in response to market conditions.
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