Jabil's Global Commodity Intelligence Archive

Global Commodity Intelligence

Q4 2023 | OCTOBER - DECEMBER

In the last 3 months, the distribution market has seen a slight uptick in certain sectors.
Cloud and computing, industrial, and transportation sectors have shown signs of positivity although this does not constitute a trend just yet.
The overall outlook for this portfolio of suppliers has not changed, however, as we will outline below. In general, revenue, net margins, and book-to-bills are still not positive, but they are stabilizing.
Inventory is still high, but it is not showing the rapid increases we saw in previous months.
The mix and "golden screw” effect are primarily still the key contributors to the imbalance in the market, but the effect has lessened in recent months due to reductions in lead time.

Overall distributors’ revenues are still not heading in a positive direction, but the decline has somewhat stabilized.
In Europe and the Americas, revenues seem more stable, however Asia being the largest market has not shown stability - particularly in the consumer market and North Asia region.
This has an impact on revenue as distributors play significantly in this area.
Book-to-bill was still reported at less than 1.0 in Q3’23 however the figure is no longer dropping and is holding.

With the continued reduction in lead times, distributors are still seeing customers try to re-align their open orders which results in continued pushouts and cancellations.
These cancellations and pushouts slowed over previous quarters but have continued at a slower pace.
Initially, there was optimism that manufacturing demand might head upwards in Q4 2023, but that now looks to be pushed back to Q3 2024.
Distributors are seeing many new projects/upgrades of newer models for current products resulting in increased efforts on design and engineering.
This fuels optimism for an uptick in demand when these projects and models kick off in the next year or so.

Inventory has continued to rise in the channel but at a slower pace as the initial glut seems to have been bled off.
Distributors are holding higher inventory levels at present and their objective is still to reduce the overall figure.
With manufacturers taking a stricter approach to cancellations, reschedules and decreasing scrap allowance – the distributors will look to pass these terms on to their customers.

Global supply chain pressures continue to decrease as more supply has become readily available, continuing the focus on managing increasing inventory levels.
Some product groups continue to be severely constrained (e.g., MCUs or older technology products) and there’s no sign of alleviation for the short to mid-term.
Certain products remain on longer lead times, perpetuating the “golden screw” issue.

Margins for distributors as a whole continue to trend downwards – stronger competition, geopolitical conflicts, less opportunistic purchases from customers and the slowdown of general price increases are reasons why margins are decreasing.

Pricing continues to reduce on certain commodity items where there is abundant inventory in the market or where production lead times have decreased significantly.
Distributors are offering reductions to shift excess inventory.
These decreases are still selective and pricing in general remains high.
In summary, the distribution market continues to face obstacles however, these obstacles look to be tapering into a slow decline.
Demand looks to slow down as customers move to upgrade their products and create newer models.
In the meantime, distributors must deal with the increasing inventory and pricing fluctuations that come with this change.
The distribution market, however, remains optimistic that this is not long-term and the upcycle will come by the 2nd half of 2024.