Industry Insights Market Analysis

Distributors prepare for challenging 2024

Author: Mick Elliott, Contributing Editor, Procurement Pro

How will 2024 play out in the distribution market? Mick Elliott spoke to three executives and found mixed views.

“Interesting,” was Solsta Managing Director John Macmichael’s wry response when asked for a summing up of the distribution market in 2023.

That description changed to exciting as Macmichael recalled the rebranding of the company from Solid State Supplies to Solsta – “a huge event for us.”

The panic buying by customers during component shortages hung over the industry in 2023 and looks likely to impact the first half of this year.

“Customers overstocked,” says Macmichael. “How long will that take to flush out of the system?” he ponders. “I don’t know the exact answer to that, it is likely it will be three to six months.”

Steve Rawlins, Chief Executive Officer, Anglia Components concurs: “There is tons of inventory out there with OEMs and some small to medium sized companies cancelling orders.”

An added concern for Rawlins is some of the electronic manufacturing service companies putting surplus product into the market. “They are almost acting as distributors or pseudo suppliers,” he observes. “Manufacturers need to wake up to this.”

At Mouser Electronics, 2023 was off to a very decent start.

“We had a large amount of bookings in the third quarter of 2023 that carried over the first quarter of 2023 so sales at the beginning of 2023 were very healthy,” explains Graham Maggs, Vice President of Marketing and Business Development, EMEA at Mouser. “And up to September our run rate was OK, down 5-6% on the previous year. In total we were down about 8%, which is not bad bearing in mind the comparators with 2021 and 2022 which were phenomenal years.”

The big positive for Maggs was the increase in numbers of EMEA customers and buyers in 2023.

He clarifies: “A customer is where the finance is undertaken, and a buyer is the engineer placing an order. The latter grew double digits in 2023, bearing in mind some customers’ premises may have 20 buyers located there.”

How does such an achievement happen in a tough year? “The scope and breadth of our inventory, which stands at $1.2 billion, plus we added 65 new suppliers in 2023,” Maggs responds. We have also seen improvements by adding more local offices for customers to connect with us. Last year we opened in Vilnius, Lithuania, and we now have 10 offices in Europe incorporating customer service and technical support.

“Websites in local languages and supporting materials in local languages have been a big focus and made it easier for customers to connect,” he adds.

At Solsta, John Macmichael states that “the order book has returned to normal.”

And design activity has picked up.

“Obviously, military and aerospace has picked up due to recent conflicts, there is also strong activity in medical in the UK. Green projects are also being developed, alongside off-rad vehicles, robotic vehicles in agriculture, and autonomous driving,” says Macmichael.

Solsta has developed software to monitor design activity to point its business teams in the right direction.

“Anglia’s order book is 50% down on a year ago,” reveals Rawlins. “It’s still looking healthy but it is down.”

He admits some customers have cash flow, and therefore payment, problems.

“We are being sympathetic. They are companies that over ordered when products were short and paid out more than they wanted. Cash is king and they are short of it now,” he says.

A long-term veteran of the distribution business, Rawlins remarks: “We have been through this before, and there are no killer products out there.”

He is also less optimistic on design activity, citing cash issues again. “Companies aren’t investing,” he reckons.

Lead times seem to have stabilised. “Anything in the sub-40-micron semiconductor product category is back to normal,” says Macmichael. “In more advanced technologies we are still seeing 20 to 32 weeks.”

“Availability of products has pretty much returned to normal,” notes Maggs. “There are one or two passive component types on longer lead times due to manufacturing materials shortages. Semiconductors are not quite back to normal, but nowhere near the crazy lead times of 2022 and early 2023.”

“Pricing has been challenging,” adds Maggs. “They have been fluctuating and we have tried not to pass these on to customers.”

Macmichael feels component prices have stabilised, though he notes there could be logistics and delivery problems given the issues of vessels navigating the Red Sea.

This could be a continuing problem in 2024. As will the inventory indigestion at product manufacturers.

“In the short term it will continue, probably three to six months,” thinks Macmichael. He expects things to normalise in the second half of the year, and reckons there will be some level of market growth.

Rawlins is more bearish. “We are battening down the hatches here,” he warns. His company’s budget is down 10% on last year.

The inventory overhang concerns him. “Any growth next year will be driven by a recovery in memory prices,” he adds.

He pins any other hopes on the defence market – “still growing for obvious reasons.”

“The UK is still the third biggest military equipment supplier globally, RF/microwave components are in demand,” says Rawlins.

Caution is the watchword at Mouser for 2024. “We don’t really firm up on our forecast for a year until March,” explains Maggs. “We are certainly not planning big growth numbers. January is looking slow and will be similar to January 2023 due to some shortages in semiconductor product availability. We don’t really see an improvement over the next four to five months.”

He is optimistic for the longer term. “There is so much going on in electronics and whether it is medical, communications, or IoT there is an increasing breadth of electronic component usage in end equipment and products.

“AI is driving customers to hardware, not just software,” adds Maggs.

Macmichael cites field programmable gate arrays as moving AI along for some time. “In configurable devices we see some benefit for AI,” he says.

He is excited for Solsta in the coming year.

“Under our new brand we will be looking to create new markets for our suppliers’ products,” he asserts. “We will look to have the right products and technologies to serve customers, and we will unveil our own brand of products across the group.”

There also plans to grow the group’s international business, and Macmichael does not rule out more acquisitions in 2024. “We can be opportunistic, and we look at the talent an acquisition can bring into the group as well as the products.”

Despite his downbeat market prognosis, Anglia’s Rawlins will pursue opportunities in 2024. Late last year Anglia unveiled plans to enter the European market through its Anglia Live website.

Rawlins believes it will take 18 months to get a clear view of progress and in the meantime Anglia will add 50,000 customers to sell to, and the launch has been endorsed by Anglia’s suppliers. To support the business, Anglia invested £2m in a warehouse upgrade and £750,000 on software.

“We will look to pick up new lines in 2024,” adds Rawlins. Anglia will add to its field sales force as it reduces the size of its sales regions to enhance customer focus and support.

Mouser’s 2024 plans will see its new warehouse at 100% capacity later in the year.

The company will also intensify its efforts in the control and automation market – “watch this space,” – is Graham Maggs’ cryptic response.

This article originally appeared in the February issue of Procurement Pro.