Industry Insights Market Analysis

EDS 2024: executive insights on market dynamics and inventory issues

At the EDS Leadership Summit 2024, Procurement Pro’s Paige West sat down to hear the latest on the market from top executives of TTI and Mouser Electronics.

Mike Morton, CEO of TTI, reviewed the company’s performance over the last decade, with a focus on the past three years. He highlighted the significant growth during 2021 and 2022, driven by supply chain constraints, which led to an overheated business environment. Despite a softer performance in the last two years, Morton emphasised that TTI managed to maintain its revenue around $9 million by finding new business opportunities.

Inventory management was a key topic, with Morton stating that current inventory levels were satisfactory and aligned with their metrics. Specifically, in the Americas, TTI held about 122 days’ worth of sales, equating to approximately 25 weeks. He noted that this translates to about two times inventory turns, which is within acceptable limits. Additionally, he highlighted that Mouser’s inventory levels were right on target.

“Our inventory is good, and I think that’s very important for all of you to know,” said Morton.

Morton addressed the customer backlog, indicating that while it had grown during peak periods to upper 20 to lower 30 weeks, it was now returning to more normal levels of 12 to 15 weeks. He mentioned that some backlog could still be at risk due to customers pushing out orders, but overall, the backlog was not excessive.

Last year, TTI, combined with its affiliates, reported a consolidated revenue of just under $4.5 billion, placing it within the top three in the Americas. He elaborated on TTI’s strength in different components, such as passive components, where TTI held 42.5% of the top 50 distributors with a revenue of $1.2 billion. In interconnect components, TTI and its affiliates reached $1 billion, representing 28.5% of the top 50 distributors.

Morton also noted that in the electromechanical category, TTI contributed significantly, with 15-16% of the top 50 distributors. For power and battery components, TTI held the number one position with 32% market share. Finally, in the semiconductor sector, TTI achieved $845 million, accounting for 5.4% of the top 50, ranking number five in the Americas.

“I’m extremely proud of the fact that we’re able to grow into this type of number here in the Americas with the product portfolio that we have,” Morton noted.

John Drabik, Global President of IP&E at TTI, addressed the company’s strategic approach and current market conditions. He emphasised TTI’s commitment to a long-term view, even as he feels other companies become short-sighted and reduce inventory.

“We see people becoming very short-sighted. The nice thing about being at TTI is taking that long view; we know this business is going to get better,” he said.

Drabik discussed the importance of maintaining margins despite market downturns, criticising competitors for “buying business” to the detriment of margins. He praised TTI’s focus on external customer engagement rather than internal meetings and highlighted the company’s consistent strategy and focus on IP&E products.

He went on to outline TTI’s regional growth rates over the past 15 years: the Americas with a compound annual growth rate (CAGR) of just under 7%, Europe at just under 9%, and Asia at about 10%. He announced a new, aggressive approach in Asia, including a $25 million inventory increase and the hiring of Kingsley Wong as the regional leader.

He also discussed TTI’s daily book-to-bill rates, noting positive performance in the Americas (1.05) and improving conditions in Asia, while expressing some concerns about Europe. But Drabik emphasised the need for continued investment in specialised markets, supply chain optimisation, and demand creation.

“We’re sticking with our consistent strategy that has served us so well,” he said. “Whatever we’re going to do, we’re going to do it faster and we’re going to do it bigger.”

Geoff Imlach, President of TTI, provided an overview of the company’s market perspective and future strategies. He began by acknowledging the uncertainty in the market and the challenges faced by the industry. Despite the unclear outlook, Imlach expressed confidence in TTI’s growth, highlighting a 3% increase in the first half of the year and a strong backlog that suggested further growth in the second half.

“Last year was tough, but we managed a 1.7% growth in a down market. This year will be better,” he said.

Imlach discussed various market segments, noting that the military and aerospace sectors remained extremely strong, with a 20% growth last year and similar expectations for this year. Regarding transportation, he acknowledged that the anticipated rapid adoption of electric vehicles (EVs) had slowed but emphasised that transportation as a whole still held substantial opportunities for TTI.

He shifted focus to industrial and EMS segments, which had shown signs of recovery with elevated bookings in the first quarter and positive forecasts for the coming year.

Imlach reiterated TTI’s dedication to maintaining inventory levels, ensuring product availability for customers, and enhancing the funnel review process to identify new opportunities. He stressed the importance of data-driven strategies and the use of automation and AI to improve efficiency and customer engagement.

Overall, Imlach expressed optimism about TTI’s market position: “Last year, John set an aspirational goal of achieving 30% market share. This past month, we reached 29.2%, and I believe we will hit 30% by the end of this year.”

Lastly, Glenn Smith, President & CEO of Mouser Electronics, provided an update on the company’s business model, emphasising continuity and success in key areas.

“Our business model update is that there’s no update. We are continuing to do what we’ve done: introducing new products, providing technical marketing, and ensuring operational excellence,” he stated.

Smith highlighted that Mouser’s strategy remained focused on supporting engineers from the product concept stage through to small-scale production. He noted that Mouser’s acquisitions had strengthened its design and distribution capabilities, enhancing its ability to support customers globally.

He did acknowledge the tough market conditions, noting an 8% decline in sales last year. Despite this, he highlighted positive indicators such as the growth in the number of accounts, engineers, buyers, lines shipped, and part numbers shipped. He pointed out that while unit and dollar sales were down, these metrics suggested underlying growth and demand.

The inventory burden remains a significant issue affecting the semiconductor industry. Over the past five years, the industry has experienced a 12% growth rate, yet this growth has led to substantial inventory accumulation. For instance, the top five largest OEMs – Apple, Samsung, Lenovo, Dell, and HP – saw their inventory levels increase by 46% from 2018 to the end of 2023, while their revenue increased by 70%. Despite this growth, these companies ended 2023 with excessive inventory levels.

This trend is not limited to OEMs. The top five EMS companies experienced a 23% increase in inventory over the same five-year period, whereas their revenue grew by only 8%. Similarly, the top five public distributors increased their inventories by 67%, with a revenue increase of 42%.

When examining the combined inventory of these fifteen major companies, Smith noticed that the figures are striking. Assuming their inventory levels were optimised in 2018, these companies held $20 billion in excess inventory at the end of 2023. This significant overstock suggests that despite revenue growth, the industry faces challenges in managing supply chain efficiency and inventory levels.

Smith concluded by reiterating Mouser’s focus on new products and emphasised the need for continuous innovation to drive engineering demand. He highlighted the challenges posed by frequent price changes and underscored Mouser’s commitment to managing these changes effectively.