What Will Happen to Components Come Q1 2010?

Uncertainty in the market has manufacturers remaining conservative.

While the price recovery in the global electronic component market seen in the second half of 2009 is set to slow significantly in the first quarter of 2010, price declines are expected to be relatively mild as supply remains reasonably well balanced with demand, according to iSuppli Corp.

Of the 15 major electronic component categories tracked by iSuppli’s Component Price Tracker (CPT) service, eight experienced price increases in the third quarter, with the largest rises coming in memory, analog parts and Printed Circuit Boards (PCBs). Price increases are expected to be even more widespread in the third quarter, with 12 component categories rising, led by memory, PCBs and logic.

However, as demand weakens in the seasonally slow first quarter, 14 out of 15 categories will suffer declining prices, with only logic and some select analog parts experiencing an increase compared to the fourth quarter of 2009. However, most of these declines are expected to amount to less than 1 percent.

Such a rate of decline is not unusual on a quarterly basis, and also represents a major improvement compared to the disastrous first quarter of 2009. Prices for 12 out of 15 categories declined by more than 1 percent, with memory dropping by 10.5 percent and transistors falling by 9.5 percent.

The major reason why price declines will remain moderate in the first quarter is the component suppliers’ cautious and conservative attitude regarding increasing capacity. While the worst of downturn is clearly over and those companies on the financial brink apparently have recovered, the outlook for future growth remains cloudy. This uncertainty is the main reason why component suppliers have been slow to add capacity or hire back workers. Until the outlook becomes is a bit clearer and sustainable growth is evident, component manufacturers will remain conservative, iSuppli believes.

Some factors could cause pricing to diverge from iSuppli’s outlook.

For instance, if demand is stronger than expected in the first quarter of 2010, component suppliers may eschew the conservative approach and begin to add production and hire back workers who were laid off in 2009. Otherwise, look for component suppliers to remain conservative.

While supply growth is being restrained, there are no signs of widespread part shortages. As demand returns to normal growth in 2010, suppliers should be able to respond, even if somewhat late.

However, there are some exceptions. For example, analog power devices are expected to suffer some problems with short supply through the first half of 2010.