It is expected that the overstock of electronic components in the first half of 2024 will remain a challenge, but there are still options to solve the problem quickly.
Solving the overstock of electronic components is the main theme in 2023. While some progress has been made in strategic production cuts and inventory adjustments, this has not been enough to fully address the problem of excess inventory. According to analysts at Edgewater Research, the first half of 2024 is likely to experience the same excess inventory issues as in 2023. Uncertainty about the market outlook has led to excess inventory.
The main reason for the overstocking of electronic components in 2023 is the uneven inventory backlog, which stems from the unknown duration of the global semiconductor shortage. During the epidemic, OEMs, CMs and EMS had to over-hoard inventory in order to cope with the high consumer demand in the market.
The closure of facilities due to the COVID-19 pandemic, bad weather in parts of the same period, fires in factory facilities, and even the blockage of container ships in the Suez Canal have all caused numerous bottlenecks in the chain. This desperation fuels repeat orders, leading to an artificially inflated market demand. As consumer demand began to decline in 2022 amid inflation and recession fears, many OEMs, CMs, and EMS had inventory backlogs of an average of six months. When demand fell sharply at the end of 2022, the company was still receiving orders from the peak of the epidemic and could not cancel orders.
Some large manufacturers, such as TSMC, allow customers to pay to return or cancel previous orders, or renegotiate previous contracts. After a year** spike (200% for some raw materials***), many small and medium-sized OEMs, CMs and EMS lack the purchasing power to renegotiate returns.
With months of overstocked inventory and no buyers, many businesses have to store excess inventory in warehouses and wait for demand to pick up. However, to avoid degradation of electronic components due to humidity or electrostatic discharge, storing electronic components safely adds additional costs.
Over the past year, through various efforts, the inventory backlog of several months has been gradually reduced. Memory makers such as Samsung Electronics and SK hynix have taken strategic production cuts to cut some of their product lines. According to EdgeWater Research, mitigation measures paid off during 3Q23 and 4Q23, however, the electronics industry is still not out of the woods.
Consumer demand has not fully recovered, and while artificial intelligence (AI) has mitigated the "bullwhip effect" of shortages to surpluses, it has not completely solved the inventory problem. In 2023, TSMC said it was delaying and suspending production on some advanced semiconductor production lines due to insufficient demand. At the same time, TSMC struggles to keep up with the advanced packaging technology used in NVIDIA's hot-selling GPUs.
TrendForce said that DRAM manufacturers will continue to make strategic production cuts in the coming months to keep supply and demand stable. In Edgewater Research's report on the market outlook for 2024, demand in most markets will be relatively subdued compared to previous years, which may not be enough to absorb the remaining excess inventory, and it will take more time to resolve the inventory problem. Second half of 2024 market**
While there are still overstock challenges, most analysts agree that the market will emerge in 2H24**. Although there are differences of opinion among research institutions on the magnitude of the market recovery, the market will turn around in the second half of the year. IDC is very optimistic about the resilience of the U.S. market and the recovery of Chinese business, which could lead to double-digit year-over-year growth in the semiconductor industry.
After experiencing a sharp drop in demand in 2023, memory will be the main driver of recovery in 2024. According to the World Semiconductor Statistics Organization (WSTS), memory will grow by 40% during the year. Due to uncertainty about the outlook for 2024, DRAM contracts are all in the PC, server, mobile, graphics and consumer markets. This has prompted some companies to revert to bolder sourcing strategies and hoarding some DRAM devices, such as DDR5.
As the market is about to recover, OEMs, CMs, EMS, and OCMs must continue to mitigate excess inventory. There are several ways manufacturers can alleviate inventory overstocking
Return excess inventory to merchants: During the pandemic, many OCMs made it impossible to cancel orders due to the widespread use of double orders. However, some vendors, such as TSMC, allow customers to cancel or return orders for a fee. Trade with other manufacturers: If your business has good relationships with other companies in the market that have end demand, trading excess inventory can quickly resolve excess inventory. Leverage inventory in other products: If your excess inventory can be used as a drop-in replacement (DIR), fit-for-function (FFF) replacement, or functionally equivalent part in another product, you can absorb the excess inventory by using it for another production line. Resell excess inventory: One of the quickest ways to recover lost capital from excess inventory is to resell excess inventory to other manufacturers. Depending on your company's needs, each method has its pros and cons. Reselling excess inventory with the help of a global distributor is the easiest way to do it.
Excess inventory through Sourceability's e-commerce platform - Sourcengine**
One of the main problems encountered when a business tries to sell excess inventory on its own is the difficulty in finding market demand and the lack of global sales capabilities. The lack of global logistics capabilities can severely limit the ability for businesses to market to an audience with excess inventory. OEMs, CMs, and EMS vendors who want to have excess inventory can work with a global component distributor with e-commerce platforms and global end-buyer users.
Sourceability has both. Through its well-established global logistics network and leading electronic components e-commerce platform, Sourceability works with OEMs, CM and EMS** of all sizes to help them sell excess electronic component inventory. Through Sourceability's e-commerce platform, Sourcengine, users can quickly estimate excess inventory in real-time using the Excess Estimator tool for free. The calculator uses the market intelligence from Sourcengine's historical trading and Traders data to estimate the best.
And merchants have the option to partner with Sourceability to store their excess inventory on Sourcengine, which will be indexed and searched on all major global search engines for thousands of global buyers to quickly find and buy. 2024 will be full of opportunities, and Sourceability can help you prepare for every opportunity.