Sales in May through the distribution channel increased 5% sequentially and on a year-over-year basis, suggesting that the sales decline in the technology supply chain has bottomed and the industry is beginning to show signs of life, according to the June 2003 survey of the technology supply chain conducted by SWS Securities Inc., Milwaukee.
The study indicates, however, most of the relative strength during the last few months is coming from the back end of the supply chain in areas such as semiconductors and components distribution. Sales in the front end of the supply chain, such as original equipment manufacturing and IT distribution, remain weak.
Recent quarterly and monthly sales results from some of the largest publicly traded IT resellers have echoed these same trends. Without an increase in end-market demand for IT products, the relative strength in semiconductors and electronic components is probably due in part to an inventory build in the channel.
In fact, 45% of the survey respondents indicated inventory is still too high relative to the current level of sales vs. the 10% that indicated inventory is too low.
Another possible answer for the relative strength in the back end of the supply chain is that end-market demand for components may be stronger in industries outside technology such as medical, industrial automation, and military equipment. Since technology products are the largest users of semiconductor and electronic components, it is unlikely the relative strength in semiconductors and electronics distribution can continue without an up-tick in corporate spending.
Looking through June, survey participants expect trends in April and May to continue. June sales per day are expected to increase 5% vs. last year with most of the strength coming from the back end of the supply chain. Additionally, pricing and gross margins are expected to stabilize after falling for most of the last two years.
The 10-question survey e-mailed to participants in executive management positions at companies representing all major segments of the technology supply chain was designed to capture year-over-year business trends. Participants were asked to compare May 2003 with May 2002 and June 2003 with June 2002, and provide feedback on business and pricing expectations, and inventory in the channel.
Robert Damron is an analyst at SWS Securities Inc. based in Milwaukee and can be reached at email@example.com.