Electronic Components Channel Looking Toward Recovery in 2017

Nov. 9, 2016
Manufacturing will continue its climb toward pre-recession business levels in 2017, as suppliers look for growth in wearables, medical, and industrial IoT markets.

As the electronic components supply channel finishes another slow-growth year, economists and business leaders expect improvement in 2017 on the way to a full manufacturing industry recovery by late 2020. The outlook adds up to cautious optimism among many supply chain business leaders, who are keeping a close eye on connectivity trends (think Internet of Things), especially in industrial markets.

“The two markets I see leading the way for IoT are industrial and home automation,” says Raymond Yin, director of technical content at Mouser Electronics, pointing to the smart factories movement in particular. “If you think about industrial manufacturing, factories already have all these controls set up to monitor and measure productivity [and so on]. Now, IoT is coming in and automating all that. It’s a matter of collecting the data. [Industrial] customers are able to make almost immediate use of IoT, while everyone else is still figuring it out.”

Indeed, a November report from industry researcher IHS Technology predicts 2% growth in the industrial automation equipment market this year, to $203 billion, due largely to the advent of IoT-related trends and a growing desire for connectivity on the factory floor. Other hot markets for 2017 include wearables and the health/medical market—and, more specifically, the convergence of the two. All of this adds up to a modestly optimistic outlook, in line with expected GDP growth of more than 2% next year.

Manufacturing Outlook

The 2017 outlook for the manufacturing business economy remains upbeat, although most industry-watchers agree that growth will continue at a slow pace. The Manufacturers’ Alliance for Productivity and Innovation (MAPI) lowered its 2016 forecast this fall, predicting just 0.2% U.S. manufacturing growth in 2016. Looking ahead, MAPI predicts modest growth of 1.6% and 2.5% in 2017 and 2018, respectively, and also notes that manufacturing is not expected to fully recover from the 2008-2009 recession until the fourth quarter of 2020.

MAPI economist Dan Meckstroth pointed to a high inventory-to-sales ratio, overvalued dollar, low commodity prices, and sluggish business investment climate as detriments to growth, emphasizing that manufacturers must continue inventory reduction strategies begun earlier this year.

“We expect production growth volatility will continue through the third quarter of this year and result in slow manufacturing production growth,” he wrote in a September report. “With the inventory cutting ending soon, manufacturing should be able to string together consistent growth in the final three months of the year.”

In November, the Institute for Supply Management reported a slight increase in its Purchasing Manager’s Index, a gauge of economic optimism among purchasing and supply managers at manufacturing firms. The October PMI, released November 1, rose 0.4% to a reading of 51.9. This was the second straight monthly increase, after the index dipped below the 50-point mark indicating expansion in August. The index has remained just above the 50-point threshold for the last 12 months, ISM reported in November. Comments from survey respondents reflected a favorable economy and steady sales for the most part, ISM Chairman Bradley Holcomb said in announcing the results.

A separate study of purchasing managers at small and mid-sized manufacturing firms underscores the optimistic outlook. Earlier this fall, buying group Prime Advantage surveyed procurement professionals from 750 of its manufacturer-member companies and found that the vast majority—97%—say revenues will increase or stay at the same level over the next 12 months.  Most also anticipate 2016 to finish on a positive note, with 84% saying 2016 revenues will match or exceed those of 2015. Of the 16% of respondents predicting lower revenues this year, the majority cite decreased customer demand as the prime reason.

Markets to Watch

Many supply chain executives say connectivity trends—specifically, the Internet of Things movement—will drive business opportunities in 2017. Opportunities in smart cities, lighting, wearables, medical, and industrial markets abound—although research and development has yet to give way to large-scale production in many cases.

“Funding is an issue,” says Brian Wellhouse, supplier marketing manager for sensors at electronic components distributor TTI Inc. “It’s been somewhat of a tough year, so some companies are not sure they want to put money into development for IoT. There are a lot of new opportunities this year, but not a lot of building [going on]. There are a lot of conceptual design projects. We’re hoping production comes next year or the following year.”

Wellhouse points to smart city applications—particularly the use of lighting—as a promising area going forward, along with the wearables market and its intersection with health and medical technology. Devices that promote health and fitness—and those that can help patients more easily manage health and medical conditions—are a growing source of business for distributors of all shapes and sizes.

“Wearables pushing into medical [markets] is one area that will be sustainable over the long run,” agrees Jeremy Purcell, of Digi-Key Electronics, pointing to smart cities and home automation as less consistent markets. “I think wearables, more particularly in medical, is one [opportunity] that you’ll see stick around.”

Indeed, researcher IC Insights recently reported that the market for IoT-related semiconductors for wearable applications is set to increase 22% to $2.2 billion this year. And looking at the medical-wearables convergence, researcher IHS Technology has pointed to the evolving health care market and trend toward “digital health” as key drivers of what is becoming known as the “Internet of medial things” (IoMT). In a report released earlier this year, IHS analysts listed the IoMT as a leading technology sector for 2016.

“As devices converge, and digital health platforms expand, advances in sensor technologies and component materials are setting the stage for a new generation of consumer medical devices measuring vital signs and enabling continuous health monitoring via wearable devices,” the report stated.

And as Yin, of Mouser, emphasized, industrial markets represent a strong growth opportunity for many distributors. IC Insights forecasts a 22% increase in demand for industrial Internet-related semiconductors this year, as that market hits $3.5 billion. Much of this relates back to growth in smart factories, especially as manufacturers seek to generate data that can drive more efficiency and effectiveness in overall operations.

As the IHS report on industrial automation equipment growth points out: “In the industrial market, many of the strategies for more efficient manufacturing and commerce include demand for remote communications, monitoring, and control. This trend is driving the growth of integrated intelligence, sensor networks, asset tracking, internet connectivity, M2M communications, and energy measurement and management.”

Voice your opinion!

To join the conversation, and become an exclusive member of Supply Chain Connect, create an account today!

About the Author

Victoria Fraza Kickham | Distribution Editor

Victoria Kickham is the distribution editor for Electronic Design magazine, SourceESB and, where she covers issues related to the electronics supply chain. Victoria started out as a general assignment reporter for several Boston-area newspapers before joining Industrial Distribution magazine, where she spent 14 years covering industrial markets. She served as ID’s managing editor from 2000 to 2010. Victoria has a bachelor’s degree in English from the University of New Hampshire and a master’s degree in English from Northeastern University.