Distributor’s ‘Association of Associations’ welcomes strong European Billing performance into Q4’22

In his quarterly Statistical Review of the European electronic components market the association’s Chairman Adam Fletcher, describes the current European market situation for readers of Electronics Specifier using three primary reporting metrics – ‘Bookings’ (net new orders entered), ‘Billings’ (sales revenue invoiced, less credits), and the ratio of the two known as the ‘Book-to-Bill’ (or B2B) ratio.

Historically, European electronic components markets experience their strongest growth in the first half of the year and the manufacturer authorised distributors that comprise IDEA started 2022 confident that the trend would continue for the rest of the year. And they were right! Billings continued to grow in 2H’22, significantly bucking the historical trend. Although to be welcomed, the strong demand distributors saw throughout ’22 was more a reflection of customer’s concerns about the high levels of risk and uncertainty in the market resulting from ongoing geopolitical tensions and a rapidly changing macro-economic environment than it was of any increase in European manufacturing output. Despite manufacturer lead-times for semiconductor and passive components declining quickly, OEMs continued to maintain an inflated inventory of components as a hedge against the effects of the many unsettling external factors that could threaten the technological marketplace. Previous demand and supply cycles in the European electronic component markets have always culminated in a glut of components, particularly commodity semiconductors and passive components and this again looks likely, but I suspect that any glut will not last long this time around, as the market looks likely to quickly ‘bounce back’ thanks to increased demand and the continuing imbalance in the normal annual global industry cycle. The important ‘Book-to-Bill’ ratio mirrored the decline in ‘Bookings’ and it too quickly declined from its peak of 1.74:1 in Q2’21 to 0.91:1 in Q4’22, a trend that also looks set to continue. Pundits predict that the B2B will languish in negative territory for most of 2023.

Overall Q4‘22 Bookings, Billings & B2B trends

European “Book to Bill” continues to decline and turns negative…

Consolidated Bookings and Billings figures, together with corresponding Book-to-Bill (B2B) ratios are extremely useful metrics for organisations in the European electronic components supply network, but it’s the consolidated ‘Billings’ (sales revenue invoiced, less credits) number that is possibly the most useful for manufacturer authorised distributors, as it’s an accurate indicator of their sector’s average sales revenue performance. Note that all the figures in the graphics included in this review are shown in K€ Euros and where necessary have been converted from local currencies at a fixed exchange rate for the year.

Graphic T1 is a visual representation of twelve consecutive quarters of consolidated ‘Bookings’ and ‘Billings’ together with the corresponding B2B ratios. A B2B figure greater than 1 is indicative of growth in electronic component markets but a number below 1 is evidence of a decline.

The chart reveals that growth in ‘Bookings’ continued to decline in Q4’22 compared to the previous quarter whilst ‘Billings’ continued to grow.

The B2B ratio steadily declined to hit 0.91:1 (negative) at the end of Q4’22 from a peak of 1.74:1 in Q2’2t, strongly indicating that the first half of 2023 will see order backlogs continuing to decline.

Q4‘22 Bookings trend

European ‘Bookings’ continued to decline, as predicted by IDEA members…

Graphic T2 compares the total electronic components ‘Bookings’ result achieved in Q4’22 by manufacturer authorised distributors in each European country and compares these figures with the results they achieved in the preceding quarter and in the same period ‘21.

The blue bar reveals that on average, ‘Bookings’ declined by (15.3%) in Q4‘22 when compared to the previous quarter. The light brown bars compare Q4’22 ‘Bookings’ figures achieved in each country with those reported for the same quarter 2021 and indicate that on average, European ‘Bookings declined by (23.8%) year-on-year. The dark brown bar compares average ‘Bookings’ achieved by European manufacturer authorised distributors YTD (year-to-date) with the same calendar point 2021, revealing that the average ‘Bookings’ growth rate increased by just 0.4% over the twelve-month period.

It’s apparent that ‘Bookings’ growth peaked in Q2’22 but declined into the third and fourth quarters of the year, a trend that’s widely expected to continue into 1H’23 while manufacturer lead-times ‘normalised’ and customers begin the process of reducing their supplier order cover in-line with product availability.

Q3’22 European Billings trend

Exponential ‘Billings’ growth in the European electronic components supply network continues…

‘Billings’ figures are widely considered to be the key industry metric: Graphic T3 illustrates total electronic components ‘Billings’ achieved by IDEA member companies across Europe in Q4’22 and contrasts the figures with the previous quarter's results and those achieved in the same period last year.

The blue bars reveal that European electronic components markets experienced an average decline of (0.2%) in Q4‘22 when compared to the previous quarter.

The light brown bars compare Q4‘22 to the same quarter the previous year and reveals an average ‘Billings’ growth of 39.6% in the quarter. The dark brown bars in the chart compare current ‘Billings’ with the same point 2021, confirming an average increase of 41.4% YTD across the European electronic components supply network.

Concluding thoughts

Despite exceptional political and economic turmoil improving component supply and international logistics, manufacturers of electronic components and their authorised distributors will continue to make record shipments to their European customers. This can be attributed in no small part to enhanced collaboration levels that reach right across the electronic components supply network, a trend that must continue to proliferate as the market moves into its equilibrium phase.