Issue link: https://iconnect007.uberflip.com/i/1433652
68 SMT007 MAGAZINE I DECEMBER 2021 significantly, but they remain very high. We've also seen a slowdown in demand which will help drive us to a more sustainable equilibri- um. We saw, in the U.S. in particular, things slow in the third quarter. At the same time, in- ventory levels are low across the board. e backlog of orders continues to grow. It will take some time to work through all these dislo- cations and many of these pressures will be in place well into 2022. Matties: Do you anticipate any surplus of in- ventory in 2022 which might result in a dip in our industry? Is there going to be a dip gener- ally because of the slowdown? DuBravac: Right now, we have the opposite dy- namic. We've seen somewhat of a dip in certain industries because of the inability to get parts. We see a slowdown because of supply chain dislocations. For example, Apple said recent- ly that the supply chain constraints cost them about $6 billion in their fiscal Q4. ey antici- pate more than $6 billion in lost sales because of the constraints in their fiscal Q1, which in- cludes the holiday quarter and bleeds into the new year. Some of the dip in the calendar Q3 in the U.S. was because of a rapid slowdown in con- sumer spending, which was still growing but at a much lower rate. I think some of the cutback in spending was a result of product availabili- ty. Recent research from Kelly Blue Book sug- gested new car buyers were holding off or ex- iting the car buying market because of lack of inventory and lack of product availability, cou- pled with stiffness of price. Now to your question: Do we see a big over- hang of inventory forming in 2022? I don't see that for several reasons. Have there been ex- cess orders? Is there double booking? Possibly. But I'm seeing a lot of companies doing things to protect against that. Distributors aren't taking on new custom- ers in some instances as they're protecting their existing customers. I've heard of distribu- tors who are allowing companies to only order some multiples of what they had ordered in the past. Maybe it's 10% or 20% more, not allowing them to try to double their orders over what they did in the past. Contract terms have stiff- ened somewhat, so the ability to cancel orders is not as relaxed as it might normally be or cer- tainly has been in the past. ey've done that as a mechanism to firm the orders. When you look at semiconductors, you see a lot of companies using proprietary designs. Using Apple as another example, if Apple ends up with a bunch of extra M1 chips, that inven- tory is not going to go anywhere else. It will just sit with Apple and their supplier. In the past, you might have a glut of supply that ma- terialized because you had extra orders across the board, which then gets dumped in the mar- ket at a lower price. at won't happen with proprietary chips and parts. ere are two other factors that are likely to protect against a large inventory overhang in 2022. One is that lead times are long, so that gives companies a relatively long time to ad- just. If you're looking at a six- or 10-month lead time for some things, and suddenly we start to get supply of that, then people have a window in which to adjust. e other factor is that in- ventory levels are quite low so there will be re- sidual demand to refill those orders to build the inventory back up. Take the automotive sector, for an example. Typically, we have about two and a half months I've heard of distributors who are allowing companies to only order some multiples of what they had ordered in the past.