Issue link: https://iconnect007.uberflip.com/i/1437606
12 PCB007 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 equilibrium. We saw, in the U.S. in particular, things slow in the third quarter. At the same time, inventory levels are low across the board. e backlog of orders continues to grow. It will take some time to work through all these dislocations and many of these pressures will be in place well into 2022. Matties: Do you anticipate any surplus of inven- tory in 2022 which might result in a dip in our industry? Is there going to be a dip generally because of the slowdown? DuBravac: Right now, we have the opposite dynamic. We've seen somewhat of a dip in cer- tain industries because of the inability to get parts. We see a slowdown because of supply chain dislocations. For example, Apple said recently that the supply chain constraints cost them about $6 billion in their fiscal Q4. ey anticipate more than $6 billion in lost sales because of the constraints in their fiscal Q1, which includes 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 availabil- ity. Recent research from Kelly Blue Book sug- gested new car buyers were holding off or exit- ing 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 excess 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 material- ized because you had extra orders across the board, which then gets dumped in the market at a lower price. at won't happen with pro- prietary 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 adjust. 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 inventory levels are quite low so there will be residual demand to refill those orders to build the inventory back up. Take the automotive sector, for an exam- ple. Typically, we have about two and a half I've heard of distributors who are allowing companies to only order some multiples of what they had ordered in the past.