Issue link: https://iconnect007.uberflip.com/i/1531014
JANUARY 2025 I SMT007 MAGAZINE 19 people do desperate things. ey still signed the non-cancelable, nonreturnable contracts. ey drove more demand. Much of the indus- try is still on the tail end of that. At the end of 2023, parts freed up, the EMS companies caught up, shipped all the orders to their OEMs, and the OEMs said, "Uh oh, we've got a lot of inventory here." is "slinky effect" is diminishing, but it's still out there. Reed: Every supplier has a great handle on their own books of their inventory and what's in distribution. e moment that leaves and goes to the EMS provider, it becomes less clear, but there's still typically a decent line of sight, especially for the larger multinational suppliers. When you go beyond that to the cus- tomer, the most transparent suppliers will tell you they don't really know. I asked the management team at a major chip manufacturer, "What's your real demand?" ey said they don't have exact metrics for what their average industrial customer buys in a given year, but it's probably $50,000 to $100,000 a year. In desperate times, would you spend $250,000 and buy five years of inventory at once? It's not hard to store $500,000 worth of components. ey're small. ey're not air- plane wings or a cockpit. e semiconductor CAGR from 2020 onward is nine. e market has tripled its growth rate. Yes, AI is making that data set harder to use Mark Wolfe because of its halo effect, but take that halo out, and what has tripled its growth rate in size? I struggle to find anything. If the new administration was to follow through on the tariff changes they've been telegraphing, how does that change the North American market for EMS suppliers? When do you see recovery? Reed: For the assembly and test portion, this is a part of the semi manufacturing that uses more labor. A lot of expansion has occurred over the last several years outside of traditional markets like China. at's not to say it will not move out of China because there's Malaysia, Vietnam, ailand, and India. at brings up the ongoing labor cost equation. In the West, what price are EMS suppliers willing to pay to have a China-plus-one strat- egy? For the back end, especially on the trail- ing edge, the benefit is highly depreciated, low-cost labor. It's very efficient, and a low value-add to the transaction. Do you just want optionality in the trailing-edge technologies? If so, we'll work through the inventory. e base case for a recover y seems to be mid-2025. at puts us close to three years aer a three-year upcycle, which is in line with our historical ups and downs—that's just cyclicality that we work through. Over the past two years, we've seen the diversification of some of those traditional supply locations out of China. ose new facilities have not necessarily been tested in a ramp. We won't be in this malaise forever, despite how pain- ful it feels right now. But what happens when it does turn, and some passive suppliers run their facilities at 50% utilization? At electronica, my colleague and I had more than 50 meetings with a wide swath of the sup- ply chain. We asked, "Now that the election is over, do you have clarity? Have you seen any change in demand? e election was supposed to be a bottleneck." e answer was, "No, it hasn't really moved the needle. ere are plenty of other factors."