Globally for the high-tech electronics industry, the past year was an extremely tough one. In the US alone, high-tech companies saw major reverses in their sales.
The world's two largest component distributors, Arrow and Avnet saw their sales down by some 30% year on year. This was clearly reflected on the Dow Jones and the NASDAQ. Europe was not much better, and at best showed flat results. There was a small glimmer of hope and upturn in the Asian markets.
Against this background, South Africa, and in particular the technology sector, came through 2002 with flying colours.
The year started with the rand at its worst level ever, well over R13,00 to the US$. For many distributors the weaker rand had an inflating effect on rand sales. However, in the second half of the year, the rand showed a remarkable recovery dropping to around the present R9,00 to the dollar. This exchange rate volatility will no doubt have an effect on the rand sales volumes of distributors and many manufacturers in the coming year.
At the best of times, forecasting is a very inexact science. In today's market, and with the war clouds gathering in the Middle East, looking at 2003 is even more difficult. What the overall effects of a Middle East war would be on the South African electronics sector, is hard to forecast. Many of our customers export their products, and the expectations of a war in the Middle East point to a major recession worldwide, especially in the US. Added to this comes the inflationary pressure of ever-increasing fuel prices.
Leaving the war scenario at one side, I am once again, as usual, cautiously optimistic of growth for the electronics sector in South Africa, especially seeing that our market performed well in the last year.
With not much growth coming out of the telecoms market, South African customers have, over the past few years, entrenched themselves with specialised niche products and clearly this was the right decision and the only one that would let us compete in a global market.
Looking now specifically at the component distribution, it is worthwhile examining a few key factors affecting our market.
For the past 18 months, the electronic component market has been a 'buyers market'. There has been vast overstocking of components at manufacturers, contract manufacturers and distributors. Prices, in general, are at their lowest levels ever. With the shrinking demand, component manufacturers have cut their production, as well as investment in new plant and equipment. Furthermore, many production facilities have been mothballed.
Components are generally available with short lead times, and when the lead times are longer, this is usually due to reduced production capacity, rather than increased component demand. I cannot see a major upturn in our industry for the next six months, neither locally nor globally, which means that component prices should remain roughly at their current levels. Once an upturn does come, we can expect price increases!
So, no doubt 2003 will be a much tougher year and we will just have to work harder and smarter if we wish to continue to grow our business. And it certainly would help if George W. Bush would cease his unilateralist warmongering, and act only with full UN sanction.
The only volatility in prices in South Africa has been exchange rate driven, with large increases at the beginning of 2002, with prices now stabilising at lower levels as the rand has firmed.
Albert Kopp is CEO of Avnet Kopp, www.avnet.co.za
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