Having reviewed the prospects of the South African electronics industry from a component distribution point of view, for the past 20 years or so, the recurring theme is the market volatility we have seen over these years.
The electronics industry, and particularly the semiconductor industry, has always been a highly cyclical one, to such an extent that many semiconductor companies have either merged, been acquired, or ceased to be in business – a kind of ‘feast or famine’ scenario.
It takes huge amounts of capital for new manufacturing and R&D investments just to stay in the industry. I recall a number of downturns: from 1974 to 1987 to 1996 and 2001. We seem to have emerged out of these downturns in relatively good shape and it remains to be seen what happens this time around.
South Africa seems to have escaped much of the global financial turmoil and the banking crises that hit the US and Europe. For us, the major effect has been that our currency has come under pressure and declined against those currencies of our major trading partners. There could be a positive side to this, as our exports would be more competitive with a weaker Rand, and we will need to work aggressively on capturing export orders.
With the weaker Rand we find ourselves being more competitive as an outsourcing contract manufacturing destination, competing favourably with many European contract manufacturers. Furthermore, as far as the import of fixed equipment is concerned, the weaker Rand makes these imports more expensive, thus helping our local manufacturers.
Looking back, the past year has been a relatively good one for the electronics industry, with component supply lead times being at normal levels and prices remaining stable or following the long established pattern of reducing average selling prices in foreign currency. Lead times have often been a function, not of greater demand, but of semiconductor suppliers reducing their capacity, in order to cut their costs. Global downturns such as this one tend to increase this problem, so where one would expect easy supply due to lower demand, one actually sees long lead times due to lower supplier capacity.
Over the years, the electronics industry has learnt to be resourceful and to look after its own interests, without expecting too much help from government. This has taught us to focus on niche business opportunities and South Africa has been relatively successful here, looking at markets like energy and water metering, GSM applications and vehicle tracking.
As usual, I remain the eternal optimist. We are part of the leading global component distributor, Avnet, are financially rock solid, have large global inventories to tap into, and will focus on our value-added offering to our customers, giving them the service they need and deserve.
Tough market conditions often present opportunities to excellent companies. It is our challenge to ‘manage’ our path through this downturn. And we at Avnet Kopp certainly intend to do just that.