New Supplyframe Commodity IQ Intelligence Points to Mostly Favorable Procurement Conditions on Still-tepid Demand

September 25, 2024 at 09:00 AM EDT

But if demand spikes, limited order adjustment flexibility and reduced capacity utilization could result in supply constraints across multiple electronic component commodities

Supplyframe today revealed new analytics showing significant progress in the global electronics supply chain in 2024, with inventory levels normalizing and supply-demand balance across most commodities amid muted demand. Memory and storage are the exceptions. DRAM and NAND Flash memory prices are swelling. And high-bandwidth memory (HBM) DRAM – on which GPUs from AMD and NVIDIA rely – faces severe shortages.

Nearly three-quarters of electronic component pricing dimensions will be stable, flexible, or declining for H2 2024. When memory and storage devices are excluded, just 6% of H2 2024 pricing is set to rise or be inflexible. On the supply side, 2024 is poised to conclude with 52% of component lead times contracting with limited or no constraints. When memory and storage are dropped from the equation, lead time contraction dramatically improves, rocketing to 90%.

“Supplyframe Commodity IQ points to increasingly stable market dynamics overall,” said Supplyframe CEO and founder Steve Flagg. “But, for procurement teams, the return to a more balanced supply and demand environment in the second half of 2024 and into 2025 has both benefits and drawbacks. As inflation moderates and major central banks pivot from lowering inflation to promoting economic growth, procurement will generally enjoy more favorable pricing and other supply conditions. However, buyers are also experiencing some price increases, less pricing flexibility, and supply constraints for solid-state storage, memory, and other select components.”

(No) thanks for the memories

Across all memory types, the Commodity IQ Price Index averaged 2.5 times the index baseline through the first eight months of 2024, climbing 56% above the same period in 2023. This growth is primarily attributed to the rising prices for DRAM – particularly the HBM DRAM required for data center accelerator chips, including GPUs from AMD and NVIDIA.

Leading HBM manufacturers SK Hynix, Samsung, and Micron have announced that all their HBM DRAM supplies are fully allocated through 2025, and that situation is likely to extend into 2026. The acute HBM shortage goes beyond high-performance computing, impacting all geographies and end markets, requiring long-term commitments and extended buyer demand forecasts.

Meanwhile, suppliers are phasing out production of legacy DRAM variants in favor of newer technology. In the second quarter, Samsung halted DDR3 production, while Micron and SK Hynix dedicated more of their capacity to HBM and DDR5. With memory manufacturers shifting production capacity to HBM and DDR5 DRAM, availability and contract pricing trends for legacy DRAM variants, including DDR3 and DDR4, have become particularly challenging for buyers.

Plus, NAND Flash memory prices are rising now that the server market has digested inventory and AI applications and enterprise servers are boosting demand for high-capacity storage. Prices for NAND Flash memory rose 15% to 20% in Q2 and will increase by as much as 10% for Q3.

Disquieting demand

Signaling contraction, the Commodity IQ Demand Index for all electronic components has remained below the index baseline for five consecutive months and was down 23% year-over-year for August. Demand growth returned sequentially in July across all regions. However, it was short-lived for Asia-Pacific and the EMEA region, falling 6% and 23% in August.

The forecast for a Q3 index decline is wide-ranging, affecting nearly all component categories, including analog and digital semiconductors, passives, and interconnects. Moreover, sourcing actions for all but three commodities experienced sequential monthly declines in August.

With component manufacturer book-to-bill ratios hovering near 1:1 and 90% of lead time dimensions (excluding memory and storage devices) forecast to ebb through H2 2024, component producers are adjusting their capacities to align with the still-muted demand.

However, component companies expect to see growth in Q4 and anticipate that it will expand more broadly in H1 2025. Market research reports indicate driving factors of the predicted expansion would include smartphone shipments, which are expected to grow 5% to 6% this year after two years of declines; PC shipments, which have risen for two consecutive quarters in light of excitement around AI-enabled PCs and corporate upgrade momentum; and the data center boom – servers are poised to represent about 20% of global semiconductor revenue this year.

A growing opportunity – and a risk

Supplyframe Commodity IQ indicates that during Q3, most semiconductors experienced lead time reductions, and apart from memory ICs, just 2% of semiconductor price dimensions rose. Passive component and interconnect trends are even more positive, with 83% of lead time metrics showing declines and half of all prices characterized as falling or flexible. Excluding memory and solid-state storage devices, H2 2024 is forecast to have more improvements from a buy-side perspective. More than 90% of pricing dimensions will indicate price stability, decreases, or flexibility, and 99% of lead times will decline or stabilize with some constraints.

Even with memory and storage devices included for H1 2025, the forecast points to an overall favorable market for commodity management and procurement teams. Just 8% of lead time dimensions will expand or have severe assurance of supply issues, and only 10% of pricing elements will be climbing or inflexible, according to Commodity IQ analysis.

“The big picture looks good for the first half of next year, but a closer examination indicates that all is not well for the buyer,” said Richard Barnett, chief marketing officer and SaaS sales leader at Supplyframe. “While lead times will be more stable, order adjustment flexibility will be severely limited. With inventory correction mostly a thing of the past and many component manufacturers operating at reduced capacity, sharp demand spikes will result in supply constraints and shortages. To build resilience to demand spikes and supply shortages, organizations need to become more proactive in addressing supply chain risk mitigation, and Supplyframe can help.”

Supplyframe Commodity IQ is an annual SaaS subscription offering delivered in a continuously updated online environment. It includes quarterly summaries with actionable assessments and critical alerts across direct and indirect commodities in the electronics supply chain. Integrated into other Supplyframe Design-to-Source Intelligence SaaS offerings that include buy- and supply-side workflow solutions, Commodity IQ augments enterprise data with unique, industry-leading, and independent in-market comparison views to identify risks and rewards in advance.

About Supplyframe

Supplyframe’s unmatched industry ecosystem, and pioneering Design-to-Source Intelligence (DSI) Solutions, are transforming how people and businesses design, source, market, and sell products across the global electronics value chain. Leveraging billions of continuous signals of design intent, demand, supply, and risk factors, Supplyframe’s DSI Platform is the world’s richest intelligence resource for the electronics industry. Over 12 million engineering and supply chain professionals worldwide engage with our SaaS solutions, search engines, and media properties to power rapid innovation and optimize in excess of $150 billion in annual direct materials spend. Supplyframe is headquartered in Pasadena, Calif., with offices in Austin, Belgrade, Grenoble, Oxford, San Francisco, Shanghai, and Shenzhen. To join the Supplyframe community, visit supplyframe.com and follow us on LinkedIn, Twitter, Instagram, and YouTube.