Electronics Components Markets And Supply Chain Health

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Electronics ComponentsMarkets and Supply ChainHealthLearning from the Past; Looking to the FutureDale Ford – Chief AnalystMarch 18, 2021

Where Are We Going? Where We’ve BeenLooking Forward 2021Speaking of Technology and the Economy What About the Electronics & Components Supply Chain?Electronics & Components Market DriversThe Vision Thing

Where We’ve Been Up to End 2020

A Whipsaw DisasterThat Required aNimble ResponseWhipsaw – To beset from two or more sides at once

COVID-19 Supply Chain Impact – 2020Source – ECIA

COVID-19 Supply Chain Impact – 2020Source – ECIA

COVID-19 Supply Chain Impact – 2020Source – ECIA

Looking Forward 2021

Semiconductor Revenue Growth Cycle Quarter-over-Quarter took a hit in summer2020Annual revenue cycletrends up startingSeptember 2019Annual revenue growthprofile continued steadythrough 2020Annual revenue growthbreaks positive inAugust 2020Strong demand andtechnology driversAccelerating growth in2021?Source – WSTS

Semiconductor & Passive Market Correlation

Semiconductors a Good Proxy for Passive Component Growth WorldwideBut NOT in the Americas

Electronic Component Revenue GrowthSource: World Semiconductor Trade Statistics (WSTS),World Passive Trade Statistics (WPTS)

Semiconductor Growth TrendsSource: WSTS

Different Trends for Different Markets- Alignment Diverging Every componentcategory has nowachieved positive qtrover-qtr growth Sensors, Analog ICs,Discretes, and Logicsurging Optical and Microsrecovering Pricing collapse clipsthe wings of MemoryICsSource – WSTS

Americas Semiconductor Market was Surging Americas growthshowing the widestswings driven bymemory Japan moves fromstagnant to growth EMEA achieves growthafter a brutal two-yearstretchSource – WSTS

Solid Start to Current CycleMost cycles last about four yearsSource – WSTS

North America Sentiment Survey Trends Strong start to 2021across all categories Seasonal pause inDecember Important toremember context –Month compared toprior Month Above 100 meanscontinuedimprovement – Likekeeping foot onacceleratorSource: ECIA Electronic Component Sales Trends Survey

North America Sentiment Survey Trends What a difference ayear makes! Broad-basedconfidence across themarket Industrial, Medical &Automotive lead inoptimism Even Mobile Phones &Avionics/Military/Spacesee over 50% growthexpectationSource: ECIA Electronic Component Sales Trends Survey

North America Sentiment Survey Trends Positive growthexpectations rangebetween 72% and 81%of survey respondents Semiconductors,Capacitors andConnectors see thestrongest expectationsin growth above 5% Overall strongalignment acrossproduct categories ingrowth expetcationsSource: ECIA Electronic Component Sales Trends Survey

GDP Forecast Scenarios – The Swoosh Scenario?Source: The ConferenceSource: IMFBoard

Economic Risk FactorsEconomic Confrontations Between Major Powers World trade in manufactured goods has more than doubled between 2000 and 2017—from 4.8 trillion to 12.2 trillion. The U.S. share of world trade in manufactured goods has grown from 7.6% in 2002 to 8.7%in 2017. (Source: World Trade Organization) Globally Weak Investment Due to Low Expected Returns, Uncertainty About Economic PolicySmall Business Health The majority of manufacturing firms in the United States are quite small. In 2017, there were 248,039firms in the manufacturing sector, with all but 3,914 firms considered to be small (i.e., having fewer than500 employees). In fact, three-quarters of these firms have fewer than 20 employees. (Source: U.S.Census Bureau, Statistics of U.S. Businesses) Unemployment and State Lockdown OrdersEnergy Shocks Manufacturers consume more than 30% of the nation’s energy consumption. Industrial users consumed32.3 quadrillion Btu of energy in 2018, or 32.3% of the total. (Source: U.S. Energy InformationAdministration, Annual Energy Outlook 2019) A new global map being shaped by dramatic shifts in energy and geopolitics—a map defined by changingpolicies, technology, alliances, geopolitics, and possibly collisions in global commerce and politics.Societal and Political Turmoil

What is the Anticipated Impact of a New Administration?

Speaking ofTechnology andthe Economy

World Electronics Value Chain - 2019Market Service ProvidersTelecom operators,Internet, IT, Cloud, etc. 55,800BTransportation, Health, Installation, Maintenance, Repair, etc.Industrial Equip. 1,650BConsumer / Stand-AloneElectronicsPC, Telecoms, Video, AudioAero / Defense 1,835BEmbedded ElectronicsAutomotive Equip. 2,000BAuto, Industrial, Medical, Aero / Defense 1,366B 1,063BTotal Electronics Equipment 2,429BElectronic Components Distribution 81BSemiconductors Other Elec.Components 131B 411BMaterials & ToolsSemis Other 106B 42B

A Brief Message from Our Sponsors PLEASE SUPPORT THE DTAM SURVEY!Final Day – Thursday, March 25th

The Increasing Economic Influence of Technology

Top 20 Technology Companies See Market Cap 7x of 1998Market CapitalizationMost Recent IPOs1. PayPal (2015)2. Alibaba (2014)3. Facebook (2012)4. Tesla (2010)5. Alphabet/Google (2004)6. Tencent (2004)7. Salesforce.com (2004)8. Netflix (2002)9. Broadcom (1998)10. Amazon (1997)11. TSMC (1997)Apple 4 BApple 2.3 TSource – ECIA

COVID-19’s Dramatic Impact on the Auto Chip Market The COVID-19 pandemic created unprecedentedshifts in globalsemiconductor demandSudden and significantdecrease in Automotivesales during Q2 2020Equally steep and suddenrise in Automotive chipdemand during second halfof 2020

Automotive Chip Crunch Exposes Supply Bottleneck Major auto production lines shut – annual losses estimated in billions of dollars Miscommunication between auto manufacturers and suppliers200 mm fabs at 100% capacity with no room for automotive upsideAppeals to Taiwan from government economy ministersTSMC agrees to “Hot Hot Runs” – expensive and potential equipment damage.Automotive market mismatched with foundries – Low Volume, Short/Bursty runs 200 mm capacity now impacting other markets in smartphones & computers ECIA CEO releases statement highlighting missed benefits of using distribution “To minimize future supply chain disruptions, it is imperative forindustries like automotive to efficiently and effectively employ theresources and options available to them, and a huge, underutilized resource available today is the authorized channel ofelectronics distribution.” – David Loftus, CEO

North America Lead Time Trends – Bullwhip EffectSource: ECIA

The Challenge of Balancing CAPEXSurge vs Steady State Strong addition of fab capacity in2020 still outstripped by surge indemanding starting in H2 2020Added CAPEX investments bymajor fabs announced But, building new fabs typicallytakes 18 to 36 months Will steady state demand settle back and eventually leaveindustry with excess capacity?This is the continualsemiconductor industry challengeand a driver of the cycle

Global Trade Critical to Healthy Tech Economy

Electronics – Global but ConcentratedSource – OMDIA

World’s 60 Most Innovative EconomiesMetricsSources: Bloomberg, International Labor Organization, International Monetary Fund, WorldBank, Organisation for Economic Cooperation and Development, World Intellectual PropertyOrganization, United Nations Educational, Scientific and Cultural Organization R&D Intensity Manufacturing Value-added Productivity High-tech Density Tertiary Efficiency Researcher Concentration Patent Activity

The Push to Rebuild US Semiconductor Manufacturing Congressional legislation Creating Helpful Incentives to Produce Semiconductors (CHIPS) Bill At least 22.75 B in funding/matching; Tax incentives; NIST/STEM/DOD initiatives and more Promotion and lobbying by SIA Bipartisan and Bicameral but died in last congress Effort to reintroduce this congress Open letter from then Intel CEO, Bob Swan, to President-elect Biden Urges U.S. government investment in the domestic semiconductor industry and support of immigration programs tofind needed talent for the tech industry Recent advocacy by senators to White House in response to automotive crisis Urged the White House "to support efforts to secure the necessary funding to swiftly implement the semiconductorrelated provisions in the most recent National Defense Authorization Act ” New Executive Order – 100 Day Critical Supply Chain Assessment

Semiconductors as a Weapon“I could buy thesame tennis racketas Serena Williams,but I’m not going toplay as well as her.”TSMC Sales Profile:US 60% of salesChina 20% of sales- Philip Wong,vice president ofcorporate researchTrade headwinds creating headaches“Our work relies on the free flow of knowledge and the free flow of tradewhich has no doubt been suppressed.”- Mark Liu, TSMC ChairmanTaiwan government & industry groups take formal steps to localizesemiconductor equipment production

Will “Bifurcation” Avoid Balkanization? Asymmetric Competition: A Strategy for China & Technology Proposal produced by group formed by Eric Schmidt and Jared CohenSchmidt refers to proposal as “Bifurcation” “Advances policies that position the U.S. to out-compete China without invitingescalatory cycles of confrontation, retaliation, or unintended conflict” Functional Capabilities a core part of proposal “Supply Chains. Building more resilient supply chains is critical to diminishing our vulnerabilityto Chinese control, but will require significant investment in domestic infrastructure, ally-centricproduction, and advances in automation.” Next Generation Chips – Defined as “Critical Technology” in “TechnologicalBattleground”

What About theElectronics &ComponentsSupply Chain?

Lessons Learned – Proactive Risk Management“Every 3.7 years on average, businesses can expect a supply chain disruptionthat lasts at least a month, and the most serious of these can have severefinancial consequences”2020 McKinsey Analysis“Amnesia and misaligned incentives may be among our worst enemies when it“Amnesia and misaligned incentives may be among our worst enemies when itcomes to building supply chain resilience for the long haul.comes to building supply chain resilience for the long r.”Lynn Torrel, Chief Supply Chain and Procurement Officer, FlexLynn Torrel, Chief Supply Chain and Procurement Officer, Flex

Lehigh University Supply Chain Risk Index – Q1 2021Four Biggest Risks – Q1 20211- Transportation Disruption 7.742- Customer 3.563- Economic - 5.604- Supplier - 2.50Source: Lehigh Univ, CSCMP

Electronics&ComponentsMarket Drivers

Market Outlook – Long Term Future Still Bright!The Developing Technology Triumvirate

The Technology Triumvirate5GIoTThe Cloud Global IP traffic growing 20B connected IoTdevices in 2018 grow to68B in 2025, 19% CAGR Exponential growth in datageneration, processing andstorage 2.7T - 6.2T economicimpact in 2025 across allmarkets (source: McKinsey) Enables AI and the host ofXaaS25% per year - IP trafficbetween 2018 & 2024 willbe four times greater thanall IP traffic before Spec’d to deliver 1 millionconnections per squareKM vs. 60,680 for 4G By 2022, 5G will comprise3% of total mobileconnections 422M 5Gdevices & M2M(source: Goldman Sachs) 2020 IoT Chips 40B(source: SIA) Drives new productivityacross 36T in operatingcosts in manufacturing,health care, utilities,logistics & miningconnections - by 2024 23% of handsetsSource: Gartner

AI – Principles, Predictions, Power AI helps improve: Predictions, Automation, Optimization Prepared to AccelerateoooHarnessing vast amounts of dataHuge advances in softwareLeveraging increased power of computeoGo beyond data analysis; Think like a human - unstructured data, video, imageso3 IBM AI Principleso AI augments the human – not replace; Designed to enhance and extendo Data and insights generated belong to their creatoro Must be transparent and explainable - attempts to eliminate bias Adding “Deep Learning” Ethical Issues – Tech for good and Tech for bad Prediction – AI will contribute 16 T to economy by 2030

OMDIA AI Webinar Survey Results

Market Outlook Technology and market drivers build momentumEconomic stability needs to provide solid foundationAdoption of new technologies in systems drives expanding design opportunitiesOpportunities for new component technologies to make a markBut don’t overlook need for legacy manufacturing capacityPositives Medical EquipmentData CentersTelecom Infrastructure Solid state drives“Touchless” solutionsMemorySensorso5GChallenges Automotive ElectronicComponent SupplyoExpanding to others?Aerospace ElectronicsGlobal TradeInventory / Supply ChainManagement

Growth Drivers for Semis & IP&E Components New technologies enable/drive new system and network architectures Creation of new classes and categories of devices Motivator to upgrade and enhance current installed base of electronicso Commercial AND consumer / Competition Pressure on next level performance from devices through networksoGaN & SiC devices, process geometry shrinks, sensors, processing architectures, energyharvesting Technology / Market Disruption Will Create an Explosion in New Design WinOpportunities

Long-term Semiconductor Growth Trends Average annualgrowth since2005 5.5% 750B by 2030? 1 T by 2036? HOW?Source – WSTS

The Vision Thing

Journey Into the Future: Elon MuskExploring the Tech that is Waiting for Us“Dream no small dreams for they stir not the hearts of men.”– Johann Wolfgang von Goethe“To look to the future, we must first look back upon the past. That is where the seeds of thefuture were planted. I never think of the future. It comes soon enough.”– Albert Einstein“Any sufficiently advanced technology is indistinguishable from magic”– Arthur C. Clarke“Shouldn't we be content to be cosmic slothsenjoying the universe from the comfort of earth?The answer is: No.”– Stephen Hawking

Source: Venture CityVision: 2025 - 2026Wearable tech is replaced by subdermal tech chips that areinserted beneath the skin and link users to their home androbotic devices, giving them control using verbal instructions.People with medicalissues are usingNeuralink chips to makethem better. The chip isable to restore eyesightand help people whoare paralyzed to walkagain.Humans begin to interact with virtual reality artificiallife living beings in a digital world that learn how toact, move, and interact with humans on their own,creating their own behaviors and way of life.

Source: Venture CityVision: 2025 - 2026Quantum computers areused in high-end chemicalengineering. They are ableto quickly design newmedicines, biodegradableplastics, and buildingmaterials.The interplanetary internet system goes onlinecreating a computer network in space. Thenetwork is made up of landing robots, planetsatellites, and earth ground stations.5G networks carryingvast amounts of datatake control oftransportation flowsystems and selfdriving networks toimprove urban flow.

Thank you!Dale Ford – Chief Analystdford@ecianow.org

Electronics Components Markets and Supply Chain Health Learning from the Past; Looking to the Future . Electronic Components Distribution. 81B. Total Electronics Equipment. 2,429B. Consumer / Stand-Alone. Electronics. 1,366B. Embedded Electronics. 1,063B. Market Service Providers. 55,800B.

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