EMS industry inventories are exploding
With component prices falling, high inventories in the EMS industry are becoming a massive problem. In view of a possible price drop, the situation could even worsen. But there is a solution.
According to the market research company In4ma, the stocks of electronic components in the warehouses of the EMS industry had already reached extremely high values by the end of 2021. In4ma had shown that by the end of 2021 the stocks were already around EUR 14.3 billion, which corresponds to approximately 33% of the annual turnover. By the end of 2022, these holdings are expected to increase further to EUR 17.5 billion. It is striking that the stocks are significantly higher, especially for the smaller EMS. High inventories are positive – if prices keep rising.
What to do with the components when prices drop?
Meanwhile, according to in4ma, the majority of the industry has long understood that prices will fall and that the pace of price reductions will increase even more in 2023. That leads directly to § 253 HGB, also known as the lowest value principle: Stocks that are posted at the purchase price and are now cheaper to buy (replacement value) must be written down to the replacement value. Until the end of the year, companies can still try to get price lists from their distributors that prevent this depreciation – this will be over by 2023 at the latest.
In principle, distributors also do not take back goods and are currently operating with the new NCNR conditions (non-cancellable, non-returnable). So another solution has to be found, because inventories cannot remain at this level. According to the market research company, the target should be at least halving the RHB stocks. In4ma therefore has the EMS-Scout expanded to include a virtual marketplace for electronic components, which is to be activated on January 1st, 2023. Companies can post surplus components here and offer them for sale. Setting up the components is free. The marketplace is not planned as a permanent facility, but is only intended to support the EMS industry in reducing stocks of raw materials and supplies.