Sustained Rise in Design Activity Hints at Acceleration in Component Demand

Design activities in the global electronic component market increased for the third consecutive month on a year-over-year basis in July, indicating that design projects and component research efforts are continuing to expand.

Global design activity rose 9.6% year-over-year in July, following increases of 6.2% in June and 10.1% in May, according to the Commodity IQ Design Index. The index stood at 126 during the month, above the baseline level of 100, which indicates that design activity is rising.

A Breakdown by Region and Commodity Category

The Asia-Pacific region, which includes Mainland China, was the main driver of the growth, with design actions in July rising by 11% year-over-year and 8% sequentially. These increases were mainly driven by escalations in activity in China, India, Japan, South Korea, Taiwan, Australia, and Vietnam.

The top product categories driving design growth in these countries included power circuits, which rose by 14%; diodes, up by 13%; capacitors, increasing by 9%; drivers and interfaces, growing by 8%; and resistors, expanding by 6%.

Asia-Pacific represented the only global region that experienced a sequential rise in design during the month. While design activity declined by 2% sequentially in July, reflecting customary seasonal patterns, the sustained year-over-year rise may foretell a future acceleration in demand.

The sustained growth in design activity comes at a time when semiconductor vendors ranging from microprocessor vendor Intel to memory supplier Micron have stated that the chip market has either already bottomed out or soon will as excess inventories are whittled down, and demand starts to rise.

In its latest earnings report for fiscal Q2 2023 ending July, Intel revenues for its Client Computing Group and Data Center and AI Group grew sequentially by 17% and 8%, respectively. 

Looking Ahead

An increase in design is a leading indicator for demand growth acceleration. Such an increase is not evident currently, with global sourcing activities in July decreasing by 10% month-over-month and 30% year-over-year. These declines caused the demand index to fall below the baseline in July, indicating a contraction in sales. 

However, design activity typically leads demand trends by five to six months. With the design index rising since May, this suggests that a recovery in electronic component sales will materialize by mid to late in the third quarter.