Arrow Electronics 10/01/2009

Managing Customer Expectations During Turbulent Market Conditions

We must secure the best possible view of forward-looking customer requirements, preferably through hard purchase orders placed at or beyond current lead times.

Over the past 13 weeks we have observed and measured increasing lead times and other signals of supply constraints across multiple suppliers and commodities. Throughout the downturn, we have also witnessed shorter and shorter forecast visibility from our customers. In addition, many suppliers have decreased their production capacity significantly. These factors create the potential for significant supply-chain disruptions for your customers.

As lead times continue to be pressured and in many cases, increase, it is critical that we continue to reach out to all of our customers to ensure their awareness of the market dynamics that make it difficult to fulfill unforecasted or upside demand. The best way for Arrow to support the customers seeing healthy business demands for their products remains increased visibility to forward-looking demand and whenever possible, the placement of hard POs for future delivery.

It is important to note that even if global market demand eases toward the end of the year, it will still take weeks for fab and test and assembly investments to have a positive impact on lead times. If global market demand stays flat or increases, lead times will remain challenged as additional working capital investments are analyzed.

For competitive reasons, we will not publish the supplier names. The following information was collected during the week of September 21st.

Tier 1 Programmable Logic Supplier – Increasing lead times up to 16 weeks through Q4.

Tier 1 Analog Supplier – Capacity constraints have pushed lead times up to 20 weeks.

Tier 1 Embedded Supplier – Increasing MCU lead times from 4-6 to 18-20 weeks due to test capacity.

Tier 1 Discrete Supplier – Lead times stretching up to 10-12 weeks in the SOT-23 package.

Tier 1 Broad Line Semiconductor – Lead times increased up to 16-20 weeks and existing backlog rescheduled up to one month from original commitment due to test and assembly constraints.

Tier 1 OPTO Supplier – Allocation on opto-couplers.

Tier 1 Memory Supplier – Lead times up to 14 weeks.

Tier 1 Broad Line Supplier – Potential allocation across multiple technologies by end of Q3.

Passive Segment – Lead times increasing on SMT tantalum capacitors A and B case sizes 18-26 weeks. Factory allocation on SMT ceramic Hi-Cap (all case sizes 1 uf and greater cap value).

Power Supplies – Current lead times are averaging 16 weeks depending on the supplier. Some lead times are stretching due to material shortages.

Switch/Relay Segment – Current lead times are averaging 12-16 weeks depending on the supplier.

Connector Segment – Lead times extending as suppliers get production lines back up and running due to latest increase in demand.

Because we expect the extended lead times to continue at least through the end of the year, we will continue to monitor demands and increase our on-order and stock positions in the most challenged technologies. However, please note that an increasing percentage of customer demand is on single- and limited-customer devices, which are much more difficult to manage through speculative purchases in a capacity-constrained market. Again, we must secure the best possible view of forward-looking customer requirements, preferably through hard purchase orders placed at or beyond current lead times.