Setting the Bar High

If you’re anything like me, you’re probably wondering how we’re already at the start of another new year. Thanksgiving feels like yesterday! During the holidays, I found myself reflecting on the passage of time and wondering where the year went. Although the duration of the years remains consistent, they certainly seem to be flying by at an accelerated pace for me now.

Strategic Planning Amidst Uncertainty

At the Exponential Technology Group (XTG), we began 2024 planning at the end of September. As usual, many factors influenced leadership in discerning market dynamics for the upcoming year. Echoing the sentiments of Mike Morton, CEO of TTI, Inc., “The only thing certain will be uncertainty, but no more so than in past years.”

Presently, we grapple with numerous geopolitical challenges, concurrent with issues such as wars, inflation, excess inventory in the supply chain, the aftermath of the pandemic, the climate crisis, and ongoing and upcoming elections – just to name a few. So, where do we set the bar for 2024? There is an abundance of market intelligence reports, organizations, and statistics proclaiming the latest and best guesses for what lies ahead.

The Random Walk Hypothesis: Insights from Wall Street

I’m reminded of a graduate school project I undertook based on Burton Gordon Malkiel’s book, “A Random Walk Down Wall Street.” Malkiel, a Princeton University economist, advocated the concept of the random walk hypothesis. Essentially, the idea is that asset prices follow a random walk, rendering it improbable to consistently outperform market averages. For example, a monkey randomly throwing darts at stock pages is as likely to pick winners as professional money managers using the latest mathematical techniques for portfolio selection.

I didn’t have any monkeys during my graduate school days, but the example demonstrates that blindly selecting a portfolio of stocks over 12 months by throwing darts produces statistically equivalent returns comparable to portfolios selected using contemporary technical and fundamental investment techniques. While I’m certainly not endorsing this type of planning in our industry, I am emphasizing the need to focus on those things that we can control – a message that I frequently share with our teams.

When I look ahead to 2024, here is what I observe:

• The Semiconductor market, known for its historically cyclical nature, began exhibiting monthly declines compared to the same month in the prior year in July of 2022. Notably, September 2023 marked the first month to show an increase compared to the same month in the prior year.
• On a quarterly basis, the Semiconductor market started to contract in Q1 of 2022 compared to the prior quarter, persisting until Q2 of 2023. The market has since experienced two consecutive quarters of growth, with an expectation that Q4 will continue this upward trend.
• World Semiconductor Trade Statistics (WSTS) is projecting double digit growth of 13% in 2024, with a range of 5-7% when excluding the volatile Memory commodity.
• Aerospace, defense, and space vertical markets are performing well and are anticipated to continue their positive trajectory for the foreseeable future.
• In 2024, the transportation market is poised for strength due to the ongoing evolution of electric vehicles and the increasing integration of electronic components.
• Macro trends in renewable energy, Cloud/AI/ML and digital healthcare will drive additional demand in 2024 and beyond.
• Engineering design activity has demonstrated resilience, with companies focusing on new product design rather than redirecting efforts on redesigns to navigate component sourcing challenges.
• Inventories remain high at many customer sites and are likely to take another one-two quarters to deplete.
• Demand for electronic components in various applications will continue to increase for years to come.The value of distribution in the supply chain has been solidified in recent years, prompting many customers to reconsider how to leverage this value to ensure the consistency of supply.