Expect more from distributors in 2008
By James Carbone -- Purchasing, 1/17/2008 7:00:00 AM
Electronics buyers can expect electronics distributors to compete more for their business in 2008 as they try to boost revenue following a year of slow growth.
Buyers will find that distributors will be more willing to provide value add and supply chain services as they search for new customers.
Large distributors are trying to grow their number of smaller OEM and electronics manufacturing services (EMS) providers because many large electronics companies have shifted manufacturing to Asia. Large distributors are expanding operations in Asia to service those large OEMs and EMS providers.
As large distributors go after more smaller customers they will compete more with medium and smaller distributors.
Most global distributors saw strong growth in Europe and Asia in 2007, but flat or low single-digit growth in North America.
"In North America we saw a softening of business, particularly with the large EMS providers," says Brian McNally, president global alliance and supply chain for Arrow Global Components. "The global EMS providers for most of the year had inventory issues. We are starting to see the numbers come back, but much more moderately," he says.
In 2008, Arrow and other distributors are confident that their business will grow in North America as they find new customers.
"I am bullish on 2008. It will be a solid year in North America," says McNally. He says Arrow has "tens of thousands" of small customers and the number is growing.
"Many are smaller customers that are learning to design with electronics for the first time," he says
One example is lighting. Many lighting companies are moving to light emitting diode (LED) technology in their products from incandescent and fluorescent.
Many of these companies need design help with LED technology. Arrow and other distributors provide that help as well as sell LED products. Lighting is expected to be a strong growth segment in 2008 and beyond.
Other strong segments in 2008 will be transportation, medical and defense and aerospace.
Phil Gallagher, president of Avnet Electronics Marketing Americas in Phoenix, says there will be growth in North America, but it will be slower than in the past. "I don't think you will see double-digit growth in North America anymore. I don't know what would drive that. You have to be realistic." However, he says there is still a distribution market of $10–12 billion.
Gallagher says supply chain programs will help grow business. "Up to 60% of our business involves vendor-managed inventory," he says. Such programs involve schedule sharing and "helping our customers take cost out of their businesses and helping them be more competitive." However, while distributors will try to find more customers in North America and improve market share, most of their growth will be in Asia.
Gallagher notes that in 2000 about 70% of Avnet's revenue came from North America. Today it is about 38%. More of it is revenue is derived from Asia.
The same is true with other distributors such as Future and Arrow, and even medium-size distributors are seeing more global growth.
For instance, Digi-Key in Thief River Falls, Minn., had global revenue growth of about 14% and North American sales growth of 10% in 2007, according to Mark Larson, president of the company. He says its revenue was about $100 million in Asia and Europe.
"We want to grow our international business," he says. "We are working to get to Hong Kong and China to understand the market better. We are seeing nice growth."
Distributors are growing their North American sales revenue although a lot of electronics manufacturing has moved to Asia.
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