RoHS could boost independents
Market confusion may work to distributors' advantage.
By James Carbone -- Purchasing, 4/20/2006 6:00:00 AM
Revenue for the top 10 nonfranchised independent distributors failed to mirror the sales growth of franchised distributors in 2005 as revenue for independents fell nearly 10%.
Revenue of the leading independent distributors fell from $2 billion in 2004 to $1.92 billion in 2005. While some independents had strong sales growth others suffered double-digit declines.
With overall component reliability running high and few shortages in 2005, independent distributors fought for market share, looked to Asia for sales growth and expanded services for their OEM and electronics manufacturing services customers.
Executives at the leading independent distributors think business may improve this year because of the Restriction on the use of Hazardous Substances (RoHS) directive. The law bans the use of lead and other hazardous substances in equipment sold in Europe beginning July 1. It may boost business because the directive is causing confusion in the marketplace in 2006.
"The cold truth is that anything that creates confusion augments the independent market," says John Irving, executive vice president of sales and marketing for Fusion Trade in Andover, Mass. "The independent market is in place to level out the ups and downs of supply and demand.
So confusing
RoHS has created confusion in several ways. Doug Kelly, president and CEO of Smith and Associates in Houston, says RoHS "is creating a fair amount of confusion in the marketplace between suppliers and manufacturers. They haven't worked out which products will be lead free and which will use lead.
He says as the RoHS deadline approaches, there could be an imbalance of supply. Manufacturers may switch over to RoHS compatible parts, but there still could be strong demand for noncompliant parts from buyers in North America whose companies don't sell in Europe. If that happens, shortages are likely and prices will rise for noncompliant parts as buyers scramble to source them.
Adding to the confusion is that some manufacturers will make both RoHS and non RoHS compliant parts for a period, says Irving. Some are changing part numbers and some aren't. Certain parts are exempt. Some parts are already compliant while others will be in the future. There is even confusion on how the acronym "RoHS" is pronounced, quips Irving. Some pronounce it "ro hahs," others call it "rose" and other simply spell it out, R-O-H-S, he notes.
"RoHS for the independent market as a whole is going to be a growth factor in 2006," says Irving. But not everyone is so sure.
"I'm not sure how much RoHs will impact our revenue, but it will impact our business," says Ray Bellantoni, director of direct marketing for Jameco, an independent catalog distributor in Belmont, Calif.
He says there is an even split among customers as to who is interested in RoHS and who isn't. Most of Jameco's customers are North American based and many don't sell equipment into Europe.
"One segment is buying up RoHS products and others ask us 'what is RoHs'? They are concerned just with what is happening in the U.S."
Some distributors see an opportunity with environmental regulations. For instance Converge is helping companies dispose of old electronics equipment and extracting whatever value there may be in the equipment.
Frank Cavallaro, CEO of Converge, says his company will take back old equipment, refurbish it if possible and resell it or resell components of the equipment. For instance, a computer may have a keyboard or a monitor that can be resold. If the equipment needs to be disposed of, Converge will do so, according to environmental regulations.
Top global independent distributors
| Sales breakdown (%) | ||||||||||||||
| Ranking 2005 | Ranking 2004 | Company | 2005 calendar year sales ($mil.) | % change from 2004 | Sales per employee | Total employees | % order $ received through EDI | % of sales derived from VA services | Active components | Passive components | Electromechanical | Interconnect | Computer products | Other |
| 1 | 1 | Smith & Associates | 509.0 | -0.8% | N/A | N/A | &1% | 0% | 79 | 19 | 0 | 0 | 2 | 0 |
| 2 | 3 | Converge | 454.0 | 16.4% | 1,498,349.8 | 303 | N/A | N/A | 80 | 5 (1) | 0 | 0 | 15 | 0 |
| 3 | 4 | Classic Components Corp. | 246.0 | 3.2% | 615,000.0 | 400 | 5% | 3% | 62 | 23 | 1 | 9 | 1 | 4 |
| 4 | 5 | America II Electronics | 230.0 | 0.0% | 383,333.3 | 600 | 4% | 10% | 75 | 24 | 0 | 0 | 1 | 0 |
| 5 | 6 | Advanced MP Technology | 214.0 | 23.3% | 995,348.8 | 215 | 10% | N/A | 70 | 10 | 3 | 3 | 0 | 15 |
| 6 | 7 | Fusion | 172.0 | N/A | 3,583,333.3 | 48 | 20% | N/A | 73 | 9 | 2 | 2 | 14 | 0 |
| 7 | 8 | Rand Technology Inc. | 85.0 | -6.6% | 1,214,285.7 | 70 | 3% | 4% | 86 | 12 | 2 | 0 | 0 | 0 |
| 8 | - | SG Industries Inc. | 32.0 | 21.2% | 711,111.1 | 45 | N/A | N/A | 85 | 10 | 2 | 2 | 1 | 0 |
| 9 | 9 | Horizon Technology | 30.0 | -14.3% | 731,707.3 | 41 | N/A | 32% | 0 | 0 | 0 | 0 | 60 | 40 |
| 10 | 10 | Commodity Components International Inc. | 26.0 | 18.2% | 577,777.8 | 45 | 0% | N/A | 80 | 10 | 0 | 0 | 10 | 0 |
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