Distributors expect healthy growth in 2006
Staff -- Purchasing, 2/16/2006 2:00:00 AM
Most electronic distributors are expecting high single-digit growth in 2006, although some smaller distributors may see double-digit increase in their revenue.
"Everybody is saying it's going to be a good year," says Robin Gray, executive vice president of the National Electronic Distributors Association. "The fourth quarter of 2005 finished strong for almost everyone and that trend will continue into 2006."
He says while a lot of high-volume electronics manufacturing has moved to Asia, "there is a fair amount of business with tier 2 and 3 OEMs that remains in North America."
Distributors also expect more demand for design services, and to do more business with companies that repair electronics equipment, according to Gray.
Phil Gallagher, president electronics marketing for Avnet, says he is "cautiously optimistic" that there will be healthy growth for distribution in North America, although the high revenue growth that Avnet and other distributors enjoyed in 2001 will probably never re-occur.
However, there will continue to be strong demand from midtier companies. "We never stopped focusing on tier 2 or 3 defense-aerospace and medical companies, but now we have really re-energized our resources around tier 2 and tier 3 space," he says.
Avnet is doing more supply chain services programs with more customers. About 60% of Avnet's business involves a supply chain program.
"For instance, we are taking forecasts from more than 1,000 customers that don't give us purchasing orders. Instead, we manage their MRPs," says Gallagher.
Many distributors expect more sales in 2006 to come from Asia. "Growth in North America will be healthy, but growth will be strongest in Asia," says Bruce Goldberg, president and chief executive officer of All-American Semiconductor. He says while the bulk of All-American revenue comes from North America-based customers, a growing percentage of sales are from Asia and Europe.
He says revenue from part orders taken in Asia and shipped in Asia account for about 8% of All-American's revenue. Revenue from orders booked and shipped in Europe are about 5-7% of the distributor's overall revenue, says Goldberg.
"Our plan is to grow faster in Asia and Europe although we will focus on growing business in North America, too," he says.
He says North American business will grow because there is a lot of design activity in the U.S.
One distribution executive who is bullish about 2006 is Mark Larson, president of Digi-Key in Thief River Falls, Minn.
"I'm expecting growth of 20-25%. When you have a relatively small percentage of the market, it's easier to outperform it," he says.
Digi-Key had a strong fourth quarter and expects that strength to carry over into 2006. "We finished the year at $630 million, up from $530 million in 2004," says Larson.
He says component demand is coming from across all industries. "Our customer base is a microcosm of the market. I have to believe that when we see this kind of strength we are looking at some broad-based economic activity that can drive the electronics sector," says Larson.
He says Digi-Key's global sales are growing.
Paul Tallentire, president of catalog distributor Newark InOne in Chicago, says he expects strong component demand from the defense industry, medical instrumentation manufacturers and contract manufacturers in 2006.
He says many of the second and third-tier contract manufacturers use Newark InOne for component information concerning the Restriction of the Use of Hazardous Substances (RoHS) law.
"This year will see a significant increase for request of RoHS-compliant products," says Tallentire. "There will be an increase in terms of design and prototyping, but the jury is out on whether it will result in incremental demand for components.
He says he expects there will be more visits to Newark InOne's RoHS Express website, which offers free information about RoHS-compliant products and suppliers.
Craig Conrad, senior vice president, chief marketing and strategic planning officer for TTI in Fort Worth, Texas, says growth may be steadier and perhaps even slower in the past although many distributors will grow revenue in Europe and Asia.
"I think the industry will have some boom times, but they won't be as crazy as in the past," he says. "We would much rather have slow steady growth that you can get your arms around rather than plus 50%, minus 20% years the industry has had for so long."
Conrad adds that the long-term outlook for distributors is good because electronics is more pervasive than ever.
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