Expect more flexibility from electronics distributors
By James Carbone -- Purchasing, 2/12/2009 2:00:00 AM
During a downturn, buyers typically can get lower prices from semiconductor distributors because of sluggish demand and competition for their orders.
However, buyers will also find that semiconductor distributors are more flexible with delivery and payment terms because they are eager for business.
Buyers can also expect distributors to focus a little more on certain segments such as medical or defense and aerospace that may not be as severely affected as other segments such as computers and telecommunications.
"Right now it is definitely a buyer's market," says Jeff Ittel, senior vice president, semiconductor business group, at Avnet Electronics Marketing Americas, based in Phoenix. "Buyers are all watching the market to make sure they get the best price. They are doing a lot of quoting."
He says distributors always have to be responsive to buyers, but especially during a downturn.
"In a recession they expect the product to be there when they want it," says Ittel. "They place their orders close to the time they need it."
He says many of Avnet's customers send forecasts. "If we are getting forecasts from them, they rely on us to deliver more just in time than we traditionally do. That puts pressure on us."
Riad Nizam, general manager of All American Semiconductor in Miami, says buyers often seek more flexibility in payment. For instance, they may want to pay in 90 days rather than 60 or 30.
Buyers also want more flexibility in scheduling. "They may have a blanket order schedule for four releases with a year," says Nizam. "But when business begins to slow, they may tell us they are not ready to take a release although they are committed to do it. They may say they may need six more months to absorb the parts."
Nizam calls the downturn an opportunity for All America. "I think we can get more looks from buyers in a down economy because they are looking to save some money or perhaps get a little better service," he says.
Semiconductor distributors will take opportunities where they can find them. For instance, certain product areas may garner a lot more attention from distributors because they aren't as affected by demand for the downturn as others.
Ittel says some products such as programmable logic devices, field programmable gate arrays and analog have not been as hit as hard by the recession as other products such as memory. "We sell analog to everyone. It was down, but not as much as other semiconductors," he says.
Ittel says Avnet has also engaged in the embedded market and is selling boards. "We now have many chip designs that have migrated to more integrated solutions and boards and systems." Companies are building bigger blocks and putting them together rather than doing their own hardware design," says Ittel.
Avnet, Arrow and other distributors also see opportunity in solid-state lighting. They have divisions that are devoted to high-brightness light emitting diodes (LEDs). LEDs are being used in more homes and businesses, automobiles and consumer electronics equipment.
Some distributors will focus on medical and mil-aerospace because while not recession proof those segments are doing better than other segments.
"Anything related to medical is doing well," says Ittel. He says it is not just large MRI machines or sophisticated CAT scans. "There are more and more consumer medical products that people use in their home," says Ittel. "People are always going to get sick whether times are good or bad," he notes.
While semiconductor distributors will try to make the most of opportunities, buyers can expect some consolidation to occur later this year. In fact, it already has.
Jaco Electronics in Hauppauge, N.Y., sold off most of its semiconductor and other components business to WPG of Taiwan in January (See story p. 16E4).
Jaco retained its liquid crystal display (LCD) business that it formed about seven years ago. That part of Jaco's business has grown 20–25% per year.
Joel Girsky, president and CEO, says he sold off the components business because the transition of manufacturing from North America to Asia resulted in substantially less business for Jaco.
Now with the downturn, North American business will deteriorate even more. "The suppliers that we know are predicting 20–25% decrease in sales. How can they make money and how can we make any money?"
Girsky says the decision to sell was not pleasant. "It was not an easy decision, but we had to change with the times such as the times are."
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