Electronics distributors expect a slow recovery from recession
By James Carbone -- Purchasing, 7/16/2009 2:00:00 AM
Most electronics distributors say 2009 is shaping up to be a tough year for them because of the recession. However, most believe the industry will soon begin to recover although it may be awhile before they see robust revenue growth.
"The new reality out there is that we aren't going to see a U-shaped recovery," says Ed Smith, president of Avnet Electronics Marketing Americas, headquartered in Phoenix. "We are going to see a slow return."
Some distributors will try to maximize revenue growth by focusing resources on some emerging segments that they believe should be important industry drivers. "You have to focus on what is going to drive the next cycle," says Smith. "We believe mobile medical products, solid-state lighting and military will drive business. We are rotating some existing resources to the growth markets."
Smith says there will be strong growth in demand for portable medical equipment such as insulin pumps, and blood pressure and heart monitors. A lot of the manufacturing of such equipment is made in North America by second and third-tier OEMs or electronics manufacturing services providers and are serviced by distributors.
Another promising segment for some distributors is solid-state lighting. Some already have business units to handle growing demand for light-emitting diode-based systems. Future Electronics has lighting design centers around the world, says Rob Birse, vice president of marketing for the Pointe-Claire, Quebec-based distributor. Future does about $300 million in solid-state lighting business and expects to grow that to $1 billion over the next several years.
Growth of solid-state lighting has been slowed by the recession. Birse expects phenomenal growth for solid-state lighting once the recession ends because more lighting systems will switch from incandescent and fluorescent to LED technology because solid-state lighting is much more energy efficient.
He says solid-state lighting already has resulted in many new customers for Future because many lighting companies are not familiar with LED technology or with electronics in general and need help. "They don't have the expertise or know-how and that's the value we bring to them with our lighting solutions business," says Birse.
Distributor TTI is doing its "due diligence" in trying to identify the emerging customer segments that "will require the products in TTI's portfolio," says Craig Conrad, senior vice president, chief marketing and strategic planning officer for the Fort Worth, Texas-based distributor. TTI specializes in passives, connectors and discrete semiconductors.
However, TTI is expecting strong demand from some segments it already services such as defense and medical. Within those segments, there will be strong growth for some products and weak growth for others, according to Conrad. For instance, under a recent defense department mandate, the F-35 fighter plane looks like it will be long-term project while the F-22 plane will be phased out. That means distributors selling parts to subcontractors of the F-35 will see growth in business.
The same is true with medical equipment. There will be growth opportunities for systems that deal with patient records that allow information to be scanned, stored and shared electronically by doctors, but perhaps less growth for expensive equipment such as magnetic resonance imaging (MRI) machines.
"There are going to be both market opportunities and high losses if you are not careful. You have to strategically position yourself where the growth will be," says Conrad.
Conrad also says whatever the market brings, TTI will remain a specialized electronics distributor although some of its customers want TTI to carry more types of products such as integrated circuits.
"ICs are not on the table," says Conrad. "We are not going to go there. What we are trying to do is find products that fit our business model." Instead, TTI will stay specialized so it does not look like Arrow or Avnet. "We may not be as laser focused as we used to be but we have to be differentiated from our competition," he says.
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