"This will be the year of the catalog distributor," forecasts Rob Birse, director of marketing communications for Allied Electronics, a catalog distributor in Fort Worth, Texas.

Birse is optimistic because catalog distribution often outperforms the overall distribution market. While the overall revenue for the top 75 grew by about 3.5% in 2005, total revenue of the four leading catalog distributors increased 10%.

"Growth was exceedingly strong in 2005 and was across every product technology and market sector across the board," says Birse.

Digi-Key in Thief River Falls, Minn., also reported healthy growth. Its sales increased 15% to $565 million. Mark Larson, Digi-Key president, expects Digi-Key's revenue will increase 20-25% in 2006. One reason is in recent years Digi-Key has added more lines, especially semiconductors.

Digi-Key is uniquely positioned because of line acquisitions in the last three or four years. The company added such lines as Philips, Micron and Renesas in 2005. "The line acquisitions have really put us more strongly in the semiconductor market. We have a much broader chip offering than in the past and it's starting to gain traction," says Larson. "I believe 2006 bodes well for Digi-Key."

In fact, 2006 will be a good year for other catalog distributors, as well. One reason is that catalog distributors supply small quantities of parts to companies' research and development organizations and for small production runs.

Companies always design new products even if those products end up not being manufactured in volume. And while high volume manufacturing has left the U.S., R&D has stayed and that's good news for catalog distributors.

"R&D is not going offshore so we expect to stay completely aligned with the R&D market in the U.S. and not get into a dogfight for what is left of production on shore," says Birse.

He says he expects all "catalogers will grow handsomely over the next year or two but there is more to be gained if you can forecast the next trend and are ready to meet the next requirements of customers."

Some industry analysts say that catalog distributors growth will slow down, but not surprisingly catalog distributors disagree.

"Mouser grew sales 30% in 2005 and over the past five years our compound annual growth rate was 22%," says Kevin Hess, director of marketing and business development for Mouser Electronics in Mansfield, Texas. "I believe the growth can be sustained."

He says the strong double-digit growth can continue because new technologies and new products are always being introduced and those drive new equipment designs.

The key to catalog distributor success is getting those new products and technologies from suppliers and getting end of life product out of catalogs, according to Hess. He says Mouser releases a new catalog every 90 days.

Also key to catalog distributor growth is improving Web capabilities and offering more technical expertise, says Birse. "We are gearing up for a strong Web presence for sure. We know the majority of customers start their sourcing process online," he says.

Hess says customers want overall better performance from catalog distributors. "Customers want more selection, competitive pricing, faster delivery," says Hess. "In addition, they want more information in our website and more technical assistance," he says.

Newark InOne's strategy to grow business is to enhance its value-added services, offering many of them for free.

Jeff Shafer, vice president of marketing for the Chicago-based distributor, says that its free tape and reel services for passives and semiconductors has proven to be popular and has boosted its component sales.

"We're also trying to differentiate ourselves by providing a free bill of material scrubbing for Restriction on the use of Hazardous Substances (RoHS). Other distributors do that as well, but they charge for it. We don't," he says. The distributor also offers a similar service for parts going end of life. Customers are informed when parts are going obsolete and Newark InOne will offer alternative parts.

Shafer says Newark InOne has also enhanced its value added services involving instrument calibration by acquiring a calibration company.

"We are one of the largest distributors of test and measurement products," says Shafer. "Now we can offer precalibration of equipment while customers are on the phone buying a product. We can also do so after the fact with on-site calibration. Newark InOne charges for calibration services."