"Sales in the America's market expected to grow by more than 18 % per year, rising from $52.2 billion in 1999 to $73.5 billion total in 2001" The forecast from the report is what I'm focused on , not:
"-First-quarter revenue declined 10.2 percent in the Americas
-likely will fall about $3 billion from last year's $45.8 billion
total because of pricing pressures
-Sales are improving in the second quarter, but not at a fast enough rate to offset the reduced orders
in the previous quarter
semichips.org
Conclusions: SIA forecasts have not proven reliable indicators in the past,however,this can be viewed as an optimistic report. Even focusing on the bad news ( not really news out about Q1 sales decreasing 10% in Q1 & SEMI did ok @ .03 ), the forecast is for
~4% decline for all'98,which would indicate conditions are expected to improve leaving a strong possibility that SEMI may rally the last 2 quarters ( compared to the Q1 numbers) , if the SIA report proves to be in the ballpark. This has been my hope for some time now.
Restructuring ripple effect in distribution
Now that the two giants of distribution, Arrow Electronics and Avnet, have announced major restructurings, will second- and third-tier distributors follow suit?
Avnet's Steve Church
Last October, Arrow Electronics Inc., Melville, NY, the largest U.S. distributor, announced plans to restructure its operations in order to cut costs and develop a more customer-focused sales and marketing organization. Then in late March, number two U.S. distributor Avnet Inc., Great Neck, NY, announced similar plans. Both are responding to changing market conditions, where costs are rising and margins are falling as customers demand faster and better service.
"This is a major redrawing of their business strategies," says Chicago-based industry analyst Clarke Walser, president of Walser and Associates. "The customer is driving the business now."
Analysts agree that Arrow and Avnet are in a league of their own. At $7.7 billion and $5.5 billion in revenue, respectively, they are the only true global distributors, with operations in all the major electronics markets of the world. They both see themselves as providing the entire fulfillment function for their customers, which increasingly are Fortune 500 electronics manufacturers. In addition to supplying parts, they manage their customers' logistics and supply chains, and provide other value-added services.
Second-tier distributors--defined as companies with annual revenue from $500 million to $2 billion--don't have the same global reach nor do they have the same breadth of product and services. "I don't expect a wave of restructuring within the second-tier distributors," says Rob Damron, equity analyst with Milwaukee-based Cleary Gull Inc., a subsidiary of Freedom Securities Inc. "Companies like Marshall, Bell Industries and Pioneer-Standard haven't done as many acquisitions and are not as segmented," he says.
At greatest risk, analysts say, are third-tier distributors, those with annual revenue below $500 million. They may not have the capability to compete on price and service that customers are coming to expect. If they cannot improve their cost structures as margins continue to erode, they may find themselves in untenable positions, say analysts.
Both Arrow and Avnet have streamlined their sales and marketing forces and beefed up their support for contract manufacturers, one of the largest growth segments within distribution. And the individual distribution business units that used to operate independently are being recast with product specializations, such as semiconductors, interconnect, electro-mechanical, passives and military components.
Arrow's changes took effect earlier this year. The new Avnet structure will be in place by July, according to Steve Church, president of Avnet Electronics Marketing Group. The single "customer-facing" sales organization will have access to inventory that resides within the major product business groups, which are being remade from the former Hamilton-Hallmark, Time, Penstock and Avnet defense and aerospace business units. Over time, says Church, these individual brand names will disappear leaving only the Avnet name.
--Bruce Rayner
eb-mag.com
INdustryADVANCE
The Bi-Monthly Membership Newsletter of EIA's Electronic Components, Assemblies, Equipment & Supplies Association (ECA)
Globalization of Electronic Distribution
Arnie Rosenblum
President, AIM Electronics Corporation
A handful of key long-term trends affect electronics distribution today. Some trends have survived for decades, such as the trends toward consolidation, lower gross margins, and distributors gaining a greater share of the components market. Others are more recent: the emphasis on quality, the demand for service levels that would have been unthinkable a decade ago, and the growing role of the distributor as an assembler or value-added provider. One of the most talked about trends, though, is the globalization of electronics distribution (or U.S. style distribution going worldwide).
Today the five largest distributors in the world (Arrow Electronics Inc., Avnet Inc., Raab Karcher, Premier Farnell plc, and Future Electronics Inc.) are all multinational. The success of these companies means that other distributors must make key strategic decisions. They must decide to develop links with distributors in other countries, either by acquisition or forming new entities. In addition, they must continue their focus on domestic markets by attacking the substantial base of customers that don't care about multinational distribution capabilities. They cannot, however, ignore that many of their customers have worldwide facilities and global customers.
For growth and survival they must redefine themselves. On the one hand, they must be prepared to make sizable investments or sizable acquisitions. On the other, they must re-evaluate their customer profiles, their supplier profiles, and their marketing strategies. The latter may not require a large cash outlay, but it does require a heavy investment in analysis, planning, and change. Part of that change will come from the use of the Internet, global delivery and logistics service providers, plus a greater utilization of EDI and IT technologies.
This is not a situation in which there is a single right answer. Different distributors will find different answers, and each may be right for that distributor. However, the industry is at a strategic inflection point in the path toward a global market. There are hard decisions to be made and risky actions to be taken. This would create excellent opportunities for companies that serve the shipping and delivery needs of electronic component manufacturers, and the strategic partnerships that can be forged.
DISTRIBUTORS LEADING THE CHARGE
Few industries are more in tune - or have done more to shape the global marketplace - than the electronics industry. Distributors are leading the charge in the new supply-chain marketplace.
For example, over the next several years, it is projected that import volume of electronic goods into the United States will exceed export volume. Much of that import volume comes from U.S. companies that produce goods overseas and then market those products in the United States or worldwide.
At the same time, computers and related components sales this year are expected to be greater overseas than in the United States. Developments such as these are the reason why international trade now accounts for 25% of this country's gross domestic product. That's up from just 11% in 1970.
Electronics distributors not only know the global marketplace, but they demand that their partners know it as well. For example, those companies supplying global delivery and logistics services saw their future lay in the international arena. As their customers moved into global markets, it was imperative for shippers to be there right beside them.
For example, one global delivery and logistics service provider in 1985 expanded operations from three countries - Canada, Germany, and the United States - to more than 200 countries and territories. They observed that technology was an integral component of all of their services, especially global services.
Also of importance to manufacturers, outsourcing supply chain management allows them to do what they do best: develop their core businesses, while reducing product cycle times, lowering inventory costs, and improving customer service.
As reported recently in The Wall Street Journal, spending on third-party logistics could reach $50 billion annually in the United States by 2000, and climb as high as $1 trillion worldwide in the coming decade. Distributors have found their role in the outsourcing or value-added service sector as a way of keeping their existing customers and attracting new ones.
There are dozens of transportation companies tapping this rich and growing market, most of them focused on specific elements of the supply chain such as manufacturing, finance, inventory control, transportation, distribution, purchasing, and marketing. Many of these transportation companies are using the Internet and other technologies to directly assume functions such as inventory management, facility planning, warehousing, order processing, customs brokering, after-sale servicing, vehicle scheduling, and private-fleet management.
Distributors might be wondering if these global delivery and logistics service providers are trying to put them out of business. The answer is clearly no. Only by partnering with manufacturers and distributors, and combining the use of information technology will enable manufacturers, distributors, and global delivery and logistics service companies to provide various kinds of services on a global scale. They expect global logistics to ultimately account for a large part of their international revenue stream.
TECHNOLOGY = VALUE
The glue that holds a seamless global operation together is technology. Today's technology revolution is all about adding speed, information, plus value to their business processes, and to their customers' business processes. Speed, information, and value are merely the price of admission to the electronics distribution industry today. We all rely on them to drive down customer-service costs, boost operational efficiencies, and increase product cycle times. That's why today, information about a package is just as important to their customers as the package itself. Concerns about security, costs, and the ability to effectively use electronic commerce remain. Distributors are taking a cautious approach, even with a large number of them providing a home page on the Internet.
Although still in its infancy, electronic commerce clearly will become a widely accepted way of doing business. Today, billions of dollars are being transacted on private and public networks.
This past year, U.S. businesses invested $9 billion in electronic commerce infrastructure; that's more than we spent as a nation on televisions. Commerce on the Internet alone is expected to grow to $66 billion by the end of the decade. Ease of use, flexibility, and security advances will drive growth. One of the great benefits is that electronic commerce allows a buyer to perform all the elements of a transaction - from purchase to delivery arrangements to payment - from anywhere, at any time of day or night, using a PC.
Electronic commerce will have a profound impact on manufacturing, retailing, banking, and, of course, electronics distribution, among other industries. For businesses like UPS, moving into electronic commerce, and moving both the goods and the information that go with it, is merely a natural extension of our core business. Of course, the rise of electronic commerce presents not only great opportunities but also great challenges for transportation companies and for electronics distribution as well.
We've all heard about the threat of a disjointed supply chain as a result of electronic commerce. Some of the fear is certainly valid. Some of it is merely hysteria over the unknown. One thing we do know is that once manufacturers gain direct access to customers through the Internet, distributors must continue to find new ways to provide value to their customers, and they will!
Copyright c 1998 ECA
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