Japan’s earthquake and tsunami nearly one year ago sent ripples through the supply chain that electronic components distributors were talking about even as 2011 came to a close. A spike in orders for key electronic components following the March tragedies gave many distributors a healthier than usual second quarter followed by atypical activity in the third and fourth quarters. The events had some distributors characterizing 2011 as a strange year and predicting a return to more normal seasonality in 2012.
Looking at the first half of 2012 for the electronic components market in particular, Avnet Electronic Marketing’s Ed Smith agrees that a return to more normal, actualized growth is in store for the industry—barring any macro-economic events related to the European crisis or any further natural disasters, of course.
“We’re over the Japanese tsunami activity, so I think we’ll get growth in the quarters we would normally expect growth,” says Smith, president of Avnet EM Americas, pointing to a spike in orders immediately following the Japan crises last March and the subsequent uncharacteristic ups and downs of the market. “It seems that things are back to a more normal state.”
There are lingering concerns over the effects of the flooding in Thailand on the hard-disk drive (HDD) market, however, and Smith is watching the situation carefully. Avnet’s acquisition of Bell Micro in 2010 propelled it into the HDD market, spurring growth in the distributor’s embedded systems business.
As of early December, Avnet was keeping up with demand for HDDs among most OEM customers, particularly those to whom they sell multiple lines and parts. But the company was having trouble meeting demand among the more opportunistic buyers in the marketplace, Smith says.
“I think the first major event you’ve got to think about [in 2012] is, when does the recovery of the HDD market [begin]?” explains Smith. “We’re seeing signs that some of the suppliers are seeing some of their supply back, but some of the big ones are saying it will be (longer).”
Since July, the floods have inundated a large part of the country, and it could be months before the waters recede and the full extent of the damage is known. A quarter of the world’s HDD manufacturing capacity is located in Thailand, and three of the world’s top suppliers have facilities in the affected region. The situation is straining supply worldwide, according to a recent report from industry analyst firm IHS iSupply.
“[P]roduction capacity for HDDs outside of the affected region in Thailand is constrained at the moment, given that HDD manufacturing in other parts of the world is already at full capacity, with little room left for ramping up,” the early December report noted.
Distributors, manufacturers, and end users alike will continue to watch these and other supply chain trends as 2012 unfolds. In the meantime, components distributors are focused on key end markets such as medical and industrial, new geographic opportunities in Latin America, and a renewed focus on service offerings at a global level.
In Search Of Hot Spots
Looking at end market growth for 2012, Smith points to the medical, industrial, military, and avionics markets as areas that will continue to drive growth in the components market. On the embedded systems side, he says demand for cloud storage equipment is driving much of the growth.
Of course, the consumer electronics market continues to drive much of the industry growth overall—for suppliers who sell both directly and indirectly to those markets. Demand for media tablets, smart phones, and ultrabooks (those thin, light notebook-style computers) continues to make headlines. Media tablets are getting the most ink.
“Everyone is talking about iPads and competitors to iPads,” says Dale Ford, vice president of industry analyst firm IHS iSupply. “Everywhere you look, you’ve got somebody coming in and getting in on that space—and we expect that to continue.”
Second to media tablets is the smart-phone market. Demand for high-end, mid-tier, and low-cost smart phones will continue, Ford says, with an emphasis on the low-cost segment.
“We think the low-cost smart-phone products will enable continued strong growth in the smart-phone market,” he explains. “So in addition to the overall trend, the low-cost smart phone is going to help continue to drive healthy growth there.”
Looking at the PC market, Ford points to demand for ultrabooks as a hot area—and one that is ripe for new competition. PC makers have witnessed the success of Apple’s MacBook Air notebook computer, for instance, and are looking to capture a piece of that pie.
“Major players are putting major dollars into competing in the ultrabook space,” Ford says, pointing to Intel’s push into the market with the release of a new class of ultrabooks that tout longer battery life, are less than 0.8 in. thick, and cost less than $1000 earlier this year. “We expect this subcategory to take off in a very strong fashion.”
Geographically, the newest hot spot is Latin America, where companies such as Avnet already have a solid presence. Smith points to increased manufacturing activity in Mexico and Brazil as two good opportunities for components and embedded systems providers.
“There’s clearly some on-shoring going on,” says Smith. “Some companies are not going all the way to China, but are going to Mexico and Brazil [instead] to get access to the Latin American market.”
He says the region represents even greater opportunity if oil and gas prices rise again, making it more cost-effective for OEMs to manufacture there instead of China.
“When oil goes up, the cost of shipping goes up,” Smith reasons. “If we can do things efficiently in Mexico, more will stay there instead of go to China.”
Avnet has a particular focus on Brazil, having made some key acquisitions there and gained a large presence in the market through its Bell Micro acquisition. Much of Avnet’s growth in the region has been with embedded systems and its reverse logistics business, Avnet Integrated Resources, which provides reverse logistics and aftermarket services to the global technology industry.
“Latin America will be the growth area to focus on, with Mexico and Brazil leading the way,” Smith notes.
A return to normalcy also means a renewed focus on services for many distributors. For Newark Electronics/element14, this means a special focus on enhancing its online offerings.
As one example, the distributor unveiled a new Web-based catalog at the end of 2011 aimed at giving users a richer, more customizable, and up-to-date experience. Built in HTML5, the catalog is available in three versions: online, with the ability to customize your own pdf version; mobile, in an iPad-compatible version for use on the go; and the traditional print version.
“We want to make sure we have the right interface to support [customers’] needs,” explains Phil Robins, vice president of marketing and customer strategy for Newark Electronics/element14.
Robins points to the mobile apps as the company’s newest innovation and says the distributor will continue to add more apps in the future. The online and mobile versions of the new catalog, for instance, include a price and stock availability app that provides information that is updated daily.
Newark/element14 has also updated its site search functionality, improving reliability and adding greater sorting ability, all in an effort to help customers find what they need even faster.
“Our goal is to keep building and improving over time,” adds Robins. “We’re taking the catalog—and all our [online efforts]—to the next level.”
Avnet’s Smith agrees that customers are seeking more and more services from their distributors these days, and he says the ability to interact seamlessly on a global scale is at the top of the list. Large customers, especially, want to deal with one global company, leveraging their spending power and making it easier to get what they need—wherever and whenever they need it.
Information technology enhancements play a key role in that effort, but Smith says customers are looking for better forecasting, product lifecycle, and reverse logistics services as well.
“They also want us to be able to move their supply chain anywhere in the world,” Smith says.
Product lifecycle services are in particularly great demand among military and medical market customers. As OEMs and contract manufacturers seek to make their products last longer, service-focused distributors take on a key role in developing solutions that address obsolescence issues.
“Whenever [a product] is highly regulated, to make a change takes a lot of work,” Smith explains. “They would rather the distributor come up with a change to address it so they don’t have to. And that’s definitely never easy. Keeping a product around longer takes special expertise.”
And figuring out what to do with that product when it’s no longer needed is also part of the distributor’s realm. Because electronic products must be disposed of in certain ways, end users are seeking reverse logistics—sometimes called “e-cycling” services—to help them properly manage and dispose of products.
Keeping up with such varied market demands is a big challenge throughout the supply chain. But with an outlook for steady, albeit slower, growth ahead, most companies say they are up to the challenge.