Slowing growth in the defense market is no deterrent to distributors committed to the segment, as two recent industry acquisitions demonstrate. Avnet’s purchase of defense-focused USI Electronics in December and this year’s news that New York-based Astrex bought California-based connector specialist TIM-CO sharpened both companies’ focus on the defense and aerospace business even as macro-economic conditions threatened a slowdown among some of those customers this year. Executives from Astrex and Avnet point to slowing growth in defense markets as an important reason to further develop their expertise so they can better penetrate the market moving forward.
“I think we have peaked in the decade-long cycles that defense goes through,” says Bryan Brady, vice president, defense and aerospace, for Avnet Electronics Marketing, pointing to the drawdown in the wars in Iraq and Afghanistan and the larger fiscal pressures affecting the U.S. economy. In many ways, he adds, a rising tide has lifted all boats in the last 10 years and now it’s time for distributors to work harder to earn their share of defense and aerospace spending.
“We remain very focused on this market segment,” Brady says. “Regardless of the ebb and flow of the [Department of Defense budgets] and the concerns in Washington, we remain committed to this marketplace.”
Brady says the USI acquisition illustrates that commitment by deepening Avnet’s specialization in defense and aerospace electronics, especially in discrete semiconductor, passive, and electromechanical components for those customers. Avnet USI is a separate business unit within Avnet Electronics Marketing, continuing a single focus on the defense/aerospace segment.
Smaller distributors such as Astrex have similar strategies. The TIM-CO acquisition adds complementary products and services and gives Astrex a West Coast presence it didn’t have before. Company president and CEO Mike McGuire points to TIM-CO’s engineering capabilities and its focus on radio frequency (RF) cable assemblies as key points, too.
“Being a connector specialist, we want to stay a specialist, but we also want to have a little more within our niche to offer our customers,” says McGuire. “[The TIM-CO] acquisition gives us more services in the cable assembly world and some additional product lines we didn’t have before. The third piece of the puzzle is that it gives us a footprint in California that we didn’t have.”
As of early March, McGuire said Astrex hadn’t been affected by the sequestration or other defense budget cuts, but noted he was concerned about the doubt such issues cast on the market in general, particularly since distributors are often the first to feel the effects of uncertainty in the marketplace. On the upside, McGuire and others point to the growing amount of electronic content in defense and aerospace systems as a big positive for companies specializing in serving a wide range of mil/aero customers.
Focused On Growth
Astrex is coming off of a solid 2012, and McGuire says he’s optimistic about business this year, especially with the addition of TIM-CO to the Astrex family. Astrex sells to a wide variety of customers in defense and aerospace, so unless there’s an across-the-board downturn, McGuire says the company is diversified enough to weather any storm. He says bookings in 2012 were up 18%, with the space segment driving that growth. Integrating TIM-CO and staying on the lookout for more strategic acquisitions are a focus for 2013.
“We are always looking to fill any gaps in our line card when it comes to the [high-reliability] connector market,” McGuire explains. “Right now we’re working on the integration of TIM-CO, but we are still an acquisitive company.”
With the acquisition, Astrex has 65 employees and two locations, and it is projecting 2013 sales of roughly $40 million. The new product and service package will help the company better penetrate its customer base, but McGuire says product availability is still the top priority when it comes to serving this market.
“Because mil/aero tends to be a low-volume, high-mix business, it always falls back to having inventory on hand to compensate for long connector lead times,” says McGuire. “Overall, it’s always been about being able to inventory parts. That hasn’t changed.”
Avnet’s Brady points to cost reduction as another important, and ongoing, customer concern. As customers look to make the most of their supply chains, they are seeking cost-cutting strategies that take advantage of existing, successful distributor relationships, putting vendor reduction at the top of the to-do list as well, he says.
As far as industry outlooks are concerned, Brady also points to the growing amount of electronic content in defense systems and commercial aircraft as harbingers of a solid outlook ahead despite the slowing conditions. He points to strong demand in foreign military sales and commercial avionics in particular, adding that their strength will mitigate the slowing conditions.
“There is still plenty of share [in this market], and we’re committed to growing our number. We’ve grown up in the defense and aerospace market. It’s in our DNA,” Brady says. “We’re in it for the next 50 years.”