Distributors Focus on Core Competencies and Wait for New Growth

Jan. 2, 2013
As the economy trudges along, supply chain companies are hunkered down and hoping for a return to growth mode by midyear

When asked about the business climate for the electronics supply chain this year, Mouser’s Glenn Smith says he is optimistic. Mouser recorded strong growth in 2012 as it capitalized on new opportunities in Europe and Asia, and Smith says a focus on more of the same in 2013 should help delivermore growth. In an environment where the trend has been toward slow or no growth, Mouser’s strength stands out, especially when you look at the double-digit growth the company had seen in Europe through November. Smith said the company was on track to grow around 6% overall for the year, with the lowest increases coming from North America.

“For us it’s going to be more of the same [in 2013]. We’re going to continue to focus on the design engineer and focus on bringing new products to market,” says Smith, Mouser’s president and CEO. “I don’t see any reason to change that strategy or target.”

Other distributors have similar sentiments, and many indicate their intention to stay focused on core competencies in 2013 in the hope that a return to higher growth rates is on tap for the second half of the year. An air of uncertainty still hung in the balance as 2012 came to a close, with global economic and political climates leaving little certainty about where markets were headed.

A December report from industry analyst firm IHS iSuppli predicted a 2% decline in the global semiconductor market in 2012, the sector’s first decline in three years. IHS pointed to deteriorating conditions in end markets such as data processing, consumer electronics, industrial, wired communications, and automotive segments as key reasons for the weak semiconductor market, but called for a rebound in 2013 if worldwide gross domestic product growth forecasts hold up.

The climate left distributors focused on executing existing market strategies, with many keeping an eye on the strong wireless communications market that continued to fuel growth in smart phones, tablets, and elsewhere. Despite the tough conditions, distributors agree the industry’s long-term outlook is rosy largely due to the steady pace of research, development, and design and the overall increase in the electronic content in all aspects of our lives.

“Just look at a 15-year-old car versus a new car today,” says Future Electronics’ Lindsely Ruth, pointing to the proliferation of electronic content in everything from consumer electronics to medical devices. “I think it’s pretty exciting. I was in New York City recently and as we were driving around we decided to count the number of people who were walking and talking on their cell phones or smart phones. We just stopped counting at one point because there were so many. You wouldn’t have seen that 20 years ago.”

Ruth is executive vice president, office of the president for Future Electronics, and he also points to advances in wireless technology and its application in medical equipment, energy systems, and the “smart” or “connected” home as examples of the electronics evolution. “There will be a lot of exciting things happening just over the next five years, things we’re not even thinking about now,” he says.

Capitalizing On Global Growth

For large catalog houses like Mouser, growth in Europe and Asia helped boost sales in 2012. Mouser made headway on both continents in 2012, but especially in Asia where it hit major business milestones in China. The distributor incorporated in the country during the year, allowing it to begin accepting local currency transactions, which helped grow sales.

Mouser also installed a local marketing team in Hong Kong, expanded its Chinese-language Web offerings, and continues to add people in the region to build its technical and customer support network. Those actions follow similar moves in Europe, where the company built on its momentum throughout the region by adding people and locations, in particular establishing nine European customer support centers in the last few years.

“The design business there has been underpenetrated, and I think that that’s going to continue to be what we keep focused on,” Smith says of both regions. “We don’t view [that business] as just being a Web business. We’ve got to be there to help with whatever customer service or technical issues are needed to support the design. For us, it’s [about] continuing to grow the scale and the locations.”

Ruth agrees with the importance of continuous investment in company resources, both human and material. He says Future is in “investment mode” worldwide despite tough market conditions everywhere, adding salespeople in particular and focusing on training them to identify, qualify, and capitalize on the best customer opportunities. At the end of the day, he says, distribution is still a relationship business.

“There is still so much opportunity to expand our customer base worldwide,” Ruth says, emphasizing the need for salespeople and customer service representatives who can “touch” those customers. “There isn’t one particular region where we’re focusing our investment. The two countries that have the greatest share in Europe are Italy and Germany, but we’re not limiting our investment there. We’re also investing in the Americas as well as China and elsewhere in Asia.

“Our number one priority as a company is the customer. Regardless of the market segment, we have to carefully select the right customers for the long run.”

Ruth says Future will remain focused on that goal despite the uncertain economic outlook, though he remains concerned about the business climate worldwide.

“Everyone has a different opinion on what’s going to happen in 2013. A general consensus is that Q2 will be a turning point, but I have to question what that’s based on. I think it’s a feel-good statement. People feel good when they say it. There’s so much global uncertainty and political uncertainty that it’s tough to predict,” he says. “But we’re in an investment mode right now on a worldwide basis. Regardless of what happens in the market, we believe we can grow. It’s a beautiful thing to be privately held right now.”

Slow, Steady Increases

Brian Ellison, president of large independent distributor America II Electronics, emphasized the uncertain economic outlook in late 2012 as well, and in mid-November he pointed to slow and steady demand increases for 2013. Ellison says he is keeping a close eye on key indicators such as fab utilization and inventory levels industry-wide.

“One of the key indicators is the inventory correction,” he says. “Based on the level of activity we see at this time of year, I’m confident in saying that the inventory correction is not finished. Toward the end of Q1 we will have a better vision.”

Ellison also points to wafer fab utilization rates, which were expected to hit the low 80% range by the end of 2012 before creeping back up to about 87% toward the end of this year. Hitting those higher numbers will help put conditions back in balance and set the industry on a better path to growth, he says.

“We’re looking for slow, steady marginal increases in demand. We’ve seen that in the last 90 days, so that’s what we’re watching,” Ellison says. “If we remain up and to the right, and the other things we talked about come in line in the first half of 2013, we’ll see some growth in 2013. I think we’ll get back into whatever normal is.”

Ellison also notes key end markets such as medical and automotive as bright spots on the horizon and emphasizes the strength in certain pockets of the consumer electronics segments as important drivers for the industry overall.

“Our contract manufacturers and the OEMs that are placing business with them are showing a positive sign, particularly for Q1 and Q2 with a backlog [of orders],” Ellison says. “In the consumer market, tablets and mini-tablets will drive the market as a whole. We don’t play a lot [with] those high-volume guys, but it does have a net effect on [the business].”

Mouser’s Smith emphasizes his positive outlook as well.

“I think we’re going to continue to see growth in our model in 2013, because we’re seeing so much engineering activity,” says Smith, pointing to a record number of orders the distributor was seeing even near the end of the year. “That tells me there’s a lot of work out there.

“I think it’s going to continue to grow,” he says. “The question is how much the political forces throughout the world impact economic growth.”

About the Author

Victoria Fraza Kickham | Distribution Editor

Victoria Kickham is the distribution editor for Electronic Design magazine, SourceESB and, where she covers issues related to the electronics supply chain. Victoria started out as a general assignment reporter for several Boston-area newspapers before joining Industrial Distribution magazine, where she spent 14 years covering industrial markets. She served as ID’s managing editor from 2000 to 2010. Victoria has a bachelor’s degree in English from the University of New Hampshire and a master’s degree in English from Northeastern University.

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