Though concerns linger over the slow recovery that continues to characterize the global economy, many electronics distributors are focused on finding new business growth in a few key markets. Opportunities to expand in medical industries and oil and gas, in particular, spell opportunity for large and mid-market companies alike, according to distributors who attended this spring’s Electronics Distribution Show in Las Vegas. Many distribution executives gathered for the annual event pointed to their companies’ efforts to expand geographically and with new and deeper service offerings as prime routes to that growth.
Targeting design-oriented customers with new products and specialty services, expanding north and south of the border to capitalize on new accounts, and exploiting demand for more electronics in the burgeoning oil and gas markets are top on the list. Still, cautious optimism abounds following the slow- to no-growth many companies have experienced since 2012.
“We’re encouraged, but we’ve seen flatness in North America that makes it tough to grow,” said Craig Sanderson, vice president, supplier marketing and product management, for Massachusetts-based interconnect, passive, and electromechanical (IP&E) component specialist Sager Electronics. Sanderson pointed to growth in sales and bookings in the early part of this year that bode well for modest growth ahead. “With bookings growth, we are optimistic. But we are aware of economic concerns [at the same time].”
Sanderson noted medical markets as a key growth opportunity for Sager. The distributor has long served medical industry customers, but is looking to delve even deeper with new products and services aimed at the design phase. Regional growth markets include Canada, which Sanderson characterizes as one of Sager’s greatest opportunities, and Mexico, where Sager has put more field sales representatives along the U.S.-Mexico border recently.
Allied Electronics counts Canada and Mexico as key opportunities as well. The distributor of electronic components and electromechanical products continues to add to its 400-person strong sales organization, particularly in Canada, and was preparing to launch a Spanish-language website for customers in Mexico earlier this year, according to company president Scott McLendon, who characterized fiscal year 2014 as a good one for Allied. The company grew its top line by about 5% during the fiscal year, which ended March 31, and doubled its growth rate in the second half of that year.
McLendon said he was “thrilled from an Allied perspective” because the company “chased it all year,” referring to the low- to no-growth that characterized much of the industry throughout 2013. He added that his outlook for the rest of calendar year 2014 is positive, too, especially in light of the strong trading conditions in North America compared to the rest of the world.
“I think it’s going to be a good year. [The Purchasing Manager’s Index] is strong,” McLendon said in early May. “Seventeen of the 18 industries covered are growing, and it’s the most widespread growth [we’ve seen] in three years. I feel good about it.”
Rx For New Business
Sager Electronics is taking a multi-pronged approach to building its business in the earlier, design phase of the product development process, and medical markets are a key part of that goal. Earlier this year, the company announced plans to invest in its power supply business, which will help fuel growth with its traditional customer base of medical, industrial, and instrumentation customers. The company took a step in that direction with its June purchase of PowerGate LLC, a power specialist based in California.
“Sager is actively working on expanding our line card in the power supply area. We’re expecting growth in this valuable segment within the IP&E space,” company President Frank Flynn said in an interview with Global Purchasing earlier this year. “As we see an opportunity to support design engineers at our customers at a critical point in their design of new products, developing our power program ties into our overall strategy of demand creation especially within our medical, industrial, and instrumentation OEM customers.”
Flynn went on to explain the value of medical markets to Sager’s overall goals: “Medical electronics is a sweet spot for our company. As the population ages and home health care needs increase, there will be a corresponding increase in the need for portable devices and local health care centers. Medical equipment such as CPAP (continuous positive airway pressure), dialysis, and home diagnostic devices are increasing in volume as care moves away from the traditional hospital setting.”
The expansion of Sager’s field application engineer (FAE) program is another effort to dive deeper into design work, Sanderson added, noting that as of this spring Sager planned to double its number of FAEs by the end of the year.
New Play: Oil & Gas
For other distributors, the oil and gas industry represents a key growth opportunity in 2014 and beyond. New York-based Astrex Electronics is one of those companies. The specialty distributor of interconnect products offers a wide range of value-added services, with a focus on high-reliability connectors, and has long served defense, aerospace, medical, industrial, and commercial customers.
Company president Mike McGuire said technology advances in oil and gas industries call for more and more electronics solutions—a boon to niche players such as Astrex. He noted the high-pressure, high-temperature environment and the need for smaller, faster, lighter solutions as keys to serving those customers.
“It’s like a space ship going on to some of these oil rigs,” he said, emphasizing the high-technology products and solutions for new fracking and underwater drilling applications. McGuire added that Astrex is likely to see most of its growth in 2014 from non-defense-related industries such as these. The distributor has focused on diversifying its customer base in recent years, reducing its defense-related business from 75% to 60% of overall business.
“If defense can just hold its own, [business will] be great [in 2014],” McGuire said.
Growth through strategic acquisition is also an avenue for Astrex. Last year, the distributor purchased California-based specialty connector distributor TIM-CO, which focuses on commercial aviation, space, oil and gas, industrial, and defense markets.
“We’re looking at our future growth as partially organic, partially through acquisition,” McGuire explained. “I expect there will be several more acquisitions over the next five years.”
Pennsylvania-based connector specialist PEI-Genesis is another company focused on high-reliability products that is targeting the oil and gas sector for growth, along with commercial air, medical markets, and mass transit. It is certified to build explosion-proof connectors and cable assemblies, which president and COO Russel Dorwart said will help build business in the oil and gas industry, in particular. PEI-Genesis added an oil and gas business development manager for North America last year to help expand this opportunity as well.
New Jersey-based Powell Electronics is also seeing strong growth in oil and gas markets. Vice president of marketing John Barrington pointed to the proliferation of electronics in just about everything as a key reason for the strength. He doesn’t see it slowing down anytime soon, either. Like many other distributors, Powell has diversified away from defense-related industries and has expanded in oil and gas, commercial aircraft, and construction and agricultural vehicles. Defense markets used to represent about half of Powell’s business, but today accounts for about one-third, Barrington said. Such market changes add to the excitement of being in the electronics business today, he added.
“The world is changing so fast. It’s an exciting time [to be in the electronics business],” Barrington said. “I’m very optimistic. I will be surprised if this isn’t a fantastic year for us.”