What in the world is going on with electronics distribution?

Author:
Kevin Parmenter, PSD Contributor

Date
05/05/2017

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Over the last several years mainstream distribution of U.S. electronics has ended up in the hands of “the Big Three” – two major players in the U.S. and one privately held Canadian company. Concerned that the large semiconductor companies have determined they are not getting the ROI they need from the distribution channels, the big North American distributors have been focusing on registration programs, BOM scrubbing, parts crossing and congratulating themselves. It seems the suppliers and customers are looking for more.  Recently, distribution have been buying media companies and seem to be trying a little of this and some of that at random to see what sticks. Meanwhile, their “value added” offerings often can be better fulfilled by contract manufacturers in many cases and, in comparison, electronics distribution in Europe is much more functional. But now, it seems like this business model is changing in North America.

For one thing it looks like there will be new opportunities for smaller, more nimble and focused distributors who are less large and fussy.  Changes in distribution continues validating their value as the migration towards “high-service” distributors increases. For instance, design engineers are increasingly depending on Digikey and Mouser because these suppliers can stock products, break reels and will ship any quantity needed without hassles, delays or inquisitions. They also can produce a waybill number in 20 minutes to track orders. And unlike the big distributors, their results focus on design engineers versus internal metrics. Most importantly engineers mention being able to literally get hardware working on the bench ordering from Digikey or Mouser before the “big boys” can even respond with a quote.

Other pressures on the distribution model have been coming from Asian distributors. For the past decade or so the prevailing doctrine of U.S. distributors has been to prevent Asian distributors from getting boots on the ground in North America at all costs. This acquisition strategy has been mainly defensive and two-fold: take out competitors while gaining market share in a commodity market and keep Asian distributors from getting “registrations” in North America.  (You could write a book or a Ph.D. dissertation on the topic of registrations and the Robinson Patman Act.) However, bad metrics and incentives have made the process outlast its usefulness, and major component companies have had it and are not playing the game anymore. Now the Asian distribution groups WPI-WPG are expanding in North America on their own since they were blocked from buying anything for more than a decade.

What does this all mean for the Big Three?  Most likely they will have to figure out how to live in a world without registrations for the long term. But what will they turn themselves into and what will other players do?  Will they return to their roots they abandoned and start servicing customers the way they want again?

All I know is that in two to five years the distribution landscape is going to change. The possibilities abound. One of the Asian distributors might buy one of the majors. Or Amazon might take over or buy one of the majors. Contract manufactures could get the upper hand by offering better value-added for customers than the distributors. Maybe Berkshire Hathaway will buy one of the A’s. Perhaps the smaller, nimbler guys will take over by doing what the big guys are too fussy – or have forgotten how – to do.  No one can predict exactly what will happen but it’s going to be different. Stay tuned. It’s going to be an interesting show.

PSD

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