Avnet's Vallee Passes the Torch

A bigger footprint than the one Roy Vallee stamped on Avnet Inc. (NYSE: AVT) over the last 20 years may be difficult to imagine. When Vallee assumed the role of president and chief operating officer at the company in the spring of 1992, the top electronic components distributor had fiscal year sales of $1.8 billion. Revenue doubled two years later to $3.6 billion and took off like a rocket. In fiscal 2012 ended June 30, Avnet reported revenue of $25.7 billion and net income of $567 million.

Last week, in an internal email, Vallee told his 17,000 employees they had together "built a great global company." That's an understatement typical of Vallee, who, after 35 years at the premier components distributor and information systems integrator, has announced he will not seek reappointment as the company's executive chairman. "Please accept my most sincere and heartfelt personal thanks for everything you have done for me and Avnet," Vallee said further in the memo. "You have enriched my life and transformed an entire industry -- for that, I am eternally grateful."

The component distribution sector is probably the most critical segment of the electronics industry that many end-users have never heard about. Distributors are the glue holding the industry together, serving as the middleman linking suppliers of semiconductors and other components with OEMs and electronics manufacturing services (EMS) providers; stocking inventories to facilitate production efficiencies; offering financial support, logistics, and other supply chain services to all parties in the value chain; and essentially being the buffer for the market during times of severe demand and supply turbulence.

Vallee's toast to his crew in the internal memo cited above is not without reason. While top executives like Vallee and Rick Hamada, his successor as CEO at Avnet in 2011, may be the public face of the distribution market, the unsung heroes of the market number in the thousands and are located in many parts of the globe, where they support hundreds of big and small component vendors as well as thousands of manufacturers.

Avnet, for instance, has more than 300 global locations and sells to thousands of customers in "more than 70 countries," according to the company's fact page. The troop involved includes thousands of salesmen, field application engineers, other technical support services folks, administration, and sales and marketing professionals, shepherded by executives like Vallee who over the years have helped to shape, not just their end of the market, but all segments of the industry.

As Vallee, pointed out in his message, though, the industry remains in constant flux, with new challenges and opportunities popping up as old players disappear and new ones emerge. The company, he said, should "constantly reevaluate current practices and make changes when the status quo can be improved upon."

After more than a decade of reporting on the company -- and, hopefully, without sounding like a praise singer -- I can attest that Vallee was probably one of the biggest initiators and champions of change in the components distribution market over the last 20 years. He led the consolidation of the market with more than 40 acquisitions over the last two decades in Africa, Asia, Europe, and the Americas. The mergers, along with similar actions at top global and North American rival Arrow Electronics Inc. (NYSE: ARW), resulted in the emergence of mega distributors and gave the two companies unprecedented 55 percent-plus share of the market.

Vallee's contribution extended well beyond merely serving to consolidate the distribution market, though. He also led the extension of distribution functions well beyond the mere role of a middleman. Here's how the company describes itself today:

In addition to its core distribution services, Avnet markets, adds value and creates demand for the products of the world's leading electronic component suppliers, enterprise computing manufacturers and embedded subsystems providers. Avnet brings a breadth of service capabilities, such as supply-chain services, logistics solutions, product assembly, device programming, and computer system configuration and integration.

At one point, OEMs and EMS providers were reluctant to pay for the extra value distributors offered. Vallee was one of the folks instrumental in not just developing these services but also in getting customers to understand why adequately compensating distributors for them was in the best interest of everyone.

In my opinion, perhaps the greatest contribution Vallee has made to the electronics components distribution market might also be the biggest challenge he is handing over to his successors. While many still use the nomenclature "component distributor" to describe Avnet, the company has evolved far beyond this to become a full-fledged service provider with functions that go beyond distribution.

These services helped Avnet to become the multibillion-dollar behemoth it is today. But that also raises the following fundamental questions about the future: What's next for Avnet? What ends of the market should it tap for future growth? How will it avoid stepping on customers' toes as it expands offerings? How fast can it expect to grow? What will its sales look like in another 20 years? And does it have the management pool to lead the next phase?

Vallee is confident the company has answers to all of these questions. The succession part may be the easiest. Hamada, another Avnet veteran, took over as CEO last year, while Bill Schumann will take over as the new chairman of the board of directors. "Bill has a proven track record as a thoughtful and adept business leader, and has added significant value to the Avnet board," Vallee said in his memo to employees.

As for the future, Vallee will be watching Avnet from the sideline but believes "Avnet's best days are ahead." One era has passed. Let another begin.