Quick obsolescence and environmental mandates are just two of the factors driving a growing interest in the aftermarket for electronics. Businesses and consumers are finding themselves buried in useless cellphones, PCs, and other goods. And disposal and recycling procedures are becoming increasingly complex as countries (and even US states) try out different flavors of WEEE (the EU's Waste Electrical and Electronic Equipment directive).
More companies in the supply chain are eyeing services that manage electronics from cradle to grave. The world's leading electronics distributors, Arrow Electronics Inc. (NYSE: ARW) and Avnet Inc. (NYSE: AVT), are among the corporations investing big bucks in companies that repair, replace, recycle, and dispose of electronics products.
However, such one-stop shopping is still the exception, according to Frank Cavallaro, principal of Fronetics Strategic Advisors, a consulting firm that focuses on electronic asset disposal and integrated logistics. Cavallaro was president of the independent distributor Converge, which Arrow acquired in 2010.
The electronic aftermarket is a highly fragmented business made up of small and midsized specialists. Some provide repairs. Others handle recycling, collection, and disposal. Yet another set of companies smelt and recover materials such as plastic, metal, and rubber. Fronetics operates as a kind of matchmaker between companies looking to expand into the aftermarket and companies that provide asset recovery and related services.
"There's no shortage of [service] companies out there," Cavallaro told us. "The problem is finding one that fits the financial criteria of our clients."
As big as the electronics industry is, data on the aftermarket remains elusive. The fact that Arrow and Avnet (each with more than $20 billion in revenue) have invested in the market is a nod to its potential. Fronetics' clients include private equity businesses looking to grow and add to shareholder value. "The hard part is figuring out the services mix that is the best solution for clients," Cavallaro said. "That's where experience in the electronics supply chain comes in. We are good at figuring out what makes sense, and that, in turn, helps get our clients to market more quickly."
Many of the companies in the aftermarket have remained small because of a lack of capital investment, he said. "They've only remained in a niche because of their capital structure. We’d like to think we also provide a platform for them to expand their services."