The North American franchised distribution industry had a robust 2017. The electronics industry saw the signs of a turnaround in the second half of the year as demand spiked and lead times extended for memory ICs (DRAMs and NAND flash), capacitors, resistors, discrete semiconductors and power components. Longer lead times – and allocations – have plagued buyers throughout 2017 and into 2018. This has led to significant challenges in component availability. Distributors with the most on-hand inventory are typically the winners during periods of component shortages and supply constraints: in 2017 they posted double-digit growth. Here are the key findings of EPSNews’ exclusive electronics distributors survey.
In the electronics industry, change happens fast and that is exactly what occurred in 2017. In 2016, the electronic components distribution industry faced declining component demand, supplier consolidation, currency fluctuations and lower margins, resulting in overall negative growth. Fast forward to 2017: Demand increased across several sectors and lead times for semiconductors – discretes, power and particularly memory ICs – and passive components stretched, and in some cases, were put on allocation.
Many component manufacturers questioned whether the uptick in demand was real and hesitated to ramp up production capacity. This contributed to additional supply constraints. Despite the scarcity of components, the top franchised distributors increased their revenue by 8 percent in 2017, due in part to higher prices, particularly DRAMs and NAND flash.
North American revenue for the top electronics distributors increased by $2 billion to $27.4 billion in 2017, up from $25.3 billion in 2016, according to the EPSNews survey of the distribution industry. Increased sales also led to a higher head count. Of distributors that provided employee data, 64 percent increased their roster while 21 percent maintained the same number of employees. Only 15 percent cut their workforce.
Passive/electromechanical (EM) sales by distributors saw the biggest gains by percentage. Despite supply constraints, extended lead times and allocation for many passive components, the passive/EM segment recorded 10.9 percent growth, reaching nearly $5 billion. This product category accounted for 23 percent of the total NA top distribution sales in 2017, up from 17 percent in 2016. The top 10 passive/EM distributors posted $2.7 billion in sales in 2017, up from $2.2 billion.
Semiconductor sales accounted for 57 percent of the top total NA top distribution sales, up from 46 percent in 2016. Semiconductor sales for the top chip distributors increased by 5 percent in 2017 to $12.7 billion, up from $12.2 billion in 2016. The top 10 chip distributors posted $4.9 billion in chip sales.
Interconnects accounted for 11 percent of the top distributors’ total revenue to reach $2.5 billion, up 5 percent in 2017. The top 10 interconnect distributors reported $2.2 billion in connector sales, up slightly from $2.1 billion in 2016.
Computer product sales declined in 2017, indicating that fewer distributors are selling these products. Computer-related sales dropped from $6.3 billion in 2016 to $1.5 billion. Avnet’s sale of its Technology Solutions business contributed significantly to the decline: that unit accounted for nearly $3.7 billion of Avnet’s NA business in 2016.
Sales from “other” components dropped for the second year in a row. Sales in that segment declined by 3.5 percent, from $912 million in 2016 to $484 million in 2017. Other components include batteries, power, thermal products, filter components, chemicals, automation & control, test & measurement, and hardware. Component sales are based on responses from 41 distributors.
Overall, North American distributors benefited from strength across most industry sectors, particularly automotive, industrial and enterprise data centers. Thirty-nine of the top NA electronics distributors grew their revenue in 2017, up from 31 distributors in 2016. Of the 39 distributors with positive growth, 20 recorded sales gains in the double digits. This is up from only 9 in 2016. Only 6 of the top distributors posted negative growth, and two reported flat growth.
Two of the largest distributors – Arrow Electronics and Avnet Inc. - reported single-digit growth in 2017, which is a turnaround from negative growth last year. Arrow posted 7.8 percent revenue growth in North America in 2017, after dropping by 2.4 percent in 2016. Avnet also gained some ground in North America in 2017, recording 4.5 percent growth after a 9.6 percent decline in 2016.
Both distributors are acquiring companies outside of the electronics components distribution business as part of their diversification strategy. Arrow acquired eInfochips, a large design and managed services company focused on the IoT, in 2017. eInfochips has 1,500 IoT solution architects, engineers and software development resources worldwide.
Avnet acquired Dragon Innovation, a provider of hardware and manufacturing services, to help customers launch new products more efficiently. Avnet said the acquisition augments its design and supply chain capabilities beyond electronic components to include finished products.