Avnet’s Vallee Passes the Torch

A bigger footprint than the one Roy Vallee stamped on {complink 577|Avnet Inc.} 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 {complink 453|Arrow Electronics Inc.}, 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.

6 comments on “Avnet’s Vallee Passes the Torch

  1. Barbara Jorgensen
    August 13, 2012

    I had the privilege of working with Roy even before he was named CEO of Avnet. He, along with Arrow's Steve Kaufman, helped elevate distribution in both the eyes of the industry and of Wall Street. The professionalism of these organizations as well as the recognition that this is a people-driven — vs. sales-driven — business has changed the face of the industry. Roy has left a legacy, a foundation and a team that will serve the company well going forward. But it is truly the end of an era.

  2. bolaji ojo
    August 13, 2012

    Barbara, I borrowed the phrase “end of an era” from another Avnet veteran Al Maag to describe Vallee's retirement. As you pointed out Steve Kaufman was another person who helped drive the changes that have occurred over the years in distribution and adjacent electronics sectors. They will both be sorely missed.

    One thing I didn't mention in the blog is the fact that these two are also the ultimate gentlemen in their treatment of employees, customers and industry contacts. They also knew when to do something else. Kaufmann retired to teach and I don't know what Vallee is going to do next. He is still a relatively young person — I believe he is 59 years old and has a lot more to offer society.

    I am looking forward both to what happens next at Avnet and what Vallee does next.

  3. SunitaT
    August 14, 2012

    Vallee was probably one of the biggest initiators and champions of change in the components distribution market over the last 20 years.

    @Bolaji, thanks for the post. Nobody can forget  Vallee's contribution to components distribution market. He has done phenomenal job of growing Avnet from small 2 billion company into big 26 billion company. It would be tough to replace Vallee but I am sure Hamada is the best candidate for this post because  he has proven track record as a thoughtful and adept business leader.

  4. Eldredge
    August 14, 2012

    It mat be a significant challenge for Vallee's successor to continue growing the company. The phrase ' hard act to follow' comes to mind!

  5. bolaji ojo
    August 14, 2012

    Eldredge, Vallee will be a “hard act to follow” not just because of who he is but also because the profile of the market has changed so much. He took over at a time of rapid growth and by adopting a strategy of growth through consolidation and natural expansion he managed to elevate the company dramatically.

    His successor Rick Hamada has driven some of that growth and strategy alongside Vallee. The new area of opportunity for Avnet in future will be in Asia because the European and North American markets are maturing fast. The Asian market is in full growth mode, however. The region is also ripe for consolidation so it's possible Avnet may be a $40 billion company in another 10 years, which — if it comes to pass — would mean his successors have truly improved upon Vallee's legacy.

  6. Eldredge
    August 14, 2012

    @Bolaji – Thanks for elaborating on Mr. Hamada's experience and challenges. Based on his tenure under Vallee, I'm am sure he understands the market dynamics and is the best choice to continue Avnet's pace.

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