Avoiding the Competition

One of the more sensitive issues in the supply chain is competition. Distributors, for example, don't compete with their suppliers by selling their own products. But Avnet Inc.'s specialty semiconductor division, EBV Elektronik, has developed a way to sell its own chips without stepping on suppliers' toes.

EBN's sister publication, EETimes, reported today that EBV will begin selling chips under its own brand starting next year.

EBV has been planning this since the beginning of 2010 and announced its first products at Electronica. “Under this scheme EBV, working with customers, draws up the specifications for application-specific standard products, which EBV then gets suppliers to make exclusively for it for a period of up to five years,” writes EETimes' Peter Clark.

This is an unusual move for a distributor, which typically resells its suppliers' chips. In an interview about six months ago, Slobodan Puljarevic, president and CEO of EBV Elektronik, said there are a couple of drivers behind this initiative. First is customer service. EBV has a set of customers that individually don't represent enough volume to attract a supplier's attention. Each of these customers has a need for an e-motor, for example, for a pumping system. EBV finds the commonalities among these customers and designs an application-specific standard chip. Collectively, this group generates enough demand to make manufacturing the chip worthwhile.

The second driver is Avnet's effort toward organic growth. EBV is effectively creating a market for these chips and is positioned to serve that market. It's an additional source of revenue for Avnet.

The EBV products announced at Electronica include components being manufactured by {complink 5218|STMicroelectronics NV}, {complink 5703|Texas Instruments Inc.}, and {complink 6199|Vishay Intertechnology Inc.}, according to EETimes. Many of the first products being introduced under this scheme will not be available until late in 2011. EBV will not put its own brand on the packaging, and although part of the design IP will remain with EBV, the chips will be the property of the respective suppliers, the company says.

Parent company Avnet will also sell the chips.

Competition used to create a lot of ugly feelings in the channel — and it still does. When distributors began providing turnkey manufacturing services, EMS providers squawked. When EMS providers began managing supply chains, distributors were unhappy. Suppliers used to be so competitive that some refused to be sold by the same distributor.

I still don't think it's a good idea to compete with your business partners. But if you can craft a strategy to evade this, that's pretty innovative thinking. EBV has managed to serve its customers and contribute to its parent company's organic growth.

And it's avoided the competition.

9 comments on “Avoiding the Competition

  1. Parser
    November 13, 2010

    Avoiding competition is great idea especially when a company creates a new market niche. Apple did the same by introducing an iPad. After successful creations of a new market it will spring up a competition or copycats. The question is how to protect the invention and how to differentiate? 

  2. SP
    November 14, 2010

    I would wonder what is the profit margin for EBV for getting into chip making when they are not actually manufacturing it. Also with so tough competion in chip industry it might be short lived.

  3. elctrnx_lyf
    November 15, 2010

    EBV idea looks like any fabless company making some design for customers but the actual IC will be manufactured by the likes of TI, ST etc. All along Avnet was not just distrbuting the components but also making revenue through reference designs. EBV will leverage the efforts of Avnet to undertsand the requirements from the customers and pass it onto semiconductor companies. Is this what EBV is trying to do?

  4. Barbara Jorgensen
    November 15, 2010

    EBV already differentiates by designing chips for a market that isn't served directly from suppliers. They are certainly not trying to get into the chip business, but saw an opportunity to levrage customer/supplier relationships. I doubt they will begin designing chips that don't have a very specific customers base already in place.

  5. Barbara Jorgensen
    November 15, 2010

    As with any custom product–and this comes pretty close–I would imagine the margin is decent to start. I think the longterm success will depend on how there will be demand for these components, and whether they reach companies beyond the original customer base.

  6. Mydesign
    November 15, 2010

    Its very intresting to hear that EBN is going to develop chips & marketing it directly to the customers by bypassing the third part vendors. Now a days the marketing companys are handling the scenario in an ugly way. rather than addressing the things in technical way, all marketing companys are trying to market their products with cosmetic canvasing. This way the main reason for drastic drop outs in performance of the end products. Hope EBN can handle the situations very well with equiped market surveys and enhanced chain of attributes.

  7. Barbara Jorgensen
    November 15, 2010

    Hi–yes, EBV is taking information from its existing customer base and funneling it back to suppliers. In the example of e-motors, EBV has a few small customers in gas pumps; spme in water pumps etc., but none are big enoug to attract the attention of a TI or StMicro. By identifying the common needs these companies have (pumping), EBV designs a chip general enough to suit all but allows room for customization (gas, water).

    Reference designs have been done along with a specific supplier, I believe. This is different in that EBV is not working with the supplier, but with the customer.

  8. SP
    November 15, 2010

    Thanks for clarifying. So true. Another option for long term may be they sell it to bigger chip manufacturers at a good price. Its all on EBV vision what they plan to do.

  9. stochastic excursion
    November 15, 2010

    One good way is to license your intellectual property to make it profitable for manufacturers to copy and mass produce.  This is the IBM PC route, which Apple, having a niche product, did not sign on to.

    How did Apple protect the Mac from copycats?  Possibly security by obscurity was successful here.

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