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The Big Keep Getting Bigger

Here are a couple of fairly safe forecasts for the global distribution market. First, many of the small to midsized companies that made this year's EBN/EE Times ranking of the world's biggest electronic component distributors will not be included in a future chart: Eventually they will be pulled into the warm and ever-expanding embrace of the biggest players, notably {complink 453|Arrow Electronics Inc.} and {complink 577|Avnet Inc.}. (The ranking will be published online later this week.)

Arrow and Avnet have been aggressive acquirers in North America in recent years, and they’ll likely continue mopping up the sector as they tighten their hold on the industry.

The second, perhaps startling forecast is that fast-growing global distributor {complink 12835|WPG Holdings}, which occupies the No. 3 slot in the current ranking, will become the world's biggest electronics component distributor within a couple of years. WPG is already giving Avnet and Arrow — ranked first and second — a run for their money in terms of component sales. The bigger companies are ahead in the current ranking because of their extensive business activities in the technology solutions market, an area that involves serving the high-tech, industrial, and manufacturing markets with end-equipment technology and consulting solutions.

Avnet and Arrow are not yielding ground in the components distribution market, but they have altered their growth formula by diversifying operations into related technology areas. Overall, the market grew at a double-digit clip in 2010, recovering sharply after having slipped in 2009. Collective revenues for the top 25 distributors surged to $68.6 billion, up 31 percent from $52.4 billion in the prior year. The top five companies accounted for 87 percent of the sector's sales last year.

{complink 2164|Future Electronics} is growing rapidly in Asia, according to sources at the company, and {complink 12895|Premier Farnell plc} is seeing increased growth globally even as it implements plans to entrench itself in North America. Even accounting for the many smaller distributors that did not make the list or any midsized ones that did not respond to the EBN/EE Times survey, it's clear that the biggest distributors represent about four-fifths of overall revenues.

That strong sales position, along with the giants' expanding range of services, means the top 10 distributors will continue to determine the distribution market's direction for the near future.

WPG Holdings' exponential growth is an important tranche of the industry's still-unfolding story. Sales at the Taiwan-based distributor have surged on the back of China's rapid growth and increased role in the electronics manufacturing sector. The company dominates the regular components distribution business in Asia. But it's looking over its shoulder at Avnet, Arrow, Future Electronics, and other large players as they furiously expand their operations in the region.

The contenders are coupling their regular distribution business with value-added design and engineering services in a bid to differentiate their offerings and whittle WPG Holdings down to size. Will they succeed, and how will WPG Holdings respond? That's next year's story.

5 comments on “The Big Keep Getting Bigger

  1. SunitaT
    May 16, 2011

    “top 10 distributors will continue to determine the distribution market's direction for the near future.”

    Bolaji,

     Do you think the consolidation will happen in this space? Do you foresee any M&A activity in this space ?

  2. eemom
    May 16, 2011

    Undoubtedly with all the consolidation in this market segment, we will continue to see the direction of the market set by fewer and fewer companies.  I know you say the market the largest distributors represent the majority of the revenue for the industry, I am curious as to how much the top 3 distributors (Arrow, Avnet and Future) alone represent?

  3. Kunmi
    May 17, 2011

    We can't rule consolidation out when the situation warrants. In my opinion, most of these big companies will like to maintain the level of their revenues even when they are facing challenges that may impact their outputs and the net gains. In order to retain their strength, consolidation and merger could be the next option.

    “top 10 distributors will continue to determine the distribution market's direction for the near future.”
     This statement is true but it all depends on how well they can manage what is sustaining them to do what they are doing now and how better they can manage the future challenges.

  4. jbond
    May 17, 2011

    Avnet and Arrow are going to have an interesting next couple of years. Do they sit back and focus on their current strategies and see what WPG has planned, or will it be too late at that point? Avnet and Arrow are heading in the right direction by diversifying their companies to help grow throughout the market segment. It is possible that WPG could overtake one of them if not both in a few years as a component distributor, but if they continue to diversify themselves they will still be the more powerful companies.

    In today's economy and marketplace many people think that M&A is the best possible choice to gain ground and take market shares away from rivals. This might be the case for many situations, but there are other times when just thinking outside the box will make a huge difference. 

  5. Barbara Jorgensen
    May 17, 2011

    There's no question there will be further consolidation in the global market–Avnet just announced a European acquisition today. Arrow has recently added to its systems business via acquisition. Future and WPG are not as acquisitive, but their growth has kept pace with the market even w/out acquisition. (As have the catalogs and specialty distributor TTI. ) I tend to think there will be fewer mega-mergers going forward–look for smaller, strategic buys that fill in gaps in regional areas.

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