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TI-National: Power in the Channel

As semiconductor companies split themselves into smaller entities — the former Motorola Semiconductor is a prime example — they also give up some of the clout they have in the distribution channel. As a single entity, Motorola Semiconductor could dictate policies to its distributors and its customers — and it did. Motorola, at various times, would not share a distributor's shelf with Japanese competitors, insisted its partners implement Six Sigma quality practices, and asked its customers not to sell excess components into the open market.

Motorola could do this, in part, because of its size. Over the years, semiconductor manufacturers, including {complink 2657|Intel Corp.}, {complink 5703|Texas Instruments Inc.}, and {complink 3614|National Semiconductor Corp.} have all used the value of their franchise to influence the way distributors conducted their business.

That influenced has waned as distributors such as {complink 453|Arrow Electronics Inc.} and {complink 577|Avnet Inc.} approached their current size of near $20 billion. Steve Kaufman, retired CEO of Arrow, has noted this in presentations to the industry. In effect, the potential exists for the tail to wag the dog.

As a combined entity, TI-National would have revenue of $14.5 billion, making it the third largest semiconductor company in the world, according to a press release issued by IHS iSuppli. {complink 5648|Toshiba Corp.} would fall to fourth place, and Texas Instruments would still trail behind No. 2 semiconductor supplier {complink 4751|Samsung Electronics Co. Ltd.}, which had 2010 revenue of $27.8 billion. In 2010, National ranked 37th on the list of all semiconductor suppliers.

Big semiconductor companies have clout in the channel for several reasons. By sheer value of their size, a chip franchise such as TI is worth multi-millions of dollars in sales to a distributor. Chip companies lead the electronics industry in new products; leading-edge and proprietary chips carry high prices and high margins; and semiconductors are still the center of almost every electronics product design. A broadline chip maker can touch every segment of the electronics market and is therefore almost indispensable as part of a distributor's line card.

According to IHS iSuppli's press release:

The National acquisition will expand Texas Instruments' leadership in the global market for analog integrated circuits. TI in 2010 earned $6.4 billion in analog IC revenue, accounting for 13.7 of global market revenue, and making it the world’s largest supplier. With the addition of National's $1.4 billion in sales, Texas Instruments’ total analog revenue would rise to $7.8 billion, giving it a 16.8 percent share of the market. This would expand Texas Instruments' lead over No. 2 supplier STMicroelectronics to 8.8 percentage points, up from 5.7 points before.

Within the analog segment, the acquisition will particularly bolster Texas Instruments lead in the market for voltage regulators. Texas Instruments was the leading voltage regulator supplier in 2010, with $1.7 billion in revenue and a share of 18.1 percent. National was the third largest supplier, with $758 million in revenue and 15.2 percent in revenue. With the acquisition, Texas Instruments' voltage regulator revenue would amount to $2.4 billion in 2010, giving it a 26.5 percent share of the market.

The acquisition also will bolster Texas Instruments' dominant position in another segment of the analog market: analog/comparator integrated circuits. Texas Instrument in 2010 earned $932 million in analog/comparator revenue, giving it a 24.6 percent share of the market. With the addition of National's $364 million in sales, Texas Instruments' revenue would rise to $1.3 billion and its share would increase to 34.2 percent.

TI could, conceivably, use its added clout to try to influence its channel, but both TI and National have worked with — rather than against — their distributors toward a common goal: increasing sales. National, in particular, has worked on aligning its IT systems with its channel, improving forecast visibility, and rewarding its channel partners for their design efforts. Texas Instruments has long been a valued partner in distribution, and it has been active in various efforts to set best policies and practices within the distribution channel.

Both companies have been recognized by the National Electronic Distributors Association (now the Electronic Components Industry Association) for their partnership efforts with distribution. Although the combined entity could start pushing its weight around, it's more likely the TI-National combo will only benefit its distribution partners.

5 comments on “TI-National: Power in the Channel

  1. stochastic excursion
    April 5, 2011

    The vertical integration of Motorola, as both a maker of systems and a supplier of components, gave that company unique opportunities and unique constraints.  The constraints were that it had to market its components in such a way that the communications devices it manufactured weren't at a disadvantage.  The opportunities were that it could leverage the demand for its components to negotiate advantageous terms versus its competitors in the handheld market.

    A merged TI-National isn't quite as nuanced, and looks to be simply a huge consolidation of the two semiconductor giants.  Onlookers can wonder about the prospects of the new company's footprint.  Doubtless consolidation can increase the company's margin.  Will it be the only game in town for certain specialized components?  Interesting to see how the industry responds to this move.

  2. Ashu001
    April 9, 2011

    Barbara,

    The most important question that has not been raised here is how important scale is in today's rapid-fire Inventory JIT world. I have seen some really amazing things happen where buyers who have orders worth millions of Dollars get put on Hold while small orders worth Thousands of Dollars get pushed to the front of the queue.

    Scale does'nt matter half as much as it did previously.

    What is more important is the ability to be on Good terms with your supplier.

    If you are not,then the Supplier will not go the extra mile for you today(& push you to the back of the queue).

    Regards

    Ashish.

  3. elctrnx_lyf
    April 10, 2011

    With a massive range of compnents offered by Texas Instruments the distributors already have lot of work to do. Again, with this merger there is a huge potential for the distributors. Tier 1 distributors like avnet and arrow also will be the benefitors of this meger.

  4. saranyatil
    April 11, 2011

    Definitely this is a good deal and in a while they willl reach the no 1 status. The amount of effort TI puts in to improve their sales is tremendous loads of seminar being conducted, the sales team of TI is brilliant they cater to all the customer needs in a well defined fashion. I must say I have been choosing various IC 's for different needs for a long time one reason why i always want to use their chipsets is because I am so contended with their amazing support.

  5. Mr. Roques
    April 11, 2011

    How things are going, is there a chance for smaller companies? Are they just waiting to get acquired by the big ones?

    Their end-product might be as good as the big companies but buyers want more than that – they want the name they can “resell”, as well as support, etc.

    Think of it, is it any different than the rest of the IT products?

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