Avnet Inc. prides itself on being a broadline distributor that’s able to supply all the components needed by its thousands of customers globally. That hasn’t stopped the company from trying in recent years to stamp its imprint on the interconnects, passives and electromechanical (IP&E) market, a segment where it has an understated position despite being one of the top distributors.
That image is changing, fast. Avnet has increased its sales of passives and electromechanical parts by more than $700 million in only the last two fiscal years and aims to get even bigger in the sector by marketing what it terms total-solutions and matching these with tactical supply chain management offerings. It’s highly likely, too, that Avnet will accelerate consolidation in the sector, which remains fragmented in North America compared with the semiconductor segment.
Efforts to highlight Avnet’s growing presence in IP&E have intensified and, in addition to outreaches supporting design engineers, the company has been courting purchasing and procurement experts at OEMs and electronics manufacturing services (EMS) providers. The goal isn’t merely to increase Avnet’s IP&E sales – that is already happening – but also to demonstrate some of the value-added services it offers suppliers and customers in the sector, according to company executives. (See: IP&E War Heats Up Electronics Supply Chain, Part 1 and Commoditization & Consolidation: Scourge of IP&E Market.)
Avnet expects to continue adding to its share in the IP&E market over the next years, improving on its more recent performance when sales growth stalled in fiscal 2013 as competitors fought back. Avnet’s sales of “passives, electromechanical and other” components rose to $1.7 billion in the fiscal year ended June 29, from $1.6 billion in fiscal 2012 and $1 billion in fiscal 2011.
To resume strong growth in the market Avnet will likely explore acquisition opportunities not just in North America but also in Europe and Asia where the sector is even more fragmented. Strategic acquisitions – such as the recently announced purchase of MSC Investoren GmbH, a $450 million revenue distributor and system integrator -- add to the company’s total-solutions capabilities, helping to boost IP&E sales. Acquisitions would complement sales and design support infrastructure the company is adding, according to Chuck Delph, senior vice president of sales, North America, at Avnet’s electronics marketing division.
“We’re putting specialized resources around IP&E both in sales and product design,” Delph said in an interview. “This will help us provide the total service customers need from a technology as well as supply chain perspective.”
In the interview, Delph also addressed conditions in the entire market and the likelihood of consolidation in years ahead. With small and specialized distributors still playing a major role in the sector, consolidation could accelerate not just in the Americas but elsewhere, according to Delph. “The market share that small specialty regional distributors still have is significant so there’s some opportunities for consolidation,” he said. “Avnet’s focus will be on organic growth, delivering technology solution through our design chain capability and offering supply chain solutions that are best in class.”
Excerpts from the interview follow:
The IP&E market is significant to Avnet because of the genesis of our company. We started out in connectors so IP&E is part of our legacy and it is critical to our long-term future. Our customers are asking us to take on a lot more responsibility and give them total solutions. What they’re looking for is total technology solution and not just semiconductors. It obviously includes interconnect, passives and electromechanical.
We are very excited about IP&E at Avnet because we have a very strong market position in the Americas in semiconductors but our share in IP&E is less than that. So we see growth opportunities. The semiconductor distribution channel in the Americas today is heavily consolidated between Avnet and Arrow and obviously a third player would be Future Electronics. From an IP&E perspective Avnet, Arrow and Future have strong positions in IP&E products but then there are also a lot of specialized distributors and channel partners as well. The key to winning is to offer what our customers are looking for, which is more technology solutions across multiple platforms as opposed to “I get my microcontrollers from this company, I get programmable logic from this other company and I go elsewhere for passives and interconnect”.
The perception that IP&E is not as important to Avnet is not accurate. Do I think that our suppliers or customers still see specialized distributors as being more focused on IP&E? Yes, but I think that we’re changing the perception that IP&E is an afterthought within Avnet. I do believe we need to maintain that consistency for a longer period of time because that’s how we’re going to continue to show customers and suppliers that this is also a growth and profitability center for Avnet.
On the Genesis of Avnet
The genesis of Avnet was connectors. Yes, we evolved into a semiconductor distributor and it represents a big part of our business, but our vision remains the same and that is we will collectively accelerate the success of our customers and suppliers by offering a complete suite of technology, design chain and supply chain solutions. I’m excited to hear that other people are witnessing this and that we’re creating value for our customers and suppliers.
IP&E is a passion for me personally. I started out my career in interconnects, passives and electromechanical and I lead a sales organization that is very broad in technology. Avnet’s commitment in IP&E is being realized in the industry because we put a lot of time and efforts and investment solutions and inventory. We are very serious about this and we want to be a very large business in this space.