In some circumstances – political leadership, for example – long-term stability is a good thing. In the interconnect, passive and electromechanical (IP&E) market, a little upward or even downward momentum would be a welcome change for many companies in the electronics supply chain.
“From the leadtime perspective, there has been very little change [from 2013],” said Dave Jakubowski, vice president for supplier marketing and business development at Avnet Inc.’s EM Americas unit. “There are some gaps – you have a supplier quoting 4- to 20-week [lead times] because their portfolio is so diverse –but in general, lead times have been extremely stable.
In fact, the market has been too stable. Ample supply makes it difficult for suppliers and distributors to raise prices or pass on any cost increases to their customers. In commodities, vendors end up competing on price to win business.
“Unfortunately for the Americas it’s been an extremely flat market -- other than the drop-off in ‘08 and the big bounce back in ‘09 -- and in general, the [Americas IP&E market ] is not expected to grow a whole lot, so that creates an extremely competitive market,” said Jakubowski.
IP&E makers generally face more flat-out price competition than their semiconductor brethren. Technology advancements in interconnect, passive and electromechanical components don’t come as quickly or as often as in semiconductors, where Moore’s Law has dominated product development. IP&E manufacturers tend to have broad technology portfolios, unlike chip makers that are becoming increasingly specialized. Since multiple manufacturers provide the same type of product, price increases are hard to sustain. “You may have four or five suppliers of the same product on your AVL so if prices change [your customers] just switch suppliers,” said Jakubowski. “That works on your [profit] margins after a while.”
Suppliers and distributors are adopting various strategies to grow in a flat market. Distributors have increasingly been moving toward selling solutions rather than promoting a single supplier or product. Suppliers are taking a similar track. “One of the benefits of being an Avnet is we are a broadline distributor,” said Jakubowski. “The passive [product suppliers] are getting very good at partnering with the semiconductor guys on building reference design-type products. So if a TI comes out and says ‘I have this chip’ they may partner with an AVX. Or TI will say ‘if you are designing a processor for me you should wrap these AVX parts around that processor.’ And for us — we build reference boards that are Avnet-branded boards -- whatever the master chip is we will populate the board with IP&E products, some of which are referenced by the original semiconductor supplier.”
Reference boards and reference designs can drastically cut a customer’s time to market, added Jakubowski. “The time-to-market advantage this provides [designers] is really critical,” said Jakubowski. “And if you think about the Avnet footprint, a lot of that design can move from component build over to our embedded solutions – there is a synergy and process piece of that. We can go from component build into embedded and then into our TS [Technology Solutions] organization.”
Distributors are further expanding their service offerings to provide cradle-to-grave lifecycle support for their customers. In addition to front-end engineering and design assistance, Avnet provides services in end-of-life management, recycling, refurbishment and reclamation. “As an organization it crosses the whole spectrum,” Jakubowski said.
Although smaller-faster-cheaper still drives a lot of product development in IP&E, suppliers are finding ways to differentiate themselves, such as leveraging technology that’s already been developed. “If suppliers can fix a business issue or a system problem for a [specific] customer, the customer is willing to pay for that,” Jakubowski said. “If they have a sizable win with a specialty product, when the next opportunity comes along they have a foundation to build on. This is how suppliers become more efficient. So instead of building 10,000 units for a single customer there may be another 5,000 [unit] opportunity where they can use the same base technology. All they have to do is some tweaking to the product and it can be customized.”
Honeywell Sensing and Control is adopting that strategy, according to Valerie Rothermel-Nelson, Honeywell senior global product marketing manager. “The ability to design in a customized version of an already approved sensor design often means that device developers do not have to re-certify their upgraded products, saving both time and money,” Rothermel-Nelson told EPS. “We aren’t just going to be a standalone sensor provider,” she added.
There are still plenty of opportunities in IP&E technology development, Jakubowski added. “If you look at the interfaces the interconnect companies are using -- some have a portfolio that crosses over all the industry standards and some span only one or two -- you have Ethernet, Infiniband, PCMIA, USB, HDMI and all of these require unique interfaces. That presents a little bit of a challenge for a supplier but also provides an opportunity because all these unique interfaces are not going away. They all come from different applications. We spend a fair amount of time determining ‘at this speed this supplier has the best products.’ There is a speed [level] that everybody gets to and then we reach a higher speed. The guy who gets there first can enjoy the rewards until somebody catches them.”
So as suppliers and distributors fine-tune their growth strategy, the Americas market can continue to look forward to an extended period of stability. “There’s no big event on the forefront that would make me think there will be any drastic changes to [IP&E] leadtimes and pricing,” Jakubowski concluded.