Electronic component distributors face the same challenges year after year – rising costs, eroding margins, currency fluctuations, and an uncertain economy, which resulted in two consecutive years of flat growth in 2012 and 2013. However, in 2014 market conditions slowly started to recover. There was a gradual improvement in the global economy and some increased capital spending.
In addition, the supply side was well balanced. Lead times were generally short and there wasn’t a lot of surplus. There were a few availability hiccups due to consolidation, but overall components were readily available. The result: a five percent increase in revenues for the Top 50 distributors in North America.
Here are a few key findings from Electronics Purchasing Strategies’ Top 50 Distribution Report that will be published in May. In 2014, all of the top 10 distributors reported growth, compared to only six in 2013. In addition, of the top 10, six reported growth in double-digit percentages, compared to only one in 2013. Overall, more than three-fourths of the top 50 distributors posted increased sales. Many of these distributors continued to add to their line cards, invested in new sales offices and warehouses, and hired more people.
The other good news is that NA distributors grew their global revenues by seven percent, reaching $66. 2 billion in 2014, boosted by an overall stronger global economy last year. However, many NA distributors point to currency exchange rates, particularly vs. the Euro, as a big challenge, impacting their profitability.
Margin erosion and counterfeiting were cited as two of the biggest issues last year along with industry consolidation, which resulted in some tight supply situations. Other distributors continue to raise cost of compliance and government regulations as growing challenges for the industry.
We did see one consistent trend - distribution’s focus on bringing new products to market. More than half of the top 50 distributors expect new products to be the number one sales driver in 2015. A distributor’s role is to keep inventory on the shelf, create demand for their supplier partners, and ship on-time to their customers. This has accelerated over the past few years as component manufacturers push harder to get their next-generation products to market even faster.
Distributors also see growth opportunities coming from several sectors including lighting, industrial, medical and transportation. They also have high hopes for emerging markets, particularly the Internet of Things (IoT) to help drive growth in 2015. Thirteen out of the top 50 expect IoT applications to drive growth and ten said energy-efficient lighting will be a big growth driver.
One distributor noted that distribution is well positioned to help accelerate the adoption of IoT. Distributors can offer customers complete solution packages, similar to what has been done in lighting solutions.
The growth trend for distribution has carried over into 2015. The ECIA recently released its Electronic Component Sales Trends Survey that shows the electronics industry expects market improvement in the second quarter (Q2) of 2015 compared to the first quarter. The survey respondents – distributors, manufacturers, and manufacturer representatives – forecast growth across all market segments in Q2 with the strongest growth from the automotive, industrial, medical, and consumer segments.
Thirty-eight percent of distributor respondents believe the market will grow one to three percent in Q2 and 23 percent said the market will grow three to five percent. Only eight percent expect the market will decline in Q2. Manufacturers are more positive – 45 percent expect the market to grow one to three percent, and 45 percent said the market will grow three to five percent. No manufacturers believe the market will decline in Q2.
ECIA’s recent DTAM report shows that component sales through distribution in the Americas was up three percent in February. The book-to-bill ratio for February was 1.08 compared to January at .88. The product breakdown is segmented as follows:
- Semiconductor sales were up 6%
- Displays were up 6%
- Interconnect was up 2%
- Passives were flat
- Electromechanical sales were down 4%
Watch for our complete Top 50 Report in May. The report ranks the leading distributors by revenue in North America, along with their sales growth rates, sales breakdown by component category, and value-added sales. The report also reveals which distributors hold the largest NA market share by component category -- semiconductors, passives/electromechanical devices, interconnects, and computer products.
You’ll also find which distributors had the highest productivity levels, based on sales per employee. It also includes a ranking of the top 10 distributors by growth rate, and provides data on global sales by geographic region and sales by customer segment in aggregate. Distributors also reveal which industry sectors they think will generate the greatest growth in 2015.