North American (NA) revenue for the top 50 distributors in 2014 has turned upward after two years of flat growth. NA revenue increased $1.4 billion or five percent, reaching $31.7 billion in 2014, up from $30.3 billion in 2013, according to the Electronics Purchasing Strategies (EPS) survey of the electronic components distribution industry. In 2012, NA revenue dropped by $600.0 million or 1.9 percent due to slower demand, falling profit margins, and economic uncertainty.
Semiconductor sales continue to hold the lion's share of the NA distribution industry, but lost share to computer products. Semiconductor sales for the top distributors in 2014 dropped slightly to $11.2 billion, down five percent from $12.3 billion in 2013. Avnet still dominates the sector with 31 percent of its total revenues from semiconductors.
Computer product sales rose to $7.0 billion in 2014, up from $6.0 billion in 2013. Sales of passives/ electromechanical (EM) devices decreased by two percent, dropping to $4.2 billion in 2014 from $4.7 billion. Interconnect sales remained relatively flat, reaching $2.3 billion in 2014, up from $2.2 billion in 2013. Component sales are based on responses from 42 distributors.
A few of the largest distributors are still struggling with growth in North America after their growth spikes in 2011. Avnet Inc., the top ranked distributor in NA, post 1.2 percent growth in 2014, compared to flat growth in 2013, a 4.4 percent drop in 2012, and a 15.4 percent increase in 2011.
Arrow Electronics, ranked at No. 2, increased its NA revenues by 2.8 percent in 2014, down from 3.4 percent in 2013, an increase of less than 1 percent in 2012, and a 17.6 percent increase in 2011. Arrow acquired five companies in 2014.
Most of the top ten distributors maintained their rankings in 2014. These include Avnet (1), Arrow (2), Future (No. 3), Digi-Key (No. 4), TTI (No. 5), DAC (No. 6), Newark element14 (No. 7), and Sager Electronics (No. 10). Two of the top ten, Mouser Electronics (No. 8), and Allied Electronics (No. 9), switched positions. All of the top ten distributors posted sales increases, and four distributors posted double-digit percentage gains – Future Electronics, Digi-Key, TTI and Mouser Electronics.
All of the catalog or high-service distributors posted positive sales in 2014 led by Mouser Electronics with a 21.6 percent gain. The distributor continues to maintain its steady growth rate, growing six percent in 2013 and nearly three percent in 2012. Future Electronics followed with a 15 percent sales gain. Digi-Key also continues on a steady growth path, increasing sales by 11.5 percent in 2014 and 7.5 percent in 2013. Allied Electronics’ sales rose by 9.2 percent in 2014, after posting 6.2 percent growth in 2013.
Newark element14’s sales grew by less than one percent in 2014, after posting a three percent drop in 2013.
Several of the small to midsized distributors experienced the biggest gains. For the second consecutive year, the growth leader is semiconductor specialist Phoenics Electronics (No. 22), which grew its sales by 81.3 percent in 2014 and by 75 percent in 2013. The company attributes its success to targeting specific markets and limited manufacturer lines.
Other growth leaders include Area51-ESG (No. 41), which grew its sales by 21.4 percent and derives 53 percent of its business from semiconductors and 29 percent from interconnects. Fedco Electronics (No. 48), a battery specialist, increased its sales by 16.4 percent and ARCO (No. 42) grew its sales by 15.1 percent. Gopher Electronics (No. 38), an interconnect, passive & electromechanical (IP&E) specialist, saw an increase of 13 percent. CDM Electronics (No. 28), which derives 70 percent of its business from interconnects, grew its sales by 12.4 percent, and Sherburn Electronics’ sales rose by 11.9 percent.
Overall, the top NA electronics distributors experienced solid growth in 2014. Thirty-nine distributors posted sales gains in 2014, compared to 27 distributors in 2013 and 24 in 2012. Of the 39 top earners, 13 posted double-digit gains. In comparison, only eight posted negative sales, down from 16 distributors in 2013 and 21 in 2012.
Many of the top distributors continued to make investments throughout 2014. Arrow, for example, continued on its acquisition spree. The top distributor made five acquisitions globally – U.S. Micro, CNT Brasil, Seneca, the Power Supply business of UR Group, and Observatory Crest. Arrow acquired four companies in 2013 - Computerlinks, Greentech Holding AS, Artlink Technology Co., and CPN/Denelex Group.
Other key acquisitions include Sager’s acquisition of PowerGate LLC, a North American power distributor, and TTI’s purchases of Astrex in North America and Huatong in Asia. East Coast Microwave announced a merger acquisition of Accurate Interconnect Inc., and Master Electronics acquired Canada-based Electro Sonic.
A few distributors also invested in new sales offices and facilities in North America. Component Distributors added an RF Lab in Dallas, Tex., Embedded Masters (wireless sensing design services) in Denver, Colo., and an office in Montreal. The distributor also announced a partnership in Brazil to support the market. Marsh opened a Charlotte, N.C. branch. One of the largest investments is Future Electronics’ plan to spend an additional $10 million to expand services at its Memphis-area distribution center.
Other distributors expanded globally including America II, which opened new offices in the UK and China. IBS expanded offices in Hong Kong, China, Singapore, Philippines, Malaysia, Vietnam and India. Phoenics now supports China with logistics through Hong Kong and opened a warehouse in Singapore. PEI-Genesis announced a new 84,000 sq.-ft. factory in Zhuhai, China.
Other distributors increased head count. Fedco added three independent sales reps for a total of 12. It’s also expanding into the medical market with the addition of ISO 13485:2003 compliance. Flame Enterprises hired a new marketing manager and a new outside sales person for the SE region. SMD added two new business development managers focused on specific suppliers and key markets, and plans to add two more in 2015.
Three of the biggest challenges that distributors faced in 2014 were margin erosion, profitability, and counterfeiting, according to EPS survey respondents. Other big issues cited by distributors include factory deliveries, tight supply, the global economy and macroeconomic conditions. Others continue to be concerned about government regulations, compliance, and globalization.
In 2014, the top distributors derived 29 percent of their business from the industrial sector, 22 percent from the aerospace/military segment, 10 percent from the automotive sector, and seven percent from the telecommunications market, according to 34 survey respondents.
Distributors expect the industrial market to continue fueling growth this year. Nineteen distributors said the industrial sector will be one of the biggest growth drivers in 2014, followed by 16 respondents who believe medical applications will be the key growth driver. Thirteen respondents expect energy to deliver sales growth and 13 said transportation will drive growth.