The likely effects of the Intel/Altera merger are far-reaching, but there are important themes that cross channel lines and speak to the continuity of industry trends. The viewpoint from the independent distribution channel, for example, is unique. Different channel partners are, naturally, anticipating different changes to their supplier-distributor relationships and likely will see increases in service demands for customizing programmable chips, as EPS’s Barbara Jorgensen recently reviewed.
While Intel is seeking to increase its market diversification, independent distributors see their core strength residing in just these types of diversified and customized solutions and services that will come out of the merger. By looking at the Intel/Altera merger from the independent perspective it’s clear that some patterns still hold: there is a longstanding demand for agility, customization, and still critical focus on solution-based services that can balance off-the-shelf chips with unique requirements.
Todd Traylor, vice president global trading for Smith & Associates, a leading independent distributor, spent some time this week talking about the merger. Traylor was clear in pointing out that Smith remains focused on the channel effects of the Intel/Altera merger from the customers’ perspective.
“Smith’s focus is on the customer and how these consolidations will impact them,” Traylor said. “We don’t have a position on whether the consolidations are good or bad, but we see them as disruptive and good cause for customers to make provisions for alternate sources.” During consolidation, like other supply chain shifts, diversifying procurement sources is increasingly important and opens new, competitive opportunities, Traylor points out.
Smith’s neutral position regarding the recent wave of supplier consolidations is a refreshingly staid position. As Traylor explained, “uncertainty can create supply change issues one way or the other. For independents, these consolidations highlight the importance of collaboration with our customers. Each merger or acquisition can play out differently, affecting production schedules, possible line limitations, changing distribution partners, and modified pricing structures. We have flexibility that is not limited by distribution agreements, stock levels, or other contractually mandated supply chain issues. Understanding a customer’s needs helps us support them as they navigate these changes.”
This reveals some interesting anchor points. The inherent volatility in the industry has not changed. The Intel/Altera merger highlights one of the continuous balances sought in the industry, the balance between providing customized and commoditized chip solutions.
While independent distributors like Smith are finding increased demand for their core strengths in customizable solutions, the merger underscores wider industry shifts to provide a more diverse set of offerings to an increasingly wider set of customers, as EPS’ Bolaji Ojo explained recently. Smith’s Traylor explains the growing customization trends in the following manner: “Changing and shifting supply chains underscore the need for customers to partner with someone nimble like Smith to help them navigate through the cycles [of changing chip architectures]. Instead of the “react” mode of business we are out in front of more issues to work together [with our customers] for solutions regarding sourcing.”
The expanding domain of the Internet of Things (IoT) chip offerings will only further tip the balance between customization and commoditization. Intel is certainly pursuing a market strategy dichotomy with the Altera acquisition. So, while the supply chain wonders how the merger will change the channel, perhaps it needs to consider what will actually stay the same.