U.S. Companies Dominate Worldwide IC Marketshare
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The electronics distribution industry is experiencing significant changes in the ranks of its senior executives as the sector fights to spur growth and reverse years of lackluster performance. That’s what happens when companies don’t perform as well as expected but recent changes at the apex of the leading distribution companies indicate the sector may be undergoing a deeper evolution.
Phil Gallagher, corporate officer and Senior Vice President, TTI Inc.
Last week, Phil Gallagher, a 32-year veteran of global distributor Avnet Inc., joined TTI Inc. as a corporate officer and senior vice president in CEO Paul Andrews’ executive staff. Gallagher, who served most recently as president of Avnet Technology Solutions, had been Avnet’s vice president of global business development and president of Avnet Electronics Marketing Americas. The industry overall has seen several wrenching changes in management over the past 12 months. Just one year ago Lindsley Ruth, considered a possible successor to Robert Miller at Future Electronics Inc., joined Electrocomponents plc as its CEO. Earlier this month Premier Farnell appointed Jos Opdeweegh as chief executive, replacing interim CEO Mark Whiteling. In July of last year Tom Hudak, president of Premier Farnell’s U.S. business, Chicago-based Newark element14, resigned from his position after less than two years. Some of the industry’s turnover is a natural changing of the guard. In June of 2015 Mark Larson retired as president of Digi-Key Electronics after 40 years; he was succeeded by Dave Doherty. Arrow Electronics Inc. COO Andrew Bryant will retire in April, two years after his appointment as chief operating officer.
Andrew Bryant, COO, Arrow Electronics
Both Arrow and Avnet have significantly shuffled the leadership of their business units. In January, Avnet named Ed Smith, longtime president of Avnet Electronics Marketing Americas, to the newly created position of as senior vice president of Avnet Embedded Solutions globally. In February Chuck Delph was named as Smith’s replacement. The distributor also named Sean Valcamp as chief information security officer and Eric Williams was hired as vice president, Internet of Things. At Arrow, Andy King was named as president of its global components business in November, succeeding Eric Schuck. Schuck was named head of the unit in November 2013. Martin Bielesch was named to succeed King at of Arrow’s Europe, Middle East and Africa (EMEA) components group. Market pressures accelerate The rounds of management changes at the apex of the industry’s leading distributors is understandable. Distribution is a challenge-prone business that is constantly in flux and forever trying to adapt to fluid market conditions. Numerous distributors have disappeared in the last two decades, swept under by a wave of consolidation engineered by the leading players responding themselves to customer demand for one-stop shopping and service providers. The market could only support so many distributors at the top of the industry. However, the market consolidation did not completely resolve many of the challenges facing distributors. The list is endless: Pricing decline, commoditization, outsourcing, supplier consolidation, rapid product changes, the emergence of new technology markets, digitization, Internet-of-Things and the escalation of competing interests have all combined to form a fluid landscape that is simultaneously providing opportunities as well as jeopardies. Only the companies that are swiftest to respond – but with the right tools and product offerings – could survive. Many of the old-time distribution executives have acknowledged the need for new ideas and methodologies for dealing with the challenges. Moreover, even executives committed to change have found that old habits die hard; getting middle and senior executives with calcified management skills and techniques to adopt new systems can be difficult. Sometimes breaking the impasse is necessary to bring in outside executives and turnaround specialists with no loyalty to special interests and groups, hence the recent spate of cross-company management moves such as the appointment of Ruth as group CEO at Electrocomponents.
Lindsley Ruth, Group CEO, Electrocomponents PLC
When Ruth joined Electrocomponents from Future Electronics he focused initially on strengthening the management group and brought in many executives from both within and outside the industry. More than 80 years after it was founded Electrocomponents needed not just a make-over in its marketing strategy and focus but also at the cultural level. The required that all employees see the enterprise as a global player based in Oxford, U.K., rather than merely a U.K company. The company’s future and success depended on its willingness to embrace a new world view layered upon its many strengths, Ruth said during an interview last year. “The transformation we are going through is a cultural transformation and in order to change the culture you have to change the behavior of the leaders,” Ruth said. “When I joined Electrocomponents our chairman said: ‘Are we a U.K. company with international operations or are we an international company that happens to be headquartered in the U.K.?’ We are U.K.-centric in terms of our behavior and that’s not all bad but what we were lacking was an international leadership team. When I joined, [only] one member of my team was international but 71 percent of our business is now international and 29 percent is in the U.K. As of today, 70 percent of my leadership team is international.” Electrocomponents is not alone. All the leading distributors are diversifying their leadership and middle management to acknowledge the industry’s global composition. These companies’ future survival and success require major changes because of even deeper changes taking place in the market. Distribution has changed dramatically from what it was even 20 years ago. Like its name suggests, distribution began and primarily functions as a link between manufacturers of components and assemblers of finished electronic components (OEMs and electronics manufacturing services, EMS, providers). Distributors were simply middlemen between two connected parties. Redefining ‘distribution’ That view of distribution is completely lopsided today. Distributors do much more than serve as a highway for goods passing between two paints. Today, they provide many more services than their name suggests. Distributors serve as the financial engine of the market, extending credit to buyers and sellers. They provide numerous supply chain management and logistics services, coupled with import and export clearance verification and other documentation activities. Furthermore, distributors help suppliers and OEMs/EMS providers comply with restrictions and regulations related to Conflict Minerals, RoHS and other environmental rules. The greatest change in distribution has occurred on the sales generation front and mainly at the two largest companies. It’s a misnomer today to describe Arrow Electronics and Avnet as components distributors. They are so much more than that. Avnet, for example, describes itself to the U.S. Securities and Exchange Commission (SEC) as “a global value-added distributor of electronic components, enterprise computer and storage products, IT solutions and services and embedded subsystems.” Arrow’s self-classification is similar. The company says it is “is a global provider of products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions.” The distinction both companies make between their component distribution operations and the enterprise computing segment is important. Over the last decade, both Arrow and Avnet have significantly diversified their revenue stream and expanded into non-traditional distribution businesses. The financial numbers show how different these companies are today compared with 10 years ago. Both Arrow and Avnet have more than doubled their annual revenues in the last 10 years but they have also increased their operations in the non-components sectors. In its most recent fiscal year ended June 27, 2015, Avnet reported total revenue of $27.9 billion, more than double the $11.1 billion posted in fiscal 2005. Of the total, sales in the technology business for fiscal 2015 was $10.6 billion, up from $4.8 billion in fiscal 2005. The components business accounted for 62.4 percent of the company’s sales in the recent fiscal year, up from 56.6 percent in fiscal 2005. Arrow has seen a more dramatic change in its business segments. In 2015, the company reported revenue of $23.7 billion, with the technology division contributing 38 percent of the total, up 9 percentage points from 2005 when it posted total sales of $11.2 billion. While Avnet has seen a surge in technology solutions sales, the company has recently clamped down on non-viable components contracts with some of its largest customers in Asia and has also intensified efforts to increase sales at its TS business. Looking ahead Perhaps the largest challenge going forward for distribution will be capturing more sales from services than from hardware. Although IoT -- as with most high-tech solutions – requires the right mix of components, distributors are providing supply chain services for IoT start-ups with little more than a bright idea. These same businesses have no infrastructure to provide the level of security IoT devices will rely on for widespread adoption; electronics distributors selling components, IT solutions and software are stepping in to fill that void. In the computer arena, distribution’s focus is moving toward not just hardware and software integration services, but also end-of-life management and recycling. As the move toward environmental friendliness has accelerated both consumers and businesses are looking for partners that can take back old equipment; refurbish and resell it when possible; or responsibly recycle components, boards and enclosures. Arrow and Avnet also provide data-protection services for reused equipment. Although all of these functions are an extension of distribution’s core business – the procurement, management and resale of inventory – they also require investment in operations, personnel and equipment. Striking the right balance between the physical assets of the electronics industry and the digital demands of the broader supply chain (e-commerce and supply chain management) will be an ongoing challenge for distribution’s executive ranks.
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