The major distributors are struggling with mediocre growth carried over from 2015 and the challenge remains a major concern for the distribution market based on the results of an annual survey of enterprises in the sector by EPSNews. The survey indicates the electronic components distribution industry faced several challenges in 2015, led by slow growth and market contraction in the second half, delivering nearly flat growth last year.
North American (NA) revenue for the top 50 distributors increased only 1.3 percent, reaching $32.1 billion up from $31.7 billion in 2014, according to the EPSNews survey of the electronic components distribution industry. This is down from five percent growth posted in 2014.
Semiconductor sales continue to account for the bulk of the NA distribution industry, increasing its market share to 47 percent, up from 42 percent in 2014. Semiconductor sales for the top distributors in 2015 increased to $12.8 billion, up 14 percent from $11.2 billion in 2014. Avnet still accounts for the biggest share of semiconductors with 42 percent of its NA revenues from semiconductors.
Computer product sales followed with $6.7 billion or 24 percent of NA revenue. This is down slightly from $7.0 billion or 26 percent of share. Sales of passives/electromechanical (EM) devices increased slightly to $4.5 billion or 17 percent of total revenues, up slightly from $4.2 billion or 16 percent share in 2014. Interconnect sales stayed flat at $2.3 billion or eight percent of share. Sales from other components, including batteries, fasteners, and other hardware, dropped to $1.1 billion or four percent of NA revenue. Component sales are based on responses from 43 of the top 50 distributors.
A few of the largest distributors faced big challenges in North America, with many reporting negative to less than 10 percent growth. NA revenue for Avnet Inc., the top ranked distributor in NA, fell by one percent in 2015, after posting 1.2 percent growth in 2014, and flat growth in 2013.
Arrow Electronics, ranked at No. 2, grew its NA revenue by nearly four percent in 2015. The global distributor posted 2.8 percent growth in 2014 and negative 3.4 percent growth in 2013 for NA sales. Arrow closed six acquisitions in 2015.
All of the top 10 distributors maintained their rankings in 2015. These include Avnet (No. 1), Arrow (No. 2), Future (No. 3), Digi-Key (No. 4), TTI (No. 5), DAC (No. 6), Newark element14 (No. 7), Mouser Electronics (8), Allied Electronics (9), and Sager Electronics (No. 10). Five of the top 10 distributors posted sales increases, while the remaining distributors posted negative sales – Avnet, Digi-Key, TTI, Newark element14, and Allied.
Only one of the four catalog distributors – Allied Electronics, Digi-Key, Mouser and Newark element14 - reported positive growth in NA revenues last year. Mouser Electronics posted a sales gain of 2.4 percent in 2015. The electronic components distributor has maintained steady positive growth over the past several years. In 2014, Mouser led catalog distributor sales with a 21.6 percent increase after posting six percent growth in 2013 and nearly three percent growth in 2012.
Digi-Key’s sales growth dropped by 2.5 percent in 2015, after increasing sales by 11.5 percent in 2014, and 7.5 percent in 2013. Allied’s sales dropped by one percent in 2015 after growing 9.2 percent in 2014 and 6.2 percent in 2013. Newark element14 continues to struggle. The distributor’s sales fell by 5.1 percent in 2015, after growing less than one percent in 2014, and posting a three percent drop in 2013.
Several of the small to midsized distributors experienced the biggest gains. Sherburn Electronics (No. 43T) led the top 50 in sales growth, posting a revenue increase of 14.8 percent. In 2014, Sherburn grew its sales by 11.9 percent. The company attributes its growth on its focus as a specialized distributor in the military/aerospace sector, starting about three years ago.
Only two other distributors achieved double-digit increases in revenue. Electro Enterprises (No. 17) grew its sales by 12.3 percent, and derives 70 percent of its sales from interconnect products, and Air Electro (No. 33), which grew its sales by 10.1 percent. Air Electro derives all of its sales from interconnect products and focuses on military/aerospace applications.
Other growth leaders include new comer to the top 50 ranking RFMW (No. 21), which grew its sales by 9.1 percent, and derives 60 percent of its revenues from active components and the remainder from passives and interconnects. Interconnect, passive and electromechanical (IP&E) and power specialist, Sager Electronics grew its sales by seven percent in 2015. Sager acquired Norvell Electronics a North American power products distributor with design and value-added capabilities last year.
Overall, the top NA electronics distributors experienced modest growth in 2015. Twenty-nine distributors grew their revenues in 2015, down from 39 distributors in 2014 but up from 27 distributors in 2013. Of the 29 that posted positive growth, only three posted double-digit percentage gains, down from 13 distributors in 2014. Eighteen distributors posted negative sales growth, up from only eight in 2014, and 16 distributors in 2013.
The good news is that many of the top distributors continued to make investments and acquisitions in 2015. In addition to Sager’s acquisition of Norvell, Arrow acquired six companies globally in 2015, including ATM Electronic (Taiwan), immixGroup (U.S.), and RDC (UK). Richardson Electronics acquired IMES (International Medical Equipment and Service Inc.) as well as expanded its RF & microwave, power electronics and industrial products globally.
Several distributors also invested in new sales offices and facilities in North America, and head count expansions. Bisco opened new offices in South Carolina, So. Florida, and British Columbia. Diverse Electronics expanded its Toronto office. Fedco Electronics hired a sales rep for a total of 13. Marsh added a sales staff in Florida. Eighteen of the top 50 distributors increased head count in 2015, while 12 reduced their staff.
Other distributors expanded globally including IBS, which expanded offices in Hong Kong, China, Singapore, Philippines, Malaysia, and India. Phoenics incorporated in Taiwan to support APAC and hired sales in APAC to support North American design ins.
PEI-Genesis started greenfield operations in Zhuhai, China with a new 84,000 sq.-ft. connector assembly factory and an all-Chinese workforce. The distributor’s strategy is “to buy there, build there, and sell there.”
There is no surprise that margin erosion or pressure continues to be the top challenge faced by the distribution industry, according to EPS survey respondents. Other top challenges reported include regulation and compliance requirements and macroeconomic conditions. Others are concerned about manufacturer acquisitions and consolidation, factory deliveries, slow growth in China, and increasing costs.
In 2015, the top distributors derived 29 percent of their business from the industrial sector for the second consecutive year, according to 35 survey respondents. This is followed by the aerospace/military segment (23%), automotive (11%), telecommunications (8%), medical (8%), computers (6%), energy (5%), and mobile communications (2%). The remainder came from other markets.
The industrial market is expected to fuel growth this year. Twenty-six distributors said the industrial sector will be one of the biggest growth drivers in 2016. This is up from 19 distributors last year. Medical also is forecast to drive growth, according to 23 distributors, followed by 19 respondents who believe transportation will be the key driver. Sixteen respondents expect military/aerospace to deliver sales growth and 15 said energy will drive growth.
Product Innovation Surges as Growth Driver
A growing number of Top 50 distributors expect new products to be the number one sales driver in 2016, pushing many leading distributors to bulk up their marketing and content around new product introductions (NPIs). Thirty-seven survey respondents, up from 27 respondents last year, expect new product introductions to be the biggest growth driver in 2016. Distributors also predict that value-added services (29 respondents) and new markets (28 respondents) will boost sales this year. Acquisitions (9 respondents) also will fuel growth for several distributors.
Emerging markets, led by the Internet of Things (IoT) and smart grid/meters, also are forecast to drive growth. The IoT is predicted to be the biggest growth driver among emerging applications, according to 17 respondents, up from 13 last year. Support for the smart grid/smart meter sector doubled over the past year, with 11 respondents expecting the smart sector to drive growth in 2016, up from only five respondents last year.
Energy-efficient lighting also remains a growing market, according to nine respondents. This is down from 14 respondents last year. Renewable energy (solar and wind) also is expected to help increase sales, according to seven respondents.
Value-added services are expected to play a bigger role in the distribution industry in 2016. Twenty-nine distributors believe value-added services will help them grow their sales in 2016, up from 19 distributors last year.
The survey reveals that 14 distributors derived 50 percent or more of their 2015 sales from traditional value-added services. Nine of the top 10 leaders by value-added services report that they earned 25 percent or higher of their business from these services.
Fifteen distributors say 20 percent to 49 percent of their sales are derived from value-added services. The remaining 11 distributors that responded to the survey question said value-added services accounted for 19 percent or less of their sales.
Value-added sales totaled $1.4 billion, or four percent of NA revenues in 2015. This is down slightly from $1.6 billion in 2014. However, only 40 of the top distributors responded to the question, and six out of the top 10 distributors did not provide the percentage of their sales from value-added services.
The survey also finds that only three top distributors that posted double-digit gains last year derived the bulk of their revenues from IP&E sales and related value-added services. They also focus on mil/aerospace customers. Value-added services include connector assemblies, fiber-optic cable assemblies, design services and kitting. These distributors include Air Electro, Electro Enterprises and Sherburn Electronics.
The top distributors continue to offer traditional services such as cable and harness assemblies, switch assemblies, connector assemblies, military connector builds, device programming, and terminal block assemblies. Related services include barcode labeling, kitting, tape & reeling, lead forming, marking, special packaging, and testing. There are also specialists that focus on power such as battery pack assembly and configurable power supplies, as well as electromechanical system design and enclosure modifications.
Supply chain management is another key service offered by distributors to help their customers better manage inventory. These services include vendor managed inventory (VMI), automated inventory management, bonded inventory, scheduled orders, JIT delivery, and consignment. They also provide materials planning, forecast management, sourcing services, supply chain consulting, and other services and resources to ensure continuity of supply. Other services include counterfeit mitigation, product life cycle management, reverse logistics, and electronics asset disposition.
Design services continue to be a source of revenue for many of the Top 50 distributors. Twenty-five distributors said they provide design services, which are supported by one to 150 field application engineers (FAEs) on staff in North America.
Quality compliance is another area that doesn’t change significantly for distribution. Of the Top 50 distributors, 41 of them have received ISO certification. Of the remaining 9 distributors who are not certified, two are in the process, two have plans to be certified, and four have no plans for certification.
Avnet Retains Top Ranking
Avnet is the No. 1 North American distributor with sales of $10.97 billion, posting negative one percent growth in 2015. Avnet’s global sales also fell in 2015, from $28.1 billion in 2014 to $27.4 billion in 2015.
Arrow grew its NA sales by 3.9 percent, reaching $10.76 billion in 2015, up from $10.36 in 2014. The distributor grew its global sales by 2.2 percent, reaching $23.3 billion in 2015, up from $22.8 billion in 2014. Arrow attributes its growth in a challenging year to its solutions selling strategy and focus on vertical markets to address the changing needs of its customers. The global distributor saw growth in several sectors last year including lighting, transportation, IoT and military/aerospace.
Web Sales Fall Slightly in 2015
Sales transactions via the Web still account for a small percentage - about five percent - of the distribution industry's sales in North America. Of the top 50, 33 distributors reported that they offer online buying. However, 10 distributors did not provide the percentage of their sales via the Internet. These include several of the largest distributors - Arrow, Avnet, Future, DAC, and Newark element14.
Nine distributors reported double-digit sales via online purchases. These distributors include Allied Electronics, CDM Electronics, Cumberland Electronics, Digi-Key, Electronics Supply, Fedco Electronics, Mouser Electronics, Sherburn Electronics, and Symmetry Electronics.
Catalog distributors continue to drive a bigger portion of their revenues through online sales. Digi-Key's online sales remained steady at 87 percent of sales in 2015. The distributor has slowly continued to increase its revenue from online sales from 86 percent in 2013; 85 percent in 2012 and 83 percent in 2011.
Mouser increased its online sales by one percent in 2015. The distributor derived 51 percent of its sales via the Web last year, up from 50 percent in 2014, 46 percent in 2013, 45 percent in 2012 and 40 percent in 2011. Allied's online sales remained stable at 41 percent of total sales, up from 40 percent in 2013, 41 percent in 2012 and 40 percent in 2011. Newark element14 did not report its online sales.
In addition to online ordering, many leading distributors also offer resources at their websites that help buyers and designers select the right components for their applications. Many have become content providers not only for new electronic components information but also solutions around applications and end market segments. For example, Mouser has launched or enhanced a series of applications and technology-specific websites that provide a host of information around technologies and new products.
Many of these websites also offer a host of buying tools including order status & tracking, saved parts list, real-time stock status, online catalogs, lead time information, BOM manager, and life cycle notification. They also allow buyers and designers to request quotes and samples. Other resources include product training videos, live chat, reference designs and other design tools. Some also allow purchasers to buy in different languages and currencies.
Slightly Higher Sales Needed to Make the Top 50
To earn a spot on the Top 50 North American distribution ranking in 2015, distributors needed $6.3 million in revenue, up slightly from $6.2 million in 2014. It's still down significantly from $10.0 million needed to make the top 50 ranking in 2009.
Several distributors, including Beyond Components/Nedco, Marine Air Supply and Perfect Parts Corp., which were expected to make the top 50 ranking, did not respond to this year's survey. However, we did not lose any distributors due to acquisition for the first time in several years.
The top 50 added three distributors this year. RFMW joined the top 50 for the first time, while both NRC Electronics and Waldom rejoined the ranking.
Global Sales Flat in 2015
The top 50 North American distributors grew their global sales by less than one percent in 2015, after increasing global revenues by seven percent in 2014. Global revenues reached $66.3 billion in 2015, up from $66.2 billion in 2014 and $61.9 billion in 2013. The top 50 distributors derived the majority of their global sales from North America with a 50 percent market share in 2015, compared to 49 percent in 2014. Global sales were impacted by macroeconomic conditions, including a slowdown in China and volatile currency exchange rates.
Regional breakdown revenues were based on 48 respondents, up from 47 last year. The top distributors derived $16.0 billion or 26 percent of their sales from EMEA (Europe, Middle East, and Africa) in 2015, down from $16.6 billion or 28 percent of their sales in 2014, but still up from $15 billion sales in 2013. Sales in Asia remained stable, reaching $14.1 billion or 23 percent of sales in 2015, the same as 2014. Less than one percent of sales continue to come from South America.