2016 was another tough year for the franchised electronic components distribution industry in North America. The industry faced several challenges, including shrinking margins, currency fluctuation, and supplier consolidation, which had a significant impact on sales growth.
Faced with these challenges, revenues for the top 50 North American franchised distributors fell by three percent, after growing only 1.3 percent in 2015, according to the EPSNews survey of electronic component distributors. The industry had a five percent growth spurt in 2014 but in the prior two years growth was stagnant. Global revenues of the top 50 North American distributors also fell in 2016. Sales dropped by one percent, impacted by macroeconomic conditions and currency exchange rates. About 47 percent of the top distributors’ global sales comes from North America.
By component category, the top 50 NA distributors saw semiconductor sales drop by five percent in 2016 compared with the previous year, while interconnect, passive and electromechanical (IP&E) component sales increased by 1.5 percent. Computer product sales slumped by six percent.
The overall distribution industry saw an electronic component sales decrease of 1.5 percent in 2016 compared with the previous year, according to the ECIA. While interconnect and semiconductor sales each fell by about one percent, passive components dropped by 2.6 percent, and electromechanical devices fell by 4.4 percent.
Once again, margin erosion was cited as the top challenge faced by the distribution industry, according to survey respondents. This was followed by mergers and acquisitions and regulation and compliance requirements.
However, the distribution industry saw the first signs of a turnaround during the latter part of 2016 with demand spikes across a few sectors. Lead times started to stretch for several types of passive components, connectors and memory devices in the second half of 2016. Rising demand coupled with production capacity expansion strategies at component manufacturers are having the biggest impact on component availability. Longer lead times are expected to continue throughout 2017, which is pulling prices upward.
While increased demand is good news for the channel in 2017, buyers may face shortages for several component types as we head further into the year. The purchasing community needs to prepare for a different buying environment where it doesn't get the typical annual cost reductions they expect with these types of components.
The complete EPSNews top 50 report provides a complete analysis of the North American distribution industry in 2016, and looks at what’s ahead for the industry. The report ranks the leading distributors by revenue in North America, along with their sales growth rates, sales breakdown by component category, and percentage of sales from value-added services.
To read the complete report, download here.