Two months ago, Phil Gallagher re-joined Avnet—his employer for 32 years – after leaving Avnet and spending a year with specialty distributor TTI Inc. Gallagher, who was named president of Avnet’s Core Distribution business in April, returned to a different company than the one he left. Most significantly, Avnet has a new CEO; sold its Technology Solutions business to Tech Data Corp.; and acquired global catalog distributor Premier Farnell. Gallagher took time out from his global travel schedule to talk with EPSNews’ Barbara Jorgensen.
EPSNews: You were working at TTI when the Avnet opportunity came up—was there anything in particular that swayed you to go back to Avnet?
Gallagher: Very candidly, all you have in this business is your name and your reputation. I didn’t run from TTI—and I told [Avnet CEO Bill Amelio] I wanted to talk publicly and be upfront about that. TTI founder Paul Andrews and president Mike Morton were very supportive of my decision. I was with Avnet for 32 years. I always said that if I ever left Avnet there is one other distributor I would work for and that was TTI. It’s a good company—I believe in its value and culture.
During that time Avnet went through a few challenges and I saw the opportunity to come back and help. I talked to Bill Amelio quite a bit. Avnet is a great company and we have had a few issues that are hiccups in the grand scheme of things. The core of the company is still rock solid. We are in the people business. Our employees are terrific. The digital world will change our business, but we have customers that have always conducted business with Avnet and they want to continue. If I can help out a little bit – in a new role that’s still in its infancy from the standpoint of 32 years—it’s an opportunity. If I can help out, that’s really it.
A lot of people were surprised I came back, but there are people within the supplier community that said they weren’t really surprised. They saw the executive changes that happened within a short period of time and thought the company had lost some of its intellectual property. So it’s good to be back.
EPSNews: You started at Avnet in the components business but your last job was at Technology Solutions. TS was working with the components group on what you’d call “cradle to grave” solutions. What are your thoughts regarding the sale of that business?
Gallagher: I would say that’s a fair comment and observation, and we’ll see how it plays out. Technology Solutions (TS) and the former Electronics Marketing (EM) now Avnet were mostly working together around IoT and the cloud. You don’t need to own a company to get that done. There are always opportunities to partner, and that includes with Tech Data.
At the time some were saying ‘hey there’s a lot of customers going to the competition’ but in reality, the effort was about selling boards off the shelf. The key is Avnet still has the Integrated Solutions business group. Certainly, customers are outsourcing boards, but they are also buying semiconductors and boards, and we can help with the integration of software. That business stayed within Avnet Core. If that part of the business had been sold I wouldn’t be as certain, but it’s a nice offering to have and there really wasn’t that much overlap between the two former Avnet business units.
In the world of alliances, we can work through [common projects] and from the outside looking in, it looks like the acquisition is really working out. For Tech Data, the acquisition was accretive to earnings and their stock is doing pretty well. It also allowed Avnet to get a lot of cash to invest in companies such as Premier Farnell. I don’t see [the TS sale] as an issue.
EPSNews: Now, Avnet is focused on components and integrated solutions. Can you talk about some of the differences in the Avnet components business now versus five years ago?
Gallagher: As you know I was actually from the components business, and it’s been more like seven years that I’ve been away. Let me start out with a comment: As much as it has changed, a lot is still the same. If you go to the ECIA or ERA conferences, a lot of the topics and issues, from the theme standpoint, haven’t changed a tremendous amount.
That’s further evidenced by the trust factor and relationships. That’s the foundation of our business. Every customer I talk to; they trust us and like our brand and they like our people.
However the way we are doing business together is changing. There’s been EDI—forecast sharing continues to grow— and MRP and consignment is still a big part of the business. The digital side and the drive toward engineers—identifying new customers through things like our alliance with Kickstarter; our acquisition of Premier Farnell and Hackster.io—has created an ecosystem that we have to execute on. We haven’t figured it all out --no one really has -- but we’re on the right track. I do know we have a reach into the engineer community that we weren’t even close to before.
The element14 community has roughly 430,000 members in 36 countries. Our business through Hackster is up 50 percent from where it was when we bought them. With the addition of Premier Farnell, Avnet has 600-plus suppliers and a total of 15,000 employees globally. We are building a digital reach that we didn’t have before. We were organically building out our digital business, but there was part of the value proposition we didn’t have, and that was digital integration. The key for us is we have to execute on that and I will maniacally work on helping our customers execute from design to prototype to manufacturing. From a broadline standpoint, we are the only distributor that has that reach.
As for the maker movement, these are the early days, but as much as distribution changes, much of it stays the same. Customers come to us with startups who need help taking their ideas to where they need to go. Going forward we will still do all we can to service suppliers and customers and increase customer count, design count and revenue for our stakeholders.
As you know [as a distribution partner] we are an extension of our suppliers. We still provide scale and market coverage for them and Premier Farnell provides other ways they can leverage Avnet around their ecosystem. This is really about expanding the reach for our suppliers and developing long-term revenue streams.
EPSNews: Can you update readers on the IT transformation?
Gallagher: [Your colleague at EPSNews] covered it pretty well –- the article was blunt but fair. We have been very public about the challenges and…is it history yet? No. Will it be? Yes. We are making headway. To our customers and suppliers, it’s not like we are totally starting over—we’re still making investments in the current system. We’ve had a very successful implementation of SAP across Europe for 15 years and we’re taking some aspects of that system to see if we can migrate that into the new system. Can we leapfrog [over that transition process]? No. But we will get there.
Our customers and suppliers are working with us as well—I thank them for their patience-I really believe our customers and suppliers want Avnet to be successful. We have been around for 92 years and we have customers that tell us ‘you serviced an order in 1969 when we really needed it.’ They don’t forget that. They also want competition [among distributors]. Competition is healthy.
EPSNews: The acquisition of Premier Farnell has also transformed the business. Specifically, what capabilities, product lines, customers, etc. does this acquisition bring to Avnet?
Gallagher: First, they brought a robust e-commerce platform. There are other catalogers, as you know, and this enables us to jump right in and work across the line card to cover the BOM. From the engineering community, element14, the members do a lot around education. They bring to us something we would have had to build on our own, but the timeline would be too long and costly. They have a lot of people who have been there for a long time. They brought their IP.
Avnet has the cash and capital to invest in Premier Farnell. We are collaborating on their linecard and also working to further collaborate on design and manufacturing. If you have a startup that’s building out BOMs, [Premier Farnell’s line card] is pretty broad and now we can work with them on prototypes. They do that type of stuff every day.
They are certainly global. They may be stronger in some countries than others. There is the Raspberry Pi product and the element14 community—we have to continue to figure out how to monetize these things and identify what the downstream opportunity will be. We’re still learning. This is an ecosystem that is not linear. Designs come in, and there are starts and stops. They go all over the place.
The engineer community is changing -- we still have FAEs and that’s still a higher cost compared with the digital side so we must apply the appropriate resource to the appropriate opportunity. You have to go at this thing asking how we leverage these resources to maximize ROI. If something’s the highest cost and the highest touch we have to make sure we have the right mix. [Premier Farnell] is another way to service our customers – we’re taking a multipronged approach.
EPSNews: There has been a lot of M&A in the supplier community. How does that impact distributors?
Gallagher: I would say we control what we can control, and we cannot control that. Our strength is our adaptability and that is what we do. Some M&A’s were winners for us and some were not —that’s not new—but M&A activity has accelerated. It’s more dramatic. These companies are leveraging growth opportunities utilizing their balance sheets. I do not lay awake at night worrying about acquisitions. Whether a company is the acquirer or they get acquired, they know Avnet’s value proposition. They know what we do and they will look at how Avnet sits within the ecosystem. The day we think we can impact [our suppliers’] strategy is not a good one. We have to understand and adapt and figure out how we can help make it successful. We want to work with our suppliers on new go-to -market strategies regardless.
EPSNews: Any final comments?
Gallagher: I want to let suppliers and customers know how much we appreciate their support and their relationship with Avnet. We will be there for them in good times and bad, and we will do anything we can to help. We know we sit between the supplier and the customer. Their patience and loyalty has not gone without notice - thank you.
I am very excited to be back – I’ve met with more than 30 suppliers already. I’ve been out to branch locations and next I’m heading out to the EU and then Asia to visit those teams. A lot of the same people are still around and that is the fun part -- getting out in the field. It is all about the people. It’s an industry that we are lucky to be in.