Covid Economics: 3 Ways OEMs Can Reduce Margin Erosion
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TTI, Inc., an interconnect, passive & electromechanical (IP&E) component specialist, is on a new mission to give the market an alternative to buying semiconductors from broadline distributors. As part of this undertaking, TTI recently acquired privately-held Symmetry Electronics, a U.S.-based semiconductor distributor, building on its core principal of specialty distribution.
TTI’s family of distributors has a healthy presence in the IP&E market as well as power systems thanks to its acquisitions of Mouser Electronics in 2000 and Sager Electronics in 2012. Sager brings to the table specialization in electromechanical components and power systems, while Mouser specializes in low-volume engineering and design component selection. The missing component was semiconductors.
“TTI’s strategy is to bring to market electronic components specialty distribution and we’ve certainly done that with IP&E,” said Michael Knight, senior vice president, Americas, TTI Inc.
“What the industry doesn’t have is the same kind of approach to semiconductors,” he added. “It used to be prevalent but all of those companies were acquired so it fits in with our strategy.”
There is less than a handful of semiconductor specialists in the industry today. Many of them were acquired by larger broadline distributors in the 1990s. According to EPSNews’ Top 50 North American distributors ranking, only four distributors derive 75 percent or more of their revenue from semiconductors. Only one of the four, Phoenics Electronics, derives all of its revenue from chip sales and design services.
While Symmetry adds to TTI’s arsenal of distribution specialists, TTI offers to Symmetry the backing of Berkshire Hathaway, which acquired TTI in 2006. This gives the chip specialist access to resources to help the company build inventory; increase its sales, marketing and engineering teams, and expand globally through acquisitions.
“Symmetry will get better at a lot of things that are expected from a distributor,” said Michael Knight, senior vice president, Americas, TTI Inc. “They are very good on the demand creation side, but the more traditional role of distribution for fulfillment is where TTI will help them improve very quickly. It will be very noticeable in the purchasing community and customer base.”
As a very technical and solution sales-oriented company, Symmetry now has access to more resources so the possibilities are endless in terms of expanding on their focus areas, said Knight.
“They have a core group that is very good at wireless and the internet of things (IoT),” added Knight. “There also are some other market specialization opportunities in semiconductors that they can develop.”
Some of those opportunities include emerging semiconductor solutions for factory automation, autonomous vehicles, and RF infrastructure, which is growing very rapidly, according to Knight.
But Knight is clear that this is for the Symmetry team to develop. What TTI will do for Symmetry is similar to its early relationships with Mouser and Sager – moving the company from a family-run type of business to one that is a subsidiary of Berkshire Hathaway. This means re-investing profits where there are opportunities and investing ahead of what the current business supports, said Knight.
“Symmetry, like Mouser and Sager, was run very lean and month to month,” said Knight. “All this changes with the access to resources, including their approach to inventory and staffing.”
Collaboration Among Specialists
TTI’s core business is not adding semiconductors to its product mix. But there is a lot of potential for collaboration between TTI's family of specialists.
So why choose Symmetry? An attractive feature was Symmetry’s focus on wireless and cellular and cloud programs for machine to machine (M2M) and IoT applications, which brings expertise in connecting devices to the internet. Global spending on IoT is forecast to surpass $800 billion in 2017, growing at 16.7 percent, according to IDC’s most recent research. By 2021, spending will reach nearly $1.4 trillion as businesses invest in hardware, software, services and connectivity that enable the IoT.
Knight expects some “cross pollination opportunities” for both companies particularly in the area of IoT.
TTI is on its own IoT journey, recently adding Ed Baca, IoT technical marketing manager to the team. Baca is a subject matter expert on the supply chain for IoT applications, and understands adjacent technologies and products including semiconductors, firmware and services, said Knight.
“Symmetry can help TTI be a bit smarter in what we’re doing and provide leads for the product lines that we have,” said Knight.
“They can help introduce us to opportunities for our product set and we can do the same for them,” he added.
There is also synergy between Mouser and Symmetry. Mouser carries nearly all of Symmetry’s vendors on its linecard, which opens up the opportunity for Symmetry to fulfill volume orders for engineering projects moving into production. Symmetry’s product lines include AMD, Digi, Fujitsu, Lattice, Micronas, Nordic, Mediatek, Silicon Labs, and Telit.
“All of the front-end work that Mouser does often benefits a volume distributor that is outside of the TTI family. Now some of that will benefit Symmetry,” said Knight. “Obviously, it is the customer’s choice but with Mouser working with Symmetry, they will be able to do interesting things especially on some leading-edge technology.”
Investments Matter for Growth
Symmetry, which posted $55.1 million in revenue in 2016, is about the same size Mouser - $57.8 million - was when it was acquired by TTI in 2000. Mouser is now a $1+ billion global company, ranked at number seven in the EPSNews Top 50 distributors ranking for North America.
Knight expects Symmetry to achieve the same growth rate as Mouser. The first stop will be $100 million. “The semiconductor industry is quite a bit bigger than the IP&E world so theoretically the headroom supports that kind of growth over the same period of time.”
Growth will start by enabling Symmetry to re-invest its profits back into the business. Part of the investment will include head-count expansion hand-in-hand with expanding its inventory profile, a key part of TTI’s business model. Both investments should help Symmetry move into the global arena.
“One of the tough parts of being a small company is the industry is global,” said Knight. “If you’re a regional or national player it’s very difficult to make that leap onto a global stage. It requires a lot of front-end investing and infrastructure and figuring out how to hire and pay people in other countries. This is not insignificant when you’re a small company trying to break out of a regional market. Those kinds of things can have an enormous impact on a company’s growth rate.”
Currently, about 80 percent of Symmetry’s revenues is derived from North America. The remainder comes primarily from China, which is why a few of the first items on Symmetry’s to-do list is to build out its employee head count in the U.S. and China. This includes expansion in sales, marketing and engineering.
There is still a lot of opportunity in the U.S. for Symmetry, said Knight. In some major U.S. markets, Symmetry only has one or two employees but those markets more than justify having three to five employees, he said. The team is working on a plan for 2018 to add more staff to drive the U.S. business.
TTI also will support Symmetry in acquiring other businesses and distributors that fit its business model. Knight expects the acquisitions will likely be in Asia or Europe. “It looks like the best path for growth outside of the U.S. will be through acquisition,” he said.
Strategic investments in inventory is another area where TTI can help Symmetry significantly grow its business. Symmetry has a good ecommerce business – semiconductorstore.com – and it can do so much better with more inventory supporting it, said Knight.
A lot of Symmetry’s products have long lead times and that is not how TTI does things, said Knight. “One of our primary roles is to have available to sell inventory. Symmetry needs more inventory for their existing customer base and more available to sell inventory to develop new customers either through their salesforce or semiconductorstore.com.”
This is good news for purchasers. Currently, Symmetry’s inventory profile limits its ability to support fluctuations in demand from end customers primarily because they don’t have a lot of warehouse space, said Knight.
This will be remedied rather quickly with TTI’s global warehouses. TTI has about 1.2 million cubic feet of dedicated warehouse space containing more than 850,000 component part numbers.
“We have a new distribution center in Texas coming online that has plenty of capability,” said Knight. “From a logistics standpoint it will do things for Symmetry that they will never be able to do on their own at least not any time soon.”
Customers will see Symmetry’s supply chain capabilities improve, including supply chain solutions like bonded inventory and in-plant stores, and being able to adjust to lead times to make sure customers aren’t affected by changing lead times, either up or down, said Knight.
“Symmetry will get better at a lot of things that are expected from a distributor,” added Knight. “They are very good on the demand creation side, but the more traditional role of distribution for fulfillment is where TTI will help them improve very quickly. It will be very noticeable in the purchasing community and customer base.”
“The purchasing community also will get some peace of mind about Symmetry’s viability, which was at a size that you couldn’t help but be concerned if you were dependent on them,” said Knight. “We take that question off the table immediately.”
Suppliers also benefit. They have been enthusiastic about the acquisition, with many stating that it is “adding rocket fuel” to Symmetry’s business. “Being able to beef up its inventory profile and expand out their head count – these are things that suppliers are giddy about because a lot of them are overshadowed by the big semiconductor companies. Although they are best in class, Symmetry’s linecard is very nichey.”
Like Mouser and Sager, Symmetry Electronics will operate as a wholly-owned subsidiary of TTI with current management intact and will run independently of the parent company.
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