On the last business day of 2017, TTI Inc. acquired its second semiconductor company, Changnam I.N.T. Ltd. of South Korea. The longtime specialty distributor of interconnect, passive and electromechanical (IP&E) components expanded its nascent semiconductor linecard and its geographic reach in one fell swoop. But TTI’s ambition is not to become a global broadline distributor, executives said. Changnam, like all of TTI’s acquisitions, will remain a specialty distributor under the umbrella of the TTI family of companies.
An alignment of specialty distributors under one corporate parent is not new. In 2000, the VEBA Group of specialty companies was divvied up and sold to Arrow Electronics Inc. and Avnet Inc. VEBA wasn’t failing as an organization, but customers were trying to consolidate their electronics component purchases as much as possible. TTI remains committed to its model of in-depth product specialty companies that can also fulfill customers’ volume-production needs.
“I think a lot of people have forgotten how successful the specialty model was to the customer base and the supplier community,” said Michael Knight, senior vice president, TTI Americas. “We have proven that the specialty model works and we will apply the same thinking to the semiconductor business—a super-focused distributor that brings value to the supplier backed by inventory and some of the best supply chain resources on the planet. [The expansion into semiconductors] is already going better than we had expected or hoped.”
TTI acquired semiconductor specialist Symmetry Electronics earlier in 2017. Product-wise, semiconductors are a huge departure from TTI’s IP&E focus. But TTI’s first-ever acquisition was Mouser Electronics, a catalog distributor that sells a wide array of semiconductor and IP&E components. TTI now has the opportunity to capture more of a customer’s volume bill-of-material than before.
“All the business Mouser is seeding that is going to a fulfillment distributor can now be guided to the TTI family,” Knight explained. “Both Symmetry and Changnam are engineering oriented and spend most of their time with designers creating demand. Design-wins are super-critical and the thing both companies have, pound for pound, is design-win capability. That ties in really well with Mouser, which solely supports design engineers.”
What Symmetry and Changnam don’t currently have is a global infrastructure and warehousing. “We bring the backroom and infrastructure capabilities neither one has, and that can give them a real presence in the market,” Knight said. TTI is well known for its wide and deep stock profile and is backed up by the resources of Berkshire Hathaway, TTI’s parent company. This approach is being applied to the semiconductor distribution arm that TTI is assembling to expand and strengthen the corporation’s value proposition for both customers and suppliers.
Knight acknowledges that TTI has not had a history in semiconductors. “The biggest pitfall the TTI companies face is trying to integrate semiconductors into what it already does,” Knight said. “The differences in the semiconductor market are profound enough that if we lose sight of our specialty strategy and try to become a broadline, [the model] may not succeed. That’s why we are being so clear that Changnam will remain a standalone company even within the semiconductor group. We’re not saying there are no synergies, but there won’t be an intermingling of sales and product teams.”
Strategically, Changnam will also help TTI gain a foothold in the massive South Korean electronics market. “Today, TTI has very little presence in the South Korean market, a market that has grown to be quite significant,” said TTI founder and CEO Paul Andrews in a statement. “Changnam changes that in a meaningful way, and while they contribute to the build-out of our semiconductor business, our association with them will help all of the TTI family of companies progress in this important marketplace.” According to the International Trade Administration, Korea’s electronic products industry, which is the largest demand factor for semiconductors, was expected to grow from $24.7 billion in 2014 to $26.2 billion in 2016.
South Korea is still fairly difficult for U.S. companies to penetrate, Knight explained. “It’s still a rather closed marketplace that operates in a traditional manner. At the moment, nobody has any idea who TTI is. Down the road we hope people will look at TTI and be more open to joint opportunities between TTI and Changnam. This will help us move forward in a way we couldn’t if we had greenfielded.”
Changnam has a number of suppliers in common with TTI and its subsidiaries including Atmel/Microchip, Cree, Diodes Inc., Epson, GigaDevice, IDT, Infineon, Laird, Littelfuse, Pulse Electronics, Qorvo, Telit, Trinamic, and Vishay. There is currently not a lot of synergy between Changnam and Symmetry, said Knight, but TTI envisions commonalities being driven by end market demand. Changnam is principally focused on the automotive, consumer electronics, industrial and wireless end markets. “We see more systems solutions developing around IoT, and we see the convergence of the transportation and consumer electronics markets,” Knight said. “We hope to take advantage of the Changnam relationship with its customer base as it moves forward.”
Knight reiterates that the market’s reception to TTI selling semiconductors has been positive and that more acquisitions are likely. “I think people are probably looking at this differently since we’ve had a track record of not consolidating acquired companies. This is not a one-off." Including the Mouser acquisition in 2000, TTI has bought 11 companies.
"We are not done acquiring by a long shot," Knight added. "We think for a semiconductor specialty distributor who is thinking of selling for any reason there’s no better option than TTI. We have a model that’s holistic and we have a track record of following that model. That’s the reason we do pretty well with this acquisition strategy.”