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TI notified Avnet of its decision on Oct. 1, citing the evolution of its channel strategy. TI has drastically changed its relationship with distributors since 2017. One Wall Street analyst reported TI has sent termination letters to six distributors worldwide.
“Over the past several years, we have been evolving our distribution network to better align with our strategy to establish closer, more direct relationships with our customers,” TI’s spokeswoman told EPSNews. “As we build these direct relationships, we won’t have as much business flowing through the distribution channel and will require fewer distributors.”
“While Avnet and Texas Instruments have had a long-standing relationship, TI made changes to its distribution strategy and is moving toward selling directly to its customer base,” said an Avnet spokesman. “As a result, Avnet and TI will be ending their distribution relationship by December 31, 2020. We respect TI’s decision and we will continue to work together through this transition.”

TI's Americas distribution roster
TI’s most dramatic move in the channel was the discontinuation of distribution “demand creation” programs around 2017. Under such arrangements, suppliers reward distributors for assisting customers with product designs. TI’s move rendered distributors solely as fulfillment partners – managing inventory, delivering products and providing other supply chain services.
Demand creation rewards typically come in two forms. If a distributor secures a socket in an OEM design, suppliers provide a higher profit margin on volume sales if the design reaches production. Other programs pay distributors a straight fee for their design assistance.
Distributors have been increasing their reliance on demand creation as profit margins on component sales have steadily eroded.
Avnet, which carries hundreds of chip lines, will continue to pursue opportunities to support its current and future customers, reduce operating costs, and further strengthen its current and future supplier partnerships, according to its most recent 8-K filing.
Still, this is a blow to Avnet. EPSNews affiliate ESM China reported the possibility of the TI-Avnet breakup late last week. Since 2017, Analog Devices, Cypress, Broadcom (except for Avnet EBV), Silicon Labs and other semiconductor manufacturers have discontinued relationships with Avnet. Avnet has laid off employees in China and Avnet’s progress in that market has been slower than expected, according to ESM China.
Avnet has just expanded its offerings in China by launching a super store on Alibaba Group’s China-focused B2B purchasing and wholesale marketplace 1688.com. Through an alliance with Alibaba Cloud, the electronics distributor will also enable services such as IoT prototyping.
One of Avnet's senior managers has also left the company. EMS provider Flex named Lynn Torrel, former Avnet senior vice president for global customer and supplier management, as its chief supply chain and procurement officer. Torrel is responsible for Flex’s direct and indirect materials, transportation and logistics, business operations, materials management, and strategic supply chain management. Sources expect additional personnel changes at Avnet.
The distribution channel overall is weathering a tough 2019. Following a year rife with component shortages and allocation, distributors have seen demand decrease in the first three quarters of the year. The industry’s two largest global distributors reported sliding sales: Avnet’s fiscal Q4 sales of $4.7 billion declined 7.5 percent from a year ago and 0.4 percent from the prior quarter. Arrow Electronics, Inc. reported second-quarter 2019 sales of $7.34 billion, a decrease of 1 percent from sales of $7.39 billion in the second quarter of 2018.
Profit margins on electronics components have been eroding for years, which has created tension between suppliers and distributors. To retain a higher portion of their profits, suppliers are cutting back on demand-creation and other incentive programs. Additionally, M&A activity within the supplier community often brings two separate distribution rosters together, so component makers have been paring back their channel relationships.
There's always been a tug-of-war between suppliers and distributors over "ownership" of customer relationships. While distributors sell components to end-customers, they do so on behalf of their suppliers. Component makers such as TI are now taking these relationships direct. TI is particularly well-equipped to manage direct customers, industry sources say, as it has maintained a robust engineering and sales presence around the world and offers a broad portfolio of products. Many of TI's competitors have split into specialty chip companies.
Texas Instruments has also historically carried a broad distribution roster. In the Americas, TI currently lists Arrow, Avnet, Digi-Key, Mouser and Rochester Electronics as its resellers; in Asia, TI sells through the same distributors plus World Peace Industrial Group (WPG) and WT Group. In EMEA, Eastronics, Compel, MT Systems and Telsys join TI’s core global distribution roster.
Broadcom is still a supplier for Avnet under EBV.
Thanks Patrick–I will amend the article to clarify.