Earlier this month, Renesas Electronics Corp. consolidated its distribution channel in Asia-Pacific, China and Taiwan. The semiconductor company terminated its relationship with global distributor WPI Group and added regional distributor WT Microelectronics. The move is notable as late last year World Peace Group (WPG), WPI’s parent, made a controversial bid to acquire a 30 percent share in WT.
Renesas described the move as a fine-tuning of its broad market strategy. “While we appreciate the partnership with WPI and thank them for their hard work on the line,” it said a release, “terminating the WPI relationship allows Renesas to focus more on its top three distributors: Avnet, Future Electronics, and WT Microelectronics as key Asia global distribution partners, on top of other local partners.”
Renesas declined to comment beyond its press release.
Component makers consolidate their distribution channels for several reasons. A merger or acquisition can bring competing vendors together on a distributors' line card. In some cases, a supplier’s line is overdistributed, leading to price competition among authorized distributors. Or, a supplier's channel strategy may simply change.
In late 2019, Texas Instruments Inc. cut six distributors, including Avnet, WPG and WT Micro.
“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.”
At the same time, customers prefer to buy from fewer distributors. Typically, OEMs spread their supply risk across a few global partners and local or regional resellers. WPG, Avnet and Future are global, broadline distributors; WT Micro is considered regional to Southeast Asia. Suppliers often grant franchises on a region-by-region or even country-by-country basis to avoid overdistribution.
WPG’s WT Micro bid prompted some distress in the Asia-Pacific market. Both distributors are headquartered in Taiwan. A WT Micro/WPG combo would have a 67 percent market share in Taiwan, prompting some customers to worry about pricing.
“Some customers are planning to withdraw orders to avoid an overconcentration of purchases with a single supplier," said WT Microelectronics Chairman Eric Cheng. Therefore, a merger would harm WT Microelectronics’ business and profits, which would hurt shareholders’ interests and eventually cause job losses, according to the Taipei Times.
WT also accused WPG of seeking to monopolize the local chip distribution market, in which WPG holds a 70 percent share, along with a 50 percent share in the Asian market, excluding Japan’s 10 top chip distributors.
WPG positioned the move as strictly financial. With its average return on equity of around 13.5 percent and average dividend yield of around 6 percent during the preceding two years, WT was considered a viable investment target and can lead to reasonable financial return in the long run, WPG said.
“WPG expects WT to continue its stable business performance as it has demonstrated to its investors, so as to receive steady financial returns and launch opportunities for friendly dialogue with WT. WPG has no intention to influence the operations of WT except for the protection of shareholder rights and interests.”
WT Micro, as a semiconductor specialist, will likely give Renesas more attention than its larger, global competitors. Broadline distributors support interconnect, passive and electromechanical components in addition to semiconductors.
"Continuous streamlining of Renesas’ global distribution network allows us to focus on fewer, more strategic distributor partners like WT Microelectronics to support Renesas’ growth strategy," said Chris Allexandre, senior vice president at Renesas. "Our evolving channel strategy transformation and sharper focus is empowering Renesas to reach a broader base of customers in the mass market and invest more of our resources in demand creation. It will also allow us to provide higher levels of service to our customers in Asia by streamlining channels on most of our computing and server products.”
Demand creation programs reward distributors for getting a supplier’s component designed into an OEM’s end-product. A design win can secure a supplier's spot in that product for decades.
"We are delighted to have Renesas become one of our key line cards supported by its broad portfolio of microcontrollers, microprocessors, SoCs, analog, power, and winning combination reference design solutions," Cheng said. "Renesas’ broad portfolio is filled with lots of highly differentiated products and ecosystem partner solutions that enjoy leadership positions, enabling us to fill more sockets and satisfy the needs of our customers’ range of markets and applications."