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“We will be absolutely focused on our core strategy — technology distribution — and driving home our value to suppliers and customers right out of the gate,” he said.
It’s not a revolutionary plan for the industry veteran – Gallagher has been a block-and-tackle strategist for more than 30 years at Avnet. Although the way the channel conducts business has changed – increasingly digital – the basics of supplier, distributor and customer relationships has not, he said.

Phil Gallagher, interim CEO, Avnet
Still, supply chain relationships have been strained as suppliers and distributors battle over slim margins. In 2019, Texas Instruments drastically pared its distribution channel and Avnet is among six distributors that will lose the line at the end of the year. Renesas amended its channel in the first half of 2020.
Investment in digital is a priority for Avnet, Gallagher said. “The stronger we can be with our supplier relationships the better we can support our customers. We will almost maniacally reinforce that message.”
Gallagher succeeds Bill Amelio, who became CEO of Avnet in 2016. Amelio oversaw the $908.4-million acquisition of Leeds, U.K.-based electronics distributor Premier Farnell in 2016, followed two months later by the $2.6-billion sale of Avnet Technology Services to Tech Data. Avnet Chairman Rodney Adkins credits Amelio with extending the company into new growth opportunities, including digital commerce, Farnell and IoT.
Gallagher rejoined Avnet in 2017 following a brief retirement and a year with TTI Inc. In 2009, he was tapped as president of Avnet’s troubled Technology Solutions business. In 2017, Gallagher was named president of Avnet’s Core Distribution business.
Distribution faces an uphill battle for the rest of 2020 as Covid-19, the U.S.-China trade war and tariffs depress electronics demand. Avnet and its biggest competitor, Arrow Electronics Inc., saw sales decline in the fist half of the year. For calendar Q1, Avnet had sales of $4.3 billion vs. $4.7 billion the prior year. Operating income declined 60.5 percent year-over-year to $70.4 million. For Q2, sales were $4.2 billion from $4.7 billion the prior year; operating income totaled $1.9 million vs. an operating loss of $30 million a year ago.
Arrow reported Q1 sales of $6.38 billion, down 11 percent from $7.16 billion the prior year. Q1 net income of $50 million compared with $141 million in 2019. Q2 sales declined 10 percent to $6.61 billion from $7.34 billion the prior year; net income of $133 million compared with a net loss of $549 million in 2019.
Avnet has yet to capitalize fully on its acquisition of Premier Farnell, which included several catalog distributors. Catalog orders typically command higher margins than volume sales, and Gallagher admits there’s still work to do.
“Farnell had been under-invested in for years and their footing was not really solid,” Gallagher said. “We have been investing in their systems and infrastructure as well as e-commerce and logistics centers. We are a little behind where we’d like to be. The front end [integration] isn’t bad but we have a narrow SKU count and we need deeper inventory.”
Avnet has added 130,000 SKUs to Farnell, he said. “We are pleased about our progress and we are investing in Newark as well. So, at Farnell we’ll be expanding the breadth and scope of its offering.”
Catalogs also provide valuable sales leads for distributors’ volume businesses.
Avnet’s line card has also been in flux and Gallagher intends to cement supplier relationships. Avnet has regained several lines that it had lost due to supplier M&A — Cypress (via Infineon) and Microsemi (via Microchip) –- and is the exclusive distributor for Xilinx, Broadcom and Marvell.
When suppliers merge, they often consolidate their distribution channel or add distributors that previously didn’t carry both brands. Analog Devices’ recent acquisition of Maxim Integrated poses a risk for Avnet: when ADI acquired Linear Technology in 2017 it dropped Avnet and named Arrow as its exclusive global distributor.
“We aren’t sitting in ADI’s boardroom, and I can say our relationship with Maxim is terrific,” Gallagher said. “We are their No. 1 distributor globally. Our intent [for our suppliers] is to drive new growth and further expansion, but we can’t control everything.”
Avnet’s Maxim dilemma casts a light on one of the bigger problems in the electronics supply chain: risk management. Global distribution customers – especially during Covid-19 – don’t want to be too dependent on a single reseller. At the same time, many OEMs and EMS providers prefer one-stop shopping and buy as much as they can from a single source.
“Distribution customers for the most part, still like options. Sometimes, customers are left out of the equation when companies merge,” he added.
The TI conversion will cost Avnet between $100 million to $150 million by the end of the year. Avnet has been able to port some TI customers over to comparable lines as they develop new products. “We expect to continue to do business with customers who purchased TI products from us in the past, based on the high value that we provide them,” Gallagher said.
There are a couple of bright spots in the channel — design activity across the globe has accelerated. If distributors secure a design-win, they have the opportunity to fulfill a bill of material when a device reaches production.
“Even with five months in virtual shutdown our demand creation revenue held up well,” Gallagher said. “We were pleased but a bit surprised due to Covid. Nobody is traveling but meeting through Zoom and Microsoft Teams. We also credit our design tool center and our Centers of Excellence.”
Demand creation accounts for roughly 30 percent of Avnet’s global revenue and in general carries a higher profit margin for distributors that win a design.
“Business is moving along well,” said Gallagher. “We’re proud of how long we held on to TI after its announcement. Our priority is to spend time with our suppliers – they are our partners – and they depend on us to serve their customers well.” Avnet will also enhance supplier analytics to ensure that a lead from a catalog can be closed by Avnet’s volume business.
“Lead-sharing is the nemesis of the supply chain,” Gallagher said. “So, we are going to spend time with our suppliers and make sure we can close the design loop.”
To say it’s a challenging environment for a new CEO is an understatement. Covid-19 remains a wild card for the global economy. ECIA reports a continuation of relative stability and hopeful economic uncertainty even while concerns have increased in many sectors of the supply chain.
Anxiety about end-market demand remain high, an ECIA survey found, and the index of concern regarding raw materials disruption, shipping and logistics disruption and electronics components production jumped from their lowest levels in July back to the peak levels seen in April and May. Concerns regarding electronics systems manufacturing also continued to increase from the lows seen at the end of May.