On December 31, Texas Instruments Inc. and Avnet Inc. formally end their 40-year distribution relationship. Avnet’s success in replacing that business – estimated at 10 percent of Avnet’s sales — will be evident in the future, said Phil Gallagher, who was named Avnet's CEO on November 23.
Avnet’s fiscal 2020 sales reached $17.6 billion.
TI ended its partnership with six distributors late in 2019, opting to engage directly with customers. Avnet is tracking three “buckets” of business to benchmark its transition from TI. Gallagher estimates it will take 12 to 18 months to determine how much TI-related business has been captured.
“We're tracking the cross pin-for-pin, which is a relatively small number, frankly with TI,” Gallagher said. “And then we've got full demand creation for designing out the TI socket -- you catch that in the next generation. So that tends to be a bit of a longer pole and in turn takes a little bit longer.”
“And then we got share shift,” he continued. “Customers are not enjoying being told where to go or where they have to go for business. So, there's opportunity inside the customers to grow with other [semiconductor] lines.”
Texas Instruments retained Arrow Electronics Inc. as a global fulfillment partner.
Avnet’s TI revenue for Q1 2021 was $241 million. Excluding TI and adjusting for extra business days, Avnet’s revenue was flat year-over-year and up 9 percent sequentially.
Business environment improves
Overall, business is improving for the electronics supply chain. With the exception of Europe, Avnet’s Q1 book-to-bill was at or above parity.
In the U.S., manufacturing growth has softened but remains above pre-pandemic levels. The Institute for Supply Management’s factory index, the PMI, declined by 1.8 percent in November to 57.5. ECIA’s December forecast for overall component sales registered 113.9, down from 136.9 in November. The line between growth and contraction is, respectively, 50 and 100.
Most encouraging for Avnet, said Gallagher, is design activity.
“It’s at an all-time high for Avnet,” Gallagher said, “which was a pleasant surprise.” More importantly, Avnet is seeing design-wins, which provide sales opportunities as an OEM product moves from schematics to production.
Arrow likewise saw design activity surge in calendar Q3. The trend was broad-based, said CEO Mike Long, and was most active in Asia – now Arrow’s largest region for design.
Component makers often compensate distributors for securing a spot in a design. Although only one-third of design wins reach production, they represent a higher-margin opportunity for distributors.
The design activity is even more unexpected when factoring in Covid-19. Travel restrictions and quarantines have limited sales departments’ ability to call on customers.
“I’d say the lack of travel and visiting customers, and the fact that we see registrations up, tells us something,” Gallagher said.
Online technical content is more available than ever before, he noted. In addition to product demonstrations, how-to videos, conferences and forums, digital design tools are proliferating in the channel.
In some respects, distributors and suppliers compete for customers’ attention by offering design tools on their respective sites. A recent study found engineers prefer supplier websites when researching components or designs. Gallagher views distributor efforts as supplementary to suppliers.’
“We partner with our suppliers -- that is where we sit in the supply chain – and we love those guys. Sometimes we compete. Everyone has digital content. We see our role as more complementary than anything else,” Gallagher said.
In fact, distributors are reaching a wider audience online. Avnet’s annual supplier VIP event usually draws about 100 attendees. Its’ virtual event in October hosted more than 300. Avnet’s FAE training event drew about 200 attendees.
Emphasis on digital
Distribution’s investment in technical talent – and digital capabilities -- is significant. Distributors have hired engineers to assist customers with designs. Once an OEM designer engages with a distributor, it’s more likely the OEM will stick with that distributor when it comes time for volume orders.
Avnet has been expanding the SKUs offered by its Farnell catalog businesses and improving the group's e-commerce performance. Catalogs specialize in small-volume orders from designers and engineers.
“There's a lot more self-service assistance with the FAEs and then, of course, there is centralized tech support," said Gallagher. "We’ve been serving some of the most cost-effective geographies for years. Our goal is to deep dive technical support as well. If you look at it how that's happening, I think it's the accessibility.”
Engineers in the Asia-Pacific region tend to skew heavily toward supplier sites for technical and design support, research finds. Still, Avnet has seen a lot of design activity in China’s EV market. Designs have become more complicated, said Avnet Vice President for Global Sales Enablement Peggy Carrieres, and engineers are seeking out distributors for system-level solutions after they select components.
“Twenty to thirty years ago distributors weren’t even calling on automakers,” said Gallagher. “That’s not the case anymore. There’s a long tail in servicing the auto market.”
Avnet reports its ADAS solutions are gaining traction. Avnet integrates hardware, software, and algorithms and supports sensor modules manufactured by a variety of suppliers. The system organizes and transmits data collected to various parts of the system, then applies the data to actual driving scenarios. In addition to smart control features such as blind-spot detection, 360-degree full panorama view, emergency braking and automatic parking assistance, Avnet’s ADAS offers 3D HD surround view images for daytime and night time driving and a driver monitoring system.
China and Japan are currently leading the industry's bounce back from coronavirus-related shutdowns. “A lot of that has been driven by the automotive market,” said Gallagher.