Top 50 Distributors Report


supplier's behalf," said Seifert. This includes a strategy of inventory on the shelf,marketing and a sales teamto drive time tomarket for the supplier community, he added. Future said its privately­held status allows it


to invest with a long­termmindset. "Last year, we added a lot of people, and we'remaking strategicmoves, which I think are going to benefit us in the longer term," said Ruth. One of Future's strategicmoves is re­launching FAI, a division of Future, inMay. "As a distributor, there aremuch greater


expectations froma demand creation standpoint today then ever before," said Ruth. "Not only fromsemiconductor suppliers but fromall componentmanufacturers including interconnects, passives and electromechanical suppliers." "Being a privately­held company allows us to


invest over a longer termhorizon and we've set a goal to become the number one demand creation distributor in the world," said Ruth. "That is our focus and that is a challenge for public companies because you have to invest way ahead of the curve."


Looking ahead Many distributors agree that the electronics industry still faces challenges in terms of uncertainty about the economy, and a lack of a significantmarket or technology that will drive growth this year. "The federal government continues to prop up the U.S. economy,


"We're at a point where any spike in demand will strain supplier lead times.Most distributors have tightened up their purchases for roughly a year now," said Jimmy Seifert, senior vice president of Newark element14.


automotive and avionics. Surprisingly, some distributors still see a strong military business, although some suspect that the business will drop off as the sequester budget cuts are fully implemented. Demand is also picking up for


"It was a tough year for themarket. A lot of it had to do with political instability, the global economic situation, and declining ASPs," said Lindsley Ruth, executive vice president-office of the president, Future Electronics.


industrial equipment. The top 50 distributors earn 26 percent of their sales fromindustrial customers so it's a positive sign that themarket is starting to recover. "I think the industrialmarket will be


a catalyst for growth," said Ruth. "We'll see a recovery in automotive, while


themedicalmarket remains solid and strong." Othermarkets that show signs of a


recovery include smart grid/smart meters and energy­efficient lighting. Some distributors likeMouser and


Future expect double­digit growth in 2013. "We're certainly not seeing that rate of growth in North America yet, but it does seemto be accelerating and everymonth this year it has been bigger than the previous," saidMouser's Smith. "I think thatwill continue." "Regardless of what happens in the market this year, we'll grow in the


and there isn't a lot to drive growth, and this [budget] sequestration isn't going to help," said Avnet's Smith. "I thinkmost of us in the industry want our federal government to


be fiscally responsible," saidMcLendon. "However, the draconian cuts proposed due to the budget crisis have had a dramatic effect on the market. Everything fromdefense, border security, and local/municipal programs are being delayed or cancelled. This looks like it will continue throughout 2013." "In addition, compliance (export, ITAR, banned substances and


minerals, etc.) continues to be an area where distributorsmust invest in order to be viable for the long term,"McLendon added. The good news is that distributors are starting to see a stronger


book to bill in the first quarter of 2013. "The trends are lookingmore positive than they have in a couple of years.We're starting to see a strengthening of book to bill and a small inch out of the lead times. Both of those will help," said Avnet's Smith. "There are a lot of positive signs that the second half of the year is


going to be better than the first half," said Knight. "Everybody is enjoying really strong book­to­bill ratios right now." "I think we went through a position where inventory hit a three


year low, and we're starting to see a recovery and lead times starting to go out," said Ruth. "We're starting to see an inventory correction backed by a strong belief that we're going to have a solid second half." Distributors report strong demand fromseveral sectors including


26 |May/June 2013


double digits," said Ruth. "We've had fourmonths of positive book to bill and we're optimistic about this year and the investments we're making regardless of what happens in the economy." Other distributors aren't as optimistic. "I think we will have slow to


moderate growth with both halves of the year being fairly similar," saidMcLendon. "I don't think there will be anymajor ramp in the second half." Distributors also worry that any spike in demand this year could


send the supply chain into a tailspin. "Inventory in the supply chain is very stable and very low so any shock such as an unexpected recovery in demand or a natural catastrophe will immediately start pushing out lead times," said Knight. If there is a strong uptick in demand, buyers need to watch passive


component lead times closely. The supply at the highest risk is commodity passives, Knight said. "This is because componentmanufacturers have not been


reinvesting in additional capacity or productivity improvements," Knight added. "There is not enoughmargin in that business anymore." "If demand goes up I’mnot sure if we can expect additional


capacity to come online anytime soon. This will be an opportunity for the componentmanufacturers to put somemargin back into their business so I don't think they are going to rush to add capacity and remove that opportunity," said Knight. "We're at a point where any spike in demand will strain supplier


lead times," agreed Seifert. "Most distributors have tightened up their purchases for roughly a year now."


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