Alex Iuorio, SVP of Global Supplier Development at Avnet, joins this episode to discuss all-things interconnect, passive and electromechanical. From the history of the market to how IP&E has fared through recent supply chain disruptions and why the future looks bright, Iuorio explains why the need for IP&E solutions has never been greater.
This interview was edited and formatted for clarity.
Tyler Fussner, Managing Editor, Supply Chain Connect
Hey, Alex. Thank you for joining us today.
Alex Iuorio, SVP of Global Supplier Development, Avnet
Tyler, thank you for having me.
Fussner
If you could please introduce yourself to our audience.
Iuorio 0:22
Certainly. My name is Alex Iuorio. I'm with Avnet. I'm responsible for supplier relationships around the world and I've been with the company for 43 years.
Fussner 0:33
Well, Alex, I am excited to talk to you today, particularly about the IP&E segment. Before we get into the nitty gritty, let's start right at the basics. What is IP&E, and where does it fit within the electronics market?
Iuorio 0:48
I'm really glad that we get to define it because I think too many times we throw terms like IP&E around. We're talking about interconnect, passive and electromechanical products. I might go so far as to say that, really, those products are the foundation of modern electrical systems or electronic systems. They provide the connectivity; in many cases, the storage; the power optimization. IP&E products, as a portion of the whole, are enabling technologies for the digital world we live in.
Fussner 1:24
Something you touched on Alex—they're integrated. They're tied into anything that you look at that is electronic. Can you explain more of the prevalence or importance of IP&E and tell me a little bit about what industries heavily rely on the IP&E sector?
Iuorio 1:42
To think in terms of just how long IP&E has been around, or how long Avnet has been around, we'll celebrate our 103rd year in business in 2024. We started in 1921. We are a significant semiconductor distributor today, but it didn't start that way. The integrated circuit wasn't invented until 1958; we didn't start distributing those products until the ’60s. So, prior to that, for our first 40 years, we were exclusively an IP&E distributor selling things like relays, passive components, specifically capacitors, and even vacuum tubes (which, Tyler, you might be a little too young to remember). That really was the foundation of Avnet’s business in terms of supporting the industry with IP&E products.
In terms of what segment it fits into… I think we have to think in terms of just what's happening in the world and how low the barriers of entry are today for innovators that are trying to launch products in the market. Some refer to it as secular pervasion. The idea is that electronic components, IP&E components, semiconductor components, exist in every system in every walk of life. They have become completely pervasive.
As an answer to that question: to differing degrees. But whether it's the communication segment, or the defense-aero segment, or the industrial segment, or the transportation segment, the superset of automotive—all of those companies rely heavily on interconnect, passive and electromechanical products to complete (and in many cases, optimize) their circuits and therefore their products.
Fussner 3:24
I like the word that you used; it is pervasive. IP&E is everywhere. Something to keep in mind with how pervasive that sector is, I'm curious how the IP&E market has fared against supply chain disruptions. They seem all too frequent across every industry today. How has IP&E been able to navigate recent disruptions? And, if you could, tell me a little bit about how Avnet navigates supply chain disruptions.
Iuorio 3:50
Those are two really great questions. I'll start with the Avnet piece. Our core strategy is design chain and supply chain. And by design chain, we mean exposing, enabling, working with our customers to design in the right products, and then ultimately be able to deliver those products via supply chain—a high-tech supply chain network that traverses the world.
Supply chain, for lack of a better term, has really come into vogue as a result of the pandemic. I can't count the number of supply chain entities that are going to help customers with their supply chain issues mostly relative to the pandemic. I want you to be aware that Avnet officially launched our supply chain practice in 1992 under the heading of Avnet Integrated Materials Services, because we could see at that time that the high technology supply chain, different than any other supply chain, was going to require building competencies, processes and systems within our organization to be able to handle it over time.
When you think about the application of supply chain as a science, it's about avoiding hotspots, whether it's the volcanic cloud in Europe or tsunami in Japan, or floodplains in Thailand, or even COVID and the hotspots that were created by COVID (shipping ports, airports closed, those sorts of things) or tariffs. And not to reduce them to the most common level, but from a supply chain perspective, those are hotspots within the supply chain. We need to rely on the information that we've collected, the expertise that we've developed, the processes that we've deployed, to be able to work our supply chain around that existing infrastructure to get around those hotspots. We've been in it a long time and I definitely think that we offer world-class high-technology supply chain services to the customer base.
On the side of IP&E and how it fared during the pandemic, specifically, I would tell you that interconnect, passive and electromechanical manufacturers, in general, did better. And there's a variety of reasons for that, not the least of which is that we all talk about the significant shortages that were related to the pandemic, but well before that in 2017 there was a run on MLCCs, ceramic capacitors. There are five players involved in that space. In 2017, when this shortage occurred, there was 3.5 trillion-unit capacity and almost 5 trillion-unit demand. So, we were off by 50%. And those shortages, constrictions, affected customers dramatically.
It was at that time that many of these suppliers, particularly the capacitor suppliers, started to invest more in capacity. The good news for them is, much different than a semiconductor manufacturer, it doesn't take as long to bring that capacity up. They went through the pain once; they were better prepared for the pandemic.
I will also tell you that there has been a lot of consolidation within the space, particularly within the passive manufacturers, the biggest passive manufacturers, and that's the merging of entities to create scale to have the funds to be able to invest.
So, my answer is they fared better in the short term for those reasons, and they're positioned well long term because of the investments of these now conglomerate companies.
Fussner 7:20
It's interesting, Alex, something you mentioned earlier: Avnet has been in this space for over 100 years; IP&E has been around and was the meat of the market, so to speak, for over 40 years; it does make sense that this sector, which has a lot of knowledge and experience, are better able to position themselves to navigate supply chain disruptions. COVID was the big wake-up call for so many, but it's interesting and reassuring for those that deal in this space that IP&E seems to have it figured out.
Iuorio 7:50
Figured out on a relative basis, yes. Until we get the kind of visibility from our customers that we need in a short-lead-time world, until we build those partnerships with those components suppliers and share data to allow them to optimally align their capacity, that will be the ultimate answer—information sharing. But generally speaking, I would say the segment is in a little better space from a capacity point of view.
Fussner 8:21
The Holy Grail is that data sharing; the ability to have that real-time information at everyone's fingertips.
Something that you touched on previously with customers and how Avnet works with your customers (maybe some of them are listening right now) … If you could deliver some advice to your customers, how can they prepare to navigate any disruptions that they may face so that they could continue to successfully deal within the IP&E market?
Iuorio 8:46
The first word that comes to mind is “partner.” Select those suppliers that have competencies in the customer's area of business and deeply exchange the information necessary to make sure that the products that are being produced are the products that the customers need at the time they need them.
I think that there's other, probably less impactful, elements that can be employed here as well. Standardization. And that's across all product sets. There's research out there today that says that the average design engineer selects over 60% of the components that he or she is going to use in a design before they ever talk to a human. This is dangerous ground. Companies like Avnet, who are providing the design function for customers on behalf of our suppliers, are deploying teams of FAEs around the world (almost 2,200 in Avnet’s case) that are factory trained and up to speed with the latest that's going on in that product portfolio. To be able to harness that information and steer your engineers into general product sets with suppliers that are producing products that are at the right point in the product lifecycle, that are at the right price, that are targeted for that market, this all sits on that platform of partnership.
If you think in terms of how to best utilize partners, supply chain managers, design companies like Avnet, really think about it in those terms. The platform is designed chain leading to supply chain. As a matter of fact, I'll go as far as to tell you that the fully optimized supply chain can only be realized with a fully optimized design chain or design process. But it all comes back to what I said at the beginning, Tyler. It's about partnership and leveraging the capabilities and expertise of those partners.
Fussner 10:44
Alex, I want to pivot here and take on a forward-thinking perspective. Artificial intelligence, machine learning, automation… Digitalization is sweeping across all of business. So, what does the growth and integration of these advanced technologies mean for IP&E, and where does IP&E fit into that digital future?
Iuorio 11:07
It's almost amazing to think of the impact that artificial intelligence is having on our industry. It wasn't too long ago that people wondered, “Is it going to have the same splash to the negative that IoT had?” That's not the case here. These are real applications, today, certainly housed with the hyper-scalers. The AWS-es, the Google-s, the Meta-s that are deploying racks of GPUs to be able to work their large language models and deliver those insights that we all want.
The next step will be, very likely, AI PCs or AI phones. Ultimately, it's AI at the edge. It's the customers that Avnet is serving who are building systems that need to integrate with the cloud. And technologies like high bandwidth memory, or less power-hungry processes at the edge, I think will fuel these functionalities and create a really bright future.
When you think about the state of the market today and what IP&E means to it, it's almost staggering in terms of the impact. There's a company in Southern California that makes these GPUs which may release as many as 10-15 million over the next 18 months. Some of these devices draw 1,000 watts of power, and that's roughly equal to a U.S. household. So, stop and think about that for a second. We already have strains on the power grid, and we're going to introduce this kind of consumption. That screams power optimization. That screams power dissipation. That screams power generation and management. And these are all processes that are governed by IP&E products, whether it's signal conditioning with a capacitor, or connectivity with a connector system to system or even a high-speed backplane connector within a system that has a bus to be able to handle the horsepower of those GPUs.
So, really, the sky's the limit. Today, the component market for 2024—the industrial market, excluding GPU and memory and DRAM, Flash, GPU and MPU—that'll be about a $525 billion market in 2024. IP&E will be about 30% of that. But again, I'll go back to what I said at the beginning: big dollars, big potential, functionalities that suit the required application. And really, for IP&E products, the sky's the limit.
On the subject of AI, Tyler, we're really seeing this from an industry standpoint as an absolute market change. And what I mean is that when you think about those edge device manufacturers I was talking about, my customers, we really think in terms of a technology stack, which today is largely software intensive. And it should be, because products are becoming standard, they're becoming commoditized, and the differentiations of the application software that the company produces to differentiate their product.
Then enter AI. That technology stack, which today is software intensive, absolutely pivots (to use your word, Tyler) to hardware intensity. Think about it. It's all about compute. It's all about connectivity. It's all about communication. It's all about storage. And it's all about processing to deliver insights at the other end. And every one of those semiconductor functions, these comments infer, are not possible without the IP&E products that create the backbone, or as I said at the beginning, the foundational platform.
Fussner 14:46
It is an exciting time period in the electronics industry. No matter what business you're in, these advanced technologies are coming. They're being integrated and growing, scaling exponentially. I can’t imagine how excited Avnet is with this growth. So, can you tell me: What does the future look like for Avnet within the IP&E space?
Iuorio 15:03
Avnet is proud to be Arizona's largest public company, largest headquartered public company; about $26 billion (a little over $26 billion in our fiscal 2023 when it ended last year). And of that, it's predominantly semiconductors. But IP&E represents well in excess of $4 billion of our revenues. And I'd argue, at this point, that that makes us the largest for these products in the world.
However, when you look at it from a participation point of view, or market share point of view if you will, Avnet may maintain four times the market share in semiconductors that we do in interconnect, passive and electromechanical products. And therein lies the opportunity to create solutions for our customers across those portfolios.
So, the future's bright. Our view is that IP&E, over the next three years, will probably grow close to 5% CAGR. And those are really healthy growth numbers for us to pursue in such a large market. The future is bright!
Fussner 16:04
Alex, I want to thank you again for joining us today. It was a lot of great information and great insight. So, thank you for taking the time.
Iuorio 16:11
Tyler, thank you very much for allowing me to speak about Avnet and IP&E and our supply chain - design chain offerings. Anything that the listening audience would like more information on, please visit Avnet.com. We're here to serve and support your innovation. Thanks.
