Addressing Challenges and Leveraging New Opportunities

The world’s top electronics distributors are managing a new set of challenges this year. They’re also leveraging new opportunities that are emerging across various sectors. Data centers that support the artificial intelligence (AI) trend, for example, are coming out of the ground at a rapid pace. New “clean energy” facilities and electronic vehicle (EV) infrastructure are also being built to support the world’s shift away from its reliance on fossil fuels. These are just some of the opportunity areas where distributors are lending their expertise, knowledge and experience to myriad different projects. 

Distributors are also dealing with new roadblocks right now with the ship attacks in the Red Sea, ongoing geopolitical turmoil and new disruptions taking their toll on the world’s supply chains. These VUCA (volatility, uncertainty, complexity and ambiguity) events are challenging distributors on several fronts, but the best of these companies appear to be faring well despite the roadblocks being placed in front of them.

The labor market continues to make it difficult to find and retain employees, managers and leaders, and this is a trend that no industry sector has been shielded from. And despite the staff cutbacks by technology firms and some other industry sectors in 2023, there’s still a dearth of viable candidates compounded by strong job growth. In March 2024, for example, U.S. employers added 303,000 jobs. This represented the 39th straight month of growth and increased confidence among economists and investors that “robust hiring and rising wages can continue to coexist while inflation eases,” the New York Times reports.

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“The resilient data generally increased confidence among economists and market investors that the U.S. economy has reached a healthy equilibrium,” it continues, “in which a steady roll of commercial activity, growing employment and rising wages can coexist, despite the high interest rate levels of the last two years.”

The global economic outlook is also positive, according to McKinsey & Co., which points to political transitions and policy changes as two of the “pressing risks” that executives are concerned with. Citing its recent Global Survey, McKinsey says respondents share “much brighter assessments of the global economy and conditions in their countries than they did at the end of 2023. In fact, views of the global economy are the most positive they’ve been since March 2022.

“Looking ahead to the next six months, respondents are also more optimistic than they were last quarter,” McKinsey & Co. reports. “Forty-six percent expect the global economy to improve—nearly double the share expecting worsening conditions—while 37% expected improvement in the previous survey.”

Year-Over-Year Comparisons 

Combined, the Top 5 distributors on this year’s Top 50 Electronics Distributors list posted revenues of just over $90 billion in 2023, which was slightly lower than the top five’s revenues the prior year. For the most part, distributor revenues were consistent with 2022, though some companies posted substantial increases last year. The top two distributors on the list—Arrow (#1) and AVNET (#2)—both posted gains for the overall year. WPG Americas (#3), DigiKey (#4) and Future Electronics (#5) found themselves in new ranking positions this year, though the top five consists of the same five companies as last year.

The total revenues for the next five entrants, rounding out the top 10, (TTI, Mouser, RS Group, Fusion Worldwide and NewPower Worldwide) reached $15.43 billion in 2023. Total sales for this year’s Top 50 Electronics Distributors that reported their revenues to Supply Chain Connect reached $118.35 billion. This was a slight decrease in comparison to last year’s total sales of $120 billion.

Stef Lukasik, marketing program manager at Flip Electronics (#38 ), says the proliferation of semiconductor components resulted in the widespread use of chips across various sectors. As more products integrate electronic components, companies increasingly rely on distributors to reach a wide range of customers. 

“Additionally, authorized distributors are focusing on leveraging big data, analytics, and emerging technologies like artificial intelligence (AI) and machine learning to better understand market dynamics, analyze product demand and optimize pricing strategies,” Lukasik says. “This technology-driven approach is seen as crucial for staying competitive and ensuring success in the evolving market landscape.”

Opportunities abound in that market landscape, where Lukasik says Flip is “actively seizing the opportunities” by integrating AI applications into its supply chain processes. “Leveraging AI, encompassing machine learning, natural language processing and robotics, holds immense potential to revolutionize our operations, driving efficiency and cost reduction.” 

Manufacturing is Heading Toward Expansion

In its most recent Report On Business Roundup, the Institute for Supply Management (ISM) expressed confidence that U.S. factory activity could begin expanding this spring. The group’s composite Purchasing Manager’s Index (PMI) was 50.3% in March—the first real indication of expansion since September 2022.

This is yet another positive sign for global electronics distributors that support the manufacturing sector with a continuous supply of components, parts and services.

“This was no April Fool’s Day joke,” says Timothy R. Fiore, chairman of the ISM Manufacturing Business Survey Committee. “The numbers are real.” 

While commodities inflation remains a concern, the overall health of the manufacturing sector indicates “a growth cycle,” Fiore adds. “And it starts with the fundamentals. Many of the industries performed well—not exceptionally well, but the biggest industries in particular gained performance compared to February. And activity levels were up (in the indexes) where they needed to be, with new orders and production expanding, a nice step up in inventory levels and employment reductions slowing.”

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The Production Index gave the PMI its biggest boost in March, up 6.2 percentage points to 54.6%. The group says that the index “showed resiliency” during the 16-month contraction period, staying higher than what might be expected thanks to the backlogs worked off due to coronavirus pandemic-inspired overordering. With backlogs contracting, production levels are more about business activity.

The Inventories Index (48.2%) also ticked up, with Fiore suggesting it’s possible all five subindexes (new orders, production, employment, supplier deliveries and inventories) that directly factor into the PMI could be in expansion territory soon. The Federal Reserve’s position on interest rate cuts could either support or curtail this expansion, and particularly since the most recent report point to a U.S. economy that’s still in inflationary mode.

“The signs point to a decent expansion cycle,” Fiore says, “not incredibly strong, but decent.”

ESG is Top of Mind

Tim Carroll, global head of marketing and e-commerce at DigiKey (#4), expects to see signs of further design activity, with more new product introductions and projects coming to fruition toward the end of the second quarter. “Hopefully by the end of the year, we will see reasonably increased demand for electronic components as technology evolves,” Carroll says. “Key vertical markets are trending and will develop further this year, including renewable energy, electric vehicles, cellular networks, AI and Internet of Things.”

As the global environmental, social and governance (ESG) push continues, electronics distributors are doing their part to address environmental issues and preserve the planet for current and future generations. For example, Carroll says DigiKey understands that the business choices it makes today directly impact the company’s future success and viability, as well as the global community’s future. 

DigiKey is ISO 14001-certified and maintains compliance with various environmental requirements, including air, soil and stormwater protection. Its other sustainability initiatives include smart packaging, outbound shipping sustainability, EU-to-EU shipping, greenhouse gas inventory programs, recycling and reuse programs, energy conservation and various employee-led efforts.

“We are committed to making a positive impact on the world by prioritizing innovation, quality and environmental stewardship,” Carroll explains. “Through innovative practices, standardized certifications and collaborative partnerships, we are dedicated to minimizing our carbon footprint, conserving resources and enhancing the well-being of the communities we operate in.”

Colin Strother, executive vice president of Rochester Electronics (RANKING#), says the company is committed to promoting gender parity and equality in engineering and employment. With the help of CircuitBread, the company focuses on educational initiatives to inspire the next generation of engineers. “Furthermore, we prioritize environmental and regulatory compliance,” Strother says. “The company promotes green processes and maintains strong relationships with local communities.”

Rochester also regularly reviews its manufacturing inputs and outputs to ensure compliance with the EPA and to preserve the environment. Waste reduction is a top priority, Strother adds, and the company has implemented recycling programs that capture and remove waste metals from waste streams for recycling.

“Intensive chemical analysis is performed within manufacturing programs wherever possible to optimize performance and reduce waste,” Strother continues. “All hazardous waste created at Rochester Electronics is 100% designated ‘Zero Waste to Landfill.’ This waste is recycled, reclaimed or reused and never buried in a landfill as legacy waste.”

Keeping an Eye on the Big Picture 

In assessing the current global landscape, Strother says political and trade tensions have resulted in “large-scale restructuring of the semiconductor investment landscape, leaning in favor of North American and European production.” Based on these trends, he advises electronics buyers to reassess purchasing practices and focus on “guaranteed supply” versus cost reductions. 

Luke LeSaffre, chief revenue officer at Fusion Worldwide (#9), says the “inventory digestion cycle” that started in 2023 continues to have a hangover effect for numerous industries. Some are seeing the scale balance, as certain manufacturers are increasing their wafer starts in anticipation of robust trends within enterprise data and CPU data center markets. However, he says there are signals that demand is softening within the industrial and automotive sectors, especially with electric vehicle growth slowing more than expected.

2024 Top 50 North American Electronics Distributors List >
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“Coming into 2024, we were moderately bullish and focused on widening our lens to keep our eye on the big picture,” LeSaffre says. “That outlook has held steady as we have identified the best ways to support our customers with market intelligence and opportunities that enable them to move with the market.

Right now, manufacturers are signaling that the inventory digestion cycle will be resolved by the mid-point of the year—if not the tail end, according to LeSaffre. “While it remains to be seen if that is true, our unwavering commitment to supporting our customers remains unchanged,” he adds. “We are especially focused on system-level commodity products, recognizing that GPUs and CPUs will play a pivotal role in facilitating the proliferation of AI.

What’s the Outlook?

Looking ahead, Carroll sees substantial global opportunity, particularly within wireless, IoT and sensors. “We’re optimistic about the electronics community in all end markets in general and the wireless, IoT and sensor spaces across the whole business,” he explains. 

Strother is bullish on the future of automotive sector growth. That expansion is pushing semiconductor suppliers to adopt and adhere to higher standards, such as IATF-16949 for quality management systems, AEC-Q100 for qualification testing and ISO-14001 for environmental management.

“Ensuring product longevity is a requirement in the automotive industry. While car models may change yearly, the underlying components and assemblies can remain in use for many years, with 10-year lifecycles, at a minimum, often being mandated,” Strother says, who notes that many vehicles have life expectancies that extend beyond 10 years. That means product manufacturers must address lifecycles beyond the production, aftermarket and repair requirements. “[We] provide a continuous semiconductor source that aligns with automotive manufacturers’ long lifecycle and quality requirements,” he adds.

As he looks ahead for the remainder of the year, Lukasik expects ongoing progress in AI and other emerging technologies like machine learning and robotics in the electronics supply chain. “These advancements are poised to revolutionize our operations, driving efficiency gains and cost reductions throughout the supply chain,” he says. 

Simultaneously, Lukasik says the semiconductor market is primed for a strong recovery, fueled by innovations such as 5G and IoT. Growing demand for semiconductor chips in automotive and industrial sectors, coupled with the resurgence in industrial demand, both offer promising growth prospects. 

“We do anticipate challenges in optimizing product mix, navigating geopolitical shifts, and addressing supply chain concerns, necessitating adaptability and resilience from industry players,” Lukasik concludes. “Despite these challenges, the coming months present ample opportunities for companies to capitalize on technological advancements and seize growth opportunities in the market.”