Many electronics distributors expect to post single-digit sales growth over the next five years as more electronics are used in more systems and products.
It’s no secret that over the past 15 years, many North American electronics distributors have gone global expanding operations to Europe and Asia to service customers that have migrated manufacturing outside of North America.
Distributors have also expanded global operations to service European and Asian-based OEMs and electronics manufacturing services providers that they had not done business with before. As a result of global expansion, the percentage of total sales of North American distributors customers in the U.S., Mexico and Canada has declined.
North America used to be responsible for the vast majority of sales of large U.S.-based distributors, but now account for about a third of annual revenue, while Europe and Asia account for two thirds of sales. However, that does not mean North American sales are declining, or that distributors are not bullish about their prospects in North America.
Distributors are optimistic about the future of distribution in North America over the next five years and are confident that sales in North America will continue to grow, sometimes in the mid-single-digit or double-digit range although the growth rate may be lower than in Asia. They say demand will be strong in North America because of the growing use of electronics in a host of equipment ranging from wearable electronics and portable medical equipment to factory automation equipment and self-driving cars.
In 2019, some distributors in fact had more sales growth in North America that they did elsewhere. “Last year was not a great year for the overall market, but we still had 5 per cent growth in North America,” said Mark Burr-Lonnon, senior vice president, Europe, Middle East, Asia and global service at Mouser Electronics. Mouser’s business in Europe was flat, while its sales in Asia declined about 8 per cent.
Over the next five years, Mouser expects its sales to continue to grow in North America because there’s so much design activity in the U.S., Mexico and Canada and most of Mouser’s business is with the design engineers working on new products.
Customer base grows
In addition, Mouser has a huge customer base totaling about 400,000 in the Americas and the number grows each year. ”A lot of them are small, but they’re good margin customers and they keep coming back,” he said. By comparison, Mouser has about 120,000 customers in Asia and 220,000 in Europe.
Mouser’s business in North America is growing with startups and with established OEMs. Mouser is also growing the number of customers it has within companies. Often it has multiple buyers at multiple sites of a large company. “So, if we had 10 people buying from us before at a company, maybe now we have 20 people,” said Burr-Lonnon.
While most of Mouser’s customers are small, it has some big OEM customers that purchase $10-$30 million of parts per year from multiple company sites. “Each site may place hundreds of orders per day, or thousands of orders per month. It’s not the production business. It’s engineering or shortage business,” said Burr-Lonnon.
He notes that during times of shortages, if a large OEM cannot buy parts directly from a component manufacturer, the company’s buyers will reach out to distributors for shortage parts. They often turn to Mouser because the distributor has a wide breadth of inventory. “For us it’s all about inventory. Whether it’s TI, TE or Molex or ADI. We want to make sure we have the most number of parts available,” he said.
Having a wide range of parts is important because most OEMs’ forecasting is not as accurate as it should be. “That means distributors with inventory will always have orders. If a production line goes down tomorrow and you have the products, you’re likely to get the business,” said Burr-Lonnon.
A “buoyant” marketplace
Another distributor that is optimistic about the future of North American distribution is WPG Americas, based in San Jose, Calif. “We are predicting double-digit growth for 2020 in North America. Part of that was because 2019 was a bit of a rough year” and business should bounce back in 2020, said Ian Basey, vice president supplier marketing & asset, for WPG Americas. Long term, he expects high single-digit to low-double digit growth over the next five years. “We think the Americas distribution marketplace is a buoyant one,” said Bassey.
One reason for growth is startups. “I think there is a lot of startup business occurring in the Americas. It’s the culture of the business in the Americas to try something new, to try new business,” he said.
He said WPG Americas is doing business with a lot of solid-state lighting startups. The distributor has a solid-state business unit to service startups and other companies that are designing solid-state lighting systems for commercial buildings.
“There are a lot of new commercial buildings going up and lighting is a big part of the cost of an overall building,” he said. Solid-state lighting reduces energy costs and by using different lighting colors “make the workplace environment more enjoyable for workers and therefore more productive. That’s a big focus for startups,” he said.
There are also startups that focus on horticulture. Solid-state lighting systems are being designed for vertical farming where vegetables are grown inside and in stacked layers. Lighting systems for horticultural applications use less power and enhance plant growth compared to other lighting technologies.
Besides solid-state lighting, medical, and autonomous driving will also drive North American distribution sales over the next five years.
“There have been so many improvements in medical devices, mostly electronic improvements and that will be a big growth driver for the Americas marketplace,” said Basey. A lot of those devices tend to be high-cost, low-volume, and they tend to be the type of products, distributors can get a foothold in,” said Basey.
He added that autonomous vehicles will be a “driving force” for electronics distributions in the near future. “It’s not just cars. There are other areas,” such as farming, which will use autonomous driving technology. There will be more driverless tractors, combines and other agricultural vehicles, he said.
Basey added that 5G will also help drive North America distribution sales over next five years, but it probably won’t begin in 2020. He said 5G will be used in IoT, “but that’s a longer-term play.”
Confidence level grows
One distributor that is cautiously optimistic about North American business is RS Components. Cameron Ward, senior vice president, global electronics for Allied Electronics and lead executive for RS Components in the Americas, said there should be mid-single-digit growth in North America over the next several years. Allied and RS Components are part of Electrocomponents plc, based in England.
“There’s a much higher level of confidence going into this year,” he said. “Last year was difficult for everyone across the board. I don’t think there’s a single distributor out there that would claim that it was a great year,” said Ward.
However, RS is conservative with its outlook because “there’s a lot of things happening in the marketplace that we have no control over,” said Ward. “You take a look at the trade war that’s going on. That’s affecting business. And there is Brexit. “There’s also a little bit of a wait and-see approach about what technologies are going to take off,” he said.
The Internet of things, the growing use of electronics in vehicles, and 5G technology will help drive growth, said Ward.
“The industrial space represents a good opportunity for us,” he said. The fact that is we already have very large customer industrial customer base that consumes some type of electronics. Industrial IoT is an opportunity, “said Ward.