In the blink of an eye, it will enter the second half of the year. For a long time, what the electronics industry chain is most looking forward to is undoubtedly the recovery of the economy. From the perspective of the IC industry, the recovery of demand is later than expected. The entire first half of the year is in the destocking cycle. The supply of most common materials continues to improve, and the market continues to move closer to normalization. IC distributors, as an important role in the “connection” of the electronics industry chain, have the most profound experience of the industry situation, and various realities are reflected in the financial report.
Among the four major distributors, except for Avnet, the other three experienced a decline in performance in the first quarter. Among them, the performance decline of the two Asian distributors, Dalian University and Wenye, was more obvious. Arrow and Avnet also saw significant declines in revenue in the Asia-Pacific region, but compared to the two Asian distributors, they were able to recover some of the losses from other markets.
As for how Avnet’s performance grows against the trend, the reasons are more complicated. In the early years of large-scale mergers and acquisitions of original IC manufacturers, Avnet faced the “reshuffle” of channels many times. Perhaps since then, Avnet has focused its business on terminal services, and based on this, it has maintained its performance during the current industry downturn. In addition, Avnet also attaches great importance to new opportunities such as automotive use, which has played an important role in supporting performance at a time when the development of consumer electronics is stagnant.
The performance of the four major distributors in the future depends on the recovery of market demand. On the other hand, to a certain extent, their performance and market conditions can be compared with each other. For WWD and WWT based in Asia, their performance is more closely related to the Asian market conditions and can be referred to each other. The performance of these two major distributors is updated on a monthly basis, from which we need to grasp the industry situation in a more detailed manner.
Previously, the General Assembly announced that its revenue in May this year was NT$53.73 billion, an increase of 13.3% over April; the cumulative revenue in the first five months was about NT$245.9 billion, a decrease of 27.8% compared to the same period last year. WT’s revenue in May was NT$36.7 billion, down 8% month-on-month; revenue in the first five months was NT$196.8 billion, down 8% year-on-year.
It can be seen from the performance of the two major distributors in May that they are still in the process of bottoming out, and the inventory situation of the industrial chain still needs to be improved. In the current downturn in consumer electronics, the two distributors are hoping to save demand in the industrial, automotive and other fields. In the first quarter of 2019, the proportion of non-3C business increased to 27%, which was 7 percentage points higher than that of the same period last year. , which shows the resoluteness of the transformation.
Distributor expectations depend on OEM and market
For a long time, distributors have directly connected with the original factory, committed to supplying and promoting products to customers, and providing multiple industrial chain services such as inventory and credit release. At present, the semiconductor industry is still in the destocking cycle, and the performance expectations of distributors must be consistent with those of the original manufacturers, so as to accurately predict risks and opportunities.
In the first quarter, TI, the analog top spot, showed a turning point in its performance, with both revenue and profit declining year-on-year, and it pointed out that demand for all terminals other than automobiles was weak. More importantly, TI’s inventory cycle has increased from 157 days to 195 days, and the amount of inventory has increased from US$2.769 billion to US$3.3 billion. Similarly, ST, another important MCU original factory, had 122 days of inventory at the end of the first quarter of this year, compared with 104 days in the same period last year; the inventory amount was 2.87 billion US dollars, compared with 2.15 billion US dollars in the same period last year.
The increase in original factory inventory will inevitably increase the inventory pressure of distribution channels, thus posing challenges to distributors’ financial strength, operational capabilities and performance in the next stage. Analog giant ADI once said that many customers began to adjust forecasts and balance inventories, especially in Asia. This is obviously a daunting challenge for the two distributors in the Asia-Pacific region, Dalianda and Wenye.
On the market side, chip demand and prices have both dropped, which is also a challenge for distributors to control inventory. With the expansion of the original factory, the supply of both general-purpose and automotive materials will increase significantly in the future. In the industry chain, although distributors undertake a number of key functions, their profit levels are generally only single digits. In a down cycle, it will be helpful to learn some innovative ideas from leading distributors in terms of operating strategies.
The enlightenment brought by the three types of strategies
Avnet, which has been at a disadvantage in the “shuffling” of the original factory channel, can always maintain its dominant position in the distribution industry, which is obviously inseparable from terminal services. In the current era of rapid iteration of electronic product solutions, and terminals increasingly emphasizing the rapid response of the supply chain, distributors must have comprehensive service capabilities in order to better play the role of supply chain hubs. Among them, scheme design ability and on-site technical support ability are particularly important.
Especially in recent years, Avnet has continued to make efforts in new fields such as new energy, automotive electronics, and 5G, and has achieved outstanding results, all of which are based on comprehensive technical services. With its own technical advantages, the value enriched on each circuit board is not limited to the chip itself, but to obtain more added value through services, which is the key to higher profits. The shortage of chips has come to an end, and it is the general trend for distributors to “return to terminals”. The concepts of comprehensive services and technology-based distribution have become the consensus of the entire industry, and powerful distributors have begun strategic deployment.
In addition to perfect technical services, big data inventory management and intelligent supply chain turnover are also important paths. The key point of WWD’s transformation into a data-driven enterprise is to build an intelligent supply chain, save material inventory turnover time, and even ensure that materials are sent directly from their own warehouses to the customer’s production line according to the number of customers’ needs and the specified time. Save logistics and warehouse costs to the greatest extent, and maximize profits.
Under the current situation, distributors concentrate on customer development, which must include a large number of small and medium customers. Through intelligent and big data tools, we can reasonably predict the delivery date and market price of materials, and accurately calculate the material consumption and usage time of each customer, so as to achieve efficient docking, which will significantly save costs and improve efficiency. The support of software talents is also indispensable for distributors to create intelligent management programs, which also marks the wave of intelligence with software as the core, which is changing the distribution industry.
Facing the period of industrial consolidation, distributors will play a role of “ballast” in terms of volume and channels to become bigger, better, and stronger. For example, in recent years, Wenye has successively completed the acquisition of Shijian and obtained the agency right of ADI in mainland China, which has achieved results in expanding scale and developing channels. For the current distribution companies, it is the right time to follow the wave of domestic substitution and develop more domestic chip resources, which can enhance the stickiness of old customers and develop new customer groups. In terms of expansion, the current local distribution market is more fragmented than overseas. In the current environment, strategic orientations such as reporting to groups for heating and avoiding risks are expected to stimulate more mergers and acquisitions. After getting out of the cycle, there is bound to be volume Bigger distributors are born.
In general, leading distributors have set a transformation paradigm for the entire industry through their own practice. At this time, the industry is in the period of precipitation, and challenges and opportunities exist at the same time. I believe that the transformation efforts made by distribution companies will surely be transformed into fruitful results when the cycle is reversed.