Steve Rawlins, CEO of Anglia Components, noted last year that distributors were operating 'in exciting times'. Just how exciting those times are depends upon your perspective.

The latest figures from distributors association Afdec, while showing a glimmer of hope, are not entirely encouraging. According to Afdec chairman Adam Fletcher, market optimism is being tempered by manufacturing lead times extending and the resulting product shortages. "We are operating in very unusual market conditions in what continues to be a fragile overall economic environment, exacerbated by uncertainty about the forthcoming general election in the UK," Fletcher claimed.

The latest Afdec figures show that billings in January 2010 increased by 17.7% over those of December 2009 and by 9.1% over those of January 2009. On a year to year basis, demand for semiconductors grew by 26% and passives by 11.4%. But demand for electromech products dropped by 3.4%, component assemblies by 6.7% and, interestingly, that for 'other products' declined dramatically by 38.5%.

DMASS, the Distributors and Manufacturers Association of Semiconductor Specialists, takes a European perspective of the industry. Its latest figures suggest, with a drop of 24% in business, 2009 was one of the worst years for European semiconductor distribution since the 1980s.

From a regional perspective, demand in Germany declined by 9.6%, French orders were down by 15.8% and those from UK companies were 17.7% lower than in Q4 2008.

DMASS chairman Georg Steinberger said: "The current booking situation suggests healthy growth, at least for the first half of 2010. And it seems that the current market swing is not entirely driven by inventory correction."

Two important distribution 'numbers' in the Afdec report are the book to bill ratio – indicating whether companies are ordering more or less – and the number of stock turns on distribution shelves.
AFDEC says the book to bill in January 2010 remained at 1.08:1, but pointed out 'strong bookings' for semiconductors and passives. Stock turns, meanwhile, remained at 2.6 times per year.

Fletcher pointed out that Afdec's three month moving average for all components is trending up, suggesting a small growth in billings may be reported for February. "Despite the high levels of optimism in the UK electronic components supply network," Fletcher contended, "I suspect that global electronics market growth may not prove to be sustainable into Q2 2010. As a result, we are also likely to see a small correction in the UK. We need to proceed positively, but with caution."

Steve Carr, managing director of Acal Technology, believes the average stock turns for the industry are too low. "Three is not high enough," he pointed out, "but, on the other hand, 10 is too high. I think there should be five or six stock turns a year; we work in a fast moving market and if your stock turns are too low, then it's likely you're going to be holding the wrong stock. Companies have to have the right mix of products on the shelf in order to support their customers."

Carr is convinced the future for UK distribution lies in Europe. Rawlins, by contrast, is convinced that local distribution is the future. Carr said: "There's a place for local and regional distributors, but they have to be specialised." For his part, Rawlins believes: "Companies should be local or global. Those stuck in the middle aren't going anywhere."
Carr's reasoning for taking the European point of view is interesting. "US companies see the distribution area as Europe, not on a country by country basis."

Even so, he has to concede that Europe is not a homogenous market. "There are different demographics. For example, Italy is strong in transportation, Germany has strength in medical and the UK is strong in military and aerospace. But even though there are different demographics, component manufacturers want to cover a range of markets – and, in my opinion, they need a company which can do that on a European basis."

But Carr is keen to point out that companies must address Europe with a focus. "Distributors can't aim to become mini Arrows and Avnets; they must be focused on how they are going to do it."
Rawlins remains diametrically opposed to Carr's opinion. "The best thing Anglia has done is not to become a pan European distributor," he commented.

The distribution market has changed substantially over the years, largely the result of aggressive acquisitions by the 'big two' broadliners – Arrow and Avnet. Where there was a range of small – and not so small – companies addressing vertical, regional and similarly specialised markets, the number of players is much reduced. Similarly, with the reduced spend of late, broadliners are shifting their focus downwards.

"It's important for Acal to remain a specialist distributor," Carr contended, "simply because the broadliners are taking business they wouldn't have before. We're also beginning to see companies like Farnell pushing upwards. If you're a regional distributor and you're not offering anything differentiated, you will be squeezed."

Expanding, he believed companies will then be forced to business at margins which they can't afford. "If companies aren't differentiated, they won't survive," he added.

Carr also believes that being European can be an advantage when it comes to doing business in the UK. "Take Selex, for example. If you want to do business with Selex in the UK, you have to deal with sites in Milan. And it's the same for Thales. All companies like these don't want multiple suppliers; they only want one."

Acal has recently beefed up its European perspective with the acquisition of BFI Optilas in a deal which valued the latter at something of the order of £12million. Carr said the deal, completed in December 2009, came at the 'perfect time'. "It gave us critical mass," he believed, adding: "Putting two businesses of equal size together has created the primary specialist distributor in Europe."

One thing Anglia and Acal agree upon, even if they differ on business strategy, is the importance of M2M in the future. Anglia set up a subsidiary called Anglia M2M last year, capitalising on its beefed up communications portfolio.

Carr pointed out that, while M2M hasn't yet broken through: "It will happen and we have to continue to invest. But the customer base is completely different – local authorities, for example. And it's not just sales; companies addressing the M2M market have to be able to integrate and if they can't, they won't survive."

Rawlins noted: "We have the right set up in Anglia M2M and it will work."
Meanwhile, Carr still sees difficult times ahead. "While there has been a general increase in activity over the last few months, we are still expecting only slow growth." He sees allocation remaining an issue, certainly for the short term. "While companies might not be supplying these components directly, they are normally in the supply chain or selling them on, so this is having a broad impact. While we are seeing extending leads times across more products, we do believe that the second half of 2010 will see an improvement."