Like other segments in China, the country's semiconductor distribution industry is today growing more slowly than in previous years.
The Chinese semiconductor distribution market has entered "the era of slow growth," according to an IHS iSuppli report. The firm forecasts that the compound annual growth rate of China's distribution sales between 2012 and 2016 will be only 2.7 percent. Although growth is staying in positive territory, "it is a far cry from the climb seen in early 2011," it said.
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If that's the case and a slowdown is inevitable, the question isn't so much around what impact China's slowing economic growth will have on distributors (everyone should have expected to eventually see growth taper off as the country matured). There are better questions to ask, like what are companies doing to offset the slower growth? Are they switching product portfolios, strengthening offerings in keys markets that still have growth potential? Will there be consolidation in the region?
Both are possible, but what seems to be happening recently is the trend towards consolidation. As China's slowdown ripples across the electronics supply chain, it looks as if at least a few companies are buying up smaller competitors and shoring up their market positions in targeted areas.
For instance, ACL Semiconductors Inc., a China-based distributor of semiconductor and memory components, recently completed the $1.8 million acquisition of Jussey Investments Ltd., the major shareholder of USmart Electronic Products Ltd. and eVision Telecom Ltd., according to a press release posted on Herald Online. USmart is a Hong Kong-based ODM, specializing in designing, manufacturing, and distributing technology for the computer, customer electronic appliance, and communication market in China. EVision, also in Hong Kong, specializes in CDMA2000 (the 3G wireless standard adopted by China Telecom). EVision provides CDMA 2000 solutions to USmart. ACL's CEO Chung-Lun Yang said the move will better position the distributor in the expanding telecommunications industry.
Over in the transportation side of the electronics industry, TTI Inc. , an indirect, wholly-owned subsidiary of Berkshire Hathaway, in August acquired the assets of Shanghai-based NPCS Autotronics Co. Ltd., the company said. NPCS Autotronics is a specialty distributor of connector products used in the transportation market segment and is an official distributor of Delphi Connection Systems. Gene Conahan, president of TTI Europe and Asia, said NPCS core competencies will be a value-add for TTI's transportation customers and suppliers in the region.
These aren't new strategies, by any means. The electronics supply chain, and especially the distribution segment, has gone through many cycles of expansion and contraction, and all sorts of waves of acquisition and divestitures. The interesting part is to see it now happen in a market where double-digit growth has been steady for so long and where many people are still only beginning to register the shock of the country's economic slowdown.
Will the same strategies that worked in the past work today in China? I guess we'll see.
Jennifer Baljko is a contributing writer at EBN, an EE Times sister site. This article was originally posted on EBN.