Optimism expressed by the distribution industry at the end of 1998 has not been borne out so far this year, executives report.
Despite a disappointing 1998, distributors responding to a December survey by the National Electronic Distributors Association were fairly optimistic about 1999. When asked to rate how they thought business would be this year, 47% of the respondents said above average; 41% said average, and 10% said below average. Only 2% expected an excellent year.
But NEDA's executive vice president, Robin Gray, reports that members have seen no uptick in business so far this year.
"People were more optimistic about 1999 at the end of 1998," Gray said. "But talking to people now, [that optimism] is just not there." One reason, he said, is that, while the semiconductor market appears to have bottomed out and is on the rebound, distributors of IP&E products used with semiconductors may be feeling a delayed reaction, since those products generally lag semiconductor market trends.
The survey is expected to be the first in the annual NEDA Business Barometer. The association sent out 198 surveys and received 60 responses, a 30% response rate.
The geographic scope of the respondents played a large part in how optimistic they were about business now and in a year's time. Among the responding distributors, 63% were regional/local resellers, 25% were national, and 12% were global. Global players proved the most positive, with 57% stating that business in December was above average, 29% said business was average, and 14% said business was bad. Forty percent of national respondents also said business was above average, but 47% called business below average.
Local/regional players aren't faring as well: 46% said business was below average, and 35% said business was average.
Part of the disparity between global responses and national responses was that in 1998, the European market was stronger than the U.S. market, both in terms of sales growth and gross margins. "That helped the global distributors," Gray said. And while the Asian crisis affected all distributors, global distributors do not derive a high percentage of their sales from that market, he added.
"The optimism level between the global and national/local is very striking," Gray said. "The picture gets bleaker as you move from global to local."
Reasons for the overall business slowdown were universal. Respondents attribute the change in their business to the same problems: the Asian and South American crises; global electronics market conditions; connector market and semiconductor market downturns; and industry consolidation.
Local and regional respondents said the decrease was due to increased competition from larger companies, as well as contract electronics manufacturers sourcing directly from suppliers. Those who reported an increase in 1998 attributed their success to service-oriented strategies and value-added assembly offerings.
Global distributors were the most optimistic about 1999, with 72% expecting an above-average year. The rest were split, with 14% each citing excellent or above- average expectations. Sixty percent of national distributors foresee an above-average year, and 33% anticipate an average year. The majority of local/regional distributors, 49%, expect an average 1999.
The survey asked distributors how their current business activity compared with last year's, and in which areas of the components industry they were most involved. All business sectors said they experienced a slight increase, except for MRO and test, measurement, and control sectors, which reported business was the same as last year.
Gray said that, to some extent, niche distributors tended to report business was better; and at least one IP&E specialist concurs. Fort Worth, Texas-based TTI Inc. has seen business increase in the past two months, according to Craig Conrad, senior vice president of sale He pointed out, however, that TTI embarked on several strategic expansion initiatives late last year.
Another distribution source suggested that specialty distributors may be deriving some benefit from Arrow Electronics Inc.'s integration of Richey Electronics Inc. and Bell Industries Electronics Distribution Group. Those two acquisitions closed in January, although integration is not expected to be completed until late March or early April.
The largest percentage of respondents to the NEDA survey, 40%, reported sales of $8 million to $50 million. Thirty percent had sales between $2 million and $8 million, and 17% said sales were less than $2 million. A smaller group of larger distributors responded, with 8% having sales of $50 million to $299 million; 3% reporting sales of $300 million to $999 million, and only 2% with sales of more than $2 billion.