As the technology recession continues to hammer at distributors' profits, more are being forced to re-evaluate their business models. Reptron Electronics is the latest to conclude that it might be better off without its electronic-components operations.
Last month, Reptron signed a definitive agreement to sell its components distribution division to Jaco Electronics. Reptron plans to focus on its electronics-manufacturing services and its memory-module and display and systems businesses. Jaco gets Reptron's components customer base of 2,000 and such new products as flat-panel displays.
The move echoes one made by Pioneer-Standard Electronics in January. Concluding that its best opportunity for growth rested with its computer business, Pioneer-Standard sold its electronic-components division to Arrow at the start of the year.
Robin Gray, executive vice president for the National Electronic Distributors Association (Alpharetta, Ga.), told me that there is a role for distribution going forward. But distributors-and their margins-are getting squeezed by suppliers and customers as price erosion persists, Gray said.
The three-year downturn has been a drain on those distributors that haven't been able to cut their costs and restructure operations. "A lot of businesses are trying to decide where to compete, particularly if they have several profit centers," Gray said.
Often, the "fight or flight" decision is being made in favor of retaining value-added manufacturing services, which have continued to be relatively lucrative profit centers during the downturn, at the expense of component operations, which are being sold off or deemphasized as component sales remain flat.
Matt Sheerin, senior analyst for Thomas Weisel Partners LLC (New York), told me that the only way for distributors to survive is to carve out a niche, whether it's a product specialty or an engineering-focused service.
Is more consolidation ahead for the distribution industry? Gray thinks so but doesn't foresee it occurring to the extent seen in the late 1990s.
While Sheerin expects further consolidation, he believes the bulk of it will be in Asia. "That's why Pioneer got out of [the components] business-because they didn't have a presence in Asia," he said. "They were beginning to lose product lines because companies want global distributors."
The views and opinions expressed in this column are strictly those of the author and should not be taken as an editorial position of EE Times or any of its other editors, publications or Web sites.