As new technology gets designed into vehicles, more automotive suppliers are seeking components and services from distributors by James Carbone.
North America-based electronics distributors say that the automotive industry is becoming a more important customer segment for them as more electronics systems and components get designed into vehicles.
Electronics systems such as Wi-Fi, infotainment, crash avoidance, lane changing notification, rear view cameras, display panels and solid-state lighting are creating more demand for components and much of that demand is being fulfilled by distributors. Such automotive systems are chock full of semiconductors, passives and other components, ranging from sensors and microprocessors to capacitors and connectors.
“Transportation, including automotive, is a continuing growth highlight for us,” said Alan Bird, president Americas for Arrow Electronics. “In the Americas we have had double-digit growth,” he said. “It is larger today than it was three years ago and it is growing faster than the overall (customer) base.”
He said distribution sales to automotive are rising, not because of increased vehicle sales, but because the amount of electronics being designed into vehicles is rising, he said. “The amount of electronics content is unbelievable and is increasing dramatically,” said Bird. He added that electronics content does not just mean semiconductors.
“Semiconductors get all the headlines, but there is not one thing you can build that doesn’t have passives, and electromechanical products and they need to be connected somehow,” said Bird. “You have to have capacitors and resistors to make the board work. So what we have with automotive is a total opportunity,” he said.
Bird added that content will continue to rise for years because there are no signs that innovation of automotive systems will slow down anytime soon. Innovation comes in different forms.
“Ten years ago I don’t think any of us would have imagined that our car would be a hot spot,” said Bird referring to how many cars now are equipped with Wi-Fi capability. Other innovations such as self parking cars, collision avoidance and adaptive braking have also boosted electronic components content in vehicles.
Automakers are continuing to develop the driver-less car which will require even more electronics. Many auto OEMs and their suppliers are enhancing electric vehicle and hybrid technology and building more vehicles that require less gasoline or none at all.
These automotive trends are good news for distributors because distributors are selling parts to automotive suppliers and are providing them with key design, supply chain and value-added services. As a result many distributors report that their sales to automotive is growing at a double-digit rate and automotive is becoming a more important customer segment for them.
The automotive “ecosystem has really started to embrace distribution,” said Bird. The auto industry is looking for distributors to help “drive efficiencies for global tier 1 suppliers as well as a lot of the regional suppliers,” said Bird.
He said different tiers of automotive suppliers have different requirements of distribution. For instance, tier 1 suppliers require Arrow to do a “lot of supply chain work” but they don’t need much engineering support.
“As you go down to tier 2, they are looking for us to help them a lot more on the “solution side” including providing supply chain services, said Bird. With tier 3 automotive suppliers, “we are
doing a lot of the engineering work,” he said.
A clear and present opportunity
Of course automotive is also helping drive sales of other large broad line distributors, which have the components and the services that automotive customers need.
“Automotive is clearly an opportunity. It is growing year on year for us,” said Chuck Delph, president of Avnet Electronics Marketing Americas. “It is a growing part of our business when you think of the broad industrial segment as being somewhat flat,” he said. “It is growing as a percentage of our revenue,” said Delph.
One reason distribution sales to automotive are growing is because as electronics content in vehicles grows, there are emerging customers that are developing technologies and products that the auto industry needs.
In addition there are other customers that may have not “traditionally played in that space but now are and now need support” from distributors, he said.
While some distributors need to add product lines to service the automotive segment, that is not the case with Avnet. Avnet already has a “broad line card, both in semiconductors as well as interconnects, passives and electromechanical devices, said Delph. “We see opportunity across our entire product solutions, so I think today we feel comfortable that we have the right partners to be successful in the automotive industry,” he said.
Future Electronics is also bullish about the automotive segment. “Automotive is a massive opportunity for us,” says Karim Yasmine, executive vice president for Future. The Montréal-based distributor provides a wide range of components to automotive suppliers that build infotainment systems, instrumentation clusters, cameras and dashboard electronics assemblies and lighting systems among others.
Yasmine said transportation is Future’s second fastest-growing segment and automotive is the fastest-growing within the segment, which also includes agricultural vehicles and trains.
He said automotive is a great business for Future because it requires a variety of components, “including semiconductors, passives, connectors and discretes.” On the semiconductor side of the business, Future supplies field programmable gate arrays, microcontrollers, high-end microprocessors and light emitting diodes (LEDs) among others.
“Automotive is a very significant opportunity for lighting, including interior and exterior lighting,” he said. Yasmine noted that Future has a solid- state lighting group that handles design work for customers.
He noted that many customers that design lighting systems “are not experts in electronics and they come to us for our lighting knowledge and our understanding of the component side of the business.”
Small volumes needed, too
While automotive is helping drive the businesses of distributors that sell production quantities of components, it is also an opportunity for small volume distributors that focus on new product introduction.
“Automotive is a key market for us,” said Kevin Hess, senior vice president of marketing for Mouser Electronics. Much of Mouser’s business involves providing parts to engineers designing new systems. Hess said many automotive industry engineers check out Mouser’s application sites when working on new products.
“There is a lot of interest with engineers around automotive applications,” he said. Mouser’s automotive application sites “is always in the top five in page views per week,” said Hess.
Steve Newland, senior vice president of Americas sales and global sales operations, for Mouser, said it seems all distributors are showing growth in the transportation segment.
“It is one area that has not gone through a significant downturn,” he said. “It has had some stability and everything in the car tends to be more sophisticated. The most mundane things in a car are now electronic.”
He added that the number of standard features in vehicles such as collision avoidance, climate control, infotainment “are astounding.” As a result, automotive “is a good growth segment for us and has been one of the better performing ones over the years,” said Newland.
Some distributors note that the North American automotive supply base extends beyond the Detroit area. A lot of automotive manufacturing occurs in Mexico.
Brian Ellison, president of America II, noted that major automakers are in Mexico and there are about 50 subcontractors around each automaker, he said. The auto industry in Mexico will continue to grow in part because of re-shoring as some manufacturing moves back to North America. As a result, the distributor is targeting the Mexican auto industry as a growth segment.
America II has traditionally been an independent distributor, but has been adding franchise lines to its portfolio in recent years. It currently has about 70 such lines. The distributor also recently became certified to the AS-6081 standard which was created to provide uniform requirements, practices and methods to mitigate risks of procuring and sourcing counterfeit electronic components. Certification to the standard is necessary for any company that wants to sell parts to certain industries such as automotive, medical and defense.
Ellison said that the Mexican auto industry “is a good opportunity for us,” and America II expects to grow its sales in the region in the next few years.