Component demand from “essential” industries such as medical OEMs have boosted sales for independent distributors.
Independent distributors say they have seen healthy demand and robust sales increases despite the slowdown in production at some global OEMs and electronics manufacturing services (EMS) providers because of the coronavirus pandemic.
Much of the sales growth for independent distributors has been driven by “essential” industries such as medical equipment, mobile computers and networking equipment.
“Electronic component demand has remained steady throughout the year and business has been brisk,” said Todd Burke, president, Americas for independent distributor Smith, based in Houston. However, demand has not been steady across the board.
“Decreases in consumer demand have caused the smartphone and oil and gas markets to experience uncertainty,” said Burke. However, Smith is seeing increased demand for components, including passives, microprocessors, and field programmable gate arrays from medical OEMs and their EMS providers.
“We also expect solid-state drive (SSD) demand to continue trending upward throughout the second half of the year as demand increases for cloud services that utilize hyperscale data center infrastructure,”
Availability is ample for most components, although there are shortages and longer lead times for some parts due to country lockdowns and shutdowns of some component production caused by the pandemic, he said.
“There are some spot shortages for commodities that are heavily used in server and enterprise applications,” said Burke. “So far, we haven’t seen any evidence of panic purchasing, but certain types of memory modules, SSDs, and CPUs are having supply difficulties.”
Some distributors say there are spot shortages of MLCCs, chip resistors, microprocessors and some memory ICs.
With supply tight, there have been some price increases for multilayer ceramic capacitors, resistor arrays, memory and FPGAs, said Burke.
Uncertainty caused by the pandemic has increased demand for supply chain programs. Burke said there was significantly higher demand for programs such as vendor managed inventory and inventory hubbing in 2019. “The global pandemic has caused even more of a need for these services as customers look for ways to safeguard their supply chains while simultaneously not letting on-hand inventory get out of balance,” said Burke.
Burke added that coronavirus will likely continue to impact the industry through the year, he expects Smith’s business will remain healthy. “As manufacturers around the globe continue to come back online and consumer demand recovers, we expect electronic component sales to remain steady,” he said. Smith will continue to provide customers supply chain support which will allow the distributor “to navigate market conditions,” he said.
Growth without shortages
Another independent distributor that has had sales growth during the pandemic is Fusion Worldwide, based in Boston. “The first quarter of 2020 was one of our better quarters,” said Luke Lesaffre, director of sales for the Americas for Fusion. “We achieved good numbers without the benefit of a widescale shortage of anything. Our April 2020 was a top five month for us.”
Lesaffre said the mobile computing market has been a strong segment for Fusion during the pandemic. “ We’ve always been a company that was strong in computing,” he said. “That is an area that has been positively impacted by the coronavirus. Business has been strong primarily for notebooks” because more people are working at home and have upgraded their computers, he said. “We’ve seen a tremendous amount of business,” he said.
Enterprise computing, including servers, and cloud services providers has also been a strong segment, said Lesaffre. Lesaffre said while component demand was strong through May, it appeared to be peaking in early June. “We are starting to see some signs of softening and growth tapering a bit. We think there may be a gradual flattening throughout the year compared to hockey-stick growth,” he said.
A brutal market
Lesaffre said some customer segments were adversely impacted by the pandemic. “Automotive has been brutal,” he said. Many auto plants closed down during the pandemic. “We don’t do a ton of business with automotive. Most of our business in automotive is aftermarket business,” he said.
Carleton Dufoe, CEO and founder of independent distributor NewPower Worldwide, based in Nashua, NH, said component demand varies depending on the customer. “Some of our customers’ business fell off the cliff, while other customers’ business exploded and they could not get parts fast enough,” he said.
He said NewPower has a lot of medical equipment customers that build ventilators and other medical products and demand from those customers has been strong.
Companies that were hit the hardest are those that make nonessential goods such as desktop computers, he said. However, business has been strong from mobile computer manufacturers because more people are working at home and students are being taught virtually over the Internet rather than in the classroom which has boosted demand for portable computers.
“Anyone making a notebook has seen demand go through the roof. And conversely anyone who is making desktops has seen this business drop off,” said Dufoe.
He added NewPower’s sales to the industrial business sector, telecom and networking continues to be strong and “our services business has been through the roof. We have a lot of testing, kitting, repair business. We’ve also have taken on some kitting projects,” he said.
Dealing with excess
Dufoe said that customers whose business fell off after the COVID-19 outbreak have excess inventories and many aren’t sure what to do with it. Some have sought the advice of NewPower. “What they wanted from us is inside information” about what can be done with their inventory, said Dufoe. Such customers want to know “what’s the best-case scenario. What’s the worst,” he said. “They are looking for a solution.”
Dufoe said NewPower helps customers make decisions about inventory with its homegrown SCOUT system which can determine how much inventory can be sold at different price points. The system can tell customers if there are any customers for the parts they hold or a limited number of customers.
Dufoe said he is optimistic about NewPower’s business for the rest of the year. “In 2019, we finished with $318 million in sales. Our goal for this year is to eclipse $400 million. We are on track. We finished May at about $200 million,” he said.
Increased demand from medical manufacturers tightens supply
Many electronics purchasers turned to independent distributors over the last three months after some component factories shut down or slowed production of needed parts during the height of the coronavirus pandemic.
The factory shutdowns and cutbacks in production resulted in tightness of supply and shortages of a number of components, ranging from field programmable gate arrays and microprocessors to MLCCs and resistors.
In some cases, supply tightened because of the increased demand from medical equipment manufacturers who are building ventilators, patient monitoring equipment and other products needed to treat people who contracted COVID-19.
“One of the issues that we are seeing is many semiconductor manufacturers have prioritized their allocation to the manufacturing of needed medical equipment and rightly so,” said Paul Romano, COO of independent distributor Fusion Worldwide, headquartered in Boston. The allocations are going to “medical builds globally” and that is keeping “some semiconductors from OEMs and EMS providers in other industries, he said.
In addition, there have been component factory shutdowns in Malaysia, the Philippines and Thailand. That has impacted supply of some components such as connectors, and other passives. The shutdowns have created “significant backlog demand of components, said Romano. Many of those factories are slowly coming back on line, but many are only at half capacity, according to Romano.
“That creates a major change in the whole supply chain because component manufacturers are only able to produce half or less of components that they had planned to produce,” he said. He said there are shortages of MLCCs, tantalum capacitors, some connectors and voltage regulators.
“A lot of notebook memory is short so different verticals and segments are affected,” said Romano.
An added wrinkle for the supply chain is factories in different parts of the world are resuming production at different times. “On the demand side, there are a lot of factories in China that shut down in January and February, but now are up and running, which is creating a lot of demand” for components, said Romano. However, in other parts of the world factories that build electronics equipment were not yet open as of early June.
On the supply side, factories in China are producing chips and other components, but other regions are not, he said.