23 May 2016

Distributors can calm component supply chain worries

Chris Beeson, Executive VP of Sales & Supplier Development, Digi-Key, looks at the increasingly dynamic semiconductor market & growing uncertainty of the component supply chain.

The semiconductor industry has seen unprecedented activity in mergers and acquisitions this year.

While many deals are still subject to due diligence and completion, what has happened in the past few months has been quite remarkable with the total value of mergers and acquisitions announced across the semiconductor industry now stands at more than $100 billion.

According to one market analyst, IC Insights, the total value of acquisitions in the first half of this year was more than six times the annual average for M&A deals during the past five and a half years (figure 1).

Clearly an important trend in this area has been the growth of the electronics industry in China with its goal to reduce imports from foreign companies, resulting in various Chinese companies and investment groups adding their considerable weight into the mix. This level of activity in the market is no doubt going to have a significant impact on electronic component supply chains in the next few years, changing many of the dynamics we all know so well.

Semiconductor mergers and acquisition deals put uncertainty into the component supply chain

Figure 1: Value of semiconductor industry M&A deals over the last five and a half years shows a dramatic increase in the first half of 2015 with many deals still on the table that have come to fruition in the latter part of the year. Source: IC Insights

What mergers have occurred?

The list of recent deals is long and somewhat star studded: from the NXP and Freescale merger, a consequence of which was the sale of NXP’s RF group to Jianguang Asset Management Co., to multibillion-dollar deals including Intel buying Altera, Avago acquiring Broadcom.

There is also competition currently over the acquisitions of Atmel and Fairchild, and one of the most recent announcements is Microsemi putting in a competitive bid for PMC-Sierra, in addition to its earlier acquisition this year of Vitesse Semiconductor to bolster its offering in IoT products and solutions….and these are just some of the most notable.

Why did they merge?

The reasons are many including chip vendors experiencing slower than wanted growth in their existing markets and needing to expand their product portfolios, especially to take better advantage of the opportunities offered by the Internet of Things (IoT). In addition, in an increasingly global market, companies are finding they need to develop higher revenue streams and build scale to meet the rising costs of product development and leading-edge technology R&D.

But, while the motivations for a merger or acquisition can be diverse, what is common to all is that it means nervous times ahead. Of course this includes those directly involved in the deal, and especially their employees, but also the customers of those semiconductor vendors. And, as one might imagine, the concerns of customers and how it might affect their supply chain may well be lost in the enveloping noise about the deal in general and the specifics of shareholder concerns, board member votes and share prices.

What does this mean to my Supply Chain?

In a perfect world, it wouldn’t mean anything. Both lines would meld together seamlessly and business would continue as normal for everyone except for a change to the supplier name. Inevitably, there will be changes to the supply chain with each merger.

These changes could range from certain products going EOL, change in part numbers, changes in the manufacturing process disrupting lead times/availability, and the potential for resulting cost changes.

Easing the Transition

The good news is that in this dynamic and fast moving electronics components industry, when parts are required to be delivered quickly and reliably, distributors are well placed to play a key role in easing the pain of any transition and limit the disruption for customers.

How do I stay informed of these changes?

One path that can help many OEMs and makers to navigate through these uncertain times is partnering with a major broad-line distributor; and ideally one that has truly global reach and value added services.

Distributors offer a broad range of services designed to assist customers through their day to day operations including situations just like this. For example, being the authorized distributor for over 650 manufacturers Digi-Key, in most cases, will have both suppliers on its line card. This allows the customer to address matters with a single contact rather than requiring multiple inquiries with multiple sources.

Regarding specific programs, supply chain programs are an excellent example of how distributors can assist customers during these times. Distributor’s ability to assist in managing your supply chain while helpful every day becomes even more valuable in times such as this.

Another service Digi-Key offers is EOL Notifications. These emails notifications will point you to specific details on our website such as any available documentation and available substitute products. When a product goes EOL and a new product needs to be designed in, EDA and design tools such as Scheme-it, pcbWEB and PartSim are invaluable tools, along with 24/7 365 technical support to assist you with your product and design related questions.

At the end of the day, customers simply need to fulfil their product/design requirements and to do so as quickly and easily as possible. Distributors, such as Digi-Key, with their broad range of services and tools, are well positioned to assist customer succeed not only in challenging times, but every day.

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About the author

Chris Beeson is Executive Vice President, Sales and Supplier Development, at Digi-Key Corporation. He is in part responsible for developing Digi-Key’s reputation as the world’s largest totally integrated distributor of electronic components. Beeson’s role is to develop Digi-Key’s market share and to continue to guide the evolution of the company from a catalog distributor to a leading resource of Engineering, Production Business and Supply Chain services worldwide, in line with the demands of the market. Prior to joining Digi-Key Corporation in 2005, Beeson worked for more than 20 years in a variety of sales, supply chain and management roles within the electronic distribution industry, with companies such as Future and Avnet Electronics. Beeson received his BS in Business Administration from Bowling Green State University. He has been active in many industry organizations including the Electronics Component Industry Association (ECIA).

Digi-Key Corporation, based in Thief River Falls, Minn., is a global, full-service provider of both prototype/design and production quantities of electronic components, offering more than four million products from over 650 quality name-brand manufacturers. With over one million products in stock and an impressive selection of online resources, Digi-Key is committed to stocking the broadest range of electronic components in the industry and providing the best service possible to its customers.

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