Supply Chain Trends
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For the Electronics Supply Chain, Lackluster Growth Won’t Last Forever

So far, the 21st century has been a bit rocky for the electronic components industry. The turn of the century began not with the popping of champagne corks, but with the popping of the tech bubble. The first couple of years were spent working through the inventory hangover from the close of the preceding century, and with deals to be had on excess components, purchase price variance (PPV) became an entrenched metric for the customer base. Now, 15 years in, the electronic components industry has developed the habit of tracking the rise and fall of the GDPs of the overall economies within which it lives. That means top lines, net of acquisitions, have had lackluster growth as compared to the boom cycles in the ‘70s, ‘80s, and ‘90s, and this year in particular is shaping up to be the very definition of lackluster growth.

Having started in the industry in the mid-1980s, working for a Silicon Valley semiconductor distribution pioneer by the name of Western Microtechnology, I have seen firsthand many notable waypoints along the road that the industry is following. Remember when Tandy introduced the pre-assembled micro computer? And when Atari was king of the fledgling electronic gaming industry? Today, Tandy is RadioShack Corporation, operating under Chapter 11 bankruptcy protection while attempting to sell off whatever it can in order to address its crushing debt load. As for Atari, the current parent company is still publishing video games, but they are being run on Nintendo or Microsoft gaming machines, not Atari hardware.

My first mobile phone was mobilized by the car in which it was installed, and it came complete with a curly cord connecting the handset. My first PDA was a Palm Pilot. Dial-up modems with transmission speeds measured in baud rates were state-of-the-art. Companies like US Robotics, 3Com, Nortel, and Mitel were thriving, Texas Instruments was building notebook computers in Temple, Texas, and Intel was still making memory chips. Distributors such as Marshall, Hal-Mark, Schweber, Richey, Wyle, and Kent were fast growing into positions of dominance in the electronic components supply chain. Waves of industry consolidation, a collapse in the telecom industry, the rise of Japanese semiconductor companies, and George Gilder’s law that bandwidth grows three times faster than computer power cleared the road of a lot of industry leaders.

With all of this in mind, one could be forgiven for thinking that the salad days of the industry have come and gone. We have come a long way from the commercialization of the transistor in the early ‘50s, but the fact is, the journey has barely begun when you consider that this is a road that we will be on for the rest of human existance. With that in mind, it is almost impossible to imagine how great the road ahead will be.

Many analysts predict that in as little as 10 years, the road ahead will be bumper-to-bumper with autonomous vehicles traveling at high rates of speed, talking to each other, and not getting into accidents due to the operator being tired, texting, or having had too much to drink, or perhaps all three. These cars will be dense pods of electronic components reshaping industries such as insurance and construction, restructuring our cities, and preventing the colossal suffering and expense resulting from objects that weigh thousands of pounds colliding with each other and/or running off the road, wrecking themselves and the people within them.

While many will be discouraged about the industry this year, there is a nearly infinite amount of opportunity ahead. Low-energy devices that can be inductivly charged through energy harvesting of our own motion; next-generation battery technologies; the arrival of low-cost, room-temperature super conductors; and the deployment of compact fusion reactors are just some of the game changers that will drive the electronic component industry forward and continue the industry trend of making what was once science-ficton a reality.

Though the future of any component manufacturer, distributor, or electronic equipment company is certainly not guaranteed, I do believe the future of the industry is. The long view, optimism, and a readiness to quickly react and adapt are essential. As Deming is credited with saying: “Learning is not compulsory … neither is survival.” And more succinctly: “It is not necessary to change … survival is not mandatory.”

Michael Knight is senior vice president, Americas, for authorized distributor TTI, Inc. He is also a member of the Electronic Components Industry Association’s (ECIA) board of directors, serving as chairperson for 2013-2014. He can be reached at [email protected]. See more industry analysis and commentary by Michael on TTI’s MarketEYE Resource Center.

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