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TTI Targets More Specialty Semiconductor Acquisitions

TTI is one of the world’s largest distributors of interconnect, passive and electromechanical parts. But as anything and everything is connected to the internet, the company is piling into semiconductors, the tiny electronic hearts and arteries used all kinds of devices, ranging from factory sensors to connected cars to the servers storing data sent from them.

“We need a piece of this,” said Michael Knight, senior vice president of the TTI Semiconductor Group, a business unit recently formed inside the Fort Worth, Texas-based company. “The IP&E business is not pushing these applications forward. Semiconductors push them forward. They are the missing piece of the puzzle for us."

Knight, previously senior vice president of TTI Americas, was recently charged with taking the company’s specialty distribution model to semiconductors. But rather than build the business from scratch, TTI plans to buy other specialty distributors, bolstering their inventory to improve lead times and extending their sales and support teams globally. It could also make sense to share warehouses.

In 2017, the new group added two distributors for undisclosed sums. The first was Symmetry Electronics – based in Los Angeles, California, and focused on wireless Internet of Things applications – and the second was Changnam Electronics – a major South Korean distributor that earns more than half of its roughly $100 million in sales from the automotive industry.

Knight’s promotion, which also sees him take the role of senior vice president of business development, follows several other changes inside TTI. Recently, Tom Vanderheyden became vice president of Americas sales, while Mark Zack, the acting vice president and general manager of Symmetry, took over that job permanently, reporting to Knight.

The changes were calibrated to speed up the company's shift into the semiconductor market, which grew 21.7 percent to $429.1 billion in revenue globally last year. The goal is to create an alternative to so-called broadline distributors, which carry a wider range of products, as demand in industrial, automotive and other sectors causes widespread parts shortages and the Internet of Things increases the amount of silicon inside connected devices.

Semiconductors still make up a small part of TTI’s overall business. The company expects the new group to generate revenues of $160 million in 2018 – only a fraction of the $4.39 billion it expects from its core business and subsidiaries, which include Mouser Electronics (acquired in 1999) and Sager Electronics (acquired in 2012).

“We’re not going to dislodge the King Kongs of the semiconductor world,” Knight said. He is targeting other specialist distributors like Symmetry and Changnam, and plans to invest lots of capital into building bigger and better relationships with more customers and contract manufacturers. “King Kongs dance with Godzillas, so you have to get into your weight class,” he said.

The group has aggressive ambitions over the next five years. Mike Morton, TTI’s chief operating officer, projects that the semiconductor group will be a billion-dollar business by the end of 2023. Even though the distribution industry is booming, TTI will need more acquisitions to get to that number—more than six times Symmetry and Changnam’s combined revenue in 2017.

Knight said that the company was negotiating a number of other deals, which he said could push the semiconductor group's revenue to around a half-billion dollars. He would not talk about any of the deals specifically. Several industry executives expect the business unit to go after companies with more than twice Symmetry’s annual revenue, which reached $44 million last year.

One reason TTI is talking up its acquisition plans is to give other distributors the chance to approach it about a potential deal. They may want to discuss an acquisition because it’s getting tough for $100-million businesses to survive on tightening profit margins. Knight would not say how much money he has to spend.

But he told SourceToday: “It’s probably not possible for me to run out of money if we pay the right price for the right things.”

The company has friends in high places. TTI has been owned by Warren Buffet’s Berkshire Hathaway since 2007. The company has been sharing a video with manufacturers in recent weeks showing Buffet speaking about TTI at Berkshire’s annual meeting last month. “Something is going on out there, nobody is just buying these parts and storing them in their basement, these part are getting used,” said Buffet.

Still, Knight has guard rails. He says he will not overpay under any circumstances and will avoid electronics distributors in need of serious business fixes. He wants to make investments, not cut costs to maximize short-term profits. “We’re not buying things with bad margins that need fixing,” Knight said. “We’re a grower, not a consolidator.”

His strategy is reflected in Symmetry's trajectory over the last year. Zack, the vice president and general manager, told SourceToday that Symmetry now holds four times more inventory than before the July 2017 acquisition. David Beck, Symmetry’s vice president of marketing, estimates that the company has expanded its 50-person headcount by about 20 percent.

Symmetry, which counts Silicon Labs as one of its major suppliers, also recently combined distribution operations with TTI, moving its inventory to the company’s new and improved Fort Worth warehouse. The move lets Symmetry handle shorter lead times and increase ready-to-ship inventory, said Zack, a former vice president of DigiKey Electronics’ global semiconductor business.

Mouser, which has semiconductors among its 845,000 manufacturer part numbers, is not worried about having its toes stepped on or stepping on the new business unit’s toes, said Kevin Hess, Mouser’s senior vice president of marketing. While TTI’s semiconductor group is focused on volume orders of chips, Mouser ships smaller orders for prototyping and development.

In fact, Symmetry has partnered with Mouser Electronics in selling a wireless development kit to connect Internet of Things devices to the cloud. The “LTE-in-a-box” module costs $700, and Symmetry plans to collaborate with Mouser on other ones. It’s easy to see that relationship growing in the future, with Symmetry filling production orders for parts bought from Mouser during prototyping.

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