21 September 2010

Bigger is better in the distribution world. Or is it?

The distribution sector, much like the eda industry, has been an avid believer in the mantra that 'big is beautiful'. In pursuit of that goal, the big broadliners have acquired all manner of smaller companies over the last decade or so. If you look at Arrow's website, it lists 30 such acquisitions in the last decade.
That approach has left something of a vacuum. At the top of the pile – at least in the Western hemisphere – are Arrow and Avnet. At the other end is an array of specialists and design in companies. The middle ground has become increasingly empty; the few companies of reasonable size – Abacus was one example – have been acquired by one or the other.

Now, another company has been removed from the middle ground with Arrow's acquisition of Nu Horizons. To be honest, it was always likely that Nu Horizons was going to be bought by someone – with one of the two big broadliners the favourites – at some point. When Xilinx terminated its distribution deal with the company earlier in 2010, the writing was on the wall as sales of Xilinx parts represented 32% of its revenues. Nu Horizons share price reflected the concern, dropping 23% when the news broke.
Arrow's main interest in the company is its presence what it terms the 'fast growing Asia Pacific market'. Fair enough; it's a quick way to get your corporate foot further into the door.
But the waters are being muddied by the rapid growth of the so called 'high service' distributors. Companies like Farnell, RS Components and Digi-Key are now arrayed alongside Arrow and Avnet. Digi-Key has just broken the $1billion annual sales barrier and isn't looking back. All of these companies are looking to take business from what can be considered the 'bottom end' of the broadliner's market, while building communities that, they hope, will engender brand loyalty. Similarly, the broadliners are reaching down in an attempt to take the 'top end' of high service business.
Even though the number of potential targets is shrinking, you get the feeling that Nu Horizons won't be the last acquisition for a while.

Author
Graham Pitcher

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