Avnet electronics marketing is the second largest distributor of electronic components in the world, although in many markets such as Europe, it is already close to being the leading distributor as a result of rationalisation and acquisitions in the region.
The corporation that employs more than 10 500 staff worldwide had $9 billion in sales in financial 2003 and expects this to exceed $10 billion in the current year. South Africa falls under the Europe, Middle East and Africa (EMEA) division of Avnet. The new Avnet EMEA structure comprises of certain 'Speedboats' such as the company Silica with Miguel Fernandez as president, which has a focus on the semiconductor market. Other 'Speedboats' are EBV, WBC, BFI-Optilas and Avnet IMS.
Avnet Kopp and Avnet Israel sit outside of the core Speedboat structure as they are both broad-line distributors covering specific regions outside continental Europe and supplying semiconductor, passive components, interconnects, electromechanical and magnetics. Despite falling outside of Silica, Avnet Kopp has full access to its semiconductor expertise, which includes a very strong technical team with more than 70 supplier-trained and qualified FAEs. In addition, Avnet Kopp can tap into Avnet inventory in the USA as well as Asia.
Avnet Kopp started life in 1958 and Kopp Electronics was listed on the JSE in 1987 with Albert Kopp as CEO. 80% of Kopp was acquired by Avnet in 1996 and the name was changed to Avnet Kopp with Albert remaining as CEO. To strengthen the depth of the management team at Avnet Kopp, Hannes Taute was appointed as chief operating officer of Avnet Kopp, and remains as director of the very important Semiconductor Division. At a recent function in Johannesburg (22 April 2004) Avnet Kopp announced the addition of two new supplier companies to its line card, these being Analog Devices Inc (ADI) and Cypress Semiconductors (both of these companies are already part of Silica's line card).
Although already represented locally, both companies, and Cypress in particular, believe that they are being undersold in South Africa, and believe that the new relationship with Avnet Kopp will turn this situation around. Both ADI and Cypress fall under the responsibility of Stephen Silberman, the manager of the ADP Division at Avnet Kopp. Incidentally, Albert Kopp stressed that the addition of these new semiconductor companies was not just an extension of its existing product range, but fitted in very neatly with the strategy of the local company. He noted that both of the new additions were technology-driven and invested significantly in R&D. While Avnet Kopp now has probably the most extensive supplier portfolio in this country, the line card is continuously reviewed, and product lines with decreased relevance to today's technology, or not core to Avnet Kopp's sales and line card strategy may be removed.
Present at the launch of the two new product lines, were Otto Pancritius, ADI's distribution sales manager for Central Europe, and Neil Kellet, the distribution manager of Cypress for Northern Europe. The role to be played by Silica was in evidence through the presence of its president, Miguel Fernandez and the director of Silica's Marketing Assets Management Europe (Vincent Cellard). In advance of the normal launch to the media Dataweek was afforded the opportunity of interviewing this group of important personages from the marketing and distribution side of the business.
Analog Devices Inc (ADI)
ADI is a world-leading semiconductor company that specialises in high-performance analog, mixed-signal and digital signal processing (DSP) ICs. Founded in 1965 the company's turnover in financial 2003 was $2 billion and this is expected to increase to $2,5 billion in the current year. Markets addressed by the company include industrial, consumer, telecommunications and computers. The company has manufacturing facilities in North America, the Far East and Ireland. In addition to semiconductor and telecoms products, ADI is into MEMS and produces micro-machined products such as solid-state accelerometers.
In terms of consumer products, ADI's semiconductors are used in devices such as DVD players, handsets and digital cameras while it terms of telecommunications it provides devices for networking, handsets, PDAs and cellular base stations. Its devices are used in personal computers while a major market is the airbag sensors for automotive vehicles, and the accelerometers being used in stability control.
ADI is continually releasing advanced new products and of note is its Blackfin range of processors for high performance in networking and digital imaging applications. Its recent release of solid state (MEMS) gyros based on the Coriolis effect is also notable. Together with its accelerometers, these gyros will find huge applications in the automotive industry in terms of both stability control and autonomous navigation systems.
Cypress Semiconductors (Cypress)
Cypress was founded in 1983 with the initial focus being niche memory applications including high speed CMOS. Chip fabrication was outsourced initially but during the '90s, through acquisitions and organic growth, the company got into the business of manufacturing. Today, 75% of its needs are sourced from its own fab plants, with Cypress now being a high-volume, low-cost producer. During the '90s a number of other strategic acquisitions of companies that possessed intellectual property in other areas of technology were made, thus allowing Cypress to expand its footprint. One of the most successful acquisitions was that of Intel's USB (universal serial bus) capability, and today Cypress has 40% of the global USB market with more than 350 million devices having been shipped. The demand for USB is, of course, growing strongly in terms of both consumer and industrial applications.
Today, Cypress has four product divisions, these being its original memory focus, data communications, personal communications (USB) and timing technology - the latter including clocks and buffers. The memory products today are used in a wide range of devices ranging from mobile phones right through to high-end products for telecommunications and routers. In terms of memory, the company is ranked at number two in the world while it is number one in terms of USB, number two in network search engines and a close first (sometimes second) in terms of timing technology.
Unknown to most people, Cypress also has three fully-owned subsidiaries, all involved with CMOS processing. CMS was created to develop programmable chips, SMS develops advanced silicon magnetic memory systems and Silicon Light Machines is involved in grating light valves for the optical fibre telecommunications industry. The worldwide slump in this sector has resulted in there not being a massive demand for this technology at present but the company has also developed a rear projection TV system that is licensed to Sony and is involved in developing product applications for the medical and high-end print industries. Having its own companies using its products provides Cypress with greater insight into the flexibility and use of its ICs and other devices.
Cypress is a large company by any standards and at the height of the IT boom had a turnover in excess of $1,3 billion. This decreased to $850 million in the last financial year but the expected market upturn should see turnover once again well in excess of $1 billion. Avnet as a whole, is very important to Cypress as between 40 and 60% of the company's revenue comes from distribution channels.
In terms of recent products, some real innovations are a wireless USB, a MoBL (more battery life) SRAM family for cellphones and PDAs, and the novel programmable system-on-chip (PSoC) solutions.
Silica
This is Avnet Europe's Speedboat organisation specialising in semiconductors. It is also the supplier of those products to Avnet Kopp, the prime OEM business being conducted through Avnet IMS. For the sake of completeness, at the top of the pyramid in terms of the very large OEMs (Motorola as an example), 90% of the needs of about 100 companies would be satisfied directly by the semiconductor OEMs. At the base of the pyramid there are in excess of 100 000 companies which depend on being serviced through distributors.
Silica employs some 500 people (including 70 FAEs) and had a turnover in 2002 of some $1,8 billion. The company has 38 offices distributed throughout eastern and western Europe and has an inventory of $300 million with some 2,3 million line items being handled. The inventory is held in a 27 000 m2 warehouse in Poing, Germany, which is Europe's largest. Silica boasts a 99,95% on-time delivery performance and guarantees next day delivery in most of Europe.
In terms of demand, Fernandez noted that the first quarter of this year was a realtime record confirming that industry demand was on the increase. The growth in demand was also from the consumer sector which is recognised as the precursor to industrial market growth. In terms of pricing there is no clear trend of price increases, but the extended drop-off in business has seen lead times increase. While Silica tries to keep its finger on the pulse in terms of future demand through its inventory, Fernandez' advice is to place orders well in advance of the required delivery time.
Grey products
The perennial question of grey products was also discussed. Despite attempts to control it, there is a grey market for electronic components that extends throughout the world. The availability of components on this market often arises when a large OEM discovers that it does not require its large stock holding, maybe as a result of the discontinuation of a certain product line. What they then do is write off this stock in their books and release it onto the market at prices well below those recommended by the manufacturer. Many companies use the Internet to acquire these products but it is at a huge risk. First of all, the OEM warranty is totally void if the components have not been sourced through the authorised channels and secondly, there are many counterfeit products out there which may bear the name of a best-of-breed product but were never manufactured by them. Not only do these products have no warranty, their inferior performance may result in very high defect levels at finished product level, a very expensive lesson for any OEM. Note that in times of real shortage of components, distributors such as Avnet Kopp may also use the grey channel to obtain legitimate and original OEM components. In this case the warranty remains fully effective.
The final messages are that OEMs should stick to the official distribution channels for their requirements. Pricing is still very attractive at present but lead times could be problematic. Now is therefore the right time to place your order for your longer term requirements.
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