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Avnet exec says logistics is not purely being a 'box mover''

Posted: 10 Aug 2005 ?? ?Print Version ?Bookmark and Share

Keywords:avnet asia? memec group holdings? avnet acquisition? distributor logistic?

As distributors and logistics companies bring their services up a notch to get a larger share of the market, more and more value-added services are being offered to customers. Stephen Wong, president of Avnet Electronics Marketing-Asia, said, "A supply chain carries the business value beyond pure logistics. Logistics can simply be defined as a 'box mover.'"

Wong said that the company's service goes beyond. "We go into business planning, materials planning, inventory control and purchasing for the customerthe whole bit."

Some OEMs and ODMs establish their facilities near suppliers to be closer to their raw materials and key components, but Wong explained that physically moving closer to suppliers will only give certain benefits.

According to Wong, the supply chain industry will soon go through a period of consolidation. "Currently, the supply chain service is still in the development stage in Asia, unlike in the United States, where there is a fully developed market for it."

Early last month, Avnet Inc. and Memec Group Holdings Ltd reached an agreement for Avnet to acquire Memec in a stock and cash transaction valued at about $676 million, including the assumption of $194 million of Memec's net debt.

Under the terms of the agreement, Memec investors will receive about 24.011 million shares of Avnet common stock, plus about $64 million of cash. The transaction is expected to generate annual synergies of around $130 million from cost savings (including $10 million from reduced interest expense) and to be immediately accretive to earnings (excluding integration charges), said a press release from the two companies.

"Our guiding principle in the integration process [of Avnet and Memec] is to retain the best practices and remove the bad [employees]," shared Wong. "In terms of employees, there will definitely be duplicationmostly at the back-end. On the front-end, we will maintain what we have as much as possible. In fact, we would like to have lower turnover than what it is today."

With the Memec acquisition, Wong expects their markets in China, South Korea, and Australia and New Zealand to become more robust. "Memec is very strong in Korea in terms of business, key customers, revenue and workforce. This acquisition will put us in a very strong position in Korea."

Avnet in Asia
In FY 2004, Avnet's sales in Asia reached $1.3 billion, accounting for 22 percent of the company's global revenue and an increase of 5 percentage points from the previous year.

"If you look at the available market, Asia is the biggest piece. There is a huge opportunity, as well as challenges, in this region. Over half of the global business is in Asia and only a quarter of Avnet's business comes from this region, so we still have a lot of work ahead of us," said Wong.

Wong also stated that strong revenue demand in Asia comes from PCs, particularly notebook PCs. These are followed by communications and digital consumers and by industrial and automotives applications.

"Automotive is [Avnet's] long-term investment," Wong said. "In fact, this market is hot in China. Two years ago, we opened a lab in Bangalore, India. Revenue from India will come in about three years."

Asked why Avnet decided to acquire a major competitor instead of a smaller company to help it compete against major industry players, Wong said, "People usually take on small challenges because they are afraid of big challenges. But if you take on small challenges, you get small rewards."

And are we to expect more acquisitions in the near future from Avnet? "We will see, as the right acquisitions do not grow on trees," Wong said.

- Margarette Teodosio
Electronic Engineering Times-Asia




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