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Supply chain shifts affect components strategy

Posted: 03 Sep 2007 ?? ?Print Version ?Bookmark and Share

Keywords:electronics equipment industry? supply chain? electronics manufacturing?

Growing at a double-digit clip and well ahead of the global economy, the electronics equipment industry is forecast to exceed $1.3 trillion in revenue within the next three years. It is expected that the industry's performance will be driven by its continued strength across most market segments, including the telecommunications, medical, industrial and automotive sectors. That's the good news.

The bad news is that even though they still count as major design, production and sales centers today, some manufacturing regions that once dominated the sector are dropping steadily on the electronics totem pole. That prognosis has significant implications for many Western companies in the sector, and some of the effects are already playing out. This can be seen especially in the raft of private-equity buyouts and other mergers and acquisition activities announced since the beginning of the year.

How do the regions stack up? China is leading an upswing in Asia-Pacific (excluding Japan). And Japan is accelerating moves to shift production outside the country, although it is concentrating high-level design and chip-manufacturing activities at home. North America, which led the outsourcing that's driving the current manufacturing disruption, faces a gloomy future as a production center, but retains its dominant position as a design, R&D, venture financing and idea incubation center. Europe's future is comparable to that of North America, with the caveat that the region is enjoying a manufacturing renaissance in the relatively lower-cost eastern European countries.

China leads upswing in Asia-Pacific. Click to view full image.

Worldwide electronic equipment manufacturing will total approximately $1.36 trillion by 2011, according to iSuppli Corp., up from $820 billion at the turn of the century. During that period, China's share of global electronic manufacturing will shoot up to more than one-quarter (27.5 percent) from 8.5 percent.

More manufacturing, more shipment. Click to view full image.

The shift in electronics manufacturing to Asia-Pacific has also resulted in higher semiconductor shipments to the region, prompting component distributors to accelerate their activities in that part of the world.

Being able to leverage corporate purchasing power and other information metrics has become even more critical due to the shift in manufacturing to Asia-Pacific. For component distributors, that global realignment represents both an opportunity and a challenge.

A market in transition. Click to view full image.

Arrow Electronics Inc. and main competitor Avnet Inc., both of which represent more than 50 percent of worldwide component sales through distribution, have in the course of the last few years devoted more resources to increasing sales in the region through acquisitions, organic growth or a combination of the two.

They've both been rewarded with higher sales in Asia-Pacific. In 2006, Arrow and Avnet said sales in Asia rose 63 percent and 67 percent, respectively. The two companies said sales to the region would continue to rise.

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