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Making the most of flat growth

Tue, 12/17/2013 - 1:27pm
Michael Knight, Senior Vice President, TTI Americas

I have fond memories of 2010 when our industry catapulted out of the recession. Distribution and component suppliers were in flat-out growth mode as all struggled to deal with rapidly rising demands that rapidly swamped capacity levels that had been hastily reduced the year before. Lead times jumped out, pricing firmed up, and top and bottom lines everywhere improved to the delight of management and shareholders alike. It was a sellers market and buyers focused on assured supply and cost control.

I am pretty sure that my memories of the three years following 2010 won’t be quite so rosy. This year is shaping up to be the third year of relative flatness for our industry. But to put a little positive spin on things, at least we are flat to our 2010 high water mark. And while revenues are generally flat, bottom lines have made some gains, which mean companies throughout the supply chain have gotten more efficient (another way of saying doing more with less.) In our industry, as in many others, the principal mechanisms for achieving this have been keeping headcount down and flattening, or suppressing, investment in cape and research and development. Oh well, so much for the positive spin.

During this time the economies of the world have been stabilizing, and in many cases even growing, including right here in the U.S. Historically, our industry has grown ahead of all economies in which we live, but for these recent three years, that dynamic is itself history. What growth we have had is below that of most GDPs, and perhaps even more telling, barely keeping up with core inflation.

Protracted flat is a new experience for many of us and I suspect that we are going to have some more time in which to get good at flat. While reports from public distributors and OCMs, and input from their private competitors, speak of some quarter-on-quarter, and year-on-year momentum, suggesting some hope for the final quarter, the year will be another mediocre one. With lots of easy to identify headwinds going into the new year, and too few easily identified tailwinds, there is reason to expect that our three year doldrums will stretch to four.

If I am right, we have a tough, near-term business climate for all of us in the supply chain. But, I am certain we’ve got another growth spurt in our not too distant future. Technology advances are making electronics ever more ubiquitous in our environment and lives, and some economic stability will unleash a wave of wearable electronics, medical electronics, green energy electronics and connectivity electronics that will once again push component demand north of component capacity. A seller’s market will return, buyers will again add “assured supply” to their list of priorities, and those of us who are ready for it, will see some double-digit growth.

By the way, this is as good for the buyers of electronic components as it is the makers and sellers. A healthy component industry is one in which innovation occurs, enabling the above mentioned waves of new electronics, and capacity investments are made to support their growth needs. Classic yin-yang.

To finish with the wave analogy, our industry has gotten pretty good at surfing the up and down cycles, some of them quite steep. We now need to learn to do some extended paddling while we wait for the next waves to roll in. To end with a positive spin, paddling builds different muscles which are useful as we work on new ways to grow and compete.

 

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