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Weathering the recession storm, Part 2
Avnet focuses on design wins, product offering expansions and customer loyalty
If there is one thing that leading suppliers in the electronics industry agree on is that the downturn hit fast and steep. As a result, most suppliers moved quickly to reduce cost by consolidating plants, cutting their employee headcount, and pruning product lines. However, most suppliers tried to keep their research and development investments intact, particularly for key projects.
After tightening their belts for four quarters, suppliers are now starting to see some signs of a recovery in traditional markets and opportunities in emerging markets such as lighting and renewable energy that could pave the way for growth next year.
Here’s our second interview with Harley Feldberg, president of Avnet Electronics Marketing.
Editor: What have been your biggest strategies for business survival during the downturn?
Feldberg: Unfortunately, we’ve had to deal with a number of difficult and displeasing activities around managing our expenses. The business dropped precipitously starting at the end of the calendar year. A portion of our activity has been around expense management and most unfortunately including census reduction. We have tried to balance or minimize that by selling our way through the downturn. We tried to keep people on their toes rather than on their heels, meaning there is still significant business. We’re not going to zero.
On the components side, we principally focus our energies around two core strategies: supply chain and design chain. In concert with those, we spent a lot of energy this year specifically on the design chain side around broadening our penetration of customers. In a downturn, your safest and most efficient sales are with customers you already have so we focused on the general concept of marrying our various suppliers, technologies and differentiated products together, trying to be the glue between them.
It’s nothing of a revelation but the reality is, as an example, if we do an analysis of every customer where we have a DSP design win, our technical people tell us they might also use analog and discretes. We can get fairly accurate on how much they would be using. As you would guess, not every one of those DSP customers is buying all their analog, power, interconnect or passives from Avnet. So in light of the slower market growth opportunities, we’ve focused on that aspect of the business.
We’ve tried to reorient our people to think about what else they could sell at our existing customers as opposed to thinking their sales are down by 30 percent.
Another area where we accelerated our investment focus this year is a program we call customer loyalty. One would think a company of our size has an ongoing customer management program but distribution has not typically invested a whole lot in that area. We are now doing organized surveying with a closed loop internal process around this data. If you tied those two together — design chain and customer loyalty — both of which we manage globally, you’ll understand what has been our philosophy through the downturn.
We don’t view customer loyalty as a popularity contest as much as what macro areas of focus we should be investing in to improve the overall customer experience. Some examples include improving the quote process, which is very tricky for a distributor because you do a lot more quoting than actual booking. We have to be very good at quoting as a business.
Another area is expanding our product offerings. One of the reasons we’ve elected to make investments in expanding our offering in batteries, for example, is based on feedback from customers. They also want us to make our processes around supporting global customers more efficient and more streamlined.
[Avnet Electronics Marketing recently announced a deal with House of Batteries to sell their off-the-shelf and custom battery pack assemblies.]
Relative to growth, we are constantly looking for adjacent opportunities to sell new products to customers. Although we are a broadline distributor we are constantly looking for things like batteries, embedded boards; different products that have not been part of our traditional offering to our customers. Although they are not specifically semiconductor, interconnect, passive or electromechanical products, they tend to have a relationship with our customers very similar to our traditional products. That is another way we’ve tried to guide ourselves through the downturn.
Editor: Have you or do you plan to shift your product focus as a result of current economic conditions? In which areas?
Feldberg: We have added a number of LEDs. We’re keeping a close eye on, for example, new entrants that may be non-traditional suppliers that could be predictably Asia based. There are opportunities to expand with non-traditional suppliers that may not be on a linecard today but that could change over the next ten years.
We’re a bit of a trailing indicator. We often are the supply chain that supports our suppliers end-of-life (EOL) strategies so we will continue to support a broad brush of products and offerings though they may not be growth commodities. The way we adjust our focus is that so much of what we do is transaction or inventory fueled so as we see a product or commodity trailing off in demand, we will automatically tailor back our inventory and personnel commitment but we will stay in the business for a while to support a supplier. It’s a good profit making opportunity.
Editor: Are there beginning signs of a possible recovery in the second half of 2009? Are there any product and/or customer segments doing better than others?
Feldberg: There are some signs that are encouraging. My view is Asia looks to continue to be strong. The region where most of the downturn has occurred is the West. For us in America and Europe, it looks to be stabilizing by way of incoming order levels and general customer behavior.
From a design service perspective, it tends to still be our traditional account base although there are some interesting areas of greater involvement like lighting. We are going through a lighting metamorphosis as the industry moves to semiconductor-based lighting. That is an interesting opportunity.
The bigger story is regional. If you look at most of the suppliers’ results, those that have done well over the past couple of quarters tend to have a strong presence in the growth geographies, which today, is primarily Asia.
Part of what has made the downturn so challenging is everyone’s revenue and profit drop off has been far greater than their activity drop off so the amount of activities still being applied to creating design wins and supporting customers is far greater than the actual revenue. That has been the big challenge during the downturn.
If we are to come out of it this year and see some growth, you will see some exciting improvement in many companies’ financial performance because we’ve continued to work. Think of a design activity for a distributor as our version of R&D. We continue to spend money and we continue to have personnel. We’ve been extremely scrutinous in retaining as much of our design engineer resources and personnel through the downturn as much as we could.
Editor: What will be the biggest drivers of future demand?
Feldberg: Medical continues to be of high interest to us especially in America. It tends to be more stable and it’s a growth area where this particular region continues to play a leadership role. Automotive is still a good market but it appears to need to shake out more. Asia should play a role in automotive and we continue to expand our presence in Japan. We have a large position in automotive in Europe and as that improves we should see some benefit. I am a fan of automotive but obviously not tomorrow.
I think China automotive has a good future. I believe China will fill a much greater role in the global design chain environment in the future than today. They aren’t going to be the manufacturing hub of the world forever so how we view and how we invest in that region is really around them playing a full design and supply chain role in our business well into the future. They have no shortage of top engineering talent so I see their migration path as continuing.
Editor: Which emerging markets, including renewable energy, show promise as potential growth drivers over the next few years?
Feldberg: It’s unclear to me if the renewable energy story has been oversold a bit. It’s so funding and government sponsored that it’s unclear to me. It’s a market we’re very interested in because we have a great product portfolio. I do believe it is a growth market but I don’t know when. If you’re talking long term, I’m very excited about that market.
The interesting opportunity for us in both renewable energy and alternative lighting is that in many cases it is a new customer base so it feels a little awkward for all of us. We recently did a lighting show in New England and a good portion of the customers we were talking to were architectural firms so it’s all quite new to us. You have the same thing in renewable energy. I think there will be a learning curve though we do have all the right product offerings. Enough of it is right that our industry will make the transition very well.
See related articles: Weathering the recession storm, Part I.
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