Twenty nineteen was a pretty good year for the electronics distribution sector, but no match for the stellar performance of 2018.
“Looking back, 2019 was more of a typical cycle,” said Phil Gallagher, global president of Electronic Components for Avnet, the second-ranked distributor on the SourceToday 2020 Top 50 Distributor list. “We saw a decline in Asia in March, then Europe, and followed by the Americas. In November 2019, we saw the market coming back, and we were pretty optimistic about 2020.”
Other industry leaders had similar journeys. “Q1 of 2019 was the strongest booking quarter in the history of TTI Americas,” said Don Akery, president of TTI Americas, the top IP&E distributor in the industry, ranked fourth on the Top 50 list. “First half, we were up 9%, and then Q3 and Q4 each got smaller.” Overall, TTI grew revenue by 2% in 2019, following exceptional growth in 2018 of 22% and 12% in 2017. “To add 2% on top of that, we consider a pretty good year,” Akery said.
“2019 was a good year for us, we were right where we expected to be,” said Dave Doherty, president and COO, Digi-Key Electronics, ranked fifth on the list. “Revenue contracted somewhat from 2018, but we didn’t lose sleep over it because we knew it was attributed to the strength of 2018.”
“2019 was a year when the supply chain got back to normal,” said Jeff Newell, senior vice president of products at Mouser Electronics, ranked seventh on the Top 50. “All of the products that were hard to get in 2018 became easier to get in 2019, which drove the downturn, which was really an inventory cycle correction.”
“The first half of the year was really good; we had growth in all regions and strong margins. For online, catalog companies, it is always a good time when inventory is hard to find,” said Chris Breslin, CEO of Farnell, a European distributor that operates as Newark Electronics in the U.S., and is ranked eighth on this year’s Top 50 list. “But the second half of the year was a real challenge; we gave back everything we gained in the first half.”
Whether you call the second half of 2019 a downturn or an inventory correction, the net effect for the top line of the Top 50 distributors in 2019 was a decline of $2.4 billion, or 3.2%, compared to 2018. For Arrow Electronics and Avnet—the top two distributors on the list—the combined year-on-year decline totaled $1.7 billion. These two companies represent 66% of the revenue for the Top 50. Similarly, the top 10 distributors accounted for 92% of the Top 50 revenue and collectively reported a decline of $2.5 billion in 2019 compared to 2018.
There were a few exceptions to the rule. Fourth-ranked TTI posted a $30 million gain in revenue in 2019 over 2018, sixth-ranked Allied and eleventh-ranked Fusion Worldwide both posted an $11 million improvement over 2018, and 10th-ranked Rutronik achieved a $10 million year-on-year increase. Other notables include 13th-ranked Sager Electronics ($12 million increase), 14th-ranked NewPower Worldwide (a whopping $66.5 million increase) and 15th-ranked Master Electronics ($16 million).
A number of distributors made investments in 2019 in anticipation of future growth. Digi-Key started construction on a new 2.2 million square foot warehouse at its headquarters in Thief River Falls, Minn. The building is up, two-thirds of the equipment is in place and the rest of the equipment will be installed by October 2020. The new building will be fully operational in June 2021. Similarly, Farnell and Mouser both invested in expanding warehouse space in 2019.
As 2019 was winding down, the outlook for 2020 looked promising. Of course, there were economic challenges, but also signs of an uptick in business. The risks of an expanding trade war between the U.S. and China were receding with the signing of the Phase 1 agreement on Jan. 15 that set a course for reducing tariffs. The Dow Jones Index and other stock indices were setting records. The Institute for Supply Management (ISM) Purchasing Managers Index (PMI) was above 50 for the first time in months. And electronics distributors were gearing up for a return to growth.
Then came the COVID-19 pandemic.