For the Electronics Supply Chain, Lackluster Growth Won’t Last Forever

So far, the 21st century has been a bit rocky for the electronic components industry. The turn of the century began not with the popping of champagne corks but the popping of the tech bubble. The first couple of years were spent working through the inventory hangover from the close of the preceding century and with deals to be had on excess components, the purchase price variance (PPV) became an entrenched metric for the customer base. Now, fifteen years in, the electronic components industry has developed the habit of tracking the rise and fall of the GDPs of the overall economies with in which it lives. Which means top lines, net of acquisitions, have had lackluster growth as compared to the boom cycles in the 70s, 80s and 90s, and this year in particular is shaping up to be the very definition of lackluster growth.

Having started in the industry in the mid 80s, working for a Silicon Valley semiconductor distribution pioneer by the name of Western Microtechnology, I have seen firsthand many notable waypoints along the road that the industry is following. Remember when Tandy introduced the preassembled micro computer? And when Atari was king of the fledgling electronic gaming industry? Today, Tandy is RadioShack Corporation, operating under chapter 11 bankruptcy protection while attempting to sell off whatever it can in order to address its crushing debt load. As for Atari, the current parent company is still publishing video games but they are being run on Nintendo or Microsoft gaming machines, not Atari hardware.

My first mobile phone was mobilized by the car in which it was installed and it came complete with a curly cord connecting the handset. My first PDA was a Palm Pilot. Dial up modems with transmission speeds measured in baud rates were state of the art. Companies like US Robotics, 3Com, Nortel and Mitel were thriving, Texas Instruments was building notebook computers in Temple, Texas and Intel was still making memory chips. Distributors like Marshall, Hallmark, Schweber, Richey, Wyllie, and Kent were fast growing into positions of dominance in the electronic component supply chain. Waves of industry consolidation, a collapse in the telecom industry, the rise of Japanese semiconductor companies and George Gilder’s law that bandwidth grows three times faster than computer power, cleared the road of a lot of industry leaders.

With all of this in mind, one could be forgiven for thinking that the salad days of the industry have come and gone. We’ve come a long way from the commercialization of the transistor in the early 50s, but the fact is, the journey has barely begun when you consider that this is a road that we will be on for the rest of human existence. With that in mind, it is almost impossible to imagine what the future has in store for the electronics industry.

Many analyst predict that in as little as ten years time the road ahead will be bumper to bumper with autonomous vehicles traveling at high rates of speed, talking to each other, and not getting into accidents due to the operator being tired, texting, or having had too much to drink, or perhaps all three. These driverless cars and trucks will be dense pods of electronic components that reshape industries like insurance and construction, restructure our cities, and prevent the colossal suffering and expense resulting from objects that weigh thousands of pounds getting into accidents.

While it will may be easy to be discouraged about the industry this year, there is a nearly infinite amount of opportunity ahead. Low energy devices that can be inductivly charged through energy harvesting of our own motion, next generation battery technologies, the arrival of low cost, room temperature super conductors, and the deployment of compact fusion reactors are just some of the game changers that will drive the electronic component industry forward.

Though the future of any component manufacturer, distributor or electronic equipment company is certainly not guaranteed, I do believe the future of the industry is. The long view, optimism, and a preparedness to quickly react and adapt are essential. As Deming is credited with saying, “Learning is not compulsory… neither is survival,” and more succinctly, “It is not necessary to change… survival is not mandatory.”

Reprinted with permission from Global Purchasing, www.globalpurchasing.com