Voices: Roy Vallee: Innovation must go on
By Suzanne Deffree, Managing Editor, News -- EDN, December 15, 2009
Roy Vallee, a 37-year distribution-industry veteran and chairman and chief executive officer of Avnet Inc, discusses the year that was and the year to come, where opportunities are, and how innovation continued despite a turbulent 2009.
Analysts are now suggesting that 2009 will see an 11 to 13% revenue decline versus estimates they made in the first quarter that called for a nearly 25% decline. What made this year less painful than it could have been for the electronics industry?
The supply chain has reacted more dramatically to this economic slowdown than I have seen in my entire career in this industry. … By the time the industry saw a drop in demand, there was a very accelerated and aggressive movement to reduce inventories and cut back supply chains. In the early part of the year, the picture looked bleak. As the year has played out, companies have gotten their inventories in line with where they would like them to be, even with end demand being below where it was a year ago. As a result, they resumed purchasing. So the overreaction or initial aggressive reaction was not sustained for more than a couple of quarters. … Going into this [period], the industry was in pretty good shape from an inventory and a capacity perspective. As a result, we had to deal with the demand drop, but [the drop was different from that in] 2001. When we went into this slowdown, we didn’t have massive amounts of excess inventory and capacity that we had to burn off.
What did distributors do to help keep the inventory situation under control through 2008 and 2009?
Distributors had been doing a good job before the slowdown at getting inventories in line or at appropriate levels. Distributors then reacted quickly to the slowdown in demand and actually got their inventories corrected in … a record time frame. The good news is that [reaction] helps reduce the duration of the correction. The bad news is that … while we were cutting back those orders with suppliers, suppliers were perhaps not so happy with us and disappointed with their actual incoming orders. But distributors did an excellent job of managing working capital before and during the slowdown.
From a distribution point of view, was fulfillment or demand creation/design chain more important in 2009? How about in 2010?
What’s more important: the heart or the brain? I don’t think I can make this call. It depends on who you are talking to and at what point in time. The simple reality is that both of these requirements are absolutely vital to the electronics supply chain. It can’t function without either one of them.
Do you think the massive layoffs in 2009 hampered the industry’s ability to innovate and design?
There had to be some negative impact … just associated with all of the distraction that went on. But I do want to say that most of the companies I know were focused on protecting their R&D resources and projects. A lot of the cutbacks were done in other areas. I’m not saying 100%, but I think innovation was protected and therefore negatively impacted less than other areas. … Innovation must go on.
What do you see for 2010?
I think the industry is going to enter the year in pretty healthy shape; inventories and capacities will be in reasonably good shape. On top of that, end demand should improve. I’m not expecting an end-demand V curve, but I am expecting end demand to gradually improve, partly due to what normally happens when economic cycles hit a trough—and this one seems to have done so—and partly due to the still-substantial government stimuli that are happening and [are happening] in a way that will contribute to demand in 2010. It’s going to be a much better year than 2009.
Are you particularly hopeful about any segments or regions for next year?
From a geographic perspective, the first answer out of everyone’s mouth is China. It is doing a good job with its stimulus package and driving indigenous demand. In end markets, [I’m hopeful about] medical, government, and some digital consumer markets, especially digital consumer for mass markets. More from a technology perspective, I would put solid-state lighting in a growth category, and wireless everything continues to expand. The other one that really seems to be having some impact is "green" technology. I think all of those areas are going to grow faster than the averages.
Do you think that the electronics industry is leading the United States’ recovery?
I do. The data supports the statement. The recovery in our business seems to be preceding the recovery in the macro economy and what’s going on in the job market. There are two fundamental things that electronics technology does: One is it allows for higher levels of productivity in business environments. The data also says that we in the United States are experiencing a startling improvement in productivity, considering the slack that exists in the economy. I don’t think we’ve ever seen this kind of thing happen before. Electronics technology [also] improves the quality of people’s lives. You can look at that from medical and health applications to good old-fashioned entertainment. There are a lot of iPods out there. Technology brings great value to the market in productivity and the quality of life.
