Avnet's Harley Feldberg: Evolutionary growth, not revolutionary

By Suzanne Deffree, Managing editor, news -- EDN, August 31, 2010

Avnet Electronics Marketing (EM) President Harley Feldberg recently spoke to EDN about inventory in the electronics supply chain, how to bring about sustainable growth, and the Asia and Japan distribution markets. What follows are excerpts of that conversation.

 
EDN: What's your take on the inventory situation? There are a lot of varying reports out from analysts right now, some of which have caused industry panic.

Feldberg: I think [inventory] is the fundamental issue right now. If you accept the fact that none of us in the supply chain is a driver of end demand - the amount of smart phones or big screen TVs or BMWs sold -and leave that to the economists to figure out, we are left to read the tea leaves and interpret in advance how significant our business opportunity is going to be. Inventory is one of, if not the, most critical element [in the electronics supply chain]. So the $64,000 question is: What is the trend on inventory? Honestly, I don't think anyone knows. If you sit and read every inventory related data point that could come across your desk from fab investments, lead times, to etcetera, etcetera, etcetera, there is a lot of conflicting data. On one hand you see lead times coming down, on the other hand we can tell you there are a number of lead times that are still extended. This means that we need to think forward and adjust our pipeline. We're in the middle of that very specific dialog right now.


EDN: How is the industry reacting to all of this data?

Feldberg: With all of that said, I think the market is over reacting to economic data now. I think we are showing how short term and reactionary we are as an industry and as a supply chain. Almost every one of our suppliers and our largest competitors, as well as ourselves, are announcing year-on-year growth rates for the June quarter in the 40 to 50% [range]. It's unrealistic to think those types of growth rates will continue. My theory is that we are going to have a semi-soft landing opposed to a W [shaped recovery]. If you take all of the data points together, I still think the supply chain is prudently run. If you want to go find a half dozen exceptions as to why someone has too much inventory, you can find them. But in the aggregate, I believe it is reasonable to expect slower year-on-year growth rates ... and that inventory will stay in acceptable overall levels in the supply chain overall. We're not panicked at all. We're just trying to manage it prudently.

 
EDN: So it sounds like you believe this cycle that we are in is partially a refresh cycle but that the growth is sustainable longer term.

Feldberg: I do. We seem to operate as if we think the industry [cycle] is a series of sharp and distinct Vs and Ws, when in reality it looks more like what an EKG looks like with ups and downs, ups and downs. At any given moment we're in an up or down period. It's impossible for me to visualize a future that doesn't include deeper and wider technology proliferation. I just don't see our future being less upbeat for technology but we have to manage our piece of the supply chain with some wisdom and not be so reactionary. Said another way: Would I encourage my kids to get into engineering for careers that connect with technology? Absolutely.

 
EDN: LEDs [light emitting diodes] have been said to be ripe with opportunity for distributors like Avnet. How is the market opportunity for LEDs as it stands now?

Feldberg: The LED opportunity is a big one, but like with many big changes, its evolution not revolution. It's a little bit like the electric car phenomenon.  You are seeing some interesting electronic cars coming out now, so it's the beginning but everyone's not going to be driving an electric car tomorrow. The same is true with lighting but clearly there's an evolutionary trend occurring that plays well with semiconductors and does not play well to traditional incandescent lighting. We would rate it as one of our higher growth investment areas.

 
EDN: Let's talk about Asia. Avnet EM saw some very good revenue growth there in its latest quarter.

Feldberg: What our [Asia team] has shown is that they have competed well in the market and they have matured as a leadership team. It wasn't too long ago, maybe two years ago, that our view of our Asia team was a large start-up. Now they have taken their place amongst the regions from a leadership perspective and they are leading the way in some areas like employee development and employee retention, which are really critical in Asia. They've built the fundamentals. They are now an equal member at the table.

 
EDN: In the most recent quarter EM's revenue came in just about equal across the Americas, EMEA, and Asia, correct?

Feldberg: Give or take. It changes a little with acquisition, but it's irrelevant. Our regions are fairly equal. In a globally connected world, I like out footprint.


EDN: Avnet made some inroads into Japan in the last quarter, a region that can be difficult for distribution expansion.

Feldberg: We made our second acquisition there of a company called Unidux and our plan for this year is to run it fairly independently. Japan for us feels like a start-up. It's a pretty significant start-up, but our presence there compared to other regions is still pretty small. The nature of that business is historically distributors have had a very narrow line card. There has been a bias away from a broad line approach. Consistent to what we did in Europe and Asia, our first goal is to become a successful Japanese distributor, not to open a branch office, because business is done differently there. We're starting with that kind of approach where the businesses will run fairly autonomously but we're really treating it like an expansion start-up. I see no reason why we can't think of Japan as over time being as large as our other regions. But we'll be methodical and patient, because it's going to take a while.