Shedding some light on the stimulus package
Even as President Barack Obama was approving a U.S. economic stimulus package in mid-February, its impact on the electronics and manufacturing industries was still unclear.
The measure calls for, among other things, investments in U.S. infrastructure and in alternative energy technologies. Supply chain executives who have weathered prior economic downturns and keep a close eye on emerging markets say there are likely some benefits for the channel. “I would say in a general sense that ‘green’ legislation will not only benefit the world but benefit the industry economically,” says Mark Larson, president of catalog distributor Digi-Key Corp. “If [legislation] forces design and forces innovation, it would be positive from that aspect.”
The channel will at best benefit indirectly: none of the stimulus money is earmarked for electronics or large-scale manufacturing. However, because of the growing prevalence of electronics in everything from cars to remote controls, any uptick in business is promising. Included in the stimulus package is $48 billion for transportation projects including investments in mass transit and bridge and highway construction; and $7.2 billion to bring broadband Internet service into underserved areas. About $50 billion will be invested in energy projects that are largely focused on improving energy efficiency and developing non-polluting and renewable power.
If nothing else, the stimulus plan’s emphasis on conservation and alternative energy will spur more R&D spending, executives say. Among existing technologies, Iight-emitting diodes (LEDs)—long-lasting bulbs that use considerably less energy than conventional bulbs—are capturing the interest of the channel. LEDs have long been relegated to industrial uses such as on/off lights on computers and equipment or digital data screens. LEDs are now finding their way into new applications such as signage lighting—now done mostly with neon lights--automotive headlamps; auto navigation systems/GPS; high-end residential lighting, such as chandeliers; LCD backlighting and TVs; personal navigation devices; retail lighting; street lighting/public area lights; and traffic signals.
LEDs are likely to be used in a number of government buildings that are already slated for energy-efficiency upgrades. “Seventy-five percent of federal buildings have to be certified to energy-savings efforts,” says Ed Smith, senior vice president of sales for Avnet Inc. Electronics Marketing Americas. LEDs not only save on energy, but also on maintenance, adds Smith. “In a typical LED traffic light, the bulbs are so densely packed that if one goes out, you don’t have to change or replace it,” he says. “It doesn’t affect the performance of the light.”
Three of North America’s largest distributors—Arrow Electronics Inc., Avnet Inc. and Future Electronics Inc.—have divisions devoted to LED sales and service. The channel has opportunity not only from LEDs themselves but the electronics that surround LED systems. LED systems require a number of supporting electronics such as controllers, sensors and interconnect devices, says Faris Aruri, vice president of corporate marketing for Sager Electronics, a privately held distributor based in Middleborough, Mass. “If you have lighting in a building, you can be certain there is a control panel in there somewhere,” says Aruri.
Distributors stand to benefit in more ways than just higher sales of LEDs and electronic components: the channel is introducing new service models to LED customers. “The interesting thing about lighting is the conversion to areas previously not penetrated by electronics,” says Smith. Because of electronics distributors’ sales resources and logistics offerings, they are providing services such as "just-in-time" that other industries aren’t accustomed to. Distributors are able to help with design: the channel is long familiar with sensor technology, and LEDs are increasingly being used with sensors.
Like LEDs, systems that drive solar and wind power require supporting electronics. Although widespread use of these systems is still far into the future, some distributors are getting in on the ground floor.
“We’ve started to target the renewable energy market such as solar and wind and we are spending the time calling on these customers not for revenue today but so we are in position for things to come,” says Aruri. “There are more than 30 accounts in North America that we are actively calling on and getting into position.” Solar is farther along in terms of electronics content, executives say. The types of products used in alternative-energy applications include inverters to convert wind or sun into usable power; regulators that control electricity flow and temperature; and panels that harvest energy from the sun.
Some executives say that fluctuations in oil prices may have an impact on how much attention is paid to alternative energy. “The alternative energy market cooled down a bit when oil prices dropped,” says Michael Knight, vice president of product management and supplier marketing for TTI Inc., a specialty distributor. “But because of fiscal policy there will be an acceleration of green. Everything that was about mileage will now be about voltage. But how urgent this becomes may depend on the stimulus plan.”
“Even though the price of gas is lower, we think that with the hikes that have happened there is no turning back,” says Aruri.
Investments in infrastructure, ranging from road and bridge construction to public transportation initiatives, also require electronics. “We provide the electronics that surround and interconnect things such as construction lights to their frames,” says Eric Sussman, director, Americas distribution for connector maker Molex Inc. “We have a number of products for lighting and supporting equipment that we make on the industrial side [of our business]. These will come into play as states are given money for infrastructure.” Molex also has a new initiative that supports LED growth.
Infrastructure investment will also include the networks, base stations and grids that carry electrical and wireless signals throughout buildings and cities. “Green buildings, smart building, smart cities and wireless monitoring—we definitely see demand in the temperature and HVAC monitoring in smart buildings,” says Aruri. “Many of those signals will be remote and wireless.”
Wireless infrastructure demands a high density of interconnect, passive and electromechanical (IP&E) products, adds TTI’s Knight, and its power supplies need to be very sensitive. In many cases, these power suppliers are not off-the-shelf: wireless product vendors require proprietary products. This is a potential upside for distributors that modify power supplies or integrate them into subassemblies before they are shipped to the end customer.
Although the automotive market is hurting, the stimulus plan slates investments in other transportation options such as high-speed trains. These transportation industries typically source directly from suppliers, but as products become more diversified and outsourcing more prevalent, customers may be looking for partners that can manage complex supply chains. A number of industries that typically haven’t used distribution—such as medical equipment and automotive—are turning to the channel more frequently as their supply chains become increasingly decentralized and complex.
Early stock market reaction to the stimulus package was negative, reflecting a continued uncertainty on the impact of the plan. Electronics distributors continue to focus on the services that can assist customers through tough economic times (please see PDF for related story). As of mid-February, the channel’s philosophy mirrored sentiment throughout the U.S.: any signs of a stabilizing economy are welcome.