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Another Unexpected Outcome of the Chip Shortage? Distributors Are Thriving

November 05, 2021 by Tyler Charboneau

While manufacturers are facing a woeful drop in supply, distributors' sales have surged amidst the ongoing chip shortage.

Though chipmakers and electronics manufacturers are reeling amidst the ongoing chip shortage, not everyone is suffering. Electronics distributors have experienced resounding success this past year—as both old and new customers clamor for semiconductors.

While OEMs are experiencing difficulties with direct purchases, distributors, who have years of amassed stock, are prepared to fill the void. It’s especially true for broad-line and specialized distributors. These companies stock chips in anticipation of large production runs and specific component needs, respectively.

Sales for electronic distributors

2020–2021 has been a record-high year of sales for electronic distributors. Image used courtesy of A2 Global Electronics and Solutions

Authorized distributors have the cache to capture larger segments of the market—even courting household names like Samsung, Intel, and more.

What Buying From a Distributor During the Shortage Entails

For device manufacturers, shifting from suppliers to distributors means revamping how they conduct business.

Under normal circumstances, distributors might act as intermediaries between device makers and suppliers. However, widespread shortages amidst COVID and general fabrication woes have led distributors to fully take the reins.

A chip manufacturer can approach distribution in different ways. One company might cast a wide net—disseminating their products across many distributors somewhat equally. This ensures that their product is readily available and subject to marketplace competition. Alternatively, some semiconductor manufacturers are choosing to engage with limited, “trusted” partners (as TI does with Arrow). Unfortunately, creating a supply chain “choke point” can limit widespread availability and allow prices to rise in lieu of healthy competition.

Automotive semiconductors, for example, already cost five times more than they did before the pandemic. Ethical distribution can play a key role in preventing this price gouging. The process is relatively straightforward for companies who can shop for chips like buyers at a supermarket.

Depiction of how the chip shortage has affected certain auto manufacturers

Depiction of how the chip shortage has affected certain auto manufacturers. Image used courtesy of PC Mag

Distributor Case Studies

Few distributors have capitalized on the production shift like Arrow Electronics. Arrow specializes in creating engineering designs for semiconductor board assemblies, and 65 to 70 percent of its business stems from global component distribution.

The company has seen marked growth, despite the pandemic’s novel impacts. Year-over-year profits surged 15 percent between Q4 2019 and Q4 2020. However, this year’s successes have dwarfed those before them. Arrow’s operating income swelled by 70 percent in 2021’s first few months alone.

The company has historically been a key distributor for automotive, aerospace, defense, and industrial manufacturing players worldwide—many of whom are currently struggling. From the year spanning June 2020 to June 2021, Arrow’s stock price also skyrocketed by nearly 66 percent.

Avnet Inc

One of Arrow’s counterparts in the distribution space, Avnet Inc., has experienced its own boon. As a major component provider for the likes of Intel and Broadcom, its sales have risen over 14 percent since last year.

Back in June, Avnet’s shares had risen by 25 percent since January. Intel supplies the PC world and beyond with CPUs, GPUs, VPUs, and FPGAs. Meanwhile, Broadcom has major links to Apple, IBM, Motorola, Linksys, and the greater PC realm. Millions upon millions of devices depend on these chips—hence the feverish demand on Avnet’s shoulders.

Mouser

What about high-service distributors like Mouser? The company routinely stocks one of the industry’s largest selections of electronic components—over 1.1 million unique serial numbers, in fact. Mouser makes a point to stock multiple months in advance. It’s little wonder how the distributor has been so prepared to handle sudden spikes in order volumes. Throughout 2020, it even managed to introduce 5,000 new products to its portfolio, while representing over 70 new semiconductor-and-components manufacturers.

For Arrow, Avnet, and Mouser, remaining viable has been an exercise in planning, logistical execution, and analysis of longstanding manufacturing trends. Companies like these have supply chains of their own to manage. Additionally, each has been quite adept at limiting the amount of gray market, counterfeit components across their global centers.

Mouser has safeguards in place to bar counterfeit components

As an authorized distributor, Mouser has safeguards in place to bar counterfeit components from its marketplace. Image used courtesy of Mouser

Not All Suppliers Are Suffering

There is still plenty of uncertainty around the future of semiconductor production worldwide. Country-specific developments, vaccination rates, and policies are impacting how workers are returning to production floors. Ford, GM, and Apple (among others) are predicting issues moving forward—with some makers even slashing their own production.

Arrow Electronics CFO and SVP Chris Stansbury offers his own perspective. He notes that ramp-up will be gradual and resistant to quick fixes. Somewhat positively, Stansbury also believes that the situation is beginning to stabilize, as opposed to getting worse.

Sales from the top 15 semiconductor suppliers

Sales from the top 15 semiconductor suppliers. Image used courtesy of IC Insights

It’s also important to note that not all suppliers are suffering. Qualcomm, Apple, TSMC, and AMD expect varying sales increases in the coming months. It appears that Q3 2021 may kick off a market rebound for total semiconductor numbers worldwide across major manufacturers.

Learn About the Effects of the Shortage on the Electronics Industry

Distributor success is just one unexpected outcome of the semiconductor shortage. Read up on more discussions surrounding this topic from the presentations and articles below.