Electronic Parts and Equipment, NEC

SIC 5065

Companies in this industry

Industry report:

This industry consists of companies that wholesale electronic parts and electronic communications equipment not classified elsewhere. Industry products include semiconductors, modems, telephone equipment, amateur radio communications equipment, recording, cassettes, diskettes, and public address equipment.

According to Dun & Bradstreet's Industry Reports, the electronic parts and equipment (not elsewhere classified) industry generated $90.3 billion in sales in 2009. Semiconductors were one of the fastest growing categories and accounted for at least 13 percent of sales. As of 2009, 20,927 establishments employed 217,065 workers in the industry. Eighteen percent of all establishments (3,954) and 20 percent of all employees (43,333) were located in California. That state also accounted for the most sales, with $25.7 billion, or 28 percent of total industry revenues. Other top states in terms of employment were New York, with 17,169 workers; Texas, with 16,307; and Florida, with 15,952. Illinois and New Jersey rounded out the top five, with more than 11,000 employees each. The number-two state in terms of sales, after California, was New York, which accounted for $19.1 billion, or 21 percent of the nation's total. Other top-earning states were Arizona ($16.5 billion), Florida ($6.1 billion), and Illinois ($2.0 billion).

The electronic parts and equipment industry began in the late nineteenth century, when it primarily served the telegraph industry. After Alexander Graham Bell invented the telephone (1875) and Thomas Edison invented the light bulb (1879), the United States used more electricity. And, as manufacturers offered new electric inventions, wholesale distribution systems were developed to deliver these products to market.

The industry fell into a recession during the 1980s but rebounded by 1987, only to experience a second setback in industry growth--to less than 2 percent--in 1991. Conditions improved slightly in late 1992, as delivery lead times increased; the number of electronic parts distribution companies totaled 15,329 by the end of that year and combined industry sales totaled $106 billion. Yet, just as industry forecasters predicted that U.S. exporters would sell more to developing markets in Asia, Western Europe, Canada, and Mexico, the industry suffered a recurrence of depressed conditions. A renewed slump in the distribution industry began in 1995 and lasted for three years.

During the remainder of the 1990s, industry players moved toward consolidation; and, due in part to instability in Latin America and an economic crisis in the Far East, U.S. exports slowed dramatically. Distributors rushed to synchronize supply with demand during this decline, which, unfortunately, lasted into the third quarter of 1998. Finally, near the end of the fiscal year, stock prices in the industry hit bottom--a four-year low that was broken by a subtle climb in prices at the beginning of 1999. Distribution margins, however, remained low, as key consumers such as computer manufacturers continued to drive prices down with bulk purchases. Observers reiterated that success in the distribution channels hinged on the ability to sustain growth in the existing high-volume transaction environment.

In early 1999, forecasters predicted a turnaround for the electronic component distribution industry, and analysts pressed firms to merge and consolidate in apprehension of a continually temperamental economic climate. Analysts further concluded that the continued growth of distribution channels necessitated the conscientious implementation of dynamic efficiency controls to coordinate supply with demand within a fluctuating marketplace.

Due to the sluggish economy that followed the September 11, 2001, attacks on the World Trade Center, the financial impact was felt throughout the industry. Annual sales of electrical distributors dropped 24 percent in 2001 and 22 percent in 2002. According to the Electrical Wholesalers, the top 250 electrical distributors, based on annual sales, fell by 8.4 percent to about $36.9 billion in 2001. As a result, there was a decrease of 78,781 employees during that same time period.

Consolidation continued throughout 2001 and 2002 with approximately 40 companies reported to have been acquired. For example, Graybar Electric Co. acquired Commonwealth Controls Corp., located in Richmond, Virginia; and WESCO International Corp. acquired both Control Corporation of America, located in Richmond, Virginia, and Heming Enterprises Inc., located in Hayward, California. Some former leaders in the industry were acquired over the past year, which include Kennedy Electrical Supply Corp., Missouri Valley Electric Co., Warren Electric, Eoff Electric, and Fromm Electric. In 2003, sales continued to decline as reported in Purchasing magazine. In fact, for the leading 75 electrical distributors, sales had fallen some 7 percent.

According to the U.S. Census Bureau, there were 20,397 establishments employing approximately 338,488 in the electronic parts and equipment industry in 2001. By 2003, the total number of establishments had increased to 23,601, with about 276,822 employees. The industry generated $119.2 billion in annual sales.

After a boost in the mid-2000s resulting from a strong economy and investment in construction, the U.S. electronic wholesaling industry faced the negative effects of the economic recession of the late 2000s. Although some predicted a recovery in the early 2010s, inexpensive imports were encroaching on the industry and prompting further consolidation. Also, according to a report by IBISWorld, "With the rapid pace of technological change, wholesalers cannot possibly stock all new products." Industry participants were fighting back by "developing links with suppliers and affiliating with manufacturers, providing customer access to an unlimited range of products via online catalogs, and outsourcing noncore business such as repairs and maintenance."

The top companies in the electronic parts wholesaling industry in 2010 were Arrow Electronics Inc. and Avnet Inc. Arrow Electronics of Melville, New York, was a leading global supplier of passive components, interconnect products, semiconductors, and computer peripherals and boasted major clients such as Cree, Panasonic, Microsoft, and Intel. Arrow moved to acquire a number of smaller distributors throughout the late twentieth century and continued to purchase companies into the 2000s. Acquisitions in 2010 included interconnect products distributor A.E. Petsche Co. of Arlington, Texas, and others. In 2009 Arrow reported sales of $14.6 billion, almost double that of a decade earlier. The firm employed 11,300 people in 2010.

Avnet, Inc. of Phoenix, Arizona, supplied computer products and electronic components, including semiconductors, to about 100,000 manufacturers and resellers. With 14,200 employees, the firm reported sales of $19.1 billion in 2009, up from a mere $6.3 billion 10 years earlier. Avnet was also on the acquisitions trail; 2010 saw the purchase of Bell Microproducts for $252 million and Australian itX Group for $70 million, as well as others.

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