Published :10/8/2019 10:27:00 AM
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TI's direct sales model determination
TI's decision underscores the determination to transform its channel strategy. Since 2017, TI has been changing its relationship with its distributors. A Wall Street analyst said that up to now, TI has issued a letter of termination to six distributors around the world (excluding World Peace, Wenyu, which announced the termination of cooperation on October 7).
“In the past few years, we have been developing distribution networks to better match our strategy and build closer and more direct relationships with our customers.” A TI spokesperson told EPSNews, “As we build these direct relationships We will not have too many businesses flowing through distribution channels and need fewer distributors."
A Futura spokesperson said: "Although Avnet has established a long-term relationship with Texas Instruments (TI), TI has changed its distribution strategy and is moving towards direct sales to end customers. Therefore, Avnet and TI The partnership will be terminated by December 31, 2020. We respect TI's decision and we will continue to cooperate during the transition period."
One of TI's most compelling initiatives in the channel was the discontinuation of the distribution “demand creation” program around 2017 (the program refers to suppliers who reward distributors who help customers with product design). In recent years, as the profit margin of parts sales has been declining, distributors are increasingly relying on “demand creation”. However, TI's move to stop the program has made distributors completely "sponsored to fulfill partners" - just managing inventory, delivering products and providing other supply chain services, and the value-added service space has been greatly reduced.
How will Avnet develop next? Based on its latest 8-K file, Avnet with hundreds of product lines will continue to look for opportunities to support its current and future customers, reduce operating costs, and further strengthen its current and future supplier partnerships.
Still, this is still a blow to Avnet. ESM China, a subsidiary of EPSNews, reported the possibility of TI-Avnet rupture later last week. Since 2017, ADI, Cypress, Broadcom (excluding Avnet EBV), Silicon Labs and other semiconductor manufacturers have terminated their relationship with Avnet. Avnet had earlier layoffs in China because Avnet’s progress in the market was slower than expected.
Avnet recently opened a super store on the Alibaba Group's B2B procurement and wholesale market 1688.com, which has expanded its product range in China. Through its alliance with Alibaba Cloud, the electronic distributor will also enable services such as IoT prototyping.
A senior manager at Avnet also left the company. EMS provider Flex appointed Lynn Torrel, former senior vice president of global customer and supplier management at Avnet, as its lead supply chain and procurement officer. Torrel is responsible for Flex's direct and indirect materials, transportation and logistics, business operations, materials management and strategic supply chain management. The source expects that Avnet will also make other personnel changes.
The decline in profits is the reason for the “cancellation of agents”
Overall, distribution channels have had a tough time in 2019. A year after the shortage of parts and distribution, distributors found that demand fell in the first three quarters of this year. The industry's two largest global distributors reported a decline in sales: Avnet's fourth-quarter sales were $4.7 billion, down 7.5% year-over-year and 0.4% quarter-over-quarter. Arrow Electronics, Inc. reported sales of $7.34 billion in the second quarter of 2019, down 1% from $7.39 billion in the second quarter of 2018.
Over the years, the profit margin of electronic components has been declining, which has created a tension between suppliers and distributors. In order to retain a higher percentage of profits, suppliers are cutting “demand creation” and other incentive programs. In addition, supplier M&A activities often result in two separate distribution rosters, so component manufacturers have been cutting their channel relationships.
There has been a tug-of-war between suppliers and distributors on the “ownership” of customer relationships. When a distributor sells components to an end customer, they simply sell on behalf of the supplier. Component manufacturers such as TI are now dealing directly with these relationships. According to industry sources, TI is particularly capable of managing direct customers because it maintains strong engineering and sales capabilities on a global scale and offers a broad product portfolio. Many of TI's competitors have split into professional chip companies.
Texas Instruments has a long-standing distribution roster. In the Americas, TI currently lists Arrow, Avnet, Digi-Key, Mouser and Rochester Electronics as distributors; in Asia, Texas Instruments sells through Arrow, Avnet, World Peace Group (WPG) and WT Group (Wen Wei). In EMEA, Eastronics, MT Systems and Telsys join TI's core global distribution roster.
However, just a few days after TI announced the removal of Avnet’s agency rights (October 7th), World Peace Group (WPG) and WT Group (Wenyi) both announced that TI would terminate its agency relationship with them. As of now, TI's agents in the Asia Pacific region are left with only the Arrow family.
