Consolidation has been occurring for years in the electronics supply chain, and distributors have been no strangers to the phenomenon. In fact, just over a month ago we interviewed David Wolff, founder and president of P.D. Circuits, a major US-based bare board broker that was being acquired by NCAB Group of Sweden.
So when the news broke on Sept. 26 at PCB West that P.D.’s main US competitor, Bare Board Group, was putting together a deal of its own, it seemed part of the normal fare.
But when it was revealed just whom BBG was buying, the picture became a lot more interesting.
BBG’s acquisition target was Hunter Technology’s printed circuit board fabrication operations. The move dramatically changes the distribution landscape because, for the first time in years, a major regional distributor will also have internal manufacturing capability.
Although rare these days, the manufacturer-distributor model isn’t a completely foreign concept, but it’s more commonplace among contract electronics assemblers. No fewer than five firms in the CIRCUITS ASSEMBLY Directory of EMS Companies offer some degree of component or equipment reselling. Most are small. Jaco Electronics in New York offers name-brand flat-panel displays, but also performs some degree of CTO box-build and assembly. T-Tech Electronics in Penang distributes components and offers EMS services. STI in Huntsville, AL, is a Tier IV EMS and reps various equipment lines. In January, electronic components manufacturer AirBorn acquired EMS firm AESCO Electronics.
Others have tried on a larger scale and failed. After acquiring contract assembler Hibbing Electronics in 1998, components disty Reptron’s sales quickly peaked, topping $300 million. Within five years came a reorganization. After two more years of repeated losses, it was sold to Kimball. In 2005, when EMS firm Rad Technologies acquired a distribution operation, it had the goal of reaching $100 million in annual sales within the year. It, too, is now out of business.
Even fewer component distributors have attempted to broker bare boards. When we researched the market a few years ago, we found only one company – Elfa, in Sweden – offering PCBs on its line card. More typical is an arrangement whereby a disty links its website to that of a fabricator’s, thus simplifying the board buying process. A year ago, for instance, element14 did just that through partnerships with PCB manufacturers Sunstone Circuits and Pentalogix.
A few months back, PCB distributor Fineline Global announced a 25% stake in Shenzhen Fastprint Circuit Tech. What’s less clear, however, is whether Fineline is doing more than simply investing in the fabricator.
That’s why BBG’s move represents a more significant undertaking. Distributors have traditionally shied away from product build because the two models require different sets of business practices. Inventory turns are valued in both industries, of course, but outsourced manufacturing emphasizes service over commoditization. PCBs are not off-the-shelf parts; each part number is a unique design. And then there’s the conundrum of how the disty keeps its other circuit board suppliers happy, while also maintaining its own loaded factory. BBG is novel in trying to cross that bridge.
But there’s a tempting potential payoff. PCB distributors are now pushing into the $100 million realm, which would be big enough to make Dr. Hayao Nakahara’s NTI-100 list of the largest board fabricators (which we published in September). NCAB’s acquisition of P.D. puts it up against that magic revenue number.
The Hunter deal won’t get BBG there, not by a long shot. Privately held Hunter doesn’t report revenues from its fab operations, but they likely aren’t higher than $4 million a year. BBG’s annual run rate is about $30 million.
Still, as BBG founder and president Greg Papandrew told me years ago, the one disadvantage he always faced selling against bricks-and-mortar board shops was not having what he called the “storefront.” Apple sold lots of iPhones and iPods through the traditional channel, but things really took off when it opened its own retail stores. Sometimes, customers just want to feel close to the original supplier.
To be sure, almost every US- or Europe-based fabricator also brokers boards. IPC data indicate close to one-fifth of the boards sold in the US by domestic fabricators were purchased from offshore sources. So BBG will be up against not only the dedicated disty competitors, but also an army of small shops – most roughly the size of Hunter – which already have overseas partners.
In the end, the model itself is less important than the execution. If BBG, or others that follow in its footsteps, can continue to get reliable PCBs into the hands of customers on-time and on-budget, this will look like a brilliant move. And if not, it won’t.