The Big Keep Getting Bigger

Here are a couple of fairly safe forecasts for the global distribution market. First, many of the small to midsized companies that made this year's EBN/EE Times ranking of the world's biggest electronic component distributors will not be included in a future chart: Eventually they will be pulled into the warm and ever-expanding embrace of the biggest players, notably Arrow Electronics Inc. (NYSE: ARW) and Avnet Inc. (NYSE: AVT). (The ranking will be published online later this week.)

Arrow and Avnet have been aggressive acquirers in North America in recent years, and they’ll likely continue mopping up the sector as they tighten their hold on the industry.

The second, perhaps startling forecast is that fast-growing global distributor WPG Holdings (Taiwan: 3702), which occupies the No. 3 slot in the current ranking, will become the world's biggest electronics component distributor within a couple of years. WPG is already giving Avnet and Arrow -- ranked first and second -- a run for their money in terms of component sales. The bigger companies are ahead in the current ranking because of their extensive business activities in the technology solutions market, an area that involves serving the high-tech, industrial, and manufacturing markets with end-equipment technology and consulting solutions.

Avnet and Arrow are not yielding ground in the components distribution market, but they have altered their growth formula by diversifying operations into related technology areas. Overall, the market grew at a double-digit clip in 2010, recovering sharply after having slipped in 2009. Collective revenues for the top 25 distributors surged to $68.6 billion, up 31 percent from $52.4 billion in the prior year. The top five companies accounted for 87 percent of the sector's sales last year.

Future Electronics is growing rapidly in Asia, according to sources at the company, and Premier Farnell plc (London: PFL.L) is seeing increased growth globally even as it implements plans to entrench itself in North America. Even accounting for the many smaller distributors that did not make the list or any midsized ones that did not respond to the EBN/EE Times survey, it's clear that the biggest distributors represent about four-fifths of overall revenues.

That strong sales position, along with the giants' expanding range of services, means the top 10 distributors will continue to determine the distribution market's direction for the near future.

WPG Holdings' exponential growth is an important tranche of the industry's still-unfolding story. Sales at the Taiwan-based distributor have surged on the back of China's rapid growth and increased role in the electronics manufacturing sector. The company dominates the regular components distribution business in Asia. But it's looking over its shoulder at Avnet, Arrow, Future Electronics, and other large players as they furiously expand their operations in the region.

The contenders are coupling their regular distribution business with value-added design and engineering services in a bid to differentiate their offerings and whittle WPG Holdings down to size. Will they succeed, and how will WPG Holdings respond? That's next year's story.