It was always likely that Avnet’s acquisition of Abacus at the turn of the year was really about the broadliner’s interconnect, passives and electromechanical (IP&E) product plans.
See: Avnet buys Abacus for £42.2m
This has become clear with the creation of the Avnet Abacus business. This combines the Avnet Time and Abacus IP&E operations into a business with sales of around €250m, representing 6% of the European IP&E market.
The logic becomes obvious when you compare the scale of Avnet’s European chip business with its IP&E business.
Avnet may have considered that it had exhausted the acquisition opportunities in the European semiconductor market and so turned to its IP&E business for new growth opportunities.
“There was a desire to expand the European business outside of semiconductors,” says Graham McBeth, formerly managing director at Abacus and now president of Avnet Abacus. “Adding further chip distributors could have been prohibitive.”
See: Analysis: What is Avnet getting with Abacus buy?
The other attraction to Avnet was that it builds its business with tier 3 and 4 customers, which may have fallen beneath its radar in the past.
“I believe there is a significant customer upside,” says McBeth.
In the past, the IP&E business was seen as less attractive to global distributors like Avnet, because it was thought to be less profitable than chips.
Steady price erosion in the semiconductor markets has changed all that. IP&E is now strategically important to Avnet.
“If you take the IP&E product range as a whole, the average selling price (ASP) per unit is around 30p, which is the same as for semiconductors,” says McBeth.
Of course, chip resistors and capacitors are a lot cheaper – nearer to 2p per unit – but McBeth’s plan is to concentrate the demand creation activities at the higher value products such as connectors, specialist passives and power supplies, which Avnet includes in the IP&E business.
“The ASP of a power supply is more than £1,” points out McBeth.
He believes that the design support activity will be just as important in the IP&E market as it has been in semiconductors.
The Abacus business was heavily weighted towards the UK, representing around 50%. As a result, McBeth felt it would be counterproductive to separate the IP&E and semiconductor businesses in the UK as has happened in the rest of Europe.
So in the UK only, Avnet Abacus uses the same sales team as Silica, with the combined team selling both IP&E and semiconductor lines.