Distribution world – A financial headache

Distribution world – A financial headacheIt was a rough financial year for the electronics industry last year with job cuts and site closures being a common theme. So what measures will distributors take in response to falling profits? Alex Mayhew-Smith
It has been a hard year for the distribution business in the UK, with companies witnessing a slackening in profits. Now it appears that business, while not getting any worse, remains depressed.
According to the Association of Franchised Distributors of Electronic Components (AFDEC), during 1998 the semiconductor market – based on billings – for its members fell by 6.7 per cent and the passive components market dropped by 9.1 per cent.
This is borne out by leading electronic component distributors that have seen a dramatic fall in full year pre-tax profits in their most recently reported results for 1998 – Abacus Polar by 30 per cent to ?7m and Diploma’s electronics distribution business to ?9.5m from ?10.1m for the previous year.   Abacus
Polar Diploma Electro-
components Eurodis
Electron Premier
Farnell Last period reported FY H1 H1 H1 H1 Pre-tax profit ?m
(compared to same
period last year) 7
-30% 13*
-40% 53.4
+1.9% 3.4
-5.8% 64.3
-12% Turnover ?m
(compared to same
period last year) 99.6
+0.7% 292.9
+13.7% 330.3
+3.5% 146
-4.5% 364.9
-3% *After ?5.5m share buy-back          
At Eurodis Electron interim pre-tax profits slipped more than 5 per cent to ?3.4m, after exceptional restructuring costs of ?502,000.
“In April [1998] we saw a lot of price falls in the industry and a weakening in demand,” said Brian Murdoch, CEO of Abacus Polar.
“Unit price erosion and competitive pressures on margins have continued in an industry where several high profile semiconductor plant closures have not been sufficient to bring worldwide capacity back into line with demand,” wrote Christopher Thomas, Diploma’s chairman, in the company’s financial report.
AFDEC agreed in its annual economic forecast and report: “Semiconductors lie at the heart of the difficulties suffered by the components industry. Billings have been falling even though demand in unit terms has been buoyant… because prices have been falling quickly.”
Another company which saw a fall in pre-tax profits for its last reported period is the catalogue firm Premier Farnell. Its last financial report saw interim pre-tax profit fall 12 per cent to ?64.3m. “The UK market has been difficult. It is not getting any worse, though – it is a depressed market,” said Andrew Fisher, finance director with Premier Farnell.
And predicting when a recovery in the market will occur remains a pointless exercise, says Fisher.
However, the company recently announced ambitious plans to boost sales. This avowed intent, particularly for sales in the UK and in Germany, appears ambitious in the face of a depressed market.
To Fisher, the problems in the UK market of last year and the depressed market this year is essentially a short-term dip. Premier Farnell’s recent announcement of plans to increase capital expenditure over a number of years is part of a longer term strategy, says Fisher.
The investment is also a recognition of the need to unite the different elements of the business. The company was created in 1996 after Farnell Electronics acquired US company Premier Industrial for ?1.1bn. At the time there was a feeling among some shareholders that Premier had payed too much. During the firm’s last results, Hirst said much work would be needed if the company is to gain the benefits from the merger. This was two years after the company did its merger deal.
Now at last, Premier Farnell appears to have a CEOwho is prepared to do the hard work in tying the two businesses into one company.
Following a strategic review initiated by Hirst, the company is to spend ?25m in the next three years to better co-ordinate its US division with its UK-based operations. “The conclusion of the last six months’ work is that to realise Premier Farnell’s full potential we must begin to run it as a coherent group,” said Hirst, Premier Farnell’s CEO since last summer.
Premier Farnell will spend the money in such areas as re-shaping the company’s systems infrastructure. Another ?20m will be spent in upgrading the group’s logistics capability in North America and Europe, including ?4m for e-commerce services. There will also be an annual investment of ?15m to expand the company’s product range.
“Our driving purpose is to create shareholder value by stimulating growth throughout the business. We know that the best way to do this is by deploying its full capabilities as a group,” said Hirst.
The intent by Premier Farnell to up capital expenditure, with a long-term goal in mind, despite the current state of the market is refreshing. It certainly seems to be a more healthy attitude than the trend that the UK electronics industry has suffered under in the last year to slash jobs and close sites at the first sign of falling profits. DESIGN TIPS – lcds that cope with bright sunlight By Zorik Danelian
Liquid Crystal Display (LCD) panels are used in a wide variety of applications, from industrial information units, to hand-held data loggers and in-car information systems. Increasingly, outdoor applications are seeking to make use of LCD panels, such as high street banking ATMs.
This growing outdoor application, however, is not without its drawbacks, because one of the age-old problems experienced, when using LCDs, is their inability to deal effectively with sunlight to produce a clearly legible/viewable image.
Normal panels, although now considered ‘high brightness’ at levels of 250-300cd/m2, suffer badly from ‘wash out’, which occurs when incident sunlight overpowers the light generated from the LCD’s own backlight unit. This has meant that in areas where sunlight is a constant issue, the CRT display has been the only answer for such markets. Until now, that is…
There are, currently, two ways in which leading manufacturers have solved this sunlight, wash out issue. The first method has made use of Reflective LCD technology, whilst the second uses High Brightness LCD techniques. Although totally different ways of solving the same problem, the technologies involved address different market segments and so complement each other.
The availability of reflective panels was announced this time last year, at two major industry events, Electronica and EID ‘98. Since then, the new technology panels have now been incorporated into product which is reaching end users. The base technology allows customers to design in colour TFT panels in areas that are power and colour critical.
In this instance, the technology uses internal aluminium micro-reflective electrodes to avoid the normal problem of colour mixing by parallax effects. Other technologies used include: High Contrast Reflection [HCR], a high-speed response rate of around 50ms, and Super High Aperature Ratio [SHA], the combination of which enables moving pictures to be displayed on a screen.
Alternatively, a standard panel can be modified by replacing the backlight ‘unit’ with a number of small footprint CCFL tubes, which has resulted in the best-in-class power per cd/m2.
Although this technology does increase the power consumption above the ‘standard’ TFT levels, the benefits of the technology faroutweigh this ‘problem’.
Another consideration is that if a customer wanted to offer a range of panel brightnesses from 200 to an extremely high and exceptional 1,700cd/m2 , then using the same standard panels a manufacturer can design two totally different solutions, which are mechanically and electrically compatible, for the same R&D budget!
Zorik Danelian, product manager at Sequoia Tekelec Europe UK  

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