When Avnet, No. 1 on MDM's list of top electronics distributors, agreed to sell its technology solutions operating group to Tech Data Corp., the headline could simply have been "more M&A in electronics distribution." But the move represents a different kind of consolidation in the already heavily consolidated sector.
This acquisition agreement highlights a shift in the electronics market overall. As Fortune reported, technology distributors are in a “consolidation craze,” driven in large part by the rapid growth of cloud-based solutions, including Amazon Web Services and Google Compute Cloud.
And as more functionality moves to the cloud, the demand for hardware changes. More intensive processing doesn't need to be done on in-house servers, so demand for higher capacity components shifts to a different market.
"When it comes to technology, it's not just about doing things better; it's about doing things differently," Mike Marks, principal for Indian River Consulting Group, recently told MDM.
With the divestment, Avnet will focus its operations on components – an already heavily consolidated distribution market, targeting new technologies that are in the early stages of development and adoption, such as the internet of things.
"This transaction presents us with the best strategic path for Avnet’s future success and profitability, and puts Technology Solutions in position to achieve breakthrough business results with Tech Data,” said William Amelio, Avnet CEO. “Moving forward, Avnet will focus its resources and investments on becoming a leader in design chain and supply chain services not only for our current customers and suppliers, but also for new markets."
Technology solutions accounted for about 37 percent of Avnet's sales in fiscal 2016, which makes its position as the largest electronics distributor vulnerable. No. 2, Centennial, CO-based Arrow Electronics, reported sales of $23.3 billion in 2015.
