Q1. Which sectors and product categories did you anticipate would experience the strongest growth in 2020 before the COVID-19 pandemic hit, and what changes have occurred since then?
Mark: Going into 2020, we were expecting overall growth of around 8%, and we are currently on a projected growth rate of approximately 8.3%. Our business is in very good shape right now.
One of our main customer groups is original equipment manufacturers (OEMs), which represents a significant proportion of the electronics industry. Small and medium-sized electronics manufacturers (EMS) are an important group for us, and in terms of customer volume, hobbyists and students are also a good market.
Despite our plans and expectations for certain customer groups and sectors, as with many other companies, the year has turned out somewhat differently due to COVID. So far, the impact has been evident in that purchases from our high-volume EMS customers have exceeded our expectations, resulting in a 31% increase in this segment of our business to date. Small and medium-sized EMS companies are also exceeding our forecasts by 10%, as is the hobbyist and student segment, which has grown by 15%. Taken together, these are very positive signs for our business. The OEM customer group, which represents a large part of our business in terms of both figures and customers, increased by 3%, a respectable growth considering the impact on industrial markets worldwide.
So, overall, from a business and industry perspective, we're fortunate to be in this position.
It's interesting to examine the ups and downs in demand and analyze how things changed when COVID spread globally. The year started very well for Mouser, and then, around the Chinese New Year (which typically brings a slowdown), the negative impact began to be felt when China imposed lockdowns. Europe and the Americas quickly became aware of what was happening in China, which triggered a huge surge in transactions. One-third of the business was stagnant while the other two-thirds were thriving, until China suddenly recovered and the other two-thirds began to feel the negative effects.
Jeff: From a product perspective, while we didn't forecast product growth per se, there are a number of interesting aspects worth highlighting.
First, we had high hopes that the capacitor trade would rebound this year. After booming in 2018, it declined significantly in 2019. Everyone I spoke to, both customers and colleagues, expected it to recover. Unfortunately, this hasn't happened. Although sales have fallen considerably, the volume has only dropped by around 3%, so we're still maintaining a very healthy level. Strong growth was also anticipated in the automotive sector, but clearly, the situation isn't very favorable. We're still supplying many different product lines to our automotive customers, but the quantities are relatively small, indicating that this is most likely for design activities rather than production consumption.
Another product category worth mentioning is discrete components. They rose substantially in 2018, fell in 2019, and have yet to recover. We don't know why, and the discrete suppliers we've spoken to share this concern. More in-depth analysis is probably needed to make a judgment on this, but given that discrete components fit into virtually every application, it's strange that one technology is experiencing such a decline while other areas of our business are not. The only conclusion we can draw is that either there is excess inventory, or the negatively affected sectors (automotive, industrial, oil and gas) are not stockpiling this product at the moment.
On the positive side, we expect to see growth in microprocessors, microcontrollers, analog products, and interconnects. These categories are on the rise this year, and even some passive areas, such as resistors and inductors, are performing very well.
Another area we wanted to focus on this year is developer tools. We have signed agreements with new suppliers, launched new product lines, and many of our existing suppliers are releasing new developer boards and evaluation tools. The industry continues to innovate to make designing new products easier for design engineers, so sales of developer boards and evaluation kits are very strong this year. It's worth noting that engineers can easily purchase these tools for themselves, meaning some of them, for example, a hobbyist working for an OEM, can work on a design idea from home. I would say we're selling more development tools now than ever before.
Q2. How are your clients responding to the changes brought about by COVID, and what are you doing differently?
Mark: We've noticed that many engineers have taken their work home. In California, for example, the virus has been devastating, but thanks to remote work, engineers have been able to accomplish a lot from home. I think some of these design engineers are happy to be working from home without being disturbed. Conducting certain tests at home is complicated, so it seems some engineers have opted to return to the lab only to perform specific tests and then resume their work from home.
Jeff: In this regard, we understand that suppliers are maintaining very effective telephone collaboration with their clients in the context of preparing new designs, using Zoom, Microsoft Teams, and other applications. They report that the calls are proving very productive because they allow for faster presentations and getting to the details quickly. Furthermore, the process is expedited because clients are directly contacting the decision-makers. We believe that even suppliers have discovered that design work in a virtual environment really works. It remains to be seen whether this new approach will prevail, but what is very clear is that the design process has not been halted by the inability to meet in person.
Mark: A key decision we made was to maintain our inventory levels. It probably doesn't seem exceptional, but not many distributors have maintained inventory levels as high as we have. We currently have around $800 million in inventory and continue to focus on maintaining inventory levels with all suppliers to keep offering engineers our broad product range.
On one of our regular supplier calls, the CEO of one of our largest interconnect suppliers commented that he thought there was a wave of innovation coming, and that it was a unique opportunity driven by electronics. We agree. His vision aligns with what we are experiencing at Mouser; we see enormous potential to thrive. Engineering firms are a hotbed of innovation right now and will soon move into the prototype phase. At the beginning of 2020 we knew that the next few years would be very good thanks to 5G and other major market trends, but due to COVID there are also innovations in other areas of our industry.
Q3. Have you noticed any specific changes in the medical electronics sector and in the demand for your components?
Mark: The medical sector has always been good for us, and as we expected, we've seen a huge increase in demand, especially for all types of sensors. Microcontrollers, analog elements, LCD screens, and practically everything related to ventilators has grown considerably. Demand has exceeded our forecasts, and by maintaining our high inventory levels, we've been able to continue supplying from stock. This is something we're extremely pleased about, given the intended use and the urgency of these components.
Q4. What are the forecasts for the remainder of 2020 and the beginning of 2021? What predictions are you confident in?
Mark: We started the year with a forecast of 8% overall growth across all three of our regions: Asia, the Americas, and Europe. As of June 2020, growth had reached 6% in the Americas, 5% in Europe, and 20% in Asia. The most difficult thing to forecast is how it will develop from here. We've already gone from a rate of -40% in China to +20%, which demonstrates the dramatic turnaround in a relatively short period.
The next three months will be crucial because production is restarting in parts of Europe and the Americas. The market operates on demand, but, for example, there are currently 40 million unemployed people in the US who aren't spending. That said, we are convinced that the electronics sector will not be as negatively impacted as the entertainment and hospitality sectors, as innovation continues to advance.
The real uncertainty lies in the rate at which staff will return to work and be able to revive our economies. The hope is that this will happen during the summer. We believe there is a chance that Europe will recover this summer; currently, companies are focused on returning to work after the lockdowns end, rather than thinking about holidays, as is typical at this time of year.
Jeff: From a product and market trend perspective, 5G continues to drive consumption. There may be government investment in 5G deployment as an economic stimulus, which will create even more demand. Not surprisingly, our RF product lines are experiencing considerable demand for boards, including power transistors, RF filters, and specialized RF interconnect elements.
Mark: Our 27 locations worldwide remain open, and we have taken steps to protect our staff and mitigate the spread of the virus. We continue to hire if needed; we haven't had any layoffs or furloughs, and we will reach $2 billion this year. We remain strong in the face of the pandemic and continue to invest in our workforce, who are working incredibly hard to process orders so that design and supply chains can continue operating around the world.
Mark Burr-Lonnon, Senior Vice President of Global Service & EMEA and APAC Business
Mark Burr-Lonnon, Senior Vice President of Global Service & EMEA and APAC Business, helps guide Mouser Electronics' global service strategy as well as day-to-day international efforts. In 2008, Burr-Lonnon transitioned over to Mouser from its parent company, TTI, Inc. Under his and CEO and President Glenn Smith's shared global vision and direction, Mouser has quickly grown from a small US electronics distributor into a global player focused on serving the unique needs of design engineers and buyers worldwide. Today, Mouser has 27 Customer Service Centers strategically positioned around the globe, providing local language, currency and same-time-zone support.
In addition to planning, directing and coordinating Mouser's global growth and expansion activities, Burr-Lonnon provides a leadership role to his multicultural global management team. He takes an active role in cultivating relationships with current and potential electronic component manufacturers, top industry organizations, tradeshows and media relations. Plus, he is instrumental in ensuring Mouser's manufacturing base and product portfolio are in alignment with supplying the divergent global demands of design engineers and buyers across Europe, Asia-Pacific and other strategic world markets, complementing Mouser's global product strategy.
Jeff Newell, Senior Vice President of Products
Jeff Newell is Mouser's Senior Vice President of Products. His team is responsible for supplier engagement, relationship management and new product introduction (NPI) activity at Mouser Electronics. Newell came to Mouser in 2013 after 22 years at Texas Instruments in a variety of sales, marketing and operations roles. His last role at TI was Director of Sales Operations in the Americas, which included managing TI's distribution network and strategy, direct customer inside sales and service efforts, and the company's product information center.
Newell has a BS in Electrical Engineering from Kansas State University and an MBA from Southern Methodist University's Cox School of Business. He is a proponent of authorized distribution, spending time on the former National Electronic Distributors Association (NEDA) board of directors and as part of the team that created what is now the Electronic Component Industry Association (ECIA).
