Design services by distributors leverage existing relationships

Electronic News, Jan 18, 1999 by Ann Steffora

New sources of design services may suggest rethinking of OEM outsourcing strategy

Phoenix, Ariz. -- When Avnet, the second largest electronic components distributor announced last September its push into design services with a new organization, some industry observers were, and remain, skeptical of what success it could see. Yet, as the company's plans have crystallized and are being formally put into place, the picture looks different and OEMs will soon be able to take advantage of technical and engineering services offered by the new organization.

Further, OEMs that may have concerns over the design services landscape will change. Distributors like Avnet entering the arena should actually bring more opportunities for EDA providers to team with distributors, thereby strengthening relationships that already exist, noted Gary Smith, chief analyst for EDA at Dataquest in San Jose.

With a market potential forecasted to reach $511.1 million this year to $1.268 billion by 2002, according to Dataquest, other providers of design services would do well to team with other value-added providers, such as electronic component distributors. In 1997, 51 percent of the EDA consulting market share was held by Cadence Design Systems, with Mentor Graphics, Synopsys, Duet and ARM sharing another 44 percent.

One of the big differences between Avnet and EDA service providers, is that Avnet does not intend to build its services into a multi-billion dollar business, explained Brian Hilton, a senior vice president at Avnet. The focus is and will continue to be on growing the component distribution business.

In line with the trend for OEMs to outsource manufacturing and materials management over the past few years, Avnet's Design Services will support that end, making an attractive package solution for OEMs to partner with a company it has been doing business with for years.

After watching the outsourcing trend, Avnet realized its core competencies intersected with what OEMs are now demanding in terms of design, and decided it was a business it was well suited for, according to Roy Vallee, chairman and CEO of Avnet.

Distributors such as Avnet are not providing low end services as some might think, but taking advantage of the outsourcing trend, Smith confirmed. "One of the announced reasons to move to an outsourcing model is that for a group of semiconductor manufacturers, semiconductor design isn't their expertise," he explained. This group of manufacturers is referred to as the "lower mainstream," which in 1997, was predicted by Dataquest to be a $1.8 billion service opportunity.

Design services by electronic component distributors is nothing new, he added, noting that at one time, distributor Wyle's design service group was one of the best in the valley, and Hamilton (Avnet) have long enjoyed a good reputation.

A strategy such as this may be particularly critical to OEMs putting together plans for competing on a global basis, where the pressure to develop and deliver products to market faster continues to increase. Avnet is uniquely positioned in this space with its entire broad line card, from which it can present complete product solutions to OEM customers, and provide comparisons and evaluations, ranging from DSP solutions to low-voltage designs and programmable products, as well as tight links with contract manufacturers and its own global services.

This week, Avnet's Design Services organization will meet to discuss its global design services strategy, which will be expanded to include silicon intellectual property, addressing silicon, software, tools and licensing issues, Hilton added.