Are We at the Bottom Yet?

Electronic News, June 18, 2001 by Rob Spiegel

Distributors still burning through inventory glut

Have distributors hit the bottom of the downturn's trough? Are they bouncing along a soft bottom while waiting for the upturn? Or are they still sinking?

Whatever the answer may be to the question of the year, no one is claiming distributors have found a hard bottom and are pushing back up. Most believe distributors are still testing for the bottom and coming up with uncertain results. The inventory glut complicates matters.

"I certainly believe people are still attempting to burn off inventory," said Greg Frazier, group marketing officer at the Phoenix-based Avnet. "Some of the inventory is being burned off, but it's incredibly spotty. By and large, we're still in a situation of correction."

Distributors are generally seeing an uptick in requests for quotes, but that isn't giving anyone confidence that the end is in sight.

"To quote a high-tech executive at a recent conference, 'the only certainty of bottom that I've seen is when I change my baby's diaper in the morning,'" recalled Bruce Goldberg, chief executive officer of All American Semiconductor Inc. in Miami. "I feel the same way. But I think we've seen a lot of signs that we're hitting bottom. Our people are busier with customers who want quotes on long-range stuff. But it's hard to see if we're really at the bottom."

Some distribution executives believe we'll finally see the bottom sometime this summer.

"It's hard to call. I personally think we're close to bottom," said Tom Pitera, president of Cleveland-based Pioneer-Standard Electronics. "I think we'll be at bottom in July and August. I don't think this quarter will be any better than last quarter. We're close to the bottom, but we're not there."

Other distribution leaders suggest things could fall further yet this summer.

"It could be flat or it could turn down over the summer," Avnet's Frazier said. "To forecast when it is going to come is a matter of customer demand and how long it takes to burn off the inventory. When we see whole bills-of-materials, that will be a good indictor, and we certainly hope that it's soon."

Analysts looking at the big picture sense that distributors are at the bottom now.

"The consensus view is that we're bouncing along the bottom," said Rob Damron, analyst at Tucker Anthony Sutro Capital Markets in Milwaukee. "It doesn't appear to be getting significantly worse than a couple of months ago. If we look at the inventory, most of the excess inventory is behind us, and we're getting to more normal inventory levels. Plus, quoting is picking up, which doesn't mean orders, but customers are sniffing around for parts, which could be a precursor to orders.

Avnet's Frazier has also noticed an increase in quote requests. "A couple of things are happening," Frazier said. "The amount of quoting activity is high and the amount of engineering is extremely high. People are taking a look at new products. That will increase the inventory burn."