The Rustbelt Hints at a Slight Uptick

Electronic News, August 27, 2001 by Rob Spiegel

Hopeful eyes turn to the industrial Midwest

When the upturn finally buds up through the harsh frost of the electronics collapse, it may first show its face in the heart of the industrial Midwest.

This wouldn't surprise distributors, many of whom saw this region wither first. "It hit there first. It probably led this whole thing," said Mike Ruprich, chief executive officer of Newark Electronics, a Chicago-based subsidiary of Premier Farnell plc of Wetherby, England. "If the overall economy holds, it will go right back up."

Although Ruprich is optimistic about signs of stability in the industrial sector, he didn't suggest a robust recovery has begun. "The Midwest is one of our biggest regions. Business has stabilized there. It's not boom time, but they're automotive driven, and there has been a bum-off of their inventory."

The question about whether an uptick is starting the rustbelt was prompted by a comment made by Brian Hilton, president of Avnet Electronics Marketing/Global, a business unit of the Phoenix-based Avnet Inc., during Avnet's earnings conference call on Aug. 15. During a report that detailed the industry-wide damages from the downturn, Hilton's statement about signs of life in the industrial Midwest was noteworthy.

"In some of the more traditional businesses in the rustbelt, we're still seeing business activity that's pretty good," said Hilton last week as he explained his conference call comments. "We're seeing some signs of life in the industrial market. Line items are up, and we have a lot of emerging accounts we're calling on."

During the conference call and in comments afterward, Hilton prefaced his thoughts with a recognition that the industrial sector is not a major part of Avnet's business and that other larger portions of Avnet's sales continue to languish. "The industrial market is not what it was 20 years ago, and the communications industry is still very much in the tank."

Executives at the Internet-based components trader PartMiner Inc. have also noticed some movement that could be construed as a lift in industry.

"Because of our space, we're privy to movements in the market before anyone else sees them," said Dan Nissanoff, chairman and chief executive officer of the New York-based PartMiner. "Distribution feels it, but we feel it first. One of the few areas we're seeing some action is test and measurement. That industry produces products for the Midwest sector, so perhaps there's a correlation." PartMiner is partly owned by Cahners Business Information, the owner of Electronic News.

Some industry watchers have suggested that even a lessening of the persistent decline may look like an improvement in market conditions. "I've heard similar comments (about an upturn in the industrial sector) from other people," said Clarke Walser, principal of Walser and Associates of Arlington Heights, Ill. "But it sounds more like hoping. I get the sense it's a small uptick, if that. But then, things not getting worse is a positive development."

Walser also noted the industrial Midwest was simply not hit as hard as other sectors. "The collapse was pretty much concentrated on the Internet companies and the telecommunications companies, both of which experienced irrational surges. Traditionally, the industrial sector has not been as volatile."

However, Walser did note that the industry may be nearing the bottom. "I get the feeling this third quarter will be the low point."

Hilton also suggested that the bottom is near. "The Asia/Pacific area has hit bottom." Since Asia and the industrial sector were the first to head downward, many look to them for signs of the turnaround. Traditionally, those who get hit first lead the upswing. "We're always looking for rays of hone." Hilton said.