October 11, 2016 | Original Article from EPS NEWS
Author: Barbara Jorgensen
From a distributor’s perspective, not all suppliers are created equal. Some component makers view the channel as a valued extension of their salesforce; others view distributors as an offsite repository for their inventory. Abracon LLC CEO Mike Calabria is making sure his company falls in the former category.
“We are extremely channel-centric,” said the former Arrow Electronics Inc. executive. “Whenever we enter the market with a new product, we also consider what will be successful through the channel.” A full 90 percent of Abracon’s frequency control, signal conditioning, antennas, clock distribution and magnetic components are sold through distribution, Calabria said.
It’s no coincidence that Calabria joined a channel-centric supplier after 35 years at Arrow, the industry’s largest electronics distributor. Calabria was instrumental in driving exponential growth of Arrow’s PEMCO – passives, electromechanical and connector—division during his tenure. These high-volume, low-cost components are ubiquitous in electronics but are often overlooked by the engineers that are designing products.
“If there ever was a frustration in the [PEMCO] world it was convincing engineers that distributors can provide value by assisting them with their designs,” Calabria said. “There is also heavy awareness in the channel that the design effort isn’t as rewarding as it should be.”
Leading by design
Distributors earn their living, in part, by reselling suppliers’ components. High-priced devices such as semiconductors can command a decent profit margin, but PEMCO products account for 80 percent of a typical bill-of-material. To get distributors to focus on their products, suppliers provide incentives by way of design-registration programs. Distributors that secure – or “win” — a component’s spot in an OEM design are compensated by suppliers once the design reaches production. This is particularly important in the PEMCO world where products are highly commoditized and relatively low-priced.
“We have spent a lot of time in the past year demonstrating our value to our reps and to our distribution channel,” Calabria said. “We have instituted in-depth training; improved coordination between our marketing department and our distribution and rep networks; and are sharing our product roadmaps with the channel,” he said. “By understanding where [Abracon] is going, our channel partners can get a head start by making sure we get designed into OEM products.”
Abracon’s route is leading directly toward the Internet of Things (IoT), where PEMCO products have almost limitless applications. “On the consumer side alone you can secure your home, change your thermostat or see the temperature of your fridge from your phone,” Calabria said. “While you are traveling you can see if the power in your house went out. Everything has become dependent on wireless connectivity, but we can’t just be connected — we want solutions that are robust; fit in the smallest possible space; consume very little power and meet the right price point.”
Abracon — which uses the tagline “The Heartbeat of the IoT” — is uniquely positioned to meet those demands, Calabria said. “The first thing we do is understand what the customer’s application is going forward and ensure we have developed a product that meets those needs. We are a fabless company so we have 25-plus factories that enable us to outline the specifications for the products that our customers need.”
Abracon’s solutions run the gamut from custom devices to commodity parts. “In some cases our customer starts with an off the shelf part for its timing. We would then use the Abracon Pierce Analyzer System “PAS”, advanced crystal in circuit optimizing, to insure the timing solution operates in the customer’s circuit design,” Calabria explains. “We can solve that problem for the customer, but the device itself is may not a specialty part.”
Fabless and flexible
Calabria acknowledges that big players often get most of the attention in the distribution channel. “That’s why we have to focus on our performance and find a way to get [distributors] focused on our products,” he said. “Some of our products are commodities where the specs are known, and then our value is driven by services and quality. Others are driven by uniqueness. Then there are products where the customer comes to us with a design and we develop a solution—there, our value is driven by engineering.”
Abracon’s fabless model provides a number of advantages, Calabria said. “We have a tremendous amount of flexibility when it comes to capacity. I can have two factories building my products in two different geographies or engage one factory for a limited production run. That reduces our exposure to geographic risks associated with earthquake- or tsunami-prone regions. Also,” he added, “since we have more than one source of manufacturing, we can leverage the prices we pay for those services. We can remain competitive [against larger suppliers] because multiple companies can build my products.”
All of this boils down to a winning proposition for Abracon, its customers and its distributors, Calabria said. “We understand the pressures distributors are under from the inventory-management and profit-margin perspectives. We are concentrating on the key things that are important distributors and the metrics that they are measured on.” For example, distributors that register a design win are compensated by exclusive rights to sell a product or receive a few more points of profit margin. “The higher-tech products lend themselves easily to demand creation,” Calabria explained. “It becomes more challenging with commoditized products. You have to make sure your distributors and reps are rewarded for the work they did.” Thirty percent of Abracon’s products are eligible for design registration, he added.
Many customers believe that dealing directly with suppliers is more cost effective than distribution; Calabria respectfully disagrees. “Many suppliers aren’t structured to supports customers directly,” he said. “We make sure our distributors are cost competitive and we find customers are better serviced through the channel. If a customer wants zero leadtimes, we direct them to distribution.
“We also don’t wait for a customer to grow big enough and then take them direct,” Calabria added. “We believe that is [the distributors’] customer. The channel has to feel comfortable that we are not their competitor. We do everything we can to support distributors.”
Abracon is owned by Evergreen Pacific Partners, which manages two private equity funds totaling $700 million, invests in traditional buyouts, management led buyouts, and growth equity investments involving middle-market companies in the Western U.S. and Canada. Calabria, who became a consultant after leaving Arrow in 2013, joined on Abracon’s board of directors in 2015 and was named president and CEO in September.
Read the original article here.