Chip Shortage Bringing Record Business For Supply-Chain Intermediaries Avnet, Arrow Electronics: WSJ

Chip Shortage Bringing Record Business For Supply-Chain Intermediaries Avnet, Arrow Electronics: WSJ

The ongoing global semiconductor shortage is boosting business opportunities for semiconductor industry intermediaries, or authorized distributors, as they are able to source parts faster, according to the WSJ report.

What Happened: Services of electronic component distributors such as Avnet Inc AVT and Arrow Electronics Inc ARW are increasingly sought after from bigger companies such as Intel Corp INTC, Samsung Electronics and others, who generally rely on direct purchases and are able to secure supplies on their own, WSJ reported Sunday.

As per Peggy Carrieres, Avnet’s vice president for global sales, large buyers are treading on uncharted territory as they engage directly with distributors to hedge against supply chain disruptions or keep tabs on a host of different materials.

Avnet is an authorized distributor for Intel and Broadcom Inc AVGO.

As a result, distributors are able to charge more than the usual 10% commission. In addition, higher prices and shipping volumes amid the pandemic have boosted bottom lines for distributors despite an ongoing shortage. 

Arrow Electronics, one of the industry’s biggest distributors, saw its operating income from the global components business rise more than 70% in the first three months of the year. Avnet sales rose 14% from a year earlier to $4.9 billion for the quarter ended March 31.

See Also: Apple Supplier TSMC On How Repeat Of Crippling Chip Shortage Can Be Avoided In Future

Why It Matters: The global chip shortage has forced automakers across the world to halt production lines and the shortage is now impacting consumer electronics as well, including Apple Inc AAPL

Semiconductor prices have shot up amid the crisis and brokers are quoting five times higher prices than before the pandemic for auto chips, as per WSJ; in some extreme cases, it's reportedly 20 times more.

Price Action: Shares of Avnet, which have risen 25% so far this year, closed 1% higher at $43.9 on Friday. Arrow Electronics shares, which have risen 24% year-to-date, closed 0.25% lower at $120.9 on Friday.

Posted In: auto sectorChip ShortagesemiconductorsLong IdeasNewsTechMediaTrading Ideas

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