1. presented by Gary Kibblewhite Chairman: International Distribution of Electronics Association, Milan Chairman: Association of Franchised Distributors of Electronic Components, UK Director: Abacus Group UK Partner: Europartners Consultants, UK Europartners Distribution Forum-Paris- May 2004 What’s happening in Electronic Component Distribution

2. Around the major markets World influences & challenges The Major distribution Groups The decision process for contracting overseas Electronic component distribution in May 2004

3. In 2003 we have seen another decline in most component distribution markets across the Western world….. ( source Europartners distribution report 2004 interim results) France minus 9.6% Italy minus 9.8% UK minus 7.9% Nordic minus 10.9% USA minus 13.8% But Germany no change The recovery is now underway….just!

4. France Distribution Sales I D E A In calendar 2003 sales dropped 9.6% over 2002 ( they dropped 21.3% in 2001 after growing 38% in 2000)

5. Italy Distribution Sales I D E A In calendar 2003 sales dropped 9.8% over 2002 ( they dropped 17.4% in 2001 but increased 41% in 2000)

6. UK Distribution Sales I D E A In calendar 2003 sales dropped 7.9% over 2002 ( they declined 14% in 2001 but increased 30% in 2000)

7. Germany Distribution Sales Sales through distribution has shown a similar pattern to UK, France and Italy except that in 2003 there was a small growth (Est. 2003 revenues at 1.5.04) Mill Euro 2000: 4170 2001: 3806 2002: 3372 2003: 3376

8. I D E A Nordic Distribution Sales In 2003 sales declined 10.9% over 2002

9. USA Distribution Sales US sales through distribution has halved since 2000 Mill Dollar 2000: 28311 2001: 20125 -28.9% 2002: 15172 -24.6% 2003: 13078-13.8%

10. 2001/2002/2003 DTAM for the top European countries Mill € ( prelim estimates 29.4.04)

11. Europe’s top distribution Groups Industrial components sales in 2003 € million actual year’s conversion rate Preliminary estimates 26.4.04 -

12. The DTAM is more secure than the TAM in Europe Clearly China is a threat but Electronics Manufacturing in Europe is far from dead. Europe has substantial brain-power, electronics infrastructure, education, skills, experience and above all discerning markets that consume electronics product. Companies are now focusing more on the value chain than the supply chain

13. Electronics manufacturing companies who release their manufacturing to EMS suppliers the other side of the world often just haven’t thought through the process. In the UK interviews have taken place with companies that have taken the sub-contract route and regretted it! We must ensure that our customers really understand the risks! Some of the factors that are considered are:

14. We should encourage our customers to ask all these questions…… What Products are the Core Competence of our Company? Have we selected a Product that is suitable for Outsourcing? What are the business drivers causing us to look at Outsourcing ? Are we prepared to allow the outsourcing partner to manage the relationship?

15. Have we understood what costs we need to take out of the organization to make outsourcing profitable ? Have we evaluated the cost of managing an Outsourcing partner? Do we understand how to integrate our own organization with that of the Outsourcing partner so that we can maximise the leverage? Do we appreciate that we will now be dealing with external operations so all engineering control functions must be capable of communicating both inside and outside our company.

16. Have we a mechanism for evaluating the impact of Legislation on our sourcing decision? Can we communicate effectively with Outsourcing partner?

17. How do we ensure the security of the IP of the Product/Service? Where does technical/design support come from when sources are no longer local? Have we ensured that there are sufficient funds available to launch/outsource this product.

18. Ensure that the product chosen is not at a critical stage of its Life Cycle? Ensure that Outsourcing partner has the skills to manage the Supply Chain associated with the product Ensure you understand the dynamics of Supply Chain Governance…who controls the supply chain?

19. Ensure that you understand the cost impact of changing the supply chain in particularly the impact on local sourcing and local product knowledge Do not choose a Product/Service that relies on a large amount of undocumented local knowledge. What is the life-cycle of the product involved? If short is outsourcing viable? Ensure that processes and procedures are accurately represented and understandable across cultural divides?

20. Ensure that you have a mechanism for measuring the success of the outsourcing Have we considered the impact on the WIP of the supply chain? Will the project be able to handle this? What sort of Outsourcing Have we considered the relative flexibility of Outsourcing vs In-House Production?

21. Have we considered the impact of Single Sourcing with one EMS provider? Have we considered what size EMS partner is appropriate for my business ie Tier 1, 2 or 3 Do we understand the implications of a Standard Outsourcing Agreement?

22. In Western Europe there are many new technology based changes occurring which our designers and manufacturers will be developing new products around Eg. Mem technology System on a chip Bio-electronics Carbon based electronics ( plastic/polymer) Plus many more…

23. And then there are the opportunities that will come from end of life management coming out of RoHs, WEEE and the new eco design initiatives. I believe for Europe there are more opportunities than threats from this legislation, but we must understand it and run with it, not try to fight it!

24. May I leave you with a plea concerning one of the less helpful effects of Globalisation. The reduction in technical support. There is a gradual decline in tech support for everything from materials, components through to capital equipment The movement of major manufacturing resource overseas has driven this. Within our part of the supply chain, components, I believe that both distributors and their suppliers must work closely together to ensure that information and support on those new technologies that we will depend upon in the future will be available.

25. Thanks you I am happy to take any questions you may have

26. References : The Component Distribution Study referenced in this presentation is the : “Europartners 2004 Electronic Component Distribution Report” published annually in June with separate reports covering :- The AmericasW.EuropeE.Europe Mexico Austria Poland USA Belgium Russia Denmark Hungary Finland Czech Republic France Germany Italy Netherlands Israel Norway Portugal Spain Sweden Switzerland UK