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EDN, May 26, 2011

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pulse VOICES Digi-Key's Mark Larson: Go big, go global, go online D igi-Key Corp (www.digikey.com) President and Chief Oper- ating Officer Mark Larson recently discussed the company's posted sales growth of 64% in 2010—more than twice the sales growth of the semiconductor industry; the pros and cons of doing business in China; and the company's decision to end its print catalog, a fairly new notion for component distribution. Excerpts of Larson's interview with EDN follow. How did Digi-Key manage to hit a $1.5 billion sales milestone in 2010? A We added almost $600 million in additional sales, over and above what we accomplished in 2009. And in 2009, although it was a rougher market, our decline was a fraction of that of the greater market; 2010 was a great year that exceeded our expectations. We see it not only as additional sales, which we were pleased to get, but also as a validation of our business model. Why did Digi-Key recently decide to end its print cata- log, making the all-digital move and becoming an Internet-based distributor? A We saw that 85 to 88% of our orders were com- ing in through the Internet. We had strong reason to believe that the remaining orders were almost all coming as a result of orders that were built on the Internet, but maybe the cus- tomer needed slightly more information so they placed the order in the form of a call. We coupled this [idea] with the tre- mendous amount of feedback over the last several years that's been escalating to 20 EDN | MAY 26, 2011 where customers are saying they don't want or need the catalog. At a lot of interna- tional sites, customers pay to dispose of paper. Given the extreme way that our custom- ers have embraced the Web and the extremely negative [way they view some aspects] of the catalog, and couple all of that with a general want to be "green," [and we made the move]. Our initial thought was that maybe there would be some customers who would still want the catalog. [We've had] very little negative feed- back. I'm comfortable we made the right decision. What region do most of Digi-Key's sales come from? A Just a little less than 60% of our sales are coming from North America. Then, of the remaining 40%, EMEA [Europe, the Middle East, and Africa] and Asia/ Pacific are pretty much divid- ing the difference. What are you seeing in China? China increased about 240%. So far this year [early April], we are up approxi- mately 85%. Total sales in A Last year, our sales in China I would expect will be in the range of $80 million this year. If we were to talk about Greater China, our sales would be well over $100 mil- lion. Our base is still small, but the potential is huge. The abil- ity to realize that potential is increasing in a way almost daily. It's a process and takes some patience, but not too much patience if you can grow 240% and then turn around and grow 85%. After a few years of that [growth], we will have truly significant sales. What was behind Digi-Key's recent move to help found the China Electronics Dis- tributor Alliance? A We believe there is a real need and value proposition for the organiza- tion and for Digi-Key to partic- ipate in the organization. A significant problem in China and in the world is counterfeit- ing. One of this organization's goals will be to promote fran- chise distribution, meaning that the product the distribu- tor sells comes directly from the manufacturer. When there's that type of purchas- ing, the possibility of counter- feiting is driven down to a near-zero potential. Do you have any concerns about the rare-earth-mate- rials shortages and China's restrictions of their exports? A There's obviously con- cern. In speaking with our suppliers that rely on a lot of these materials, I do think that there has been a certain upward price pressure on families of components that rely on some of these rare- earth materials, but it's not a situation that is out of control at this point. I'm not uncom- fortable at this point that it will have an extremely negative effect. I think it's something that is being worked through, and, in some cases, there are alternative sources. We have not used these sources because it has not been cost- effective, but, as price pres- sure increases, some of these alternatives become viable options because it is eco- nomic once again to access these materials. I think it's like so many areas in which we have precious metals. These markets have a certain volatil- ity that becomes part of life, and we somehow all seem to adjust to them. Does it look like inventory supply and demand in the electronics supply chain are coming back into balance? A It really does. In fact, in the short run, the disas- ter in Japan created a certain amount of panic, but, by and large, since almost the begin- ning of this year, we've seen supply and demand be fairly balanced. We stock about 600,000 components, and at any given time, our target is to be 95 to 96% in stock. We're right in that range now. It's a strong indication that supply and demand are well-bal- anced. If we were to look at that figure in 2010, there were times it was significantly lower. Our ability to pull off the shelf was impaired at certain times in 2010. Now we are where we want to be. —interview conducted and edited by Suzanne Deffree

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