What are electronics and semiconductor distributors?

Semiconductors and electronic components are the building blocks for all computers and high-tech machinery and are used in a multitude of products from video games to communication equipment to automobile systems.

Companies that buy, sell, market, and resell semiconductors, electronic components and computer products on a business-to-business basis are considered distributors. Since the early 1980's, the electronics distribution marketplace has been growing at a phenomenal pace.

How does the semiconductor and electronic component distribution marketplace work?

The sale of semiconductors and other electronic products is broken down into three "tiers." This system has evolved significantly over the past decade as the result of a complex chain of supply and demand.

1. The first tier makes up the vast majority of sales. These are sales direct from Manufacturers such as chipmakers AMD, Intel, and Samsung to OEMs (Original Equipment Manufacturers) such as Compaq, Dell, and Sony. The OEMs, in turn, use the components to manufacture end-user products such as PCs and televisions.
2. The second tier is primarily Franchised Distributors who market and distribute semiconductors and electronic products to OEMs on behalf of the Manufacturers.
3. The third tier consists of all other distribution outlets. Major players at this level are the Independent Distributors, Surplus Resellers, smaller Brokers, and Value-added Resellers. Major customers include OEMs, Contract Manufacturers, and other Distributors.

What does an Independent Distributor do?

An Independent Distributor operates on a brokerage business model and buys and sells semiconductors, electronic components, and computer products on the "open-market" much in the same way other commodities are traded.

A customer places an order and an Independent Distributor sources the product based upon availability and inventory. This means Independent Distributors can provide product quickly which is particularly advantageous when a customer is trying to reduce inventories or meet production deadlines and does not want to have a "down [production] line."

What is the difference between a Franchised and an Independent Distributor?

A Franchised Distributor has formal agreements to buy and sell specific Manufacturer product lines at set prices with agreed upon lead times. And, they must do so for delivery on specific dates and, sometimes, for sale within limited geographic regions. Franchised Distributors generally carry more products in stock but have a limited number of manufacturers and product lines.

An Independent Distributor, on the other hand, does not have formal agreements with any specific manufacturer. This provides flexibility in purchasing from a variety of sources and on a time schedule the Independent Distributor demands. An Independent Distributor also purchases and resells excess and obsolete inventories. Customers typically purchase from both Franchised and Independent Distributors based upon their particular time and sourcing requirements.

What is the difference between an Independent Distributor and a Broker?

Although they may operate on similar business models, Independent Distributors generally stock product, offer their customers credit terms, provide value-added services, honor manufacturers' warranties, provide RMA services, and have strict quality assurance. Brokers usually act only as agents for their customer in return for a fee.

Top-level Independent Distributors, such as Global Source Technology, invest significant resources to expand infrastructure, hire personnel, and develop markets. These investments enable top Independents to grow their businesses with long-term plans and alliances.