One of the biggest growth areas in the industry right now is the Internet of Things (IoT). IC Insights' 2015 IC Market Driver Report has predicted that markets associated with IoT will see profits increase by 29% this year and total revenues will hit $62.4 billion. This is just one step towards achieving IC Insights’ ambitious prediction for 2018, which is when the company forecasts overall IoT-related revenues to reach $104.1 billion.
Beyond this, IC Insights has anticipated a 40% surge in the number of 'things’ connected to the internet by the end of 2015. This is the equivalent of 574 million new internet connections attached to cameras, wearables, sensors, embedded systems, controllers and more, bringing the total number of IoT devices around the world to 13.2 billion.
A modest estimate suggests that there will be 25 billion objects attached to the internet by 2020. With this figure in mind, there is no doubt about the huge opportunity that The IoT presents for savvy, mid-tier OEMs / ODMs.
IoT devices have unique requirements. The majority of IoT devices are not particularly demanding in terms of their processing power. As a result they tend to be both low cost and low margin. Manufacturers of IoT devices also tend to look for distributors that can service High Mix Low Volume (HMLV) requirements. But perhaps most interestingly, OEMs and ODMs interested in exploiting IoT opportunities tend to be, overwhelmingly, ‘mid-tier’ (both by size and revenue). Mid-tier OEMs/ODMs tend to seek a very specific blend of capabilities from their distribution partner.
At present, the mid-tiers have frequently had their needs overlooked by tier one distributors who continue to prioritise high-volume, high-profit business in order to satisfy their shareholders. Similarly, typically ‘independent’ distributors are not satisfying the needs of these smaller OEMs/ODMs either, as they cannot offer the reliability or volume that scheduled business requires. Essentially, this has left a significant portion of the market with two distribution models, neither of which quite meets their needs. You could say those in the middle tiers who are looking to develop IoT products provide a classic example of OEMs/ODMs ‘falling between the gaps’.
The IoT market brings with it a demand for small low-cost wirelessly connected devices. This means that for the mid-tiers, competitiveness on price and a diverse offering are also key. As the demand for widespread connectivity increases, a distributor’s role is clear-cut; they need to source and provide the right combination of parts to enable designers to get their products to market fast and efficiently.
Another distinctive requirement of the ‘mid-tiers’ is the need for access to boutique lines, but alongside high-volume franchise lines. It is the distributor that can offer these in tandem with open-market capabilities that will deliver the best value to them.
Inventory management is an example of a value-add service that is particularly important, as most mid-sized companies cannot afford to keep excess stock on their premises. Therefore, by having a distribution partner that can manage this process in its entirety, mid-tier OEMs/ODMs can sell