Laurie Sullivan EBN (06/02/2003 10:00 AM EST)

Reflecting the trend for independent distributors to strengthen their presence in Southern California, SND Electronics Inc. this month will move its sales office in Irvine to a 10,000-sq.-ft. West Coast regional headquarters and distribution center in the same city.

The arrangement is expected to better position SND, the North American subsidiary of Germany's ce Consumer Electronics A.G., to tap the Southwest's talent pool. SND also gains an extra three hours for next- or same-day shipping, compared with what it can do from its East Coast headquarters or Miami distribution center.

The move is part of an effort by SND and its parent company to maintain the No. 1 ranking among independent distributors achieved in 2002, according to EBN's latest survey. ce Consumer Electronics recorded global revenue in 2002 of $340.1 million and expects a strong second half this year, according to Peter Krauss, SND's director of glo-bal sales.

"Hewlett-Packard, Dell, and Gateway have increased laptop computer production in anticipation of a very good dad and grad marketplace as we move into the summer months," Krauss said. "We are seeing a 70% increase in component sales and 30% on the computer side from this seasonality."

SND at the end of last year began readying itself for an industrywide rebound. The opening of the distribution center in Irvine follows the expansion six months ago of its Hong Kong warehouse, where the company added space and staff.

"It's no secret that 80% of the world's build volume is now in either Eastern Europe or Asia," Krauss said. "We have key EMS partners that tell us by the end of next year nearly 80% of their total global build volume will be in Asia."

North America now accounts for only 30% of SND's revenue, down from 70% in 2001, a reflection of the company's believe that strategic distribution points are needed worldwide to reduce costs and keep gross profit margins healthy, Krauss said.

Although the parent company's first-quarter 2003 sales declined slightly, gross profit margins rose sequentially from 10.7% to 12.3%, he said.

Expansion and process improvements have contributed to higher profit margins and operational efficiencies. The distributor in the past 10 months has shaved 8% off the cost of processing an order, according to Krauss.

Despite concerns over California Governor Gray Davis' budget cuts of $3.6 billion and pending tax hikes in the state, there appears to be an emerging consensus among independent distributors that Southern California has much to offer. For many, the region's greatest appeal is its proximity to Asia-Pacific.

"Southern California has become the independent distribution hub of the world and there's a big advantage to being there," said Leland Ackerley, executive vice president of Smith & Associates, Houston. "We have opened a sales office in the area and have plans to expand there."

Over the next two years, Smith will open facilities in China, Eastern Europe, and Southern California, giving the independent distributor three locations each in Asia and Europe and four in North America, Ackerley said. Smith is joining a number of other top 10 independents that are headquartered in Southern California, including Advanced MP Technology, Classic Components, and Rand Technology.

Homey Shorooghi, president of Advanced MP, which has been headquartered in Southern California for 22 years, said he is baffled by his competitors' intentions.

"Warehousing and wages aren't cheap here, so from a business standpoint the logic doesn't fit," said Shorooghi, who suggested that San Jose might be a better idea.

"If I were to open a new distribution location today, I would go to an area with lower taxes and where I could cut operational costs. Businesses today need to be lean and mean."

Undeterred, SND said it plans to continue to make investments. Slated for upgrades is the company's IT system, including customer relationship management software.

The $4.6 million in cash and liquidity that SND reported at the close of its latest quarter could assist the process, the company said. SND also has access to $19 million in secured credit facilities from banks, but that is reserved to finance receivables, said chief financial officer Lesly Derenoncourt.

"The parts we acquire from vendors have very short payment terms and normally we have to extend those terms to the OEMs and EMS providers," Derenoncourt said. "It usually entails that we finance the sale for 30 or sometimes 40 days."