Pioneer-Standard Electronics Inc. History

Company Perspectives:

"We will be the preferred strategic link between our suppliers and customers. We will serve today's needs for electronic components, systems, and services--and tomorrow's needs for technology. We will be among the top independent distributors. We will provide our investors with attractive financial growth and our employees with an equal opportunity for personal and professional growth. We take pride in our culture, dedicated to: integrity, flexibility, fairness, growth, quality, success in all regards. We are committed to doing what we say we will do!"

Company History:

In 1996 Pioneer-Standard Electronics, Inc. was the sixth largest firm among the 1,500 companies in the $19 billion North American industrial electronics distribution industry. As a middleman in the industrial/commercial segment of the U.S. electronics business, Pioneer-Standard sells more than 135,000 products from more than 100 manufacturers. Its 24,000 customers range from original equipment manufacturers (OEMS) and resellers to research laboratories, government agencies, and end users divided into such major "vertical market segments" as industrial controls, computer, data and telecommunications, medical, financial, and retail. Among the leading U.S. manufacturers whose products it distributes are Digital Equipment Corp. (DEC), Intel, IBM, Cisco Systems Inc., Microsoft, and Oracle. In 1996, DEC and Intel were its two largest suppliers, accounting for 45 percent of its sales volume.

The three main categories on Pioneer-Standard's product "line card" were computer products (40 percent of its 1996 sales), semiconductors (including microprocessors; 38 percent), and passive and electromechanical electronic components (20 percent). Its computer products include disk drives, display terminals, printers, modems, minicomputers, networking products, and PCs; its semiconductor line includes analog and digital integrated circuits, memory devices, microprocessors, and programmable logic devices; and its electronic components include capacitors, resistors, potentiometers, connectors, and switches. In addition to its traditional distribution business, Pioneer-Standard is a purveyor of a wide range of value-added services including device programming, just-in-time product kitting and turnkey manufacturing, systems integration, enterprise network services, power systems integration, automated inventory replenishment, financial services, and Internet services such as design, connection, and World Wide Web home page design. In 1996 Pioneer-Standard maintained 53 distribution operations across the United States and Canada.

"Vacuum Tubes by the Pound": 1921-1963

The U.S. electronic components distribution business was born in the 1920s in Courtland Street in lower Manhattan, a location that came to be known as Radio Row because of its profusion of radio parts stores. Before the commercial battery-operated radio was developed, ham radios ruled the industry, and in 1921 Charles Avnet, the founder of the firm that would lead the industry 70 years later, opened one of the first electronics distributorships for ham radio replacement parts, passive components, and connectors on Radio Row--only to see it fall victim to the Depression in 1931. In the 1930s Avnet tested the waters again with a car radio kit and antenna manufacturing business, which succumbed to competition and went bankrupt as well. Small radio and electrical goods stores were springing up across the country, however, in major U.S. port cities like Boston, Philadelphia, and Chicago. In 1922, for example, industry pioneer Charles Kierulff (later part of the Arrow Electronics empire) opened his own radio parts store in Los Angeles, and in 1928 Allied Radio, a mail order radio parts store, opened in Chicago.

By 1932 the radio parts distribution industry had reached Ohio, where a small distributorship named Standard Radio Supply--Pioneer-Standard's first incarnation--opened for business in Dayton. Around the same time an entrepreneur named Murray Goldberg founded Arrow Radio on New York's Radio Row to sell used radio equipment, marking the birth of the firm--Arrow Electronics--that together with Avnet would dominate the industry in the 1990s. For all this entrepreneurial fervor, however, it was only with the explosion in manufacturing brought on by World War II that the U.S. electronics industry really came into its own. Simple ham radio parts suddenly became high-priority defense products, and for security reasons the federal government banned the manufacturing of radio sets for home or hobbyist use. With their traditional customers now off limits, radio part resellers and distributors like Standard Radio turned to the U.S. military and the war industry for sustenance. Charles Avnet, for example, made his third and finally successful attempt at business success at the height of the war by buying surplus electrical and electronic parts and selling them to the government. After the war, the private radio and electronic parts market was flooded by government war surplus parts, and the electronics distribution industry flourished. Among the many distributors who began in the postwar electronics boom were two new Cleveland firms, Premier Industrial Corporation and Pioneer-Standard's other forerunner, Pioneer Electronics Supply, both of which opened in 1946.

In 1947 the invention of the solid-state transistor rendered the vacuum tube obsolete, and during the 1950s the emergence of the television provided a new outlet for industry sales. In 1953, Wyle Electronics was formed in California, and a year later Marshall Industries began business in the same state. Charles Avnet's distributorship incorporated as Avnet Electronics Supply Co. in 1955 and saw its sales climb above the $1 million mark for the first time. By the mid-1950s, some electronic parts distributors were selling parts for televisions, car radios, and sound systems, primarily to the consumer market, and in the late 1950s the growing U.S. space industry provided another lucrative new market. A growing number of OEMs began to join the consumer market as buyers of industry products, and industry firms began selling power electronics products and high-current devices for heavy equipment in addition to TV and radio components. To lessen its dependence on the military market, the electronic components industry increasingly began to sell its products directly to distributors like Avnet, Pioneer, and Standard, who for their part began to develop new methods to protect their prices and inventories from the competition and demand swings of the electronics market.

Pioneer-Standard Electronics: 1963-1971

As the semiconductor industry began to grow in importance in the 1960s, electronics distributor Hamilton Electro (later acquired by Avnet) popularized the "broad-line" approach to distributing by carrying a range of electronics products from a variety of manufacturers rather than a limited line of select goods. It thus created the industry niche that Pioneer-Standard would later exploit on its path to industry leadership. By 1963 the electronic parts distribution business had grown into a roughly $500 million industry, and Cleveland's Pioneer Electronics Supply merged with Dayton's Standard Radio Supply to form Pioneer-Standard Electronics, incorporated in Ohio. Three years later in 1966, Pioneer-Standard purchased 50 percent of Frontier Electronics (itself founded in 1964) of Gaithersburg, Maryland, and rechristened it Pioneer-Washington and then later Pioneer/Technologies Group. By the mid-1960s, Pioneer's sales of electronic components and audio equipment stood at $5 to $9 million. In 1966 Preston (Pete) Heller Jr., the CEO who would preside over Pioneer-Standard's growth into an industry giant, joined the firm as an executive vice-president of the Pioneer Division after a career with Crane Packing Company, Inland Steel, and Arthur Young & Company. Throughout the 1960s the leading firms in the electronics distribution industry grew by acquisition. In addition to Pioneer-Standard's purchase of Frontier, Avnet acquired Time Electronics, for example, and an investment group bought up Arrow Electronics. In its 1969 annual report Arrow's management sketched the future of the electronics distribution industry: it would soon be dominated by "those few substantial distribution companies with the financial resources, the professional management, and the modern control systems necessary to participate in the industry's current consolidation phase."

Pioneer Goes Public: 1971-1982

In 1969 Pete Heller was named Pioneer's president and director, and James L. Bayman (later Heller's successor as CEO) joined the firm as the general manager of its Dayton branch after several years in management positions in the electronics industry. Despite the national recession of 1970-1971, several electronics distribution firms broke the $100 million sales level in the early 1970s, and by 1971 total industry sales were closing in on $1 billion. The industry solidified its place in the electronics industry food chain by developing product return privileges and further price protection guarantees. With sales at roughly $13 million, in June 1970 Pioneer-Standard registered an initial public offering (IPO) of company stock with the Securities and Exchange Commission. The $2.47 million in common stock sold quickly in January 1971, and Pioneer-Standard joined 14 other electronics distributors in the publicly owned arena (by the mid-1990s, only nine--Pioneer-Standard, Arrow, Avnet, Bell Industries, Jaco Electronics, Marshall Industries, Milgray Electronics, Sterling Electronics, and Wyle Electronics--remained).

Although Wall Street ignored the electronics distribution industry in the early 1970s, under Heller's command Pioneer-Standard raised its net income from $949,000 in 1973 to $2.33 million in 1975 and investors were soon watching its stock price with anticipation. Between 1975 and 1980 the electronics distribution industry as a whole grew at an annual pace of 17 percent as distributors grabbed a larger share of the electronics parts market and the largest firms grew even larger. As the growth of the computer industry began to spark investors' interest in electronics distributors in the late 1970s, industry earnings began to climb, carrying stock prices with them. Pioneer-Standard topped the $36 million mark in sales in 1976, and in 1977 sales broke past the $46 million mark. By 1980, the stocks of many distributors were selling at four to five times their 1971 prices, and Pioneer-Standard's net income had reached $3.95 million.

The onset of the recession of the early 1980s interrupted Pioneer's ascent, however, and in mid-1980 Heller was forced to admit to securities analysts that "if business remains flat and expenses remain frozen, profits will be under great pressure. ... We're no different from any other concern in the industry." Unless the industry could cut costs or raise prices, he warned, its sales would have to grow at a 20 percent clip to match 1979 profit levels. As Wall Street saw stocks fall 24 percent between 1981 and 1982, distributors' stocks performed even worse. Many industry firms reported losses, and stock price declines of 50 percent were not unusual.

The Computer Revolution: 1982-1989

In 1982 IBM introduced personal computers with greater computing power than any that had previously been marketed to American business. Almost immediately, sales of computer electronics were accounting for nearly 20 percent of the distribution industry's sales. With businesses and consumers buying PCs to power spreadsheet, word processing, and video game applications, the computer segment of the electronic distribution market was enjoying an annual growth rate of almost 100 percent, and price/performance ratios for industrial electronics began to improve by leaps and bounds every year. To capitalize on the trend, in late 1982 Heller engineered a $50 million credit agreement with four Ohio banks that enabled Pioneer-Standard to purchase the electronics distribution division of the Harvey Group of New York, pay down its existing debts, and cover its existing capital requirements. By early 1983, the electronics distribution industry had recovered from its recession and enjoyed an 18-month expansion in which sales grew at a 30 percent annual clip. Heller was named Pioneer-Standard's chairman and CEO in 1983, and by March 1984 the company's net income had recovered from its prerecession level, and then some, to $4.1 million.

The early 1980s were a period of heavy capital spending in the U.S. semiconductor industry, and Pioneer-Standard stock began to be touted as a way for investors to "play" the semiconductor industry without investing directly in the major semiconductor makers like AMD, Intel, and National Semiconductor. By 1984 Pioneer had established a distributor relationship with computer product maker Symbios Logic Inc. of Colorado; Peter Heller's future successor, James Bayman, had been promoted to president and chief operating officer; and the company's net income was climbing toward $3.67 million. The company established its System Integration Value-Added Center (SIVAC), a customer support/cost-control consulting service, in 1985 and in 1986 founded its End-User sales group to provide greater focus to its sales efforts. In 1989 Pioneer-Standard acquired California-based distributor Compumech Technologies and its net income broke past the $6.7 million mark on sales of more than $250 million.

"The Keys to the Kingdom": 1990-1997

For all Pioneer-Standard's steady expansion, however, by the late 1980s it had become apparent to many companies in the distribution industry that growth alone was no longer enough. Despite increasing industry sales, electronic components were becoming cheaper and cheaper to make, and distribution industry profit margins were declining. Firms like Pioneer-Standard were forced to scratch for improved cost savings and offer value-added services to maintain their profits and market share. In a crowded industry of 1,000 or more players, companies had to find new ways to distinguish themselves from their competitors.

For Pioneer-Standard's James Bayman offering value-added services in addition to distribution became "the keys to the kingdom" of bigger profits and stronger market share. In fact, when it had begun offering systems integration services to customers in the mid-1970s, Pioneer-Standard had already began transforming itself from a plain-vanilla parts distributor to a value-added firm. By the late 1980s, however, there was no turning back. Electronics industry suppliers were reducing the number of distributors with which they worked and expecting more from the ones they kept. (Intel, for example--one of Pioneer's two largest suppliers--was among the first electronics manufacturers to insist that its distributors understand and technically support the products they sold.)

By 1990, Pioneer-Standard was not only supplying bowling automation system components for supplier AMF, for example, it was participating in their manufacture as well. "They [AMF] get the order," Bayman told Barron's magazine, "We configure it. We load the software, and ship it directly to the bowling alley, where it's installed by AMF service people." Similarly, in 1990 Pioneer-Standard opened "demonstration centers" in five U.S. cities, where its sales staff showed small- and medium-sized software companies how to adapt their products for use with DEC's computers. By 1997, Pioneer-Standard would be offering everything from product evaluation, demand generation services, warehousing, and package labeling to technology "migration" consulting and upgrading services and Internet and firewall design and connection services. Moreover, in addition to its army of increasingly technically trained sales people Pioneer-Standard added 150 "field application engineers" (FAEs) to support its sales force. The image of the electronics distributor as a mere "parts" supplier with only a big warehouse and a team of salesmen was giving way to automated warehouses, bar-coding of product shipments, overnight product delivery, and stock-tracking software and electronic data interchange systems for accurate, real-time sales and inventory information. By 1996, Pioneer-Standard could claim the highest FAE-to-salesperson ratios in the industry.

Pioneer-Standard opened its Central Distribution Center in Cleveland in 1990 and acquired the LCS computer systems division of the U.K. firm Lex Service plc the same year. By 1991 Pioneer's vow to become "a solutions company" seemed to be coming true, and its share of the North American electronic distribution market rose from 5.5 percent in 1990 to 5.8 percent. Following further expansion to the West Coast, Pioneer's sales surged to $552 million in 1992, representing 6.6 percent of the total North American electronics distribution market. In 1993 Pioneer acquired Siemens Components Inc.'s Hamilton/Hall-Mark distribution franchise and won a crucial vote of confidence for its campaign (called "FutureStart") to become a quality-driven distributor when the International Standards Organization certified Pioneer as compliant with its ISO-9002 international quality standards program.

In 1994 Pioneer entered the international distribution market for the first time by acquiring Zentronics, one of Canada's largest industrial electronics and computer products distributors, from United Westburne Inc. for $10 to $12 million. While its share of Pioneer/Technologies was enabling it to make further inroads into the California distribution market, Pioneer signed a distribution agreement with California-based integrated circuit maker Atmel and won service awards from 15 of its suppliers and customers. Fueled by strong demand for microprocessors, Pioneer's sales broke the billion-dollar mark in 1994, and its share of the North American distribution market rose again, to 7.3 percent. By 1995, Pioneer could boast that its stock had risen 17.4 percent a year since its IPO in 1971 and that it did more business in a single day than it had in all of 1969.

In April 1995, James Bayman succeeded Pete Heller as Pioneer's CEO and announced his intention to continue Heller's expansion and value-added services strategies: "Our strategy is to grow internally and pursue acquisitions domestically and overseas in Europe and the Pacific Rim.... We [electronic distributors] are no longer just logistics managers. We are information managers.... We can't just sell a product, we have to show our client how to use it to become more competitive." In November Pioneer-Standard's long anticipated acquisition of the remaining 50 percent of Pioneer/Technologies was finalized, and in a deal estimated at about $50 million Pioneer/Technologies officially became Pioneer-Standard of Maryland. "With our buying technologies," Bayman quipped, "we finally put to bed the longest-running rumor in the industry, a rumor 20 years running." In one fell swoop Pioneer-Standard had become the third largest electronics distributor in North America, absorbing Pioneer/Technologies' 11 branch operations in the northwestern and southeastern United States and expanding its line card of products to one of the industry's most extensive. Rumors immediately began circulating that Pioneer-Standard would soon merge with another major distributor to gain ground on Arrow Electronics and Avnet--or even attempt to merge with one of those two industry leaders itself. "As usual, there is no basis for any of the rumors," Bayman asserted, while admitting coyly, "We are very interested in expanding."

The unprecedented growth of the distribution industry in 1991-1995 tailed off in 1996, and Pioneer lost its rank as the third largest North American distributor. Nevertheless, in 1996 it announced distribution agreements with RadiSys Corporation, Cisco Systems, Micron Technology, AccelGraphics Inc., Tadpole Technology, Network General, Murata Electronics, Symbios Logic, Lucent Technologies, Actel Corporation, and Cipher Systems. It also entered into an increasingly typical "remarketing" agreement with IBM, in which Pioneer-Standard would not only distribute Big Blue's computer systems but would support them by providing value-added resellers (VARs) with an umbrella of services such as sales and technical services, direct marketing services, product evaluation, financial services, and business planning. With semiconductors representing an ever larger segment of the distribution market, in 1996 Pioneer-Standard also relocated its semiconductor marketing operations to California's Silicon Valley, the heart of the U.S. high-tech industry.

Between 1991 and 1996, the industrial electronics distribution industry had grown from $9 billion to more than $20 billion, a 300 percent increase over its volume in 1986. Despite the cost of its acquisition of Pioneer/Technologies and a slowdown in industry sales, Pioneer-Standard's sales topped $1.5 billion in 1996, and in 1997 it announced new distribution agreements with U.S. Robotics, Celestica Inc., and Fairchild Semiconductor. Its implementation of Total Quality Management (TQM) principles had lifted its quality control score to the "world-class" level, and the American Society for Quality Control was citing the company's quality program as a "textbook example of comprehensive planning activity, followed by rigorous implementation, producing results." The year 1996 was the tenth consecutive year of record sales for Pioneer-Standard; since its 1971 IPO its sales had increased every year but one. Despite the soft market of the mid-1990s some stock analysts were predicting that Pioneer-Standard's earnings would grow 22 percent in 1998 and another 15 percent in 1999.

Principal Subsidiaries: Pioneer-Standard of Maryland, Inc.; Pioneer-Standard Canada Inc.

Further Reading:

• Baird, Kristen, "Setting New Standards at Pioneer-Standard," Crain's Cleveland Business, July 24, 1995, p. 3.
• Bounds, Wendy, "Pioneer-Standard Acquires Remainder of Pioneer Technologies for $50 Million," Wall Street Journal, December 1, 1995.
• "Cipher Systems and Pioneer-Standard Canada Form Strategic Alliance," PR Newswire, December 5, 1996.
• Cohodas, Marilyn, "Siemens Teams with Pioneer," Electronic Business Buyer, November 1993, p. 22.
• Harrison, Kimberly P., "Pioneer-Standard Electronics, Inc.," Crain's Cleveland Business, May 23, 1994, p. S-15.
• "How They Rank," Electronic News, December 2, 1996.
• Levine, Bernard, "Pioneer-Standard Buys Remainder of Tech Affiliate," Electronic News, December 4, 1995.
• McCausland, Richard, Untitled, Electronic News, July 26, 1993, p. 18.
• "Pioneer Announces New Franchise Agreement with Celestica, Inc.," PR Newswire, March 3, 1997.
• "Pioneer Milestones" (company historical chronology), Cleveland, OH: Pioneer-Standard Electronics, 1996.
• "Pioneer Projects Lower Results," Electronic News, September 16, 1996.
• "Pioneer-Standard and Actel Corporation's Distribution Agreement Is Extended To Cover All Pioneer Locations in North America," PR Newswire, December 13, 1996.
• "Pioneer-Standard and Lucent Technologies Distribution Agreement Is Extended To Cover Canada," PR Newswire, October 22, 1996.
• "Pioneer-Standard Announces Asset-Liability Transaction," PR Newswire, December 28, 1990.
• "Pioneer-Standard Electronics," Wall Street Journal, March 3, 1994.
• "Pioneer-Standard Electronics Achieves IBM's First RS/6000 Authorized Assembler Certification," PR Newswire, December 20, 1996.
• "Pioneer-Standard Electronics Achieves UTEC Quality Certification," PR Newswire, February 3, 1997.
• "Pioneer-Standard Electronics Inc.," Wall Street Journal, January 14, 1993.
• "Pioneer-Standard Electronics Inc.: Who's News," Wall Street Journal, April 30, 1997.
• "Pioneer-Standard Names Arthur Rhein President, Operations Chief," Dow Jones Newswires, April 29, 1997.
• "Pioneer-Standard Says Bookings Are Declining," Wall Street Journal, May 30, 1980.
• "Pioneer-Standard's Centers," Wall Street Journal, January 24, 1991.
• "Pioneer-Standard Sees 'Above Average' Rise in Fiscal 1977 Results," Wall Street Journal, May 21, 1976.
• "Pioneer-Standard Stocks Sold," Wall Street Journal, January 8, 1971.
• "Pioneer-Standard To Buy Some Assets of Harvey Unit," Wall Street Journal, November 2, 1982.
• Ruston, Richard E., and Bussey, John, "Semiconductor Issues Have Soared as Outlook for Prices, Orders Growth Is Seen Brightening," Wall Street Journal, August 27, 1984.
• Savitz, Eric J., "More Than Their Name Implies: Electronic Distributors Widen Horizons," Barron's, June 25, 1990, p. 15.
• "U.S. Robotics and Pioneer Team Up To Provide Customers New X2 Technology," PR Newswire, March 31, 1997.

Source: International Directory of Company Histories, Vol. 19. St. James Press, 1998.