Fort Worth, Texas – May 10, 2018 – Global electronics distributor, TTI, Inc. found itself in the limelight at the annual Berkshire Hathaway Stockholders meeting last week in Omaha, Nebraska where more than 40,000 investors gathered to hear sage investment advice from the world’s greatest investors, Warren Buffett and Charlie Munger.
During the highly anticipated question and answer session, the investment duo was asked to discuss the extraordinary growth that the TTI family of companies is experiencing as one of Berkshire Hathaway’s fastest growing non-insurance businesses. TTI was purchased by Berkshire Hathaway in 2007 and remains the only electronics company in the Berkshire Hathaway portfolio.
Buffett first acknowledged founder and CEO, Paul Andrews, for his vision and exceptional management style for making the worldwide operation the success it is today. He spoke of the complexity of the business requiring a very high number of transactions on low cost components and shared this insightful premonition, “Something is going on out there, nobody is just buying these parts and storing them in their basement, these part are getting used.”
Hear more on TTI from Buffett and Munger.
Transcript
Jonathan Brandt:
TTI has been a nice growth story since Berkshire acquired it 11 years ago, more than doubling its pretax earnings to about $400 million due to fine organic growth and at least two successful bolt-on acquisitions. Business momentum appeared to accelerate in the first quarter. Can you please talk about the competitive landscape in the electronic components distribution industry and what TTI's advantages are? Is it just a great industry to be in, or is TTI's business model and/or management team special? Do you expect it to continue to be one of Berkshire's faster growing non-insurance subsidiaries?
Warren Buffett:
TTI is run by a fellow named Paul Andrews, who's done an absolutely sensational job with us. He's a wonderful man. He's a wonderful manager, and in the last ... he's quadrupled the business, basically, in the last year, and accelerating right to this point, they distribute little electronic components. Actually, they're a many-billion-dollar business, and their average item is less than a nickel, that they sell. It's kinda like being in the jelly bean business or something like that, except these things go into all kinds of fancy machines that I don't understand.
We have a worldwide operation based in the Dallas-Fort Worth area, and built by one man who left a division of General Dynamics 45 or 50 years ago, and step-by-step built up this business like we just bought. Within the last two months, we bought an operation in South Korea. That will be another substantial addition. We do business worldwide.
Electronic components have absolutely taken off in the last year, and they use something called the bill. Well, it's essentially a measure of backlog, and book-to-bill is the ratio they call it, but it's just a special term. It's grown. I mean, it's just improved dramatically in the last year, and it continues month after month, so something is going on out there, because nobody buys these things to store them in their basement or anything of the sort.
I mean, these get used, these electronic components. Some of them are on allocation. We have a great relationship with suppliers. We have a very good relationship with our customers because we carry more inventory than most of our competitors. Particularly when the business is tight, we can deliver and do a very first-class job doing it. I give great credit to Paul. He increased his physical facility, started on that a few years ago, and it's a godsend that he did it because with the business going through there now, we wouldn't have been able to handle it.
It's a competitive business. I mean, if you look at Arrow Electronics on the New York Stock Exchange, and we've got competitors, I think Paul is doing a better job by a considerable margin than they are, and I'm delighted as part of the Berkshire family. There will be times when that business slows down because their customers will have their own cycles, and when it does, we'll go down, but over time, that business is going to grow. Charlie.
Charlie Munger:
Yeah, it's a wonderful business, because it's so difficult to do that competitors don't want to try it. When I lived in Omaha, there was a man who lived in great prosperity and almost no work, and his business was gathering up and rendering dead horses, and he never had any competitors. He used to come up to the Omaha Club and start drinking about 11 in the morning. It was not a difficult business, but nobody ever crowded him with new competition. Very few people want to distribute zillions of electronic parts that are worth a nickel each. It's very complicated. Of course, that business is terribly good at it, and it keeps getting more and more of the same. You're right, it's a huge growth business, which is sort of the electronic equivalent of gathering up and rendering dead horses.
Warren Buffett:
Imagine keeping track of close to a million different items with very small values attached to them and getting them out to your customer fast, because they want them fast, all over the world. Those things are not easy to manage.
Charlie Munger:
Yeah, and staying in stock on so many items. It's very complicated, and that business is very good at it. Yeah, we're lucky. Of course, it'll grow. The horses went away, but these parts aren't going to go away.
Warren Buffett:
Charlie made a profession of starting businesses where the owners could sit around and drink all day. That was where we ought to be competing, or buying.
Charlie Munger:
My theory, Warren, is if it can't stand a little mismanagement, it's no business.
Warren Buffett:
Yeah, and we're testing that sometimes.
About TTI
TTI, Inc., a Berkshire Hathaway company, is an authorized, specialty distributor of interconnect, passive and electromechanical (IP&E) components and the distributor of choice for industrial and consumer electronics manufacturers worldwide. Broader and deeper inventory, leading-edge products and custom supply chain solutions have established TTI as the leading specialist in electronic component distribution. Globally, the company maintains two million cubic feet of dedicated warehouse space containing over 850,000 component part numbers. Along with its subsidiaries, Mouser Electronics, Sager Electronics, and Symmetry Electronics, TTI employs over 5,400 employees and is represented in over 100 locations throughout North America, Europe and Asia. For more information about TTI, visit www.ttiinc.com
About Mouser
Mouser Electronics, a Berkshire Hathaway company, is an award-winning, authorized semiconductor and electronic component distributor focused on rapid New Product Introductions from its manufacturing partners for electronic design engineers and buyers. The global distributor's website, Mouser.com, is available in multiple languages and currencies and features more than 5 million products from over 700 manufacturers. Mouser offers 22 support locations around the world to provide best-in-class customer service and ships globally to over 600,000 customers in 170 countries from its 750,000 sq. ft. state-of-the-art facility south of Dallas, Texas. For more information, visit www.mouser.com.
About Sager Electronics
Sager Electronics, a wholly owned subsidiary of TTI Inc., a Berkshire Hathaway Inc. company, is a North American distributor of Interconnect, Power and Electromechanical components from leading manufacturers worldwide and a provider of value-add solutions. Grounded in over 130 years of innovation and service, Sager Electronics provides customers and suppliers a unique combination of operational excellence and innovative business solutions through its Distributing Confidence® business model. Headquartered in Middleborough, MA, Sager Electronics operates a national network of field sales representatives and power systems sales engineers, strategically located service centers across North America, and a value-add Power Solutions Center located in Carrollton, TX. To learn more about Sager, visit www.sager.com.