Avnet Financials Illustrate IT Industry Volatility

August 11, 2014 Dan Burger

Cautiously optimistic is a popular description of the business climate. It is most often said with the emphasis on optimistic, but it seems most businesses, in reality, emphasize the cautious. The IT business is a lot like that, but what we are seeing is an unevenness that spins the weathervane toward and then away from the direction of optimistic.

You really can’t find a better example of this than Avnet, the huge electronic components and IT distribution business that moves IBM products, plus plenty of products and services from other top-tier vendors, through the sales channels. Avnet just closed out its fiscal 2014 fourth quarter and year-end financial reports with more ups and downs than a helicopter pilot.

It has been a wild ride for Avnet over the course of the past three years or so. The company that was on an acquisition and global expansion binge has paused to take stock in what it has and where its best opportunities are located.

Avnet Technology Solutions, the portion of the company that deals with enterprise technology, is what we’re most interesting in learning about. And with that focus, Avnet had good news to report with a 4.2 percent year-over-year revenue gain yielding a total of $2.7 billion in sales. After a disappointing Q3, this is good news indeed. Software, services, and storage technologies led the way and more than made up for declining sales in computing components.

From a regional perspective, the Americas and Asia were good to Avnet, while Europe, the Middle East, and Africa were not.

During the Q4 and year-end earnings call, Avnet chairman and CEO Richard Hamada explained the challenges his company faces in juggling the global geographical and economic landscape and the commodity mix of hardware, software, and services.

“I believe we compete very well in the North American market, a strong market for us, good growth, good execution there and trying to expand these services and opportunities in that marketplace. And then, frankly, in Europe, we’ve got execution challenges as part of the overall issue,” Hamada says.

Phil Gallagher, global president of Avnet Technology Solutions, offered a closer look at the European market. Eastern Europe was noted as a growth area. The revenue from Central Europe was flat. And Northern Europe was the point of greatest revenue decline.

More than half of the year-on-year revenue decline in the European market was related to the PC components business that consists primarily of processors, memory, and hard disk drives. The self-builder, white box OEM marketplace plays an important role in this volatile, low-margin business.

Hamada also noted the core enterprise IT business in the EMEA region was down in the mid single-digit range and the components business declined in the double digit range.

On the bright side, there have been four consecutive quarters of positive revenue reports coming from the Asia-Pacific market. Australia and New Zealand are two countries and we’re seeing good progress.

Avnet’s sales for the quarter increased 6.9 percent to $7.05 billion. The Electronic Marketing unit’s sales climbed 8.8 percent, while sales in the Americas slipped 10.4 percent. Sales in EMEA jumped 24.1 percent and in Asia they rose 15.2 percent. In comparison Avnet Technology Solutions revenues increased 4.2 percent, with a 12.5 percent improvement in the Americas, while EMEA dropped 6.7 percent and Asia slid 2.3 percent.

Avnet’s outlook for the first quarter of fiscal 2015 forecasts Electronic Marketing sales to be in the range of $4.1 billion to $4.4 billion and sales for Technology Services to be between $2.3 billion and $2.6 billion.