Economy Spells No Relief For Avnet

Avnet on Thursday reported significant declines in profits and revenue for its second quarter of fiscal year 2009, ended Dec. 27. Avnet's top brass blamed a weakening demand and an "unusually challenging" economic climate, saying that Avnet has started in on an attempt to cut $50 million in costs by the end of its fiscal year.

"This slowdown was widespread as all three regions and both operating groups contributed to a double-digit year-over-year organic revenue decline for the quarter," said Roy Vallee, Avnet's chairman and CEO, in a statement. "Our value-based management culture and counter-cyclical balance sheet, coupled with our industry leading scale and scope, should allow us to gain market share during this downturn and emerge an even stronger company when growth returns."

The distributor's Technology Solutions side declined by 12 percent, and its Electronics Marketing side by about nine percent. Overall, Avnet's net income was $112.3 million or 75 cents per share in Q2, which is 21 percent less than the profit of $142.2 million (93 cents per share) earned in the second quarter of FY 2008. The distributor reported revenue of $4.27 billion, down 10 percent from $4.75 billion. Operating income for the quarter was $140.1 million, down 32.6 percent compared to $207.9 million a year ago.

In an interview with Channelweb.com, Avnet COO and Senior Vice President Rick Hamada did not specify exactly where the $50 million in reductions would come from. When asked if they would include layoffs or the closing of Avnet businesses, Hamada -- who is also the acting president of Avnet Technology Solutions/Global during the position's changeover from John Paget to Philip Gallagher " said, "All of the above."

"Reductions come from where the production is not coming," Hamada said. "We're looking at where we're not hitting our plans and reducing resource investment in those areas. It's a portfolio management process that requires cost reductions and sometimes forces restructuring in the business."

Does that mean layoffs are coming at Avnet?

"You can cancel all the meetings and cut all the travel you want," Hamada said. "When you have 70 percent of your expenses tied up in people ... the discretionary spend is just not a big enough piece of our expense model, although every one of those discretionary decisions is being looked at as well."