Avnet Quarterly Revenue Drops Overall, But Channel Sales Rise

The bulk of the drop in revenue and income in the quarter came from the company's Electronics Marketing (EM) sales, which focuses on OEM and electronic manufacturing services. However, the company's Technology Solutions (TS) business, which focuses on distribution to the channel, showed both revenue and income growth on a year-over-year basis.

Avnet reported overall revenue of $4.4 billion for its first fiscal quarter, which ended Oct. 3. That was down 3 percent compared with the $4.5 billion it reported for the same quarter last year.

The company also reported income of $50.9 million, or 33 cents per share, which was down 44 percent compared with the $90.3 million, or 59 cents per share, it reported last year.

Avnet's first fiscal quarter of 2010 was one week longer in length compared with the same quarter of last year.

Avnet reported revenue of $1.9 billion for its TS group, which was up 6.9 percent vs. last year. The rise in distribution sales was led by an increase in sales in Asia of 71.4 percent and an increase in the Americas of 9.2 percent. These were offset somewhat by a 9 percent drop in Europe, Middle East, and Africa (EMEA) sales.

However, revenue for Avnet's EM group fell 9.8 percent to $2.4 billion.

Looking forward, Avnet said it expects total revenue for its second fiscal quarter of 2010 to be between $4.1 billion and $4.7 billion, compared with actual revenue of $4.3 billion for its second fiscal quarter of 2009.

This includes projected TS revenue of between $1.95 billion and $2.25 billion, up from the $2.0 billion reported last year, as well as projected EM revenue of $2.15 billion to $2.45 billion, similar to the actual $2.3 billion reported last year.

Analyst firm Raymond James wrote in a research report that Avnet's total revenue of $4.4 billion was well above its expectations of $4.0 billion and of Wall Street's expectations of $3.9 billion.

Avnet TS's revenue of $1.9 billion was above Raymond James' estimate of $1.7 billion and management's previously issued guidance of between $1.55 billion and $1.85 billion, the analyst firm wrote.

Roy Vallee, chairman and CEO of Avnet, said his company saw normal seasonality during the quarter, with end-user sales rising, indicating that IT spending is starting to recover after the drop caused by the economic downturn.

"In aggregate, we do believe we are at the beginning of a cyclical recovery that will increase over the next few quarters," he said.

Vallee also said that servers, software and microprocessors were among the fastest-growing product lines for the company during the quarter.

Phil Gallagher, president, Avnet Technology Solutions global, said the distributor's software, server, networking and virtualization business is all up over last year, while the storage business is showing progress on a year-to-year basis.

But in response to an analyst's question about Oracle's imminent acquisition of Sun Microsystems, Gallagher said Avnet knows about as much as anyone. "We're in a wait-and-see mode," he said.

Vallee also expressed optimism in terms of server sales based on feedback from the 500-or-so solution providers who attended Avnet's Sun and IBM partner conferences in the past two months.

"There is certain optimism from the partners about spending in that space," he said.

Shareholders were pleased with Avnet's performance, which was reported early Thursday, and drove the company's share prices up more than 7 percent to $25.36.