Avnet Shows Q3 Double-Digit Declines, But 'Stability' In Technology Solutions

"We're not calling it a bottom by any means," Hamada said in a Channelweb.com interview, describing the economic climate. "But certainly the pace of decline has changed, and there are elements of stability, particularly for Technology Solutions. For our components business, we laid out guidance for the quarter and had to adjust our outlook. For TS, we were able to lay out guidance and keep to it. It's not a home run, but it feels pretty good."

Avnet reported revenue of $3.7 billion for the third quarter of its fiscal 2009, a decrease of 16.3 percent from $4.4 billion reported in the third quarter a year ago. Net income for the third quarter plummeted to $18 million, down from $107.2 million a year earlier, and operating profit was down to $55.5 million, a 67 percent drop from $166.8 million.

The news was best for Avnet Technology Solutions, for which Avnet reported quarterly sales of $1.6 billion (down 10.8 percent year-over-year) and operating income of $42.2 million (up 2 percent from 2008).

Avnet forecasted Technology Solutions sales between $1.45 billion and $1.75 billion for its fourth quarter.

"Technology Solutions met our expectations for both revenue and operating income as business spending in the markets we serve, while still tepid, appears to have stabilized over the past two quarters," Vallee said in a statement. "We continued to see relative strength in software and services and are also pleased with our solutions and vertical market practices that address higher growth opportunities in the marketplace."

Sales in Avnet's Electronics Marketing business were $2.1 billion, down 20.1 percent year-over-year.

Avnet also said it will seek an additional $25 million in cost reductions this year on top of $200 million it had previously described.

In an interview after the earnings call, Hamada echoed Vallee's assertion that software and services were proving most resilient. In hardware, he said, networking was a growth area, and industry standard servers and storage were down "only slightly, in the low single digits."

He said Avnet would continue to approach its VARs "from a solutions point of view" and add more branded programs and specialized training like Avnet HealthPath and its recently debuted SecurePath.

Hamada also described the transition from former Global President of Avnet Technology Solutions John Paget, who stepped down March 2, to new Technology Solutions President Phil Gallagher, as smooth.

On the Oracle-Sun deal front, Hamada said the announcement came as a surprise, but a stabilized Sun could only help Avnet. Both Oracle and Sun are big vendor partners for the distributor.

"It was a bit of a surprise for those of us in the industry," Hamada admitted. "With all the speculation prior to it happening, I can't remember if Oracle's name was even mentioned, so hats off to them. We're in a great position to help partners capitalize on it."

He added that he heard no concerns directly or anecdotally from Avnet VARs about the proposed Oracle-Sun merger.

"I haven't spoken to any [VAR partners] about it this week, but there have been no major issues or major concerns that have reached my radar," Hamada said. "It's a little bit of wait-and-see right now. Right now, it's hmm, OK, that one seems to make some sense, and now people are just starting to ask questions."