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Avnet's Q4 Impresses, But Q1 Forecast Disappoints

Avnet posted an impressive fourth-quarter profit Wednesday that more than quadrupled from the previous year, but the distributor's lowered forecast for the upcoming quarter has caused concern among investors and analysts.

For the quarter ended July 3, the Phoenix-based distributor's revenue increased 21 percent to $2.64 billion from the same period one year ago, while net income surged to $48.7 million, or 40 cents per share, compared with $11.5 million, or 10 cents per share, for the fourth quarter, representing a 300 percent increase. For fiscal 2004, Avnet reported revenues of $10.24 billion, up 13.2 percent, and net income grew to $72.9 million, or 60 cents per share, vs. a net loss of $46.1 million, or 39 cents per share, in fiscal 2003.

However, Avnet's stock fell after hours and early Thursday morning; the company's forecast for the first quarter for fiscal 2005 was lower than analysts had expected. The Wall Street consensus for Avnet's Q1 was around 41 per share on $2.81 billion in sales, but the distributor said its earnings will likely decline sequentially to between 30 cents to 35 cents per share because of seasonal trends and market conditions. Avnet is predicting revenue between $2.55 billion to $2.65 billion for the quarter, which would be an increase of 6 percent to 10 percent year over year. Shares of Avnet fell slightly after hours as a result.

In addition, Avnet CEO and chairman Roy Vallee gave a less-than-rosy guidance for fiscal 2005.

"Based on current business conditions, seasonal factors and the current value of the Euro to the U.S. dollar, we expect Technology Solutions revenue growth to be the range of minus 2 percent to positive 2 percent sequentially and Electronics Marketing revenue to decline 1 to 4 percent sequentially," Vallee said in a statement.

Despite the discomforting forecast, Avnet accentuated the positives for its fourth quarter and full-year performance, citing the company's highest quarterly revenue gain in more than three years and the progress under Avnet's "Driving Value" initiative to enhance profitability and lower operational costs.

"Fiscal 2004 was a year in which revenue growth combined with operating efficiency to drive a dramatic increase in operating income," Valle said during the earnings call.

Avnet's Electronic Marketing division also posted strong fourth-quarter year-over-year growth in both the Americas and overseas regions; in particular, Asia Pacific saw a 46 percent revenue gain in the quarter. Avnet made another expansion move overseas this month, acquiring DNS Slovakia for an undisclosed amount. DNS Slovakia is a value-added distributor that offers networking and security products to countries such as the Czech Republic, Hungary, Poland and Slovakia.

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