Vallee To Retire From Avnet As Revenues And Profits Weaken

August 27, 2012 Timothy Prickett Morgan

In his 35 years at master reseller Avnet, Roy Vallee has spent 13 of them as chief executive officer and 14 of them as chairman, and he has seen many ups and downs in the systems and components rackets. And Vallee also knows that Avnet can roll with the punches and will do so after he retires from the company.

Avnet has been working on a succession plan for a number of years, tapping Rick Hamada last July to be CEO and a few weeks ago tapping board member William Schumann, executive vice president at FMC Technologies, to be the first outside non-executive chairman of Avnet. Hamada and Schumann have a tough act to follow, with Avnet quadrupling in size over Vallee’s tenure. And with Avnet and Arrow Electronics controlling the lion’s share of components and systems distribution on Earth, that isn’t even mathematically possible unless we find life on Mars and companies needing billions of components and millions of systems.

Vallee will retire from Avnet in November when Schumann is elected chairman.

The change in chairmanship comes as Avnet is struggling with its components and systems businesses alike as the Great Recession ricochets back on us like an echo from Europe and China.

Avnet’s Technology Solutions IT distribution business posted sales of $2.54 billion in the fourth quarter of fiscal 2012 ended in June, a drop of 13.8 percent compared to the year-ago period. The good news was that operating income for the quarter was dead flat at $67.5 million. Sales were down 12.3 percent in the Americas region, to $1.41 billion, and only down 1.8 percent to $452.5 million in Asia, but plummeted 22.9 percent in Europe to 676.1 million.

Hamada said in the statement accompanying the financial results that Technology Solutions had a weaker-than-expected June quarter as companies in the Americas and Europe put off purchasing decisions–partly because of skittishness in the economies in those regions and partly due to some big server transitions that are either underway (in the X86 market) or soon to be underway (in proprietary and Unix servers). Like rival Arrow, Avnet saw sales of both X86 and proprietary machines (a category that includes Unix machines in the eyes of both master distributors) decline in the quarter.

The acquisition of Magirus Group, a European distributor and consultancy that Avnet acquired back in June, will eventually add $500 million to Technology Solutions revenues in Europe–if the business holds up after the acquisition. Magirus sells mostly Dell and Cisco Systems iron these days, having already sold off its IBM and Hewlett-Packard distribution biz to Avnet back in October 2007.

Avnet’s Electronics Marketing component business had a sales drop of 5 percent, to $3.76 billion, and was actually up in the Americas and only down a smidgen in Asia but took a big hit in Europe, as expected. Operating income for the components business was down 41.1 percent to $191.1 million.

Total sales at Avnet came to $6.31 billion, down 8.8 percent, and net income was $133.4 million, down 44.1 percent. For the full fiscal year, Avnet had 25.7 billion in sales, down 3.1 percent, and brought $567 million to the bottom line, 15.3 percent less black in than in fiscal 2011.

In the first quarter of fiscal 2013 ending in September, Avnet is projecting for Technology Solutions sales to be $2.25 billion and $2.55 billion, and that is without taking into account Magirus. Component sales should amount to between $3.55 billion and $3.85 billion.