Avnet Systems Biz Is A Little Soft In Fiscal Q3
May 6, 2013 Timothy Prickett Morgan
The first three months of 2013 were choppy for a lot of IT suppliers and distributors, and the situation was no different for master electronics components and IT distributor Avnet. The box pusher saw a bit of a budget flush in the fourth quarter of 2012, which was the second quarter of its fiscal 2013 year, but no such luck this time around with the U.S. government unsure of what it is going to spend once we get put beyond September this year and general skittishness in China and parts of Europe.
In the quarter ended March 30, Avnet’s sales were off three-tenths of a point to just under $6.3 billion, which isn’t all that bad. But generating that revenue cost a lot more money this time around than it did a year ago, and Avnet’s net income fell 41.6 percent to $86.2 million. This was, according to Avnet CEO Rick Hamada, in line with expectations, but it is clearly not what the company would have hoped. Like everyone else, Avnet is no doubt sick of the ups and downs of the global economy.
The Technology Solutions part of Avnet, which distributes servers, storage, networking gear, software, and related services for the data center, had revenues of $2.5 billion in the quarter, down nine-tenths of a point. Sales in the Americas region was off 5.1 percent to $1.3 billion, and thanks to the Magirus acquisition last year, Avnet was able to show 5.1 percent growth in EMEA to $783 million. Sales for the Technology Solutions group rose 2.2 percent in Asia to $418.4 million. Operating income for Technology Solutions nonetheless fell by 7.5 percent to $62.8 million. The sequential decline was dead normal for this business, Avnet said on a conference call with Wall Street analysts. The company did not provide the usual insight into its systems distribution business, but did say that in Asia, declines in servers and processors offset a bump in sales of storage and networking gear as well as IT services.
As you might expect, with IBM reportedly contemplating the sale of its X86 server business to Lenovo Group, everyone wanted to know what impact this would have on the Technology Solutions biz. Phillip Gallagher, president of Technology Solutions, said on the call that Avnet is in “regular contact with IBM” about what it might be doing with its server business and that Avnet could not spill the beans, obviously. He added that the x86 server business represented about 5 percent to 6 percent of total revenues for the Technology Solutions group, and therefore Avnet had “somewhat limited exposure” should a deal go down. And he went on to say that the addition of Ingram Micro and Tech Data as new distributors for IBM’s servers and storage had no effect on Avnet.
Yet, I would add. But maybe never because the channels of Avnet and tech Data and Ingram Micro are different.