X86 Servers Decline At Avnet, But Proprietary Servers Up A Bit
August 12, 2013 Timothy Prickett Morgan
The server business continues to be a bit sluggish for master distributor Avnet, but the company is coping with it reasonably well by boosting sales of other IT products. Avnet was seeing similar softness in the prior quarter as well, and it is no doubt due to the many product transitions out there in Server Land as well bumpiness in various economies around the globe.
In its fourth quarter of fiscal 2013 ended in June, the Technology Solutions group at Avnet’s sales were up 3 percent to $2.62 billion, but the company separates out organic growth from that due to acquisitions–as all public companies should do, by the way–and a like-for-like comparison of business units for the fourth quarter showed revenues down 2.4 percent. On an as-reported basis, sales at Technology Solutions were off 1.7 percent as reported to $1.39 billion, while sales were up 18.3 percent in Europe, the Middle East, and Africa by 18.3 percent to just a hair under $800 million. That was due entirely–and then some–to acquisitions and a bit of positive currency fluctuation. Sales in Asia were off 4.8 percent as reported to $430.7 million. Operating income for the Technology Solutions group rose 5.8 percent to $73.3 million.
Rick Hamada, Avnet’s CEO, said in a conference call with Wall Street analysts that the growth in Europe is back on track after starting out slowly earlier in the fiscal year, and the sequential bump of 4.7 percent revenue growth Q3 to Q4 was in the usual range of 3 to 7 percent. Margins for Technology Solutions were under pressure, down a quarter point from Q3, due to competitive pressures, said Hamada. Sales of storage, software, and services helped make up for declines in server sales in fiscal Q4, Hamada said.
On the call, Phillip Gallagher, who is president of Technology Solutions, said that the server component was a smaller part of the overall IT business at Avnet, and said straight up that in many X86 server deals “it gets very competitive” the company simply cannot “meet the margin hurdles.” So Avnet and its downstream partners are focusing on peddling server virtualization to existing customers or converged systems that bring together servers, storage, and networking and that carry higher margins. And here’s the good bit: “And ironically, sequentially–again modestly–we were actually up in proprietary servers. So it is kind of interesting. But in general, total servers, we were down a bit.”
Proprietary servers being up means Power Systems with a smidgen of other iron, by the way. And that is a good thing.