Software And Storage Propel Avnet’s Q2

February 24, 2014 Dan Burger

The significance of IBM de-emphasizing hardware and investing more in software and services can be seen in the reseller channel. Just take a look at the most recent financial report from one of IBM’s largest channel partners: Avnet.

Hardware sales, particularly servers, used to be a cash cow for the Technology Solutions group at Avnet. Back in the day, the master distributor sold AS/400s at a snow-shovels-in-Chicago pace. The revenue piled up like snow drifts. Avnet remains closely connected to a great number of AS/400, iSeries, and IBM i shops. But server revenues aren’t what they used to be. Meanwhile, software and services revenues continue their rise.

Looking at Q2 2014, Avnet’s overall sales were $7.4 billion, up 10.8 percent, and net income was $163.9 million, up 12.6 percent. The Technology Solutions group is getting credit for much of the increase, and represented 44 percent of Avnet’s overall sales compared to 38 percent in Q1 2014. Demand for software and storage was especially strong.

The definition of “especially strong” in this case is a revenue hop of 36 percent to $3.3 billion, with revenues in the Americas region rising 44 percent to $1.86 billion. The EMEA region, which has been anything but strong in recent quarters, was up 31 percent to $909.5 million, and Asia increased 11 percent to $470.9 million.

Compared to Q1 2014, the combination of software, storage, and services exploded more than 30 percent, but it was the duo of software and storage that gets the credit for year-over-year growth.

That kind of revenue boost is obviously significant, but it was also pointed out by Avnet’s Phil Gallagher, global president for Technology Solutions, that server revenue increased by a moderate amount in year-on-year comparisons and was a significant factor in quarter-on-quarter comparisons.

Rick Hamada, chairman and chief executive officer at Avnet, said the company will continue to invest in higher growth markets that include converged solutions, software, and professional services. End users, he said, are focused on optimizing their data center investments, including the growing interest in hybrid cloud solutions.

At the midpoint of fiscal 2014, revenues at the Technology Solutions group increased 9.5 percent year-over-year. The forecast for Technology Solutions for Q2 2014 is estimated to be between $2.6 billion and $2.9 billion, which, after just posting a quarter with $3.3 billion in revenues, will look like a red flag, but is actually closer to the normal range. Revenue in Q4 2013 was $2.41 billion.