So Far, This Downturn Is Different

With two global distributors weighing in on their most recent quarters, a couple of trends are becoming clear.

Lead times will continue to remain short across all product lines, and prices are not likely to decrease dramatically. Avnet Inc. (NYSE: AVT) experienced many of the same trends competitor Arrow Electronics Inc. (NYSE: ARW) reported yesterday. Between the two distributors, just about every supplier and end-market is represented, so it's a pretty good read of the market environment.

For its first quarter fiscal year 2012, Avnet's revenue was $6.43 billion, which is an increase of 3.9 percent year over year. Adjusted diluted earnings per share were $0.90, down 3.2 percent year over year, primarily due to higher-than-normal other expenses of $5.4 million primarily related to foreign currency.

Like Arrow, Avnet is experiencing slower-than-normal seasonality -- meaning sales are softer than expected. That trend is consistent across the major sales region of the Americas, EMEA, and Asia/Pacific. For the first three weeks of the current quarter, Avnet has seen its book-to-bill approach 1:00, meaning future orders are beginning to keep pace with current shipments. Although Harley Feldberg, Avnet Electronics Marketing President, Global, was very cautious regarding the trend, Avnet EM is seeing improvement across all regions.

Here are a few other data points from the call:

This downturn is different. Electronics customers are not taking the same measures they did a few years ago. "The biggest difference is we are not spending a lot of time discussing canceling backlog; taking back parts; and swapping out inventory," Feldberg said. "That was the reality in the last [market] change and that reinforces for us our customers continue to feel positive about their position in the market."

The alternative energy market is finally gaining traction. Avnet EM spans so many market segments that it is hard to gauge the performance of one sector. However, Feldberg reports that components sales attached to alternative energy projects were very strong in the September quarter.

Pricing remains flat. Usually in an oversupply market, prices begin to decrease. Distributors are not seeing that in the channel. Feldberg says that's probably because excess inventory is more on the finished goods part of the equation and that production cutbacks have left a lot of work-in-process in the factories. This is a good thing -- it means inventory will balance out more quickly, and suppliers will be able to ramp up once demand accelerates.

Avnet also expects to benefit from a paring of the distribution channel due to the Texas Instruments/National Semiconductor merger. TI/National will discontinue with distributor Future Electronics Inc. as of December 1. (See: TI-National: Power in the Channel.)