One of the industry's two largest electronics distributors, Avnet Inc. (NYSE: AVT), is seeing signs that component inventory in the global supply chain is beginning to balance with demand.
Although executives stopped short of declaring the downturn has reached its bottom, the supply chain's efforts to not build inventory over the past two quarters is beginning to pay off. Additionally, during its second-quarter 2012 analyst conference call, Avnet reported that an uptick in demand at the end of December is holding strong so far through January.
Avnet’s revenue for the quarter was $6.69 billion, which was in line with the company’s expectations and a decrease of 1.1 percent year-over-year. Adjusted diluted earnings per share (EPS) accelerated beyond expectations, at $1.15, which is an increase of 28 percent sequentially and 7.5 percent year-over-year. EPS set a new second-quarter record for Avnet.
Avnet's components business saw its book-to-bill ratio -- a measure of positive or negative demand with 1 as its base line -- reach parity in all regions except Europe. In addition to the uptick in December, Avnet's efforts to drive down inventory contributed to the improved metrics.
"We want to be very cautious and very aware of what the positive book-to-bill is telling us," said Harley Feldberg, Avnet EM President, Global, during the earnings call. "We don't want to drive our inventory levels down based on velocity alone -- we want to be sensitive that if we see continued strength we would adapt to that as well."
Analysts noted that Avnet's expectation of a return to normal seasonality in the next few quarters differed from some of its suppliers' forecasts.
"There's no upside to critiquing my suppliers' projections, and I'm not brave enough to call a bottom," said Feldberg, "but in general, I'd say our broad customer base has reached some type of bottom relative to the inventory excess. If you track our suppliers, you'll see the projections are quite diverse even within the same commodity. I would expect some of that is driven by some of the industry's largest customers [which have significant direct relationships with suppliers.]"