From the channel perspective, it appears that the inventory correction that has dogged the electronics industry for the past few quarters is over.
Component leadtimes have expanded "modestly," Avnet Inc. (NYSE: AVT) executives told analysts during today's earnings conference call. Longer leadtimes means there is less component inventory immediately on hand. Regional book-to-bill ratios, which indicate whether supply and demand are in balance, are at or above parity, according to Harley Feldberg, president of Avnet Electronics Marketing Global. A book-to-bill of 1:00 indicates orders are growing; a book-to-bill below 1:00 indicates demand is soft.
"Our view is that it appears that most of the correction that was derivative of the inventory excess has played through and we have seen a modest expansion of leadtimes," Feldberg said. "That is telling us we are at the bottom of the supply chain correction."
Component prices are not expected to increase despite longer leadtimes, and prices of hard disk drives, which had spiked after last year's flooding in Thailand, have declined, according to Feldberg.
For the quarter ended in March, Avnet’s revenue was $6.28 billion; a decrease of 5.9 percent year-over-year. Adjusted operating income of $235.4 million decreased 8.4 percent from the year ago. Additionally, the company notified us:
Avnet Electronics Marketing successfully managed through the short-term inventory correction that negatively impacted organic growth during the first three quarters of Avnet’s fiscal year and appears to be nearing an end, as sequential revenue growth returned to more normal seasonal trends and book to bill was at parity for the quarter. Avnet Electronics Marketing saw sequential revenue growth of 4.5% and grew operating income 2.5 times faster than revenue. The Americas region of Avnet Electronics Marketing experienced revenue growth of 10.8% year-over-year and 2.5% sequentially. Inventory levels are consistent with growth expectations going forward, and have declined by 2% (after adjusting for acquisitions and currency). Inventory velocity at Avnet Electronics Marketing has improved as well, with inventory turns increasing nearly half a turn to 6.1.
Europe continues to be an uncertain market, executives said. The region's book-to-bill lagged the Americas and the Pacific Rim, although it showed consistent growth for the first three weeks in April.
You are right. Managing order quantities and maintaing desired investory levels to fulfill customer demands is every organizations goal. If you are able to do it with maintaining a minimum of storage you are bound to save money and it will make the overall supply chain more effective.
@Barbara: Glad to know about this strategy by Avnet. I am sure it would have also saved a lot in terms of storage and handling costs by carefully identifying the right order quantities and maintaining the desired inventory levels.
@Taimoor: Avnet keeps a close watch on its inventory and does not buy unless its analysis warrants it. Basically the company has sold off whatever excess it had from last year and has been very conservative in new purchases. The velocity of its inventory--how frequently it turns inventory over--has actually improved. This means the inventory mix is in sync with customer orders and is often a good indication on how well a distrbutro manages its inventroy mix.
I agree jbond with your comment. In addition, the fact that Avnet Electronics was able to adjust inventory accordingly despite the slow growth is good.
@Himanshugupta: The bill to book ratio for Avnet indicates that there were no major glitches during production or order cuts from the buyers. However, the low revenue could be because of slowness in the market and lack of demand in general.
I am also wondering as to why the revenue and profit declined from previous year's quarter. Last year had a poor performing year but i do not remember whether the first quarter was particularly strong. But this quarter's book to bill ration is at par which is a good sign.
Avnet is probably able to achieve right inventory correction and may be because of this short term revenues have come down. But slowly their current actions will definitely help them for sustainable future and profits.
Despite the decline in revenue it's good to see that Avnet did well on the inventory ratios. Barbara, Is it because of adequate planning and market analysis that they were able to do so?
Just because Avnet says Inventory is down doesnt mean that its good news for most Electrical Engineers on the Job market.
Look at the fact that their products are not commanding increasing prices(basically they dont have increased Pricing power inspite of declining Inventories).
This alone should tell you that the market continues to be difficult. Consequently,Hiring will continue to be slow.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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