Electronics Distributors: Customer Base 'Cautious'

Now that the industry's two largest distributors have posted quarterly results, it's pretty clear that electronics customers are proceeding with caution on component orders.

Arrow Electronics Inc. (NYSE: ARW) and Avnet Inc. (NYSE: AVT), which together represent virtually all component manufacturers and more than half the electronics distribution market in certain geographies, say end customers are pushing orders out. Customers are not canceling orders, but they are delaying them until the demand picture gets clearer, according to distribution executives.

Avnet posted unexpectedly soft results for its fiscal fourth quarter, which ended June 30.

"What we saw in June was weaker than we expected," Harley Feldberg, global president of Avnet Electronics Marketing, said in a call with industry analysts. "However, in the first five weeks of the September quarter, we haven't seen anything to indicate that there is significant backlog. What we are seeing is an increasing degree of conservatism and a cautious approach to orders."

In particular, Avnet's core customer base of small and midsized industrial OEMs, particularly in the Americas, are experiencing very modest growth.

For its fiscal fourth quarter, Avnet posted revenue of $6.31 billion, which was at the low end of its previously announced expectations. Gross profit and operating income margins were flat from the fiscal third quarter, and adjusted operating income decreased 13.7 percent from a year earlier to $233.9 million.

Avnet EM's revenue for the quarter decreased 5 percent from a year earlier to $3.76 billion, also at the low end of expectations. Its global book-to-bill dropped below parity.