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Highlights From Avnet’s Earnings Call

The technology supply chain continues to approach what distributors see as more “normal” levels as supply, backlogs, inventories, and leadtimes are managed effectively, according to Roy Vallee, CEO of {complink 577|Avnet Inc.}.

Avnet reported record sales of $6.8 billion for its fiscal quarter ended Jan. 1, an increase of 40 percent year-over-year. With pro forma adjustments, sales increased 14 percent year-over-year.

Avnet — like {complink 453|Arrow Electronics Inc.} — carries all major component suppliers in all product categories and reaches a global customer base in the hundreds of thousands. As a result, the channel's outlook on the supply-and-demand picture encompasses a wide range of industries and all major regions. “With capacity utilization and lead times returning to more normal levels, and inventory being well managed across the supply chain, it appears that the component markets will avoid the more dramatic corrections of past cycles and continue to grow in 2011,” said Valle.

In fact, Avnet's Electronics Marketing (EM) group saw better-than-seasonal strength at the end of the quarter as its book-to-bill ratio reached 1.00 to 1.00. “As we reflect on the bookings and the strengthening we saw in December, it seems to imply two things,” said Vallee. “Overall, global demand is strong and bookings were good around the world; and for customers to be ordering in December, it implies inventories are well under control.”

In pricing, Avnet EM Global President Harley Feldberg said that average selling prices remain “competitive,” although Avnet EM was able to increase its gross margins during the quarter. “With that said, we are focused on a number of strategies aimed at offsetting [price] erosion so the challenge will be the ability to show moderate [gross margin] increases going forward. We think we will be able to find that balance and improve gross margin.” As pricing pressure is greatest in Asia, Feldberg said an increase in that region as an overall percentage of EM sales could bring down the EM group's total gross margin.

In some product areas leadtimes still vary greatly, but in aggregate, Feldberg said, they are continuing to come in. “I wouldn't classify leadtimes in aggregate as all the way down,” he noted. In some cases, leadtimes are still very atypical as suppliers quote a range of 5 to 18 weeks. (“Normal” leadtimes are 4 to 8 weeks.) “What that says is that there are areas of our product portfolio that remain quite extended, but overall we have continued to maintain what we believe is a balance in terms of a consistent supply chain response to our customers. I don't see a situation of plentiful inventory or short leadtimes on the near horizon.”

Vallee added that a few weeks ago, “we would have thought that as seasonal demand dropped off and given the investment we've seen in semiconductor capital expenditures we'd have seen SKUs [stock keeping units] return to normal leadtimes. But with bookings going up in December, we have SKUs out beyond normal leadtimes, and that indicates demand has been stronger than component makers have been able to gear up for. Inventories remain lean because customers haven't been accumulating [inventories.]”

Regionally, Avnet saw demand “better than seasonal” in Europe and does not expect a pause in this stronger-than-average growth. “Europe closed December very strong but also with a higher book-to-bill so there are no indictors that some type of adjustment is near,” said Vallee. Asia, Feldberg added, is very difficult to project — there is a significant holiday in the region — but it would take an unusual drop-off in demand there to create excess inventory in the supply chain, he believes.

5 comments on “Highlights From Avnet’s Earnings Call

  1. Taimoor Zubar
    January 30, 2011

    Avenet's rise in profit and other data does signify considerable growth and improvement. It would be interesting to see how the overall electronic component manufacturing industry performed, in particular the performance of Avenet's competitors. If Avenet's growth rate is greater than the industry growth rate, this would put Avenet in a much stronger position.

  2. Mydesign
    January 31, 2011

        Yes Barbara, companies have started showing increase in their profit level. Good, it a positive sign of growth after the recession era. Hope more and more such interesting positive economic outcomes from similar kind of companies. This increase in sales and profit shows that, markets are slowly moving away from their worst and sleeping condition, for a healthy business in a much profitable way.  If Avnet has contributed Fourteen percent, then surely we can assume that the total growth is more than cent percentage by combining all sales & profit from similar companies. It’s a very good sign and we can hope this growth trends continues in coming years also, more over we are all expecting much more great outcomes from similar industries.

  3. elctrnx_lyf
    January 31, 2011

    Tablets becoming the next generation desktop computers there is huge future growth for the over all industry. Along with the consumer electronics, the automotive an dthe health care markets are rising steadily after the recession. Particulary in Aisa and BRIC countries the surge in devlopment is fuelling the electronic industry to the new heights. Avnet and Arrow will be the Tier1 electronic component distributors who will see a huge profits because of the rise in overall electronic component sales.

  4. electronics862
    January 31, 2011

    Yes,The Tablet Computer will become the mainstream of electronic products in near future so there will be a huge growth for the over all industry.

  5. Barbara Jorgensen
    January 31, 2011

    The most positive news from this conference call is that all regions are expcted to perform well in the next quarter. Europe has been a question mark for many in the industry because of the debt crisis, but if orders were holding out as of the beginning of January that's a good sign.

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