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Inventory & Pricing: No Big Surprises

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,” {complink 577|Avnet Inc.} 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.

Read the full earnings release here.

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.

16 comments on “Inventory & Pricing: No Big Surprises

  1. jbond
    April 27, 2012

    It is good to hear that most of the issues the supply chain had from a tumultuous 2011 are almost back to normal. It is not surprising that companies are going to report slight declines in sales and profits. With the Euro crisi still going on and other global uncertanties, 2012 could still garner a slow year.

  2. Barbara Jorgensen
    April 27, 2012

    What was surprising is the positive response Avnet got for its results in spite of a decline in revenue. Analysts congratulated the company and Jim Cramer featured CEO Rick Hamada on Mad Money (again). At any rate, I'm inclined to believe the worst is over as Avnet and Arrow have a very braod view of both supplier and end-customer inventories.

  3. ITempire
    April 28, 2012

    @ jbond

    With recent acquisitions by American companies (specially logistics for e.g. acquisitions made by Fedex) in the Europe and prediction by analysts that investors are eyeing few other, I am optimistic about European markets this year. This optimism is specially existent in the logistics sector and therefore in the supply chain too. All these developments might be good kick starts for growth in Europe which is already a mature market. 

  4. ITempire
    April 28, 2012

    @ Barb

    I think comparative results from industry would have been worst than those of Avnet's, considering the supply chain problems on hand, which is why people have congratulated it for decent performance. When analysts see company performing well in the area (i.e. supply chain) in trouble in the economies, they might well compromise on current performance statistics in favour of long term potential.

  5. _hm
    April 28, 2012

    This also indicates EE will have more working opportunity. That is very good news.

     

  6. Ashu001
    April 28, 2012

    Barbara,

    Anyone who believes every single thing that Cramer says deserves to lose money.

    As far as Avnet's Results go,I was not very encouraged but what I saw.

    In particular,the lack of Strong Future Growth Guidance was for me most disheartening.

    If I had to recommend to any investor,I would say stay on the sidelines atleast tilll the European elections(France and Greece) are decisively resolved in the first week of May.

    Then take it from there.

    Ashish.

  7. Ashu001
    April 28, 2012

    hm,

    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.

    Ashish.

  8. Taimoor Zubar
    April 28, 2012

    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?

  9. elctrnx_lyf
    April 28, 2012

    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.

  10. Himanshugupta
    April 29, 2012

    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.

  11. Taimoor Zubar
    April 30, 2012

    @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.

  12. Anna Young
    April 30, 2012

    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. 

  13. Houngbo_Hospice
    April 30, 2012

    @elctrnx_lyf 

    “But slowly their current actions will definitely help them for sustainable future and profits.”

    Fiscal year 2011 was very good for Avnet.

    Hopefully this year decrease in revenues will not sink their last year effort and earnings. Next quarter better be promissing.

  14. Barbara Jorgensen
    April 30, 2012

    @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.

  15. Taimoor Zubar
    April 30, 2012

    @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.

  16. syedzunair
    May 2, 2012

    @TaimoorZ:

    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. 

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