So Far, This Downturn Is Different

With two global distributors weighing in on their most recent quarters, a couple of trends are becoming clear.

Lead times will continue to remain short across all product lines, and prices are not likely to decrease dramatically. {complink 577|Avnet Inc.} experienced many of the same trends competitor {complink 453|Arrow Electronics Inc.} reported yesterday. Between the two distributors, just about every supplier and end-market is represented, so it's a pretty good read of the market environment.

For its first quarter fiscal year 2012, Avnet's revenue was $6.43 billion, which is an increase of 3.9 percent year over year. Adjusted diluted earnings per share were $0.90, down 3.2 percent year over year, primarily due to higher-than-normal other expenses of $5.4 million primarily related to foreign currency.

Like Arrow, Avnet is experiencing slower-than-normal seasonality — meaning sales are softer than expected. That trend is consistent across the major sales region of the Americas, EMEA, and Asia/Pacific. For the first three weeks of the current quarter, Avnet has seen its book-to-bill approach 1:00, meaning future orders are beginning to keep pace with current shipments. Although Harley Feldberg, Avnet Electronics Marketing President, Global, was very cautious regarding the trend, Avnet EM is seeing improvement across all regions.

Here are a few other data points from the call:

This downturn is different. Electronics customers are not taking the same measures they did a few years ago. “The biggest difference is we are not spending a lot of time discussing canceling backlog; taking back parts; and swapping out inventory,” Feldberg said. “That was the reality in the last [market] change and that reinforces for us our customers continue to feel positive about their position in the market.” The alternative energy market is finally gaining traction. Avnet EM spans so many market segments that it is hard to gauge the performance of one sector. However, Feldberg reports that components sales attached to alternative energy projects were very strong in the September quarter. Pricing remains flat. Usually in an oversupply market, prices begin to decrease. Distributors are not seeing that in the channel. Feldberg says that's probably because excess inventory is more on the finished goods part of the equation and that production cutbacks have left a lot of work-in-process in the factories. This is a good thing — it means inventory will balance out more quickly, and suppliers will be able to ramp up once demand accelerates.

Avnet also expects to benefit from a paring of the distribution channel due to the Texas Instruments/National Semiconductor merger. TI/National will discontinue with distributor Future Electronics Inc. as of December 1. (See: TI-National: Power in the Channel.)

11 comments on “So Far, This Downturn Is Different

  1. Anna Young
    October 28, 2011

    Barbara, this is good news indeed.

    “The biggest difference is we are not spending a lot of time discussing canceling backlog; taking back parts; and swapping out inventory,” Feldberg said. “That was the reality in the last [market] change and that reinforces for us our customers continue to feel positive about their position in the market.”

    It is good to read that overall, the out look isn't that grim. Could it be because the manufacturers took precaution to monitor sales forecast and subsequently reduce production? Whatever measures taken it has clearly improve the situation.

  2. Jay_Bond
    October 28, 2011

    After hearing about Avnet and Arrow, I would have to say that the industry isn't doing too bad considering the global economic climate. It would appear that suppliers have a better gauge and were more prepared for this downturn. I'm sure these companies reviewed what went on in 2008/2009 and made sure they were prepared for economic uncertainty.

  3. saranyatil
    October 28, 2011

    This is indeed a good newswhile we have been hearing about not that good quater results and so on. I think we need to wait and see how things would change in 2012.

  4. Houngbo_Hospice
    October 28, 2011

    Many manufacturers have certainly learned from the previous downturn and took preventive actions. Some might have even revised their expectations. We can just hope that the downturn will be soon behind us. 

  5. Ms. Daisy
    October 28, 2011

    Saranyatil, I believe if the good news from Europe continues and the economy of the US continues to grow, coupled with appropriate adjustment by the OEMs to the anticipated slow down, then 2012 will likely be better.

  6. Himanshugupta
    October 29, 2011

    Barbara, your 3rd paragraph reads: 

    For its first quarter fiscal year 2012, Avnet's revenue…

    I think what you meant was fiscal year 2011.

  7. Himanshugupta
    October 29, 2011

    This downturn is different because it came just after recession followed by a very unexpected quick recovery. The manufacturers are still hopeful so they are not lowering the prices but they are cautious about the demand and supply. This is not bad but still we should expect good days to return.

  8. saranyatil
    October 29, 2011

    I think there will be substantial changes with the present improvements and turn 2012 a good year.

  9. Barbara Jorgensen
    October 31, 2011

    Hi–actually, it's correct. Avent's fiscal year runs from July-to-July, rather than Jan.-Dec. So everyone else's Q3 is Avnet's Q1 for the next FY–2012.

  10. Ms. Daisy
    October 31, 2011

    The role of the multiple environmental/natural disasters played in this downturn has kept the the recovery down. We just can only hope that as the industry picks its way through the catastrophes, it will have enough time to pick itself up before the next.

  11. electronics862
    October 31, 2011

    Thanks for the post Barbara. It is always better to maintain a healthy relationship with the customers in providing maintenance support or technical service. This help companies in long turn by these customers satisifaction they will get more orders and even new orders from outside. 

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