Avnet Technology Solutions Feels Recession's Chill in Q2

Avnet's (NYSE: AVT) second-quarter revenue fell 10.2 percent year over year, as the electronics and information technology distributor posted revenue of $4.27 billion for its fiscal Q2 2009.

Net income also fell in Q2 to $112.3 million, or 75 cents per diluted share, as compared with $142.2 million, or 93 cents per diluted share, for the same period a year ago.

Click here to read about Avnet's appointment of a president to head its Technology Solutions operating group just two days ago.

Rick Hamada, Avnet's chief operating officer, tells Channel Insider that the company's recent Technology Solutions management change was performance-related, and not based on a single quarter, and not insulated from the effects of the greater macroeconomic conditions.

"We have a strong performance and goals culture here," Hamada says. "We've been working on getting Technology Solutions back on a track to our long-range performance targets."

This includes performance related to market share, commitments regarding expense plans, the execution of plans regarding new acquisitions and other similar tangible factors, according to Hamada.

Concerning  former Technology Solutions President John Paget," Hamada says he "is a very knowledgeable individual who added value to the business with his strategic thoughts and directions. He had passion, energy and an in-depth understanding." 

Philip Gallagher, Paget's replacement, will take the helm as all industry finds itself in uncertain economic waters.

"Our second fiscal quarter was unusually challenging as demand weakened through the quarter, culminating with lower-than-expected revenue in the month of December," says Roy Vallee, Avnet's chairman and CEO, in a prepared statement. "This slowdown was widespread as all three regions and both operating groups contributed to a double-digit year-over-year organic revenue decline for the quarter."

Avnet says it has initiated additional cost reductions that will result in $50 million in annualized savings and will be implemented by the end of the fiscal year. Avnet is taking the action based on its Q2 results and its expectation of continued market weakness over the next few quarters, the company said in a statement.

Avnet's Technology Solutions group saw the bigger dip of the company's two operating groups. Technology Solutions sales came in at $2 billion in Q2, down 12 percent year over year. On a regional basis, sales for Technology Solutions in the Americas, EMEA (Europe, the Middle East and Africa) and Asia fell by 12.5 percent, 8.1 percent and 26.2 percent, respectively.

“Technology Solutions experienced a below normal calendar year-end surge as revenue finished at the low end of expectations due primarily to a weaker-than-expected final week in the Americas region," Vallee says in a prepared statement. "The shortfall in the more profitable Americas region negatively impacted profit volume and margins. Therefore, we are taking more cost reduction actions in the TS business to continue aligning our cost structure to expected revenues.”

Avnet says Electronics Marketing sales of $2.27 billion in the second quarter marked a decline of 8.5 percent year over year on a reported basis.

Looking ahead, Avnet says it expects less-than-normal seasonality in both its operating units. With that in mind, the distributor is providing a wider range of forecasts.

Avnet is forecasting Technology Solutions sales of between $1.45 billion and $1.75 billion. The company expects consolidated sales of between $3.6 billion and $4.2 billion. And Avnet says that it expects Electronics Marketing sales of between $2.15 billion and $2.45 billion.

"While management currently does not believe that the current recessionary environment will have a long term material impact on the company’s business and its ability to reach its long-term goals, a prolonged economic downturn and deteriorating business conditions may result in the impairment of the book value of the goodwill," the company says in a statement. "However, the drop of the company’s stock price since September 2008, although inline with the decrease of the overall market downturn in percentage terms, has resulted in a market capitalization that is significantly smaller as compared with the end of the company’s last fiscal year."