The distributor says the unexpected decline in server revenues
will drive a resizing of the company's Technology Solutions business.
Weak server sales hurt Avnet's earnings per share in the third quarter, as
CIOs postponed big projects in the current uncertain economic environment,
according to executives at the distribution giant.
"Our enterprise server revenue in the Americas
and EMEA [Europe, the Middle East
and Africa] was far less than we anticipated," John
Paget, global president of Avnet Technology Solutions, told Channel Insider.
"For the first time it went negative."
Read Avnet's full quarterly results.
Paget attributed some of the problem to a rebate program change in Europe,
which he said had a significant impact on the company's net gross margins.
Since Avnet learned of the issue, it has been working more closely in the
European community "on a rebate program that makes more sense," said
Paget.
In the Americas,
while the entire server business was down, one vendor in particular was more
impacted than the others, he said, but declined to name the vendor.
In addition, a few very large server deals were pushed out from Avnet's third
fiscal quarter into the next quarter, which closes in June.
Paget said that the issue seems limited to just servers, and Avnet is seeing
significant increases in non-server hardware, services and software sales.
"In the enterprise server arena, a CIO
is more apt to delay the implementation of enterprise servers where other
things typically don't get delayed," he said. "If you are not
changing a major application, you can delay server purchases."
In response to the server downturn, Avnet will be resizing its Technology
Solutions business, Paget said. The company already made some initial cuts at
the end of March, and more are coming. The goal is to eliminate $25
million to $30 million in costs from the business through layoffs and cutbacks
in travel and overtime, and through consolidations in facilities.
While Paget said Avnet has seen quite a rise in its virtualization business, he
pointed out that virtualization is sold as one piece of a larger solution that
typically includes x86 servers, plus services and support.
"This is cyclical," Paget said. "What we saw is this cycled down
a lot farther than we anticipated."
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