IT Distributor Avnet's CEO: Software, Solutions Sales StabilizeBy Jessica Davis | Print
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UPDATED -- The computer, software, services and solutions side of distributor Avnet's business showed signs of bottoming out in fiscal Q3, according to Avnet's CEO. Avnet executives believe that Oracle's acquisition of Sun Microsystems, both major Avnet partners, will eliminate uncertainty around Sun and its products.
Technology sales and inventories showed signs of improvement for electronics and IT distributor Avnet (NYSE:AVT) in its fiscal Q3, but Avnet’s electronics business continued to struggle, Avnet says in reporting its earnings issued today.
Avnet's Chief Operating Officer Rick Hamada believes the impact of Oracle's (NASDAQ:ORCL) acquisition of Sun Microsystems (NASDAQ:JAVA) will likely have a further positive effect on Avnet going forward, but that Avnet would be conservative in its forecasts along those lines. Sun makes up about 8 percent of Avnet's enterprise revenues, and Sun is Avnet's number 2 global partner. Oracle isn't quite as large, says Hamada, but is among the top 15 at Avnet.
"It's too early for us to make any prognostications or offer any opinions on what their plans are or how it will affect their customers," Hamada says. "But it seems like it will add a bit of confidence because of the commitment Oracle has said it has to Sun's product lines. Oracle’s commitment has to have a calming affect on the customers overall."
During a conference call following Avnet's earnings announcement, Hamada told financial analysts that no news had been the worst news for Sun, but it's good news that Sun will now have a financially stable parent and that could help Avnet in Q4.
However, it's difficult for us to handicap a plus or minus situation right now," Hamada says. "There are more questions than answers right now so we tended to be more conservative."
Hamada says that the Technology Solutions division's performance during this economic downturn has lead the Electronics division by responding more quickly to the deteriorating economy. Hamada tells Channel Insider that Technology Solutions first felt the effects of the recession a year ago, but Electronics lagged two quarters before dropping sharply in the December quarter.
"The Technology Solutions business is really closer to what is happening with end demand," he says. "It is closer to the customer."
But in a formal statement announcing its earnings, Avnet's CEO says the company has seen signs that the industry may be close to reaching a bottom -- an end to the declines.
"There are still many questions on the macro economy, but the unprecedented speed with which the technology supply chain reacted to the global demand slowdown suggests that we are getting closer to the bottom of this cycle," says Roy Vallee, chairman and CEO of Avnet, in the company’s prepared statement on its earnings.
Avnet, for its combined Electronics and Technology Solutions divisions reported revenue of $3.7 billion, a 16.3 percent decrease from the same quarter a year ago. Net income for Q3 came in at $18 million or 12 cents per diluted share compared with net income of $107.2 million or 71 cents per diluted share for the same period last year.
Technology Solutions, however, fared significantly better than Electronics. Technology Solutions reported sales of $1.6 billion in Q3, down 10.8 percent year over year. Technology solutions operating income was $42.2 million in Q3, representing an increase of 2 percent compared with the same quarter a year ago.
Avnet Technology Solutions inventory was down 16 percent sequentially and 31 percent year over year, the company reports, and inventory turns improved 14 percent over the same quarter a year ago.
"Technology Solutions met our expectations for both revenue and operating income as business spending in the markets we serve, while still tepid, appears to have stabilized over the past two quarters," says Vallee. "We continue to see relative strength in software and services and are also pleased with our solutions and vertical market practices that address higher growth opportunities in the market place."
Looking forward, Avnet is forecasting Technology Solutions sales of between $1.45 billion and $1.75 billion for its fiscal Q4. For the entire company, Avnet is forecasting consolidated sales of $3.35 billion and $3.95 billion in fiscal Q4. Q4 earnings are expected in the range of 30 cents to 38 cents per share, not including charges for restructuring and integration of acquired businesses.
Shares of Avnet stock closed down 93 cents at $18.34, losing 4.83 percent of their value.