Server Sales Drop at Avnet

By Jessica Davis  |  Print this article Print

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."

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

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