Avnet Inc. reported sales of $4.3 billion in the second quarter of fiscal 2017, ended December 31, 2016. Sales increased 3.4 percent from the year ago quarter in constant currency. Organic sales fell 2.9 percent in constant currency.
The acquisition of Premier Farnell, which was completed in October 2016, was validated in the second quarter results by exceeding expectations and continuing to expand its margin growth.
“Our December quarter results validate the benefits of our acquisition of Premier Farnell, which was effective October 17, 2016, as gross profit and adjusted operating margins increased 158 and 18 basis points, respectively, year over year,” said Bill Amelio, CEO of Avnet, in a statement.
"Our Electronics Marketing business also performed well as organic revenue grew approximately four percent in constant currency when you exclude the impact of Premier Farnell and our decision to exit select high volume supply chain engagements in Asia", Amelio stated.
Avnet continued its strategic transformation to become a standalone electronic components distributor with “the broadest suite of products and services, spanning the entire product life cycle,” Amelio said during a webcast.
A significant part of this transformation was the addition of Premier Farnell thanks to its wide range of design and supply chain solutions.
Amelio said Premier Farnell will remain a separate company in the market to maintain its unique value proposition in the small order space, but both companies will link digitally in the front end to provide customers with a seamless experience as they move from the design phase to volume production.
“On the topline Premier Farnell exceeded our expectations this quarter and contributed to a 2.7 percent year over year increase in revenue,” said Kevin Moriarty, CFO of Avnet, during the webcast. “Organic revenue declined 2.9 percent year over year in constant currency primarily due to our decision to exit the less high volume supply-chain engagements in the Asia region. If you exclude the decision to exit this lower margin business, organic revenue grew approximately four percent from the year ago quarter.”
“Regionally, the EMEA region continued to see strong growth with reported revenue, including Premier Farnell, increasing 21 percent and organic revenue increasing 11.6 percent in constant currency. This was the fourteenth consecutive quarter of organic growth,” said Moriarty.
“In the Americas revenue grew 7.5 percent from the year ago quarter while organic revenue declined 2.1 percent primarily due to a decline in the embedded business,” Moriarty continued. “Excluding the decision to exit from select high volume supply-chain engagements, our Asia region was essentially flat from the year ago quarter.”
The quarterly results also highlight Avnet’s focus on digital transformation, which began about 18 months ago. Avnet expanded its digital platform with the acquisition of Hackster.io in November 2016.
“During the quarter, we further enhanced our digital platform with the acquisition of Hackster.io, which provides over 200,000 makers a forum to learn how to design, create and program Internet-connected hardware,” said Amelio.
“With a community of close to 200,000 users Hackster.io further expands our reach into the idea phase as technology spreads into more products especially through the Internet of Things,” said Amelio. “Our goal is to build an ecosystem that provides a true end-to-end experience to the widest customer base at the lowest cost-to-serve model.”
Avnet’s digital platform with new tools and innovative services will allow designers to tap into the company’s deep technical and supply chain expertise, he added.
Avnet also will continue to invest in new tools and services to support its demand creation business, which includes new tools that enable FAEs to quickly access reference designs and product info, and allow engineers to quickly perform parametric searches to populate their bill of materials with cost and availability data.
“Together these tools will help our customers speed their time to market and also allow us to improve the efficiency of our demand creation resources and convert more leads into design wins and revenue growth,” Amelio said.
However, the distribution channel is being challenged in the area of demand creation as semiconductor suppliers like Texas Instruments change the structure of their programs.
Although Avnet does not normally comment on supplier programs, Gerry Fay, Avnet Electronics Marketing President, Global, said during the webcast it had very little impact on the second quarter.
“When suppliers change their programs in demand creation there are opportunities that pop up from other suppliers,” Fay added. “When you see our investments around digital strategy we think it’s going to help our customers shorten their time to market and enable customers to take advantage of our capabilities. That is why we continue to invest in demand creation.”
Avnet estimates the percentage of overall revenue from demand creation is a little more than 30 percent today, and the percentage will continue to grow.
Avnet also faced other challenges last year, experiencing some major issues with its ERP system rollout. Amelio admits it is still “struggling a little bit with our embedded business” primarily due to complex order issues, but the “rest is running relatively fine.”
“Our embedded business suffered more than our core business did in the impacts of some of the ERP challenges particularly around our more highly complex integration business,” Fay added.
Avnet has “lots to do to make these seamless connections” between Hackster.io and Premier Farnell and then into Avnet, according to Amelio. “We want to make sure the digital platform seamlessly transfers leads from one part to another part of the company.”
Avnet’s revenue outlook for the third quarter of fiscal 2017 ending on April 1, 2017, including Premier Farnell, is $4.3 to $4.6 billion. Part of the growth will be fueled by further investments in organic growth and the pursuit of “value-enhancing” acquisitions.
“We will continue to look at opportunities as they present themselves especially in areas where we think they have potential to disrupt the models of distribution,” said Amelio. “I can potentially see us make acquisitions in the design area where we have opportunities to reduce time to market for our customers and get the appropriate tools whether they are digital or design skills that may augment what we do today.”
Regionally, Fay expects to see continued growth in the EMEA region. Areas of growth cited by Fay include automotive, industrial automation, medical and renewable energy.