Chairman of the Board and CEO
“..we are seeing a bounce-back in IT spending.”
–Roy Vallee, Avnet
Although it believes its performance was pretty good under the circumstances, Phoenix-based Avnet Inc. chalks up 2009 as a harsh year. Now, Avnet is focused on an improving economy and the business it will bring.
Serving more than 100,000 customers in 70 countries, Avnet is one of the world’s largest technology distributors, linking end-user clients with more than 300 software developers and electronic component and computer product manufacturers.
“It’s fair to say we have been severely impacted by the global recession,” says Roy Vallee, chairman and CEO of the Fortune 500 company. “Sales (for calendar year 2009) will be down by a double-digit percentage and earnings per share will be down substantially more than that, probably by roughly 40 percent. It has, in fact, been a tough year.”
Avnet’s revenue for its July-to-June 2009 fiscal year declined 9.6 percent from fiscal 2008, to $16.23 billion.
Globally, Vallee says purchasing of information-technology (IT) equipment dropped “precipitously” in 2009 by 5 percent or 6 percent.
“There were only two years in history when IT spending was negative and that was 2001 and 2002,” he adds. “So there was a big cutback by businesses on IT in 2009.”
Because of the nature of the electronics supply chain, business spending on electronic components deteriorated more rapidly than IT. But Avnet held to its strategy of focusing on value-based management and return on capital, rather than earnings per share. As sales declined, it reduced investment in inventory and accounts receivable and generated $1.4 billion in cash flow from operations.
It also continued a tradition of acquisition, thus expanding its market. Avnet negotiated a controlling interest in Vanda Group in China, and acquired Abacus Group in the United Kingdom and Nippon Denso Industry Co. in Japan. It also formed a joint venture in Turkey with Sanko Holding Group. In India, it purchased a small firm to launch an IT distribution company.
Now Vallee thinks “we are past the trough.” The accordion-like behavior of the electronics supply chain is responding to the reviving global economy. What was once squeezed is now expanding. Vallee says IT spending is showing signs of improvement and that “components spending is increasing at a rapid rate.” That already is showing up in Avnet’s financials for fiscal 2010. And Vallee is hopeful that Avnet’s October-through-December second quarter revenue will top the same period a year ago.
“IT spending will grow in 2010, probably in the mid-single digits,” he says. “There is pent-up demand. Companies that needed to spend on IT put it off because they were uncertain about where the economy was headed. They were also uncertain about where they would get the money. But you can only delay that kind of spending so long. Now that the economy is turning and capital is more available, we are seeing a bounce-back in IT spending.”
That spending also is a result of renewed focus on business growth that follows a couple of years of emphasis on cash, balance sheets, profit and loss, Vallee notes.