Avnet Chief: Global Technology Supply Chain Has Stabilized
August 17 2009 - 1:06PM
Dow Jones News
The head of one of the world's largest electronics distributors
said the global supply chain connecting semiconductor companies
with computer, cell phone and industrial equipment makers has
finally stabilized.
Roy Vallee, chief executive of Avnet Inc. (AVT), said that after
months of declining inventories and halted production, the supply
chain has "right-sized" itself relative to lower levels of
demand.
"Companies have reduced inventories to the level where they are
comfortable," Vallee said. At present levels, any pick-up in demand
from consumers or businesses will mean equipment manufacturers will
need to resume purchases of chips and other technology
components.
The comments support recent results from chip makers and other
tech hardware suppliers that showed sequential revenue growth
following two quarters of massive sales drops. Tech manufacturers,
fearing the worst, had slashed spending amid the recession to limit
losses. But those fears, Vallee said, have mostly abated.
"The general sense that I've got is that the predominate feeling
is relief, meaning that just a few months ago they weren't sure
where the bottom was," said Vallee.
Heading into the traditionally stronger second half of the year,
outlooks from bellwethers such as Intel Corp. (INTC) and Texas
Instruments Inc. (TXN) have also suggested more normal spending
trends could continue.
Avnet of Phoenix, Ariz., acts as a middle-man between electronic
parts-makers and companies that manufacture tech products for both
consumers and businesses. From its perch, the company has a
privileged view on the vagaries within an enormous global
supply-chain.
Electronics distributors serve the vast majority of
end-manufacturers, though only about 25% of the market by revenue,
as large players like Apple Inc. (AAPL) or Hewlett-Packard Co.
(HPQ) normally purchase directly from suppliers.
Despite the return of relatively normal conditions, Vallee said
caution remains important.
"When looking at the prospects for consumer and capital
spending, I think there is still a lot of caution. I don't really
hear anybody outside of China talking enthusiastically about
end-demand."
China was an area of strength for Avnet last quarter,
represented by the nearly 20% sequential revenue growth in Asia
during the company's fiscal fourth quarter, ended June 27.
Vallee said that the Chinese government's efforts to maintain
domestic growth in the high single-digits through stimulus or other
spending will likely continue, with much of that spending going
toward the technology sector.
"The China government, we all need to give them credit. They are
smart and they are effective and they are not going to stimulate
their economy with last century's programs," he said.
Avnet said during its fourth-quarter results that emerging
markets in Asia will remain its best-growth markets.
Meanwhile, Vallee said that the company continues to look for
acquisitions in both emerging and mature markets.
"If we were prioritizing, we would prioritize higher growth
markets," he said, which tend to be in smaller, emerging areas.
Roughly every two to three years, Vallee said, the company has
historically made an acquisition in the billions of dollars.
Avnet's last major purchase, of Access Distribution from General
Electric Co. (GE), was completed at the end of 2006.
Meanwhile, Avnet is looking for further areas of organic growth.
Avnet is expanding its services business, which helps large
companies that historically purchase directly from parts
manufacturers manage supply-chain logistics and inventories.
Avnet's services business adds roughly $100 million a year in
revenue, Vallee said.
-By Jerry A. DiColo; Dow Jones Newswires; 212-416-2155;
jerry.dicolo@dowjones.com