Avnet keeps cutting costs after downbeat Q1

Distributor's value-based Technology Solutions arm endures tough opening quarter

After another disappointing quarter for its Technology Solutions (TS) business, Avnet is looking to take more costs out of its business to stave off the economic malaise.

According to preliminary results released today for the three months to 29 September, the distribution giant's total first-quarter sales dropped nine per cent year on year to about $5.85bn (£3.65bn). The firm indicated that this was "towards the lower end of expectations". Earnings per share for Q1 are set to be about $0.52 to $0.58 – below the distributor's previous guidance.

Revenue at Avnet's components-focused Electronics Marketing (EM) division stood at about $3.65bn, compared with $3.8bn in the corresponding period last year. But it was in the value-centric TS business that the company really felt the chill from the frosty economic climate, with revenue falling more than 15 per cent to $2.2bn.

Chief executive Rick Hamada indicated that the TS unit was affected as "customers delayed IT projects". Following a muted Q4 performance, in August the distributor announced it would drive efficiencies worth $40m to 50m in cost savings. Hamada claimed today that he would look to take even more expense out of the business.

"It appears the uncertain macroeconomic conditions continue to negatively impact key areas of end demand in our served markets as our overall revenue for the quarter finished weaker than expected, particularly in the Americas region," he said.

"This overall shortfall in Avnet's revenue accounted for more than half of the lowered earnings expectations while the regional mix shift and lower gross profit margins at EM accounted for the remainder.

"We remain steadfastly committed to monitoring market developments and taking actions consistent with the pursuit of our long-term operating goals."