Electronics and IT distributor Avnet Inc. (AVT) recently announced that its European arm, Avnet Memec has entered into a contract with integrated circuits and memory products manufacturer, Macronix International Co. Ltd. Per the contract, Avnet Memec will act as a distributor for Macronix’ products across Pan-European regions. Financial terms of the deal were kept confidential.
Macronix supplies NOR Flash, NAND Flash, ROM (Read Only Memory) and EPROM (Erasable Programmable ROM) products. With these products, Avnet will own a comprehensive portfolio of semiconductor offerings. Avnet will distribute Macronix’ flash and memory products with the help of its logistics and warehousing services.
The semiconductor industry witnessed a bad phase in 2012 with worldwide revenues declining 2.2% year over year. But, as per U.S.-based IT research firm IDC, the semiconductor market is set to enjoy roughly 3.5% growth in 2013.
Avnet Memec operates under Avnet’s Electronics Marketing (:EM) group, which is a specialized semiconductor distributor and provides supply chain management, inventory replenishment system and non-complex engineering design services. During third quarter 2013 (announced in Apr), the EM segment grew 1.1% from year over year to $3.80 billion. However, margins lacked luster due to slow recovery and increased competitive pressure in the European region. Avnet also guided 1.3% sequential growth (at the mid-point) for the fourth quarter.
Though the near-term guidance for the EM segment is not very encouraging, we believe that the projected growth in semiconductor market and increased usage of flash devices in different gadgets bodes well for the wholesale distributor, going forward.
Avnet’s third quarter revenues and earnings were better than the Zacks Consensus Estimate. Nevertheless, macroeconomic uncertainty, weak PC demand, softness in geographical contributions, specifically from Americas, and continuous margin contraction were the negatives. But we look forward to management’s decision to optimize costs; investments to tap changing demand and pursue acquisitions for broadening product portfolio.
Stiff competition from Arrow Electronics Inc. (ARW), Ingram Micro Inc. (IM) and Richardson Electronics Ltd. (RELL) is a concern.
Currently, Avnet has a Zacks Rank #3 (Hold).
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