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Avnet's Contract with Digi

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Avnet Inc.’s (AVT) business unit, Avnet Electronics Marketing Americas, recently entered into a distribution contract with Digi International (DGII). This will introduce Digi’s wide range of machine-to-machine (M2M) services including ARM-based embedded wired and wireless units, wireless routers as well as gateways to Avnet’s distribution channel database catering to the needs of its comprehensive clientele. This agreement would also help Avnet’s customers to deploy Freescale technology based several embedded wireless processes.

Digi’s M2M technology is ideal for supervising various devices and it is especially utilized in the field of medical, security, energy, building automation and various other industries. In addition, its ConnectCore system-on-module (SoM) service is compatible with Freescale i.MX53 application and it is also highly network compatible and scalable. This module is mostly used in medical devices, security and surveillance tools, industrial applications and digital signage.

Avnet shall render various technical support solutions for upgrading Digi’s services. With the venture, Digi will be able to extend its coverage and efficiently address the need of more customers.

Management was happy regarding its decision to conflate with Digi International as it is considered as the market leader in providing M2M services. Digi International’s energy-efficient and integrated solutions are expected to provide easier and less costly solutions to the company’s customers.

The company’s continuous contract wins and strategic acquisitions are expected to boost its long-term potential. Recently the company reported revenues of $5.87 billion, down 8.7% year over year and nearly 7% sequentially in the first quarter of 2013. The year-over-year decline was caused by the company’s weak businesses, especially in the Western region.

Avnet’s domestic and foreign operations are subject to significant competitive pressures. It faces stiff competition from Arrow Electronics Inc. (ARW), which remains a fiercely formidable rival.

Arrow recently signed an agreement with GenCorp Inc.’s (GY) business unit Aerojet. With this venture, Arrow will be engaged in fulfilling the needs of Aerojet for electronic components. Hence, the company must excel in terms of product quality and innovation, customer service, technical and computing capabilities and price competitiveness.

The current Zacks Consensus Estimates for the second quarter of fiscal 2013 and for fiscal 2013 are 83 cents and $3.13, representing year-over-year growth of (27.7%) and (22.9%), respectively. The company currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. However, we are maintaining a long-term ‘Underperform’ recommendation on the stock.

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