Avnet warning casts pall over enterprise tech

A leading tech distributor said its earnings will fall well short of expectations. Server sales appear to be soft for the likes of IBM, HP, Oracle, Cisco and a bevy of other leading players.

Avnet, a leading technology distributor, issued a profit warning, said sales would be light for the fiscal first quarter and noted that customers were delaying IT projects.


Although Avnet isn't a household name, its warning about the quarter rippled through enterprise tech. Why? Business tech giants such as IBM, NetApp, F5 and others are all Avnet customers.

Specifically, Avnet said its first quarter sales will be roughly $5.85 billion, down 9 percent from a year ago. First quarter sales for Avnet's electronics marketing and technology solutions units will be $3.65 billion and 2.2 billion, respectively. Earnings on a non-GAAP basis will also miss expectations and be between 52 cents a share and 58 cents a share.

Wall Street was expecting Avnet to report first quarter earnings of 72 cents a share on revenue of $6 billion.

Rick Hamada, CEO of Avnet, said in a statement:

The shortfall to our expectations was more acute at our technology solutions business, where we experienced a second consecutive quarter of weaker than expected transaction activity at the end of the quarter as customers delayed IT projects.

You don't need to look beyond Avnet's largest customers to know where the shrapnel will land. Avnet's top 10 customers include IBM, HP, NetApp, EMC, Oracle, VMware, F5 and Cisco. Riverbed is also a big customer. Typically, Avnet preps servers and storage gear and customizes them for shipments for these customers. Avnet's technology solutions unit covers enterprise, SMB and data center gear.

Avnet accounts for a big chunk of revenue at both F5 and NetApp.

Oppenheimer analyst Ittai Kidron said in a research note:

We believe most of the weakness in the technology solutions unit came from weak server sales rather than storage, although it's clear that the overall environment is still very challenged all around.


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