Avnet (NASDAQ:AVT) is seeing a recovery develop unevenly across regions, with Asia leading and Europe and the Americas following at a slower pace, Chief Financial Officer Ken Jacobson said at the Raymond James conference. Jacobson described Avnet as a global, value-added distributor that connects semiconductor and electronic component manufacturers with customers that design and build electronics, emphasizing the company’s dual role in both “design chain” support and supply chain execution.
Two segments with different customer needs
Jacobson outlined Avnet’s two reporting segments: Electronic Components (EC) and Farnell.
- Electronic Components is a broad-line distribution business focused on high-volume customers already in production, typically working with procurement organizations. The segment is global, with Asia representing about 50% of the business last quarter, Europe about 30%, and the Americas about 20%.
- Farnell is a “high service” model oriented toward design engineers and R&D customers who need small quantities quickly, often overnight. Jacobson said Farnell carries a meaningfully higher margin profile, running closer to 30% gross margin versus roughly 10%–12% for the EC business.
Regional demand trends and improving visibility
Europe has lagged and only returned to growth in the last quarter, according to Jacobson. He said Europe is Avnet’s most profitable region by gross margin percentage and operating margin, and that the region is still more than 35% below peak revenue levels, though it posted about 1% year-over-year growth in the most recent quarter. The Americas was described as “somewhere in between,” with a couple quarters of growth but still more comparable to Europe than to Asia.
Across regions, Jacobson pointed to “robust” book-to-bill ratios and said backlog has been replenishing over the past four quarters. He added that Avnet has been encouraging customers to provide better visibility so that the company can pass improved demand signals to suppliers for semiconductor production planning.
He also described an increase in “mismatches” in recent quarters, with customers placing orders within stated lead times after working down excess inventories, while some suppliers are delivering outside those lead times. Jacobson said that dynamic can create supply-demand imbalance—helpful for Avnet if it has inventory available, but potentially challenging for customers trying to keep production lines running.
Pricing dynamics and margin framework
Asked about component price increases, Jacobson said that at the peak of the shortage environment Avnet saw broad-based increases multiple times per year. He gave an illustrative example that during a period of roughly 30% annual growth, about 25% of that growth (roughly 7.5 percentage points) could be attributed to pricing. In that scenario, he said price increases were typically passed through and did not necessarily increase gross margin percentage, though they did lift gross profit dollars and contributed to operating leverage.
Jacobson cautioned that current conditions are “not anywhere near” the prior shortage environment. He said pricing increases are being discussed in certain areas, citing memory as an example, and he also noted input cost pressures such as precious metals (including gold used in connectors) and tantalum in passives. However, he characterized current pricing moves as not broad-based and said the cycle appears to be in early innings.
On operating margin, Jacobson said Avnet’s goal of sustaining operating margins above 5% has not changed. He said the EC business’s “floor” in the current cycle is around 3%, compared with a low of about 1.5% in the prior cycle, and attributed the improvement to higher scale. He also said a recovery in the higher-margin Western regions would be an important contributor. Jacobson added that EC operating margin improved by roughly 30 basis points in the most recent quarter, and that the company’s guidance for the March quarter implied another 30 basis point improvement.
Farnell integration, digital investments, and value-added services
Jacobson said Avnet is working to bring Farnell “closer to” the core distribution business. He cited under-penetration of the EMS (electronics manufacturing services) customer base as one cross-selling opportunity, and also described Farnell as a source of early identification of potential high-volume customers given its “hundreds of thousands” of e-commerce customers. He said Avnet is focusing on improving e-commerce conversion through enhancements to functionality and digital capabilities.
On product mix, Jacobson said Farnell sells many of the same on-board components as the core EC business but tends to support far more SKUs within a supplier’s portfolio, positioning it to “seed” new product introductions. Farnell also sells categories that the core EC business does not, including single-board computers, test and measurement, and maintenance and repair products. He added that on-board component demand within Farnell has been depressed, largely because Farnell is concentrated in Europe and the Americas; as those markets recover, he expects tailwinds for Farnell’s gross margin from a higher mix of semiconductors and IP&E products.
Jacobson also highlighted value-added supply chain services—such as procurement, warehouse and logistics, buffer stock, and just-in-time delivery—as a growing opportunity, particularly for large OEMs with complex supply chains that lack warehouse or legal-entity footprints in certain regions. He described these services as higher gross margin but “not really a top-line mover.” He additionally discussed Avnet’s embedded board and solutions business in Europe, which he said can help customers reduce time-to-market and can carry higher margins because Avnet owns the design.
Tariffs, inventory, and capital allocation priorities
On trade and tariffs, Jacobson said disruptions can create opportunity for Avnet given its presence in more than 140 countries and ability to help customers pivot supply chains. He cited “China Plus One” shifts benefiting Southeast Asia (including Malaysia, Vietnam, and India) and increased nearshoring activity in Mexico, calling out Guadalajara as a key location for Avnet. He also noted Avnet’s Phoenix, Arizona distribution center operates as a free trade zone, which he said can help mitigate tariff impacts until the destination of products is determined. Still, he said tariffs ultimately must be passed through when applicable.
Jacobson provided context on tariff exposure, stating that in the Americas, less than 2% of revenues are from tariff billings, and globally it is less than 1%, characterizing it as “pretty insignificant” overall.
Regarding working capital, Jacobson said Avnet has been improving the composition of its inventory by reducing aged and excess items and investing in inventory that turns faster. Enterprise-wide, he said days of inventory fell below 90 days to about 86 days in the last quarter. He said the EC business should run under 70 days, and was below 80 days in the quarter, while Farnell’s model requires higher inventory—targeted around 200 days, with the most recent quarter in the “220s.”
On capital allocation, Jacobson said Avnet intends to return excess cash to shareholders and has grown its dividend every year since implementing it. He said the company has historically been aggressive with buybacks, but is currently focused on lowering leverage to the “three-ish range” from “just above four,” with the goal of returning to excess cash returns after that. He also said annual capital expenditures are generally sustainable in the $100 million to $150 million range.
In closing remarks, Jacobson said Avnet believes it is well positioned for a return to a growth cycle, citing the continued proliferation of electronics and growing content across applications such as robotics and drones, alongside a goal of returning margins to historical levels.
About Avnet (NASDAQ:AVT)
Avnet, Inc (NASDAQ: AVT) is a global technology distributor and solutions provider specializing in the sourcing, design, and supply chain management of electronic components and embedded systems. The company offers a broad portfolio of semiconductors, interconnect, passive and electromechanical components, as well as embedded hardware and software, cloud solutions, and Internet of Things (IoT) services. Avnet’s offerings aim to support customers through every stage of the product lifecycle, from initial prototype and design to production and end-of-life management.
Founded in 1921 by Charles Avnet, the company has evolved from a regional radio parts supplier into a multinational enterprise.
