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Q&A: Avnet's Rick Hamada and William Chu

Julia Talevski | June 27, 2013
Hamada and Chu talk about the distributor's plans for the year ahead and further growth in Asia-Pacific.

How is the company currently shaping up as you're coming to the end of your fourth quarter on June 30?
RH: Starting from the recession in '08 and '09, we had two strong fiscal years of '10 and '11 and fiscal '12 and '13 have been adjusting not only to coming off the sharp recovery, but we're also dealing with slower economic growth.

We're trying to adopt a philosophy around Avnet that uncertainty is the new norm, we just have to find a way to deal with it and if and when economic growth gets more exciting, that will be a positive for our business. But meanwhile we have to continue to work all the other levers at our disposal, what can we do to manage the mix of our business and steer more resources to higher margin, higher return areas along the way. What can we do to work on our productivity and efficiency, and what can we do to become more important to our existing suppliers and customers.

Lean on organic growth more in the future than what we have through acquisition. All those pieces of the formula are important to Avnet today to sustain an exciting growth profile for the company for the next leg of the journey.

What are some of the high growth margin areas you'll be looking at?
RH: Services jumps out, it's high gross and operating margins with great returns and not a lot of capital tied up. But it's a different way of doing business. We are a services business, but now we're looking at areas like software, lifecycle and education services. Where ever we can deploy the capital and get the appropriate return, we are interested, but we are bringing more attention to what's going on with our margin profile. Growth is not an issue for us, revenue growth is not a problem, but where can we deploy Avnet's value and get the appropriate returns overall?

The distribution industry overall is facing tighter margins, how are you planning to adapt or turn that around for Avnet?
RH: Overall market growth will ebb and flow, but if we look at what we can control is our acquisition strategy - what if we start adjusting our valuations on the margin profile of the acquired companies. For example maybe for higher-margin, we'll have a lower hurdle rate and lower margin businesses will have a higher-hurdle rate. When we look at organic growth opportunities, should we steer more resources into higher margin services arenas or should we steer more into logistics and operations strictly with fulfillment of commoditised product sets? It's a matter of managing all that and where to allocate resources. The other thing to keep in mind is that higher gross margin may not lead to higher operating, because it takes more investment to produce that as well. So you've got to watch margins at both levels, but generally it's better start with higher gross margin than lower.

 

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