Last week, leading semiconductor firm Avnet published the results of its 2019 fiscal fourth-quarter 2019. As CEO Bill Amelio noted on an investor call, the corporation underperformed year-on-year due to “macroeconomic headwinds and tariffs.”
The firm generated sales of $4.7 billion in the quarter, which ended on June 29. This reflects a 7.5 percent decline from the same period in 2018. However, the corporation did outperform market analyst expectations, which forecasted revenues of $4.54 billion in FQ4 2019. Amelio went on to make a convincing argument that the conglomerate’s revenues will improve next year.
The Bad News
Following Avnet’s financial disclosures, the corporation’s stock declined by 3.8 percent. The company offered guidance that its quarterly income would be down, but Wall Street still reacted negatively to the continued, industry-wide stagnation. That said, Avnet did post worse financial results than some of its competitors.
In FQ4 2018, Avnet generated $58.6 million in net income. However, in FQ4 2019, the corporation reported a net loss of $31.8 million. The staggering 184 percent decline is due to two factors.
For one, the global electronics manufacturing sector began hoarding semiconductors to stave off the effects of predicted raw material shortages last year. As a result, many of the tech industry’s leading companies have excess quantities of chips on hand and don’t need to buy more. Those stockpiles leave firms like Avnet with decreased sales numbers and no option but to sell components at cut-rate prices.
Secondly, the U.S.-China trade war has eaten into the entire semiconductor industry’s profit margin. As the two global superpowers have exchanged tariffs, companies that source components from China have paid the price. Despite positive discussions earlier in the year, governments from both nations have recently increased trade tensions.
The Good News
Though Avnet’s FQ4 2019 revealed declining revenue and plunging income, the company did offer reasonable hope for the future. The firm built its optimistic outlook around the high expectations it has for its Premier Farnell subsidiary.
The British component manufacturer is currently building a distribution warehouse in Leeds, which will open in November. Its parent company forecasts that the new facility will help decrease its operating costs by $20 million. Moreover, as 70 percent of Farnell’s sales come from online orders, the new depot will allow it to stock more products and process more orders.
Farnell is also the largest licensed distributor of the Raspberry Pi computer system. Accordingly, Avnet predicts that the firm will post healthy financial numbers next quarter as they will reflect the release of the Raspberry Pi 4 Model B. Launched in late June, the Pi 4’s 1.5 GHz processor, 4K outputs, and 4GB RAM won widespread praise and should result in strong sales.
With Farnell driving its sales, Avnet has the potential to revive its fortunes in 2020. After all, the firm has rewarded its investors’ faith after rocky periods before. The company posted a net loss of $156.4 million in the fiscal year 2018. However, it rebounded and produced $176.3 million in net income for FY2019.