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Tech distributors look forward to late 2009 bounce
Mon Jul 27, 2009 3:52pm EDT
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By Mansi Dutta and David Lawsky
SAN FRANCISCO (Reuters) - Electronics distributors from Ingram Micro to Avnet could report disappointing quarterly results as pricing pressure intensified, but analysts were cautiously hopeful that profits would rebound by year's end as corporate spending returns.
Avnet, Arrow Electronics Inc and Ingram Micro -- which help the likes of IBM and Hewlett-Packard sell products worldwide -- have struggled with economic uncertainty in Europe, price pressures in North America and a mixed picture in Asia.
But analysts say the trio, which distributes everything from personal computers to microchips, should benefit as corporate budgets loosen and consumer demand firms up along with an expected stabilization of the economy. Arrow and Avnet specialize in components and Ingram in computer hardware and softwar.ce.
Europe and its uncertain economic outlook, however, might prove to be pivotal, some analysts say. Sheerin cautioned that Ingram Micro, for instance, has heavy exposure to the region.
"As we look out into the second half, there continues to be optimism about a year-end budget flush," said Thomas Wiesel Partners analyst Matthew Sheerin.
But "there are signs that demand and sales trends continue to deteriorate."
Intel kicked off the tech earnings season this month with stellar results, fueling optimism that the tech sector was finally on the road to recovery.
Analysts say IT distributors' shares -- which often lag the overall sector but have rallied generally in line with the market -- may see further upward momentum.
From its 2009 nadir on March 9, the PHLX Semiconductor Index has gained 57 percent as of Friday's close. By comparison, Avnet has climbed 60.2 percent and Arrow 64.5 percent. Global sector leader Ingram Micro however has rallied 87 percent.
For now, analysts are advising "neutral" or "buy" on all of the stocks.
The electronics distribution industry is one step behind the semiconductor industry, which in turn is another step behind the industrial economy.
"They're lagging the upturn but I expect it to rebound in the December quarter and into the March quarter of 2010," said Brendan Furlong, an analyst with Miller Tabak.
WARY OF EUROPE
Arrow reports results on July 29, Ingram Micro on July 30 and Avnet Aug 5. But the June quarter is likely to disappoint.
Credit Suisse analyst William Stein said Arrow and Avnet were more likely to miss than beat consensus estimates. Others expressed similar concerns for Ingram Micro. Continued...
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