Avnet’s Q2 revenues were driven by strong demand in compute and aerospace and defence, says CEO Phil Gallagher.
“Sales increased sequentially in most of the verticals we serve, year-over-year, we also saw a broad-based improvement across most verticals,” he commented.
Turning to today’s market, Gallagher added: “Demand signals continue to reset globally, resulting in lead times trending higher across most product categories. This trend is still largely driven by the data centre and artificial intelligence, but is also broadening as projected growth rates of all segments we track continue to improve. We are also seeing an increasing number of customers’ orders being placed within lead times, along with higher instances of deliveries beyond lead times.
“These factors are driving a mismatch, if you will, between customer request dates and supplier delivery dates. This creates opportunity for us to deliver our supply chain value to our customers by addressing those misalignments. The pricing environment remained stable during the quarter, but we have seen spot price increases with a few suppliers and commodities. The supply dynamics suggest there may be upward pricing pressure across many technologies going forward. We exited the quarter with robust book-to-bills in every region, led by Asia and EMEA.”
Gallagher explained that as momentum builds, Avnet is coordinating closely with customers to effectively validate and manage its backlog, while continuing to encourage customers to provide us extended visibility that we can share with our supplier partners.
“The more visibility we can give to our supplier partners, the more supply chain expertise we can bring to bear to solve for the complexities in the market.”
Gallagher was encouraged by Avnet’s performance in the EMEA region. “We’re seeing clear signs of recovery, with sales growing both sequentially and year-on-year,” he revealed. “Most end markets showed year-on-year growth, including industrial, while compute, consumer, and transportation were the strongest end markets quarter-over-quarter. We are encouraged with the improving outlook in the region, especially given the continued market uncertainty. I’m confident that EMEA’s new leader, Gilles Beltran, will continue to drive profitable growth in the region.
“We are also pleased with the growth in our IP&E business, which had double-digit growth year-on-year. As a reminder, IP&E products carry higher gross margins, and there are many cross-selling opportunities with IP&E components that are complementary to our semiconductor business, including for our demand creation efforts.”
Turning to Farnell, Gallagher pointed to sales growing sequentially and year-on-year. “Farnell’s continued improvement reflects recovery across all three regions. We believe this is a sign engineers are working on developing new products, which we view as another indicator of the upturn in demand for electronic components. Operating margins improved sequentially in line with our expectations. We also continue to gain traction growing Farnell sales of single-board components through our Power of One initiatives, which leverages the best of Avnet Core and Farnell digital platforms.
“Although we are seeing improvement in sales of higher-margin on-board components, Farnell continues to have a higher relative sales mix of test and measurement, maintenance and repair, and single-board computers. As the recovery of demand for the on-board components continues, especially in Europe, we expect Farnell’s gross and operating margins to continue to improve.”
Looking ahead into 2026, Gallagher commented: “From an operating expense standpoint, we believe we are well positioned for future growth. Our model will create operating leverage over the next couple of years as we return to growth across the world. We’re also well positioned with inventory but continue to drive down areas of excess while we invest in areas of need. To conclude, we are pleased with the momentum we’re seeing moving into the new calendar year. For those of you who attended CES this year, there was a lot of excitement at the show. We had the opportunity to meet with leadership of many of our supplier partners and customers, and we continue to be encouraged that 2026 will be a year of growth and margin expansion and improved returns for Avnet.”
