Avnet 2008 Annual Report Download - page 12

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Table of Contents
IBM products and services to continue to account for over 10% of the Company’s consolidated sales in fiscal year
2009. The Company’s contracts with its suppliers, including those with IBM, vary in duration and are generally
terminable by either party at will upon notice. To the extent IBM or a group of other primary suppliers is not willing
to do business with the Company in the future, the Company’
s business and relationships with its customers could be
materially and adversely affected because its customers depend on the Company’s distribution of electronic
components and computer products from the industry’s leading suppliers. In addition, to the extent that any of the
Company’s key suppliers modifies the terms of their contracts including, without limitation, the terms regarding
price protection, rights of return, rebates or other terms that protect the Company’s gross margins, it could materially
and adversely affect the Company’s results of operations, financial condition or liquidity.
Declines in the value of the Company’s inventory or unexpected order cancellations by the Company’s
customers could materially, adversely affect its business, results of operations, financial condition or liquidity.
The electronic components and computer products industries are subject to rapid technological change, new and
enhanced products and evolving industry standards, which can contribute to a decline in value or obsolescence of
inventory. During an industry and/or economic downturn, it is possible that prices will decline due to an oversupply
of products and, as a result of the price declines, there may be greater risk of declines in inventory value. Although it
is the policy of many of the Company’s suppliers to offer distributors like Avnet certain protections from the loss in
value of inventory (such as price protection, limited rights of return and rebates), the Company cannot be assured that
such return policies and rebates will fully compensate us for the loss in value, or that the vendors will choose to, or
be able to, honor such agreements, some of which are not documented and therefore subject to the discretion of the
vendor. In addition, the Company’s sales are typically made pursuant to individual purchase orders, and the
Company generally does not have long-term supply arrangements with its customers. Generally, the Company’s
customers may cancel orders 30 days prior to shipment with minimal penalties. The Company cannot be assured that
unforeseen new product developments, declines in the value of the Company’s inventory or unforeseen order
cancellations by its customers will not materially and adversely affect the Company’s business, results of operations,
financial condition or liquidity, or that the Company will successfully manage its existing and future inventories.
Substantial defaults by the Company’s customers on its accounts receivable or the loss of significant customers
could have a significant negative impact on the Company’s business, results of operations, financial condition
or liquidity.
A significant portion of the Company’s working capital consists of accounts receivable from customers. If
customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable
to pay for products and services, or were to become unwilling or unable to make payments in a timely manner, the
Company’s business, results of operations, financial condition or liquidity could be adversely affected. An economic
or industry downturn could adversely and materially affect the servicing of these accounts receivable, which could
result in longer payment cycles, increased collection costs and defaults in excess of management’s expectations. A
significant deterioration in the Company’s ability to collect on accounts receivable could also impact the cost or
availability of financing under its accounts receivable securitization program (see Financing Transactions appearing
in Item 7 of this Report).
The electronics component and computer industries are highly competitive and if the Company cannot
effectively compete, its revenues may decline.
The market for the Company’s products and services is very competitive and subject to rapid technological
advances. Not only does the Company compete with other global distributors, it also competes for customers with
regional distributors and some of the Company’s own suppliers. The Company’s failure to maintain and enhance its
competitive position could adversely affect its business and prospects. Furthermore, the Company’s efforts to
compete in the marketplace could cause deterioration of gross profit margins and, thus, overall profitability.
The sizes of the Company’s competitors vary across market sectors, as do the resources the Company has
allocated to the sectors in which it does business. Therefore, some of the competitors may have greater financial,
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