Avnet 2005 Annual Report Download - page 25

The acquisition of Memec, completed subsequent to the end of fiscal 2005, will contribute significantly to
the growth of EM's operations looking forward to fiscal 2006. Memec's calendar 2004 annual sales of
approximately $2.29 billion were dispersed regionally as follows: Americas Ì 44%; EMEA Ì 25%; and Asia
(including Japan) Ì 31%. Management does not expect any significant loss of sales in any regions as the
global operations of Memec are fully integrated into Avnet during fiscal 2006.
TS's sales in fiscal 2005 were a record $4.81 billion, up $456 million, or 10.5%, over fiscal 2004 sales of
$4.35 billion. The Americas region sales of $3.28 billion again accounted for the majority of TS's total sales.
The Americas region also accounted for the largest dollar increase in sales, year-over-year, with sales up
$325 million, or 11.0%, over fiscal 2004 sales of $2.95 billion for TS Americas. This is the second consecutive
year where TS Americas has grown sales by 11% or more, with the current year growth coming primarily from
increased microprocessor sales and growth in TS's enterprise computing business. TS EMEA posted sales of
$1.30 billion in fiscal 2005, up $56 million, or 4.4%, over fiscal 2004 sales of $1.25 billion. Similar to EM, the
TS operations in EMEA were more favorably impacted than the other regions by changes in foreign currency
exchange rates. After removing the foreign currency impact, TS EMEA sales in fiscal 2005 are estimated to
have declined by approximately 3% from fiscal 2004. This decline in constant dollars is a result of some
softness in EMEA in the Avnet Visual and Data Solutions business, although this softness is offset in part by
growth and a return to profitability for TS's enterprise computing division in EMEA. TS Asia sales of
$231 million represented the largest percentage increase for any region of TS, growing by $75 million, or
47.8%, over fiscal 2004 sales of $156 million. The growth in Asia is driven primarily by increased volume in
microprocessor sales.
As a result of the factors discussed above, TS grew as a percentage of Avnet's consolidated sales in fiscal
2005, constituting 43.4% of the Company's sales in fiscal 2005 as compared with 42.5% in fiscal 2004. The
regional dispersion of Avnet's consolidated sales has remained relatively consistent between fiscal 2005 and
fiscal 2004.
The Company's consolidated sales in fiscal 2004 were $10.24 billion, up $1.19 billion, or 13.2%, over
fiscal 2003 sales of $9.05 billion. This significant sales growth was primarily a result of an electronic
component and computer product industry that had emerged, in fiscal 2004, from the industry and economic
downturn that began in the Company's fiscal 2001. Additionally, approximately $410 million of this sales
growth was a function of the translation impact of changes in foreign currency exchange rates between fiscal
2003 and fiscal 2004. EM's sales of $5.89 billion in fiscal 2004 were up $904 million, or 18.1%, over EM's
fiscal 2003 sales of $4.99 billion, driven primarily by significant growth in the Asia region, foreign currency
exchange rate impacts and the emergence from the downturn in the more cyclical electronics components
sector as previously discussed. TS recorded sales of $4.35 billion in fiscal 2004, which was an increase of
$292 million, or 7.2%, over TS's fiscal 2003 sales of $4.06 billion. Approximately half of this growth was a
result of the translation impact of changes in foreign currency exchange rates. The remaining growth in fiscal
2004 was a function of increased sales of storage, software and networking products in fiscal 2004, offset in
part by the impacts, mostly in the EMEA region, of the Company's decision to exit certain low-profit, low
return-on-capital-employed business in the second half of fiscal 2003.
Gross Profit and Gross Profit Margins
Avnet's consolidated gross profit in fiscal 2005 was $1.46 billion, which represents a gross profit margin of
13.2%. Consolidated gross profit in fiscal 2004 was $1.36 billion and gross profit margin was 13.3%. The mix of
business between Avnet's two operating groups impacts the gross profit margin of the Company. The
computer product sales of TS typically yield lower gross profit margins, but also a lower capital investment,
than the electronic component sales of EM. As a result, the slight increase in percentage of consolidated sales
generated by TS in fiscal 2005 resulted in a downward impact on Avnet's consolidated gross profit margin.
Additionally, the softer demand in the electronics component market, particularly in the first half of fiscal
2005 during the mid-cycle inventory correction, also negatively impacted the Company's margins in the
current year. Management expects gross profit margins to be more stable in the near term with the increasing
demand in the electronic components industry emerging from the mid-cycle inventory correction. Further-
more, Memec is more of a design chain services-oriented business, which yields a slightly higher gross profit
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