Avnet (AVT) Q1 2026: Asia Sales Jump 10% as Inventory Strategy Shifts with Demand Recovery
Avnet’s Q1 marked a clear inflection as Asia led a 5% sales rebound and inventory discipline sharpened, signaling early recovery across key verticals. The company’s execution in balancing inventory against strengthening demand, particularly in transportation and AI-adjacent markets, positions it to capitalize on an evolving supply chain landscape. Investors should watch for margin stabilization and further working capital normalization as management leans into growth without sacrificing discipline.
Summary
- Asia-Led Recovery: Regional growth and improved book-to-bill ratios signal demand stabilization.
- Inventory Discipline: Inventory quality and days improved despite targeted increases for growth.
- Margin Watch: Gross margin pressure persists, but mix and cost control could drive upside as recovery unfolds.
Performance Analysis
Avnet delivered a sequential and year-over-year sales increase, with total revenue rising 5% to $5.9 billion, surpassing guidance. Asia was the standout region, posting 10% growth year-over-year and now accounting for nearly half of company sales, a shift that reflects both demand recovery and Avnet’s evolving geographic mix. The Americas returned to year-over-year growth for the first time since fiscal 2023, while EMEA was flat but improved seasonally.
Gross margin contracted to 10.4%, down 42 basis points YoY, driven mainly by regional and product mix shifts—most notably the higher proportion of lower-margin Asia business and EMEA softness. Farnell, Avnet’s digital and specialty distribution arm, posted a 50% YoY sales jump and improved gross margins, aided by a stronger mix of on-board components. Operating expenses rose with sales but remained controlled, and inventory days improved by three days sequentially, reflecting better working capital management even as absolute inventory increased to support growth regions.
- Asia Drives Growth: The region’s sales now represent 49% of the total, up from 47% a year ago.
- Farnell Margin Upside: Product mix shift toward on-board components lifted margins despite lower-margin sales categories.
- Inventory Quality Holds: Days of inventory improved, and management stressed ongoing focus on inventory quality and aging.
The quarter’s results highlight Avnet’s ability to flex supply chain resources and working capital in response to shifting demand, while maintaining a disciplined approach to expenses and capital allocation.
Executive Commentary
"We are encouraged by the increasing number of positive signs in our business. We feel good about the recovery in Asia-Pac and progress in the Americas. Conditions in EMEA are stabilizing and modestly improving, while geopolitical and market uncertainties remain, we believe our strong supply line card and diverse customer base and the strength of the end markets they serve position as well as the market recovers."
Phil Gallagher, CEO
"Our team continues to execute well against the areas we can control, and we still have opportunities for improvement. Given today's rapidly changing market conditions, our team continues to demonstrate the value we bring to our customers and suppliers. We remain confident our approach through this market downturn will benefit our stakeholders in the long term."
Ken Jacobson, CFO
Strategic Positioning
1. Asia as Growth Engine
Asia’s contribution to sales has surpassed 49%, reflecting both end-market recovery and Avnet’s strategic focus on high-volume, fast-turn supply chain services in the region. The company’s exposure to hyperscalers, hyperscaler, large-scale cloud service providers, is growing (about 7% of Asia sales), especially in AI-adjacent verticals such as memory, storage, and interconnects, which are seeing extended lead times and price increases.
2. Inventory as a Competitive Lever
Inventory management is shifting from defensive to opportunistic, with targeted increases to support supply chain engagements in growth markets, particularly in Asia and the Americas. Management stressed that inventory quality and aging remain healthy, and signaled a path to reducing inventory days into the 80s over the next few quarters as sales grow and excess is worked down.
3. Margin Dynamics and Mix Shift
Gross margin pressure is a byproduct of regional and product mix, with Asia’s lower-margin profile weighing on consolidated results. However, Farnell’s margin expansion from improved mix in on-board components and the high-margin IP&E, IP&E, interconnect, passive and electromechanical products, business in Asia offer levers for future improvement. Demand creation, demand creation, design-led component sales, now represents 15–20% of components revenue and carries a 300–400 basis point incremental margin, though with higher associated costs.
4. Capital Allocation and Return Discipline
Share repurchases and dividend growth remain central, with 3% of shares repurchased this quarter and a 6% dividend increase, extending a decade-long track record of dividend growth. Management reiterated a focus on reducing leverage from 4.0x to 3.0x in the coming year, balancing growth investment with balance sheet strength.
5. End Market and Technology Tailwinds
Transportation, compute, and communications verticals are rebounding, with AI and data center build-outs driving demand for select component categories. Management highlighted that downstream supply opportunities in edge applications (e.g., smart agriculture, wearables) will be a “sweet spot” for Avnet as AI infrastructure matures.
Key Considerations
Avnet’s Q1 2026 results underscore a company in transition, leveraging operational flexibility to capture early-cycle demand while maintaining expense and capital discipline. The following considerations frame the investment thesis:
Key Considerations:
- Geographic Mix Shift: Asia’s rising share boosts volume but compresses margin, requiring ongoing mix management to protect profitability.
- Margin Leverage Potential: Recovery in the Americas and higher-margin businesses like IP&E and demand creation could drive incremental margin as the cycle turns.
- Inventory as Strategic Asset: Inventory build supports growth but must be balanced with working capital discipline as recovery solidifies.
- Capital Allocation Consistency: Share buybacks and dividends are sustained, but leverage reduction remains a near-term priority.
- End Market Tailwinds: Data center and AI-related demand are small but growing contributors, with potential for downstream expansion as edge applications proliferate.
Risks
Margin pressure from geographic and product mix could persist if Asia outpaces higher-margin regions. Inventory risk remains elevated if demand recovery stalls or supply chain disruptions re-emerge. Macroeconomic and geopolitical volatility, particularly in EMEA and Asia, may impact end-market recovery and customer order patterns. Management’s ability to balance growth with working capital efficiency will be critical to sustaining shareholder returns.
Forward Outlook
For Q2 2026, Avnet guided to:
- Sales of $5.85 billion to $6.15 billion
- Diluted EPS of $0.90 to $1.00
For full-year 2026, management maintained a cautious but constructive stance, emphasizing:
- Sequential sales growth in the Americas and Asia, with Europe expected to remain flat
- Stable to improving gross margin as mix shifts and seasonality play out
Management highlighted that book-to-bill ratios are above parity in all regions, backlog is growing, and inventory days are expected to fall into the 80s over the next quarter, supporting a gradual recovery narrative.
Takeaways
Avnet’s Q1 2026 results reflect a company navigating the early stages of a demand recovery, with Asia and specialty businesses leading the way. Inventory management and margin mix will dictate the pace and quality of earnings growth as the cycle turns.
- Asia and Specialty Mix: Growth in Asia and Farnell’s higher-margin products present both opportunity and challenge for overall profitability.
- Margin and Working Capital Focus: Investors should watch for signs of gross margin stabilization and further progress in inventory days as demand solidifies.
- AI and Edge Opportunity: Small but rising exposure to AI and edge applications could provide incremental upside as technology cycles mature.
Conclusion
Avnet’s disciplined execution in a shifting demand environment, with a clear focus on geographic and product mix, sets the stage for incremental margin recovery and capital return as the cycle strengthens. Inventory and working capital discipline remain central to the investment case as management balances growth and profitability.
Industry Read-Through
Avnet’s results offer an early signal that global component distribution is stabilizing, with Asia leading the recovery and specialty categories like IP&E and demand creation gaining traction. Supply chain normalization and selective pricing power in memory and interconnects suggest that distributors with flexible inventory strategies and strong supplier relationships will be best positioned as demand recovers. Rising AI and edge application exposure is a shared theme across the electronics supply chain, with downstream opportunities likely to benefit distributors and component makers as infrastructure investment continues.