Avnet (AVT) Q2 2026: Asia Sales Surge 17%, Shifting Global Margin Dynamics

Summary

• Asia Mix Shift: Rapid Asia growth is lifting top-line but diluting group gross margins.
• Margin Expansion Focus: Operating leverage is accelerating in the Americas and EMEA as recovery gains traction.
• Pricing and Supply Chain Pressures: Spot price increases in memory and storage signal potential for broader inflation ahead.

Performance Analysis

Avnet posted $6.3 billion in quarterly sales, up 12% year-over-year and 7% sequentially, with Asia now representing more than half of total revenue for the first time. This regional momentum, especially in compute and aerospace and defense verticals, propelled record revenues in Asia and sequential growth across the Americas and EMEA. However, the surge in Asia’s lower-margin business diluted overall gross margin, which was flat year-over-year but climbed slightly from last quarter. Farnell, Avnet’s high-service distribution unit, posted 24% year-over-year sales growth, with margin improvement driven by early recovery in on-the-board components.

Operating income outpaced sales growth, particularly in the Americas and EMEA, where EC (electronic components) operating income grew more than twice as fast as sales. Inventory management was another highlight: Avnet reduced inventory dollars and days, with most high-demand memory and storage inventory already shipped in January. Cash flow from operations topped $200 million, supporting further deleveraging and capital returns through dividends.

• Asia Revenue Concentration: Asia accounted for over 50% of total sales, up from 48% last quarter, amplifying exposure to lower-margin but high-growth markets.
• Farnell Margin Recovery: Operating margin reached 4.7%, the highest since fiscal 2023, as product mix improved.
• Inventory Efficiency Gains: Inventory days reduced by seven sequentially, with EC inventory turns holding steady and Farnell’s high-service model continuing to require longer inventory cycles.

While regional mix pressures gross margin, the company’s ability to convert higher sales into operating leverage, especially in the West, is a key driver for future profitability. The focus now turns to sustaining margin gains as Western demand normalizes and Asia’s growth moderates.

Executive Commentary

Strategic Positioning

1. Asia-Led Growth and Margin Trade-Off

Asia’s outsized 17% YoY growth has propelled Avnet’s top line, but this region’s lower gross margins are diluting group profitability. Management is clear that Asia’s momentum is a double-edged sword, requiring careful balancing of growth ambitions with the need to protect margins as the regional mix shifts further East.

2. Western Region Operating Leverage

The Americas and EMEA remain Avnet’s margin engines, with sequential and YoY growth in both sales and operating income. As these regions recover from prior softness, their higher-margin business is driving operating leverage, a critical factor for future margin expansion. Management expects continued improvement as Western demand rebounds toward historical peaks.

3. Farnell’s Product Mix Evolution

Farnell, Avnet’s high-service distribution arm, is seeing margin recovery as sales of on-the-board components (higher-margin semiconductors and IP&E, interconnect passive and electromechanical) replace a higher mix of lower-margin test and measurement and single board computers. Management is pushing for 50 to 100 basis points of margin improvement per quarter as Europe, Farnell’s largest market, accelerates its recovery.

4. Supply Chain and Pricing Environment

Lead times are trending higher across most product categories, with spot price increases already visible in memory, storage, and select IPD (industrial power device) categories. Avnet is leveraging its supply chain expertise to manage mismatches between customer request dates and supplier deliveries, creating opportunities for value-added services and margin enhancement.

5. Inventory and Capital Allocation Discipline

Inventory optimization remains a core focus, with reductions in inventory dollars and days improving return on working capital. Cash flow generation is being deployed toward debt reduction, with a target to lower leverage to three times over the next year, while maintaining shareholder returns through dividends.

Key Considerations

This quarter’s results reflect a complex interplay between rapid Asia growth, Western margin leverage, and emerging supply chain pressures. Investors should weigh these dynamics as Avnet navigates a shifting global landscape.

Key Considerations:

• Asia Margin Dilution Risk: Sustained high growth in Asia could further compress group gross margins if not offset by Western recovery.
• Western Region Recovery Pace: Margin expansion depends on the speed and durability of demand normalization in the Americas and EMEA.
• Pricing Power and Inflation: Spot price increases in memory and storage categories may broaden, testing Avnet’s ability to pass on costs and protect margins.
• Inventory and Cash Flow Discipline: Continued efficiency in inventory management is critical to support capital allocation priorities and maintain financial flexibility.
• Customer Visibility and Backlog Quality: Improving customer order visibility is a positive, but remains below optimal levels, impacting supply chain planning and confidence in the recovery trajectory.

Risks

Margin risk is rising as Asia’s lower-margin business grows faster than the West, while spot price inflation in key categories could further squeeze profitability if not managed. Customer order visibility remains suboptimal, exposing Avnet to potential demand volatility and supply chain mismatches. Execution risk is elevated as regional recoveries remain uneven and inventory discipline must be maintained in a tightening supply environment.

Forward Outlook

For Q3 2026, Avnet guided to:

• Sales of $6.2 billion to $6.5 billion
• Diluted EPS of $1.20 to $1.30

For full-year 2026, management did not provide formal guidance but highlighted:

• Expectations for continued margin expansion as Western regions recover
• Ongoing inventory reduction and leverage improvement

Management emphasized a positive regional mix shift in Q3, with the West expected to rebound and Asia’s seasonal decline less pronounced than usual. Operating margin expansion is anticipated even as gross margin remains pressured by mix.

Takeaways

Investors should focus on the interplay between rapid Asia growth and Western margin recovery, as this dynamic will shape Avnet’s path to sustainable profitability.

• Asia’s Growth Is a Double-Edged Sword: While driving top-line gains, it challenges margin structure and increases reliance on volatile, lower-margin geographies.
• Margin Expansion Hinges on Western Recovery: Americas and EMEA must sustain their rebound to offset Asia’s margin dilution and deliver operating leverage.
• Watch for Broader Pricing Pressures: Early spot inflation in memory and storage could spread, testing Avnet’s pricing power and customer relationships in coming quarters.

Conclusion

Avnet’s Q2 showcased strong top-line growth and improving operating leverage, but the accelerating Asia mix is compressing margins and raising execution risk. The next phase of recovery will depend on Western region demand, disciplined inventory management, and the company’s ability to navigate emerging supply chain and pricing challenges.

Industry Read-Through

Avnet’s results signal that global electronics distribution is entering a new phase of regional rebalancing, with Asia’s resurgence reshaping profitability profiles across the sector. Rising lead times and spot pricing in memory and storage point to tightening supply chain conditions that could affect OEMs, contract manufacturers, and component suppliers alike. Distributors with strong supply chain capabilities and Western margin leverage will be best positioned, but must manage the risk of margin compression as Asia’s share grows. Sector peers should monitor inventory discipline and customer order visibility as key indicators of sustainable recovery in 2026.

AVT Technology Electronics Distribution Supply Chain Asia Gross Margin Inventory Pricing