Avnet Inc. History

Address:

80 Cutter Mill Rd.
Great Neck, New York 11021
U.S.A.

Telephone: (516) 466-7000
Fax: (516) 466-1203

Public Company
Incorporated: 1955 as Avnet Electronics Supply Co., Inc.
Employees: 7,100
Sales: $2.24 billion
Stock Exchanges: New York
SICs: 5065 Electronic Parts and Equipment, Nec; 3674 Semiconductors and Related Devices

Company History:

Avnet Inc. is the largest distributor in North America of electronic components and computer products for industrial and military customers. The company consists of three major product groups: Electronic Marketing, Video Communications, and Electrical and Industrial. The Electronic Marketing Group handles assembly, processing, and marketing of electronic and electromechanical components and computer products for industrial and military clients. This group accounts for about 85 percent of Avnet's sales, with more than half the group's sales generated by its Hamilton Hallmark division. Avnet Computer Group accounts for about 15 percent of group sales. The Video Communications Group handles assembly and marketing of television signal processing and audio equipment, including home satellite antennas. The Electrical and Industrial Group distributes electrical insulation, magnet wire, electrical equipment, seals, electrical motors and parts, and industrial maintenance products. Its Freeman Products company manufactures and sells trophy components, engraving supplies, plastic injection moldings, and zinc diecastings.

Avnet, like other electronics distributors, buys components in volume from suppliers and stocks and resells them to original equipment manufacturers (OEMs). The distributors operate as a sales force for the suppliers, reaching OEMs the suppliers cannot reach cost-effectively. Although nearly 1,100 electronics distributors operate in the United States, the five largest account for more than half of the total distribution volume.

Avnet's predecessor was a small distributor of radio replacement parts founded by Charles Avnet in 1921 in lower Manhattan. Avnet and other entrepreneurs set up small parts jobbing operations in the basements or back rooms of their parts stores on Courllandt Street in New York to sell ham radio parts to ships and hobbyists in the early days of radio broadcasting, before commercial, battery-powered radios were available. "Radio rows" sprang up in New York and other major cities, and Avnet and the other dealers sold parts and made repairs, first on ham radios, and then as manufacturing developed, on commercial sets. As radio manufacturing grew, parts distribution also took off. During the 1930s, Avnet's company also manufactured automobile antennas and car radio kits.

When World War II started, radio parts became important to the war effort. Since production of home radio sets was prohibited, radio shop owners began selling parts to government and defense contractors instead of consumers. During this time, Charles Avnet and his son Lester established Avnet Electronic Supply Co.

After the war, the company concentrated on buying and selling surplus electronic and electrical parts. A significant contract with Bendix Aviation Corporation helped Avnet's sales soar, and the company opened a second warehouse in Los Angeles, soon becoming an authorized jobber and assembler of electrical connectors for Bendix. In 1955, the company incorporated as Avnet Electronics Supply Co., Inc., and by the end of the year Avnet had sales of $1 million and a net loss of $17,000. In 1958, the company became Avnet Electronics Corp.

At the same time, other companies that would become key elements in Avnet's development were being launched; some of their founders would go on to become top executives at Avnet. In 1948, Leon Machiz and partner Seymour Schweber invested $3,000 each to start Life Electronics Sales, which sold surplus connectors. The company prospered, but eventually the two split up, and Machiz founded Time Electronics. With the start of the space program in the late 1950s, Avnet, Time Electronics, and the other electronic distributors thrived.

Anthony Hamilton, a buyer for Lear, Inc., went into business for himself in 1957 as a GE-franchised distributor of tantalum capacitors. Sales for Hamilton Electro Sales reached over $1 million in the first year and more than doubled the next year. In Texas, a Westinghouse manager, Jack Turpin, opened Hall-Mark, which first became a Motorola franchise. Many other distribution companies also opened all over the country.

In 1960, Avnet made its first acquisition, British Industries Corporation, and gained a listing on the New York Stock Exchange. That year, Avnet had sales of more than $4 million and net income of $1 million. Avent's acquisitions during this time included Hamilton Electro Corporation in 1962, Fairmount Motor Products Co, Inc. in 1963, and Valley Forge Products, Inc. in 1964. Under the agreement between Avnet and Hamilton, the companies remained autonomous; Hamilton bolstered Avnet's strong connector business with semiconductor technology and, in turn, Hamilton expanded its program nationwide.

In 1964, Avnet Electronics became Avnet, Inc. to reflect its diversification into other areas, including audio turntables and electric motors. Upon the death of Charles Avnet that year, Lester became the company's president and chairperson. Other executive roles were filled by Simon Sheib, who became an Avnet director and the treasurer of British Industries Corp., Avnet's first acquisition. Anthony Hamilton, the president of Hamilton Electro, was made an Avnet director and company vice-president. Net sales in 1964 reached $57.5 million with earnings of $3 million.

The 1960s continued to be a period of acquisition, and Avnet purchased Guarantee Generator & Armature Co. in 1965, Channel Master Corporation in 1967, and Brownell Inc., Carol Wire and Cable Corporation, and Machiz's Time Electronic Sales in 1968. Regarding the Time Electronic acquisition, some claimed a conflict of interest, as Time Electronic was a distributor for Cannon, while Avnet distributed for rival Bendix. To accommodate the two rival suppliers, Machiz and Avnet kept their two companies separate and independent.

By the end of the 1960s, Avnet was among the top three electronics distributors in the nation with diversified interests in five areas: electronic marketing, consumer products, wire and cable, automotive, and electrical and engineering.

Lester Avnet died in 1970 and was succeeded by Simon Sheib as chair and chief executive officer. With the country in a recession, 1970 was a tough year for Avnet. The company also struggled to absorb the many acquisitions of the previous decade, and net earnings dropped. Avnet arranged new financing, cut overhead, and eliminated dividends for a year. Sheib and Hamilton also combined Avnet Electronics with Hamilton Electro to form Hamilton/Avnet, which along with Time Electronics, became Avnet's Electronic Marketing Group, headed by Anthony Hamilton. Under Hamilton's leadership, the Electronic Marketing Group became the first nationwide electronic components distributor and the first to distribute semiconductors, integrated circuits, and microprocessors.

In 1971, after two years of declining earnings, Avnet experienced an increase in earnings. This turnaround was accomplished in part by eliminating the profit drain caused by Channel Master's OEM color picture tube business. While consumer products had been the leading segment of Avnet's business for decades, in the early 1970s, the Electronic Marketing segment came on strong, and by 1973 it accounted for the highest sales in the company. Company officials attributed this in part to the consolidation of the Hamilton Electro and Avnet Electronics divisions. Earnings for the year were $21.7 million. During this period, Intel Corp., a new company that had brought out the first microprocessor, signed Hamilton/Avnet as a distributor, thus providing the opportunity for Avnet to become involved in the computer business.

Avnet's sales soared, reaching $225 million in 1974. The next year, however, recession and backlogs brought huge sales and earnings declines in the entire industry. Most distributors, including Avnet, were overstocked, as suppliers met monthly quotas by shipping to distributors. Most severely affected by recession at Avnet were its two leading groups--consumer products and electronic marketing.

During 1975, however, not only did the company recover, but it showed record earnings of more than $35 million. That year, Hamilton/Avnet and supplier Intel entered the hi-tech systems market, and Avnet was soon also selling computer peripherals and then complete systems and software. In 1979, Avnet hit the $1 billion mark in sales and had profits of $54 million, with the Electronic Marketing Group accounting for almost $30 million of those earnings. In 1980, Hamilton became chair and CEO of Avnet when Sheib died. The following year, Avnet acquired peripherals distributor Loonam Associates and a 50 percent share of Computer SuperStores. Two years later, Avnet was generating sales of $1 million a day in computer-related products.

However, in the early 1980s the country was once again experiencing economic recession, and earnings for the Electronic Marketing Group declined. In 1982, Avnet sold its wire and cable businesses. Nevertheless, confident that its new computer lines would prove profitable, the company purchased Sertech and FMI in the custom chip and microcircuitry businesses and set up Avnet Development Labs to develop satellite and cable TV equipment.

During the 1980s, CEO Hamilton, known as a superb salesperson, helped Avnet become the leading industrial distributor in the United States because of his innovative approach to the industry. Hamilton led Avnet until he died of cancer in 1988 at the age of 64, and he was succeeded by Machiz.

The early years of Machiz's term were challenging. The industry was caught in another nationwide recession, which called for new strategies. Like other major distributors, Avnet substantially reduced its inventories to save money. Through centralization of inventories eliminating redundant facilities and personel, it cut inventory costs from $567 million in September 1988 to only $457 million two years later. It continued to cut inventory in 1991 by another $20 million to $30 million.

Machiz also made plans to further cut operating costs by centralizing operations--setting up hub locations and shifting personnel from branch office operations to field sales support positions. Although Hamilton/Avnet had split its organization into computer systems and electronics in 1988, Machiz conceded the next year that the restructuring was not well timed and had proved more costly than expected. By 1993, however, Avnet had streamlined its distribution system from about 100 storage facilities to three mega-warehouses in order to serve its more than 130,000 customers. Inventory in those facilities was computer controlled, as was purchasing.

Avnet also announced plans to merge its Avnet Computer Technologies Inc. and Hamilton/Avnet Computer divisions, closing about 20 branches and laying off management and support personnel. The decision was triggered by sluggish demand for systems and vendors' unhappiness with their product lines being split between two operations.

With customers reducing the number of suppliers they dealt with, product quality and service became a major concern in the industry. In 1989, Avnet instituted quality programs to improve customer service and boost profits. Improved service was expected to cut down on returns and the higher operating costs incurred when mistakes were made.

By 1992, the ten largest distributors in the country controlled 71 percent of the market, up from 58 percent in 1980. Avnet had endured several years of disappointing financial performance but came back in 1992 with $1.76 billion in sales. That performance accounted for an 18 percent share of the U.S. electronic components distribution market. Sales by its Electronic Marketing Group accounted for 80 percent of Avnet's earnings and revenues.

In 1993, Avnet acquired Hall-Mark Electronics Corporation, a rival distributor, for more than $344.6 million. Hall-Mark was the third largest distributor in the country--behind Avnet and Arrow Electronics Inc.--and, through its Allied Electronics division, was among the largest catalog distributors of electronic components in the United States. Avnet predicted that combined sales of Avnet and Hall-Mark would top $3 billion in 1993. With this acquisition, Hamilton/Avnet, the largest member of Avnet's electronic marketing group, and the largest Avnet subsidiary, combined with comparable operations at Hall-Mark to form Hamilton Hallmark. Hall-Mark Computer Products was to operate as a subsidiary in the Avnet computer group, while continuing to function as a separate unit. With the addition of Hall-Mark Computer Products, Avnet's computer group gained new franchises, including Hewlett-Packard; Avnet already had franchises for Digital Equipment, Intel, NCR, Seagate, and Okidata.

Machiz considered the merger an important strategic move because manufacturers now expected higher levels of technical sales support along with a full array of value-added services. The special skills and technology needed to fill the manufacturers' requirements were only available to the best capitalized companies, according to Machiz. So the Hall-Mark acquisition gave Avnet the opportunity to strengthen its position in the marketplace, increase its customer base, and improve penetration of key markets in the United States and Mexico. The acquisition also made Avnet the only U.S. distributor to carry all of the top five American semiconductor lines.

The electronics components industry in the United States was enjoying a healthy expansion period that industry experts expected to last at least until the end of the century; large distributors were expected to benefit the most. Furthermore, Avnet was divesting itself of unsuccessful product lines and reducing its cost structure, making its future even more promising.

Avnet's Time Electronics business, which distributed connectors to military/aerospace and industrial original equipment manufacturers, was hurt by cuts in military spending in the early 1990s. To offset those losses, Time focused more of its energies on commercial distribution with good results.

During this time, many suppliers and customers wanted Avnet to have a stronger European presence, and during an 18-month period in the early 1990s, Avnet acquired three European distributors: F.H. Tec Composants of France, Nortec AB of Scandinavia, and Access Group, a British semiconductor distributor. In early 1993, Avnet acquired Electronic 2000 AG, which did business in Germany, Austria, and Switzerland, and announced its intention to acquire Adelsy, an Italian electronic components distributor. Although 90 percent of Avnet's 1992 revenues came from domestic sales, Machiz restated his commitment to global expansion, anticipating that the bulk of the company's growth through the end of the century would come from international trade. Because distribution in Europe was not nearly as centralized as in the United States, Machiz saw great opportunity to improve service and cut costs of overseas operations. He predicted that Avnet would reach $1 billion in international sales by the end of the century.

Principal Subsidiaries: Hamilton Hallmark; Avnet Computer Group; Time Electronics Inc.; Allied Electronics Inc.; Avnet E2000 (Germany); Avnet Access (UK); Avnet Composants (France); Avnet Nortec (Scandinavia); Avnet Adelso (Italy); Channel Master (U.S. and U.K.); Brownell Electro; Mechanics Choice.

Avnet Inc. History

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