Fitch Ratings Affirms Avnet's Ratings at 'BBB-'; Outlook Stable

Business Wire, May 27, 2008

NEW YORK -- Fitch Ratings has affirmed Avnet, Inc.'s (Avnet) ratings as follows:

--Issuer Default Rating (IDR) at 'BBB-';

--Senior unsecured bank credit facility at 'BBB-';

--Senior unsecured notes at 'BBB-'.

The Rating Outlook is Stable.

The ratings and Stable Outlook reflect the following considerations:

--Fitch expects Avnet to maintain leverage (total debt to total operating EBITDA) of 2.5 times (x) or below, or up to 3x on an adjusted basis. Current leverage is 1.5x which Fitch believes is likely to increase to historical levels (2.0x to 2.5x) in order to fund internal investments (working capital), future acquisitions or potential shareholder friendly actions.

--Fitch expects the company to maintain its recent operating metrics profile through the current challenging economic period with EBITDA margins near 5% and cash conversion cycle (CCC) days of approximately 60 with solid free cash flow generation. Fitch believes that the recent weakening in end-user demand in Europe as well as the issue of missed vendor rebates in Avnet's March 2008 quarter are temporary impacts on overall profitability.

--Fitch expects Avnet will continue its acquisition growth strategy targeting further geographic expansion enhanced product offering. Fitch expects the company will focus on an expanded presence in Europe and Asia-Pacific in addition to an increased offering of storage, software and other value added services for the ECS business.

--Despite slowing organic growth rates which averaged 1.6% in the latest twelve month (LTM) period ending March 2008 versus 5% in the year prior period (excludes foreign exchange gains and acquired revenue), Fitch believes that Avnet will continue to grow revenue between 1x and 2x world gross domestic product (GDP) over the next several years driven by solid end market demand as well as continued market share consolidation.

The ratings are supported by: i) the company's leading market positions in both component and enterprise computing distribution worldwide, ii) the ability to generate cash from operations with revenue growth rates up to 15%, given the current margin profile and CCC days, as well as achieve significant free cash flow in a downturn from reduced working capital; iii) a highly diversified customer base (greater than 100k customers) and well diversified supplier base with only IBM (14%) representing greater than 10% of revenue in fiscal year 2007 ([FY07] end June-2007); and iv) increasing end-market and geographic diversification driven by higher growth rates in the Asia-Pacific region and market share consolidation within the Technology Solutions (TS) business.

Ratings concerns include: i) the thin operating margins for the components distributors, which Fitch believes have limited upside in the intermediate future; ii) the significant investment levels required to increase share in the faster growing APAC region, including potentially debt-financed acquisitions; iii) integration risk associated with the company's acquisition growth strategy; iv) Avnet's exposure to the cyclical demand patterns and cash flows associated with the semiconductor market (approximately 60% of sales); and v) the potential for future debt financed share repurchase programs.

At March 31, 2008, total available liquidity was approximately $1.3 billion and consisted of: $380 million of cash and cash equivalents; $480 million available under a $500 million senior unsecured bank credit facility expiring October 2012; and a $450 million A/R securitization facility expiring August 2008 which was fully available. Fitch expects free cash flow to positively support liquidity going forward, averaging roughly $300 million annually in periods of normal organic growth.

Total debt as of March 31, 2008 was approximately $1.2 billion and consisted of: i) $250 million 6% senior notes due September 2015; ii) $300 million 6.625% senior notes due September 2016; iii) $300 September 2% convertible senior debentures due March 2034, but putable in March 2009; and iv) $300 million 5.875% senior notes due March 2014.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.