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Avnet Buys Majority Stake in Hackster for Undisclosed Amount

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Avnet Inc. (AVT - Free Report) recently announced the buyout of a majority stake in California-based Hackster Inc. However, the financial terms of the deal were kept under the wraps. The recent stake buyout is the first one of the two-part transaction under which Avnet will acquire the rest of the stake in Jan 2017.

Founded by Ben Larralde and Adam Benzion, Hackster is an online community that helps users worldwide to learn how to design, create and program Internet-connected hardware. Hackster, as per Avnet, “engages with nearly 90 technology partners, and maintains 100 Hackster Live ambassadors that support a network consisting of close to 200,000 engineers, makers and hobbyists.”

Avnet intends to combine Hackster’s services with its recently launched MakerSource resource directory. The company believes that the combination along with the acquisition of Premier Farnell’s element 14 community will enable start-ups to bring new and creative ideas to the market. This will also help them in finding resources to support their ideas.

We believe that the acquisition will not only increase Avnet’s revenue base but also strengthen the Electronics Marketing division’s offerings.

Going ahead, in our opinion, the buyout is a step toward Avnet’s ongoing restructuring initiatives under which it intends to focus on high growth businesses only and divest low profit or loss making businesses.

In doing so, the company has already entered into an agreement to sell its troubled Technology Solution business to Tech Data Corporation (TECD - Free Report) . The cash-stock deal is valued at $2.6 billion. The divestment of the Technology Solution division will allow Avnet to focus on high growth areas such as marketing electronic components and related products in the supply chain.

The company intends to use its resources to make investments in embedded solutions, IoT and critical digital platforms as well as expand its footprint in newer markets.

Bottom Line

Acquisitions form an important part of the company’s core strategy to bolster portfolio and expand global operations, while contributing significantly to the revenue stream. Since its inception, the company has acquired over 100 small companies. In October, it completed its largest ever acquisition that of Premier Farnell plc.

Avnet’s strong balance sheet and cash flow provide it with the financial flexibility to undertake strategic initiatives and expand in newer markets. The company’s cash and cash equivalents was approximately $1.2 billion at the end of first-quarter fiscal 2017.

Nonetheless, the company’s last quarter’s unimpressive results make us increasingly cautious about its near-term performance. While the bottom line managed to surpass the Zacks Consensus Estimate, the top line fell short of the same. Moreover, both earnings and revenues declined on a year-over-year basis, primarily due to the impact of an extra week of sales in the year-ago quarter and unfavorable exchange rate.

Going ahead, in our opinion, though the company’s recent decision to sell its Technology Solution division will allow it to focus on high growth areas such as marketing electronic components and related products in the supply chain, it will take time to reflect in the company’s bottom line performance.

Furthermore, a significant portion of Avnet’s revenues comes from the sale of semiconductors, which is a cyclical industry, characterized by changes in technology and manufacturing capacity and subject to significant market upturns and downturns. Intensifying competition from Arrow Electronics Inc. (ARW - Free Report) and Ingram Micro also remains a headwind.

Currently, Avnet carries a Zacks Rank #5 (Strong Sell).

A better-ranked stock worth considering in the broader technology sector is Amkor Technology Inc. (AMKR - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock has witnessed upward estimate revisions in the last 30 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 62.50%.

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