Avnet said the weak profit forecast reflects the lower revenue in the technology solutions group, lower profits margins in the Western regions in electronics marketing due to a weaker sales environment, and a greater-than-expected mix shift in electronics market, with better sales in the lower-margin Asia region more offset by weaker sales in higher-margin Western regions.
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On the other hand, if Apple comes out with more iPhone form factors in a cheaper version to address the large emerging markets, potential volume increase could offset margin decline.
The increase was designed to offset the margin pressure brought on by higher prices of raw materials and bolster profits.
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Dealers typically realize a normal profit margin, with slightly reduced prices offset by low costs brought on by the lack of need for a marketing plan.
We have maintained our estimates despite a difficult business environment as we believe the expected sales from merchandise and media should offset the decline in operating margin forecasts.
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Revenues were partially offset by a decline in auction commission margin to 16.4 percent due to competitive pressures to win high value consignments.
Although its services and printing business are doing well, the company is not able to show enough growth in these areas to offset it abysmal showing in its low margin areas.
The company said this improvement is principally due to higher auction commission revenues resulting from a 23 percent increase in net auction sales, partially offset by a decline in auction commission margin from 17.2 percent to 16.4 percent, attributable to the sales mix.
The company said improvements in margin from sales of NAND Flash and NOR Flash products were offset by slight declines in margins from sales of DRAM products.
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At EM, although overall sales were relatively in line with initial expectations, the lower-margin Asia business had a stronger than expected quarter, which was offset by a pronounced slowdown in the Americas region.
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As per company guidance, revenues are expected to offset 80% of cost pressures in the Sept. quarter with operating margin estimated to fall in the range of 9%-11%.
As long as growth is sufficient (and it is), there is room to offset video cost pressures in the U.S. with scale benefits below the gross margin line.
Adjusted operating margin improved 110 basis points to 6.6%, attributed to higher volume and productivity initiatives which helped offset higher employee-related expenses, the impact of changes in product mix, and restructuring costs.
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