Harley Feldberg, global president of Avnet Electronics Marketing, an operating group of Avnet, said, "This acquisition expands our presence and enhances our competitive position in one of the world's largest markets for electronic components. NDI brings Avnet exciting new talent with significant design and engineering expertise which, when combined with our existing team, accelerates our growth in this strategic country by increasing the value we deliver to customers and suppliers alike."

NDI was founded by its Chairman, Shozo Kawabata, in 1958. Yukio Kawabata serves as President and will continue to serve as a member of the executive management team of Avnet EM Japan. Besides a Shibaura, Tokyo-based headquarters and warehouse, NDI also has five sales offices within Japan, two international sales offices based in Singapore and Hong Kong and an international subsidiary in Shanghai, China. It had annual revenue of JPY16.1 billion ($170 million) for its fiscal year ended March 31. With the addition of NDI, Avnet EM will more than double its business in Japan.

Tom McCartney, President of Avnet EM Japan, said, "I am very enthusiastic about this acquisition, not just because it creates an opportunity to broaden our customer base, but also because NDI shares our core strategy of offering design-in distribution with exceptional service. The acquisition will add new semiconductor suppliers to Avnet EM Japan's breadth of product offerings in MicroController Units (MCUs), Digital Signal Processors (DSPs), Production Programmed Read Only Memory (P2ROM), memory as well as a variety of Large-Scale Integrated chips (LSIs) for display, communications, speech, audio, video and USB applications. The combined organization's strength in engineering will be complemented by Avnet's global supply chain management and logistics capabilities."

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Chlupsa joins Avnet from Pentair, where he most recently served as chief financial officer and vice president of finance and information technology for its Worldwide Electrical division in Anoka, Minnesota. Prior to that, he was vice president of finance and IT for Pentair Water Europe in Milan, Italy, and director of Internal Audit for Pentair. Before joining Pentair in 2002, he held a number of financial leadership roles with Goodrich and Honeywell International before joining Pentair.

"Steve's technical and financial expertise, along with his international experience, will serve Avnet Technology Solutions, Americas, well as we continue to create value for our partners," said Murdaugh. "His background in the distribution and manufacturing sectors and his expertise in internal audits, 'lean' business processes and IT systems implementations will also be valuable assets in our drive to achieve operational excellence."

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

--Senior unsecured notes at 'BBB-'.

Fitch's 2009 outlook for the IT Distributor industry is negative based on expectations that a reduction in global IT spending will weaken operating profiles, and could potentially lead to weakened credit profiles, particularly if combined with the realization of event or execution risk. Fitch expects IT hardware, including semiconductors, to decline at a faster rate than overall IT demand. Geographically, Fitch expects the U.S. and Western Europe decline to be greater than average, offset by relative strength in emerging markets. Both trends suggest that rated IT distributors, based on their higher exposure to these market segments, will experience a more pronounced business decline than the overall IT market. Sales declines will likely pressure operating profitability and reduce financial flexibility. While cash generation from reductions in working capital is expected to be substantial, flexibility for share buybacks and acquisitions will be reduced under current ratings, given lower profitability, as well as the expectation of future working capital requirements upon resumption of growth.

The change in Ratings Outlook to Negative for Avnet reflects the above considerations as well as the following:

--Fitch believes that declining organic revenue growth rates suggests weakening operating metrics heading into the downturn which could lead to greater than anticipated revenue and profitability declines in 2009. Specifically, Fitch estimates that Avnet's organic revenue growth rate (adjusted for acquisitions and foreign exchange) has declined from growth of approximately 9% to 3% to 1% in fiscal 2006, 2007 and 2008, respectively (fiscal year end June 30).

--Revenue growth and profit margin have been positively impacted by strength in the Euro relative to the U.S. Dollar in recent years, a trend which is now reversing and could further pressure profitability in 2009.

--Event risk is heightened given depressed asset prices potentially leading to additional acquisitions or shareholder friendly actions.

A downgrade could occur if the economic decline is more significant and prolonged than currently anticipated leading to expectations for reduced profitability over an extended period. Additionally, negative rating actions could occur if Avnet aggressively pursues acquisitions or shareholder friendly actions financed by existing cash, debt issuance or free cash flow generated from reduced working capital requirements.

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 and well diversified supplier base with only IBM (14%) representing greater than 10% of revenue in fiscal year 2008 (end June-2008); 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.

At Sept. 30, 2008, total available liquidity was approximately $1.3 billion and consisted of: $387 million of cash and cash equivalents; $473 million available under a $500 million senior unsecured bank credit facility expiring October 2012; and a $450 million A/R securitization facility expiring August 2009 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 Sept. 30, 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 2% convertible senior debentures due March 2034, but putable in March 2009; and iv) $300 million 5.875% senior notes due March 2014. Fitch estimates Avnet's leverage (total debt/total operating EBITDA) at 1.5 times (x) as of September 2008 (1.9x when adjusted for operating leases), which Fitch expects to increase due to declining EBITDA in 2009.

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.

SOURCE: Fitch Ratings

Fitch Ratings 
Jason Paraschac, +1-212-908-0746 (New York) 
Jason Pompeii, +1-312-368-3210 (Chicago) 
Media Relations 
Cindy Stoller, +1-212-908-0526 (New York) 
cindy.stoller@fitchratings.com

According to the company, Pano VDS provides partners with a desktop virtualization product that enables the desktop to be managed virtually by a customer's IT support team. Partners can pair Pano VDS with servers, storage, software and services, also available through Avnet, to create complete end-to-end solutions to meet all of their customers' virtual desktop infrastructure needs. Additionally, Avnet offers market education and enablement services through its dedicated virtualization practice - VirtualPath - to accelerate partner growth.

"The virtualized desktop is an exciting new growth opportunity for Avnet's partner community," said Tim FitzGerald, who leads the VirtualPath practice for Avnet Technology Solutions, Americas. "Pano Logic's Virtual Desktop Solution enables our partners to draw upon their datacenter expertise to deploy, manage and support a complete desktop solution virtually. Avnet will assist our partners with resources and the complementary solution offerings needed to successfully target emerging portions of the virtualization market."

Pano Logic's desktop virtualization solution moves the Windows PC and all its software off the desktop and into the datacenter. By leveraging existing VMware server virtualization this approach dramatically extends VMware ROI and offers benefits that traditional desktops cannot, including a lower total cost of ownership, centralized management, increased security and disaster recovery. For end-users, Pano VDS requires no additional specialized skills or training beyond those required to install or manage existing virtualization platforms - enabling them to focus on solving desktop challenges without having to reinvent the virtual infrastructure. For partners, Pano VDS provides a strong and complementary offering to extend datacenter services including storage, servers and networking. Once deployed, Pano VDS makes it easy to install centralized Windows desktop architecture, enabling partners to be far more productive and scalable for their customers, the company said.

"Avnet's commitment to providing partners with complete solutions and educating them on the intricacies of the virtualization market will significantly help extend our reach. As more companies turn to virtualization to eliminate the need to continually manage and replace expensive hardware such as servers and PCs, they will look for solutions that are proven to work well together and ideally be able to purchase them from a single vendor," said Benjamin Baer, VP of marketing at Pano Logic. "With Avnet, we will simplify the purchase and deployment cycle, and also be able to extend support during and after implementation to ensure customer satisfaction."

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