For a description of the Company's critical accounting policies and an understanding of the significant factors that influenced the Company's performance during the second quarters and six months ended December 27, 2008 and December 29, 2007, this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Item 1 of this Report, as well as the Company's Annual Report on Form 10-K for the year ended June 28, 2008.

There are numerous references to the impact of foreign currency translation in the discussion of the Company's results of operations. Over the past several years, the exchange rates between the US Dollar and many foreign currencies, especially the Euro, have fluctuated significantly. For example, the US Dollar has strengthened against the Euro by approximately 9% when comparing the second quarter of fiscal 2009 with the second quarter of fiscal 2008. When the stronger US Dollar exchange rates of the current year are used to translate the results of operations of Avnet's subsidiaries denominated in foreign currencies, the resulting impact is a decrease in US Dollars of reported results as compared with the prior period. In the discussion that follows, this is referred to as the "translation impact of changes in foreign currency exchange rates."

In addition to disclosing financial results that are determined in accordance with US generally accepted accounting principles ("GAAP"), the Company also discloses certain non-GAAP financial information, such as:

Income or expense items as adjusted for the translation impact of changes in foreign currency exchange rates, as discussed above.

Sales adjusted for the impact of acquisitions by adjusting Avnet's prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of the period presented and, in the discussion that follows, this adjustment for acquisitions is referred to as "pro forma sales" or "organic sales."

Operating income excluding the non-cash goodwill and intangible asset impairment charges incurred during the second quarter of fiscal 2009. Below is a reconciliation of GAAP results for the second quarter of fiscal 2009 to the results excluding the impairment charges, as discussed further in this MD&A:

      Second Quarter       Op Income          Pre-tax          Net Income         EPS *
    Ended Fiscal 2009                 $ in thousands, except per share data

    GAAP results         $  (1,208,753 )   $  (1,225,371 )   $   (1,202,413 )   $   (7.98 )
    Impairment charges       1,348,845         1,348,845          1,314,701          8.72

    Adjusted results     $     140,092     $     123,474     $      112,288     $    0.75

* Earnings per share does not add due to rounding.

Management believes that providing this additional information is useful to the reader to better assess and understand operating performance, especially when comparing results with previous periods or forecasting performance for future periods, primarily because management typically monitors the business both including and excluding these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes. However, analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

Organization

Avnet, Inc., incorporated in New York in 1955, together with its consolidated subsidiaries (the "Company" or "Avnet"), is one of the world's largest industrial distributors, based on sales, of electronic components, enterprise computer and storage products and embedded subsystems. Avnet creates a vital link in the technology supply chain that connects more than 300 of the world's leading electronic component and computer product manufacturers and software developers with a global customer base of more than 100,000 original equipment manufacturers ("OEMs"), electronic manufacturing services ("EMS") providers, original design manufacturers ("ODMs"), and value-added resellers ("VARs"). Avnet distributes electronic components, computer products and software as received from its suppliers or with assembly or other value added by Avnet. Additionally, Avnet provides engineering design, materials management and logistics services, system integration and configuration, and supply chain services.

Avnet has two primary operating groups - Electronics Marketing ("EM") and Technology Solutions ("TS"). Both operating groups have operations in each of the three major economic regions of the world: the Americas; Europe, the Middle East and Africa ("EMEA"); and Asia/Pacific, consisting of Asia, Australia and New Zealand ("Asia" or "Asia/Pac"). A brief summary of each operating group is provided below:

• EM markets and sells semiconductors and interconnect, passive and electromechanical devices ("IP&E") for more than 300 of the world's leading electronic component manufacturers. EM markets and sells its products and services to a diverse customer base serving many end-markets including automotive, communications, computer hardware and peripheral, industrial and manufacturing, medical equipment, military and aerospace. EM also offers an array of value-added services that help customers evaluate, design-in and procure electronic components throughout the lifecycle of their technology products and systems. By working with EM from the design phase through new product introduction and through the product lifecycle, customers and suppliers can accelerate their time to market and realize cost efficiencies in both the design and manufacturing process.

• TS markets and sells mid- to high-end servers, data storage, software, and the services required to implement these products and solutions to the VAR channel. TS also focuses on the worldwide OEM market for computing technology, system integrators and non-PC OEMs that require embedded systems and solutions including engineering, product prototyping, integration and other value-added services.

During the last eighteen months, the Company acquired ten businesses as presented in the table below. In addition, subsequent to the second quarter of fiscal 2009, the Company acquired Abacus Group plc, a value-added distributor of electronic components in Europe and Nippon Denso Industry Co., Ltd., a Tokyo-based, value-added distributor of electronic components (see Note 3 to the Notes to Consolidated Financial Statements in Item 1 of this Form 10Q).

                                                                    Acquisition
      Acquired Business                Operating Group    Region       Date

      Flint Distribution Ltd.                EM            EMEA      07/05/07
      Division of Magirus Group              TS            EMEA      10/06/07
      Betronik GmbH                          EM            EMEA      10/31/07
      ChannelWorx                            TS          Asia/Pac    10/31/07
      Division of Acal plc Ltd.              TS            EMEA      12/17/07
      YEL Electronics Hong Kong Ltd.         EM          Asia/Pac    12/31/07
      Azzurri Technology Ltd.                EM            EMEA      03/31/08
      Horizon Technology Group plc           TS            EMEA      06/30/08
      Source Electronics Corporation         EM          Americas    06/30/08
      Ontrack Solutions Pvt Ltd              TS          Asia/Pac    07/31/08

Results of Operations

Executive Summary

During the second quarter of fiscal 2009, the Company's financial results were negatively impacted by the global economic slowdown as demand weakened in both operating groups, particularly in Asia during the early part of the quarter and in the Americas in the last month of the quarter, resulting in lower-than-expected revenue for the second quarter of fiscal 2009. All three regions in both operating groups contributed to the double digit year-over-year decline in sales. Sales of $4.27 billion were down 10.2% year over year and 6.4% excluding the translation impact of changes in foreign currency exchange rates. Organic sales contracted 14.9% year over year. Due to the decline in demand that occurred during the second quarter, sales for the first half of fiscal 2009 declined 1% year over year and organic sales declined 7.5% year over year.

Gross profit margin for the second quarter was essentially flat with a 5 basis point year-over-year decline to 12.5%. Gross profit margin for the first half of fiscal 2009 was also flat at 12.7% as compared to the first half of the prior fiscal year. As described further below, the Company recognized non-cash goodwill and intangible asset impairment charges totaling $1.35 billion and, as a result, the Company reported an operating loss of $1.21 billion for the second quarter of fiscal 2009. Excluding the impairment charges, the Company would have reported operating income of $140.1 million, representing a 32.6% decline as compared with the year ago quarter and operating income excluding the impairment charges for the first half of fiscal 2009 was down 21.0% year over year. The net loss for the second quarter of fiscal 2009 included a $27.3 million net tax benefit, or $0.18 per share, primarily related to the settlement of tax audits in Europe and included a tax benefit of only $34.1 million related to the impairment charges as substantially all of the impairment charges were not tax deductible.

Given the year-over-year decline in sales and operating income for the second quarter of fiscal 2009 and management's expectation of continued market weakness into the March and June quarters, the Company has announced in January 2009 that it is taking additional actions to reduce costs to better align its cost structure with current market conditions. These actions, with annualized costs savings of $50 million, are expected to be substantially complete by the end of the March quarter of fiscal 2009 with the remainder of actions to be complete by the end of the fiscal year in June. In combination with prior cost reduction actions which began in the third quarter of fiscal 2008, the Company has announced total expected cost savings of $155 million, or $145 million at current foreign currency exchange rates, which equates to approximately 10% of annualized operating expenses.

Excluding the impairment charges in the second quarter of fiscal 2009, operating income and operating income margin were negatively impacted by the contraction in revenue. Nevertheless, the Company continues to focus on managing working capital. As a result, working capital (defined as trade receivables plus inventory less accounts payable) declined $208 million, or 7.3%, sequentially, primarily attributable to lower EM inventory levels. During the second quarter of fiscal 2009, the Company generated $320 million of cash from operating activities as compared with $84 million in the prior year second quarter. On a trailing twelve month basis through the second quarter of fiscal 2009, the Company generated cash from operating activities of $728 million. Although the current economic environment has been challenging, the Company expects to continue to make strategic investments through acquisition activity to the extent the investments strengthen Avnet's competitive position and meet management's return on capital thresholds.

Sales

The table below presents sales for the Company and its operating groups and pro
forma sales which include acquisitions as if they occurred on the first day of
fiscal 2008.


                                                                                                             Pro forma
                                                                       Year-Year          Pro forma          Year-Year
                               Q2-Fiscal '09       Q2-Fiscal '08       % Change         Q2-Fiscal '08       % Change(1)
                                                                (Dollars in thousands)

Avnet, Inc.                   $     4,269,178     $     4,753,145           (10.2 )%   $     5,016,301             (14.9 )%
EM                                  2,267,318           2,479,117            (8.5 )          2,575,232             (12.0 )
TS                                  2,001,860           2,274,028           (12.0 )          2,441,069             (18.0 )
EM
Americas                      $       864,328     $       928,221            (6.9 )%   $       948,396              (8.9 )%
EMEA                                  718,562             825,859           (13.0 )            856,903             (16.1 )
Asia                                  684,428             725,037            (5.6 )            769,933             (11.1 )
TS
Americas                      $     1,252,951     $     1,431,834           (12.5 )%   $     1,431,834             (12.5 )%
EMEA                                  645,269             701,816            (8.1 )            862,729             (25.2 )
Asia                                  103,640             140,378           (26.2 )            146,506             (29.3 )
Totals by Region
Americas                      $     2,117,279     $     2,360,055           (10.3 )%   $     2,380,230             (11.0 )%
EMEA                                1,363,831           1,527,675           (10.7 )          1,719,632             (20.7 )
Asia                                  788,068             865,415            (8.9 )            916,439             (14.0 )

(1) Year-over-year percentage change is calculated based upon Q2 Fiscal 2009 sales compared to pro forma Q2 2008 sales as presented in the following table:

                                Reported        Acquisition       Pro forma
                                 Sales             Sales            Sales
              Q2 Fiscal '08                   (In thousands)

              Avnet, Inc.     $  4,753,145     $     263,156     $  5,016,301
             EM                  2,479,117            96,115        2,575,232
             TS                  2,274,028           167,041        2,441,069

Consolidated sales for the second quarter of fiscal 2009 were $4.27 billion, down 10.2%, or $484.0 million, from the prior year second quarter consolidated sales of $4.75 billion. Excluding the translation impact of changes in foreign currency exchange rates, sales decreased 6.4% year over year. On a pro forma basis, consolidated sales decreased 14.9% year over year.

EM sales of $2.27 billion in the second quarter of fiscal 2009 declined 8.5% over the prior year second quarter sales of $2.48 billion and declined 5.6% excluding the translation impact of changes in foreign currency exchange rates. All three regions were impacted by the rapid decline in demand as year-over-year sales were down 6.9%, 13.0% and 5.6% in the Americas, EMEA and Asia, respectively. The EMEA results were negatively impacted by the strengthening of the US dollar against the Euro during the second quarter of fiscal 2009 as compared with the prior year second quarter as the EMEA region sales declined 3.5% excluding the translation impact of changes in foreign currency exchange rates. Year-over-year organic sales in the Americas and Asia declined 8.9% and 11.1%, respectively. In the EMEA region, year-over-year organic sales declined 16.1% and declined 7.0% excluding the translation impact of changes in foreign exchange rates. During the month of November, the Asia region experienced a deceleration in business and the Americas had a weaker-than-expected December which resulted in EM finishing at the low end of management's expectations.

TS sales of $2.00 billion in the second quarter of fiscal 2009 were down 12.0% year over year and down 7.3% excluding the translation impact of changes in foreign currency exchange rates. TS sales for the second quarter of fiscal 2009 came in at the low end of management's expectations primarily due to the Americas region which experienced a weaker-than-expected December close. At a product level, sales of servers and microprocessors were

down compared with the year ago quarter, while sales of networking and services were higher. Organic sales contracted 18% over prior year second quarter and 13.6% excluding the translation impact of changes in foreign currency exchange rates. All three regions experienced double digit year over year declines in organic sales.

In response to the continued slowing in organic growth in both operating groups, management has announced additional actions to further reduce costs. See discussion under Selling, General and Administrative Expenses later in this MD&A.

Consolidated sales for the first six months of fiscal 2009 were $8.76 billion, down 1.0%, over sales of $8.85 billion in the first six months of fiscal 2008. Both operating groups experienced organic sales contraction in the second quarter of fiscal 2009 as noted above which resulted in the year-over-year decline. EM sales of $4.97 billion for the first six months of fiscal 2009 were flat compared with the first six months of fiscal 2008. TS sales of $3.79 billion for the first six months of fiscal 2009 were down 2.2% over the first six months of fiscal 2008. The factors contributing to the decline in sales in both operating groups are consistent with the quarterly sales analysis discussed above.

Gross Profit and Gross Profit Margins

Consolidated gross profit for the second quarter of fiscal 2009 was $533.5 million, down $63.1 million, or 10.6%, over prior year second quarter primarily due to the decline in revenue. Despite the revenue decline, gross profit margin of 12.5% remained relatively flat only decreasing 5 basis points over the prior year results. For EM, gross profit margin was down 18 basis points year over year, but was up 12 basis points sequentially. TS gross profit margin was flat year over year despite the lower-than-expected revenue and was down 54 basis points sequentially. Consolidated gross profit and gross profit margins were $1.12 billion and 12.7%, respectively, for both the first half of fiscal 2009 and 2008. For the first half of fiscal 2009, EM gross profit margin decreased 14 basis points year over year and TS gross profit margin increased 27 basis points year over year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A expenses") were $393.4 million in the second quarter of fiscal 2009, an increase of $4.6 million, or 1.2%, over the prior year quarter due primarily to the impact of acquisitions offset by the translation impact of changes in foreign currency exchange rates and cost reduction actions implemented by the Company. Included within SG&A expenses are restructuring, integration and other costs which amounted to $13.1 million pre-tax, $10.0 million after tax and $0.06 per share. Metrics that management monitors with respect to its operating expenses are SG&A expenses as a percentage of sales and as a percentage of gross profit. In the second quarter of fiscal 2009, SG&A expenses were 9.2% of sales and 73.7% of gross profit as compared with 8.2% and 65.2%, respectively, in the second quarter of fiscal 2008.

Beginning in the third quarter of fiscal 2008, management began taking actions to reduce costs, at TS in particular, in response to market conditions at that time. Organic sales growth at both EM and TS had continued to slow going into the first quarter of fiscal 2009 and, as a result, management implemented additional cost reduction actions. The combination of actions that began in the third quarter of fiscal 2008 and actions announced in response to the first quarter of fiscal 2009 results were initially expected to provide annualized cost reductions of $105 million; however, due to the strengthening of the US dollar to the Euro since fiscal year end, management estimates those annualized cost reductions to be approximately $95 million based upon current foreign currency exchange rates. In the second quarter of fiscal 2009, the Company experienced further deceleration in business, particularly in November in the Asia region and in December in the Americas region. As a result of the continued slow down through the second quarter of fiscal 2009, management has announced further cost reduction actions of approximately $50 million within business units in both operating groups that are being negatively affected by the adverse market conditions in order to realign the expense structure with the current market conditions. As of the end of the second quarter of fiscal 2009, management estimates that approximately $60 million in annualized cost savings have been achieved. The remaining cost reduction actions are anticipated to be substantially complete by the end of March 2009 and fully completed by the end of June 2009 with the full benefit of the cost savings to be reflected in the Company's income statement in the first quarter of fiscal 2010.

SG&A expenses for the first six months of fiscal 2009 were $823.1 million, or 9.4% of consolidated sales, as compared with $750.1 million, or 8.5% of consolidated sales, in the first six months of the prior year. SG&A expenses were 73.6% and 66.8% of gross profit in the first six months of fiscal 2009 and 2008, respectively. The increase in SG&A expenses as a percentage of consolidated sales in the first half of fiscal 2009 was similarly due to the lower than expected sales.

Impairment Charges

During the second quarter of fiscal 2009, the Company recognized non-cash goodwill and intangible asset impairment charges totaling $1.35 billion pre-tax, $1.31 billion after tax and $8.72 per share.

In accordance with SFAS 142, Goodwill and Other Intangible Assets, the Company performs its annual goodwill impairment test on the first day of its fiscal fourth quarter. In addition, if and when events or circumstances change that would more likely than not reduce the fair value of any of its reporting units below its carrying value, an interim test would be performed. Since the end of September 2008, the Company's market capitalization has declined steadily, which was relatively in line with the decline in the overall market, and was significantly below book value during the second quarter due primarily to the global economic downturn's impact on the Company's performance and the turmoil in the equity markets. As a result of these events, the Company determined an interim impairment test was necessary and performed the interim test on all six of its reporting units as of December 27, 2008. Based on the test results, the Company determined that goodwill at four of its reporting units was impaired. Accordingly, during the second quarter of fiscal 2009, the Company recognized a non-cash goodwill impairment charge of $1.32 billion pre-tax, $1.28 billion after tax and $8.51 per share to write off all goodwill related to its EM Americas, EM Asia, TS EMEA and TS Asia reporting units. The non-cash charge has no impact on the Company's compliance with debt covenants, its cash flows or available liquidity, but does have a material impact on its consolidated financial statements.

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company also evaluated the recoverability of its long-lived assets at each of the four reporting units where goodwill was deemed to be impaired. Based upon this evaluation, the Company determined that certain of its amortizable intangible assets were impaired. As a result, the Company recognized a non-cash intangible asset impairment charge of $31.4 million pre- and after tax and $0.21 per share.

Operating Income (Loss)

During the second quarter and first half of fiscal 2009, the Company recorded an operating loss of $1.21 billion and $1.05 billion, respectively, as compared with operating income of $207.9 million and $373.1 million for the second quarter and first half of fiscal 2008, respectively. As previously mentioned, the Company recognized non-cash impairment charges totaling $1.35 billion for the second quarter and first half of fiscal 2009 which significantly impacted the operating results. Excluding the impairment charges, operating income for the second quarter of fiscal 2009 was $140.1 million, or 3.28% of consolidated sales, which was a decline of 32.6% as compared with operating income of $207.9 million, or 4.37% of consolidated sales in the second quarter of fiscal 2008. EM operating income declined 21.7% to $99.1 million and operating income margin of 4.37% was down 74 basis points from the second quarter of fiscal 2008. The year-over-year operating income margin decline at EM was primarily due to the decline in sales in the profitable Americas region, which accounted for over 60% of the EM operating income decline. The EM EMEA region, which has experienced revenue contraction in local currency for the past several quarters, improved operating income margin over the prior year second quarter despite lower sales. TS operating income in the second quarter of fiscal 2009 declined 32.7% to $66.9 million, or 3.34% of sales, as compared with $99.3 million, or 4.37% of sales, in the prior year second quarter. This year-over-year decline in TS operating income and operating income margin was due primarily to contraction in organic sales. Corporate operating expenses were $12.7 million in the second quarter of fiscal 2009 as compared to $18.1 million in the second quarter of fiscal 2008. In addition, during the second quarter of fiscal 2009, restructuring, integration and other charges amounted to $13.1 million pre-tax, $10.0 million after tax and $0.06 per share.

Excluding the impairment charges, operating income for the six months of fiscal 2009 was $294.6 million, or 3.36% of consolidated sales, as compared with operating income of $373.1 million, or 4.21% of consolidated sales,

in the first six months of fiscal 2008. The 85 basis point decrease in operating income margin as compared with the first half of fiscal 2008 is similarly a function of factors discussed in the quarterly analysis.

Interest Expense and Other Income, net

Interest expense for the second quarter of fiscal 2009 was $17.4 million, down $0.2 million, or 1.1%, from interest expense of $17.6 million in the second quarter of fiscal 2008. Interest expense for the first six months of fiscal 2009 was $34.3 million, down $1.9 million, or 5.2%, as compared with interest expense of $36.2 million for the comparable six month period in the prior fiscal year. The year-over-year decrease in interest expense for the first half of fiscal 2009 was primarily the result of lower average short-term debt outstanding and lower short-term interest rates. See Financing Transactions for further discussion of the Company's outstanding debt.

Other income, net, was $0.8 million in the second quarter of fiscal 2009 as compared with $8.1 million in the second quarter of fiscal 2008. For the first . . .