Avnet Eyes Small Manufacturers With Dragon Innovation Buyout

In a move to further expand its presence and product offerings for the hardware developer community, Avnet Inc. (NYSE:T) recently acquired Dragon Innovation, a manufacturing consultancy and software vendor. However, financial terms of the deal remain undisclosed.

Founded in 2009, Cambridge, Massachusetts-based Dragon Innovation helps entrepreneurs easily move from design to prototype to full-scale manufacturing process with lower risk. Per Avnet, “Dragon Innovation’s proven process and deep hardware experience help customers understand manufacturing costs and schedules, find factories and manage production as they scale their businesses.” The company has 30 employees in the offices of Boston, and ShenZhen and Hong Kong, China.

By integrating Dragon Innovation’s cloud-based Product Planner, Avnet will be able to enhance its offerings to smaller manufacturers and help them by navigating the complex process of bringing new technology to the marketplace.

Avnet’s recent move is seen as part of its strategy to expand its presence in the Internet of Things (IoT) space. Although Dragon Innovation’s tools can be used by IoT, as well as non-IoT manufacturers, Avnet is more inclined toward supporting the IoT space. This is because Dragon Innovation enjoys strong presence in the IoT space, offering its services to a wide range of industries, including home automation, wearables, robotics and automotive.

Therefore, in our opinion, this acquisition will enable Avnet in providing powerful, simple-to-use tools to engineers which will enable them to manufacture and roll out hardware products in a more fast and cost-effective manner.

Notably, Avnet has been trying to use its resources to make investments in embedded solutions, IoT and critical digital platforms, as well as expand its footprint in newer markets, for the last one year.

On the IoT front, the company has made several partnerships with the likes of AT&T (NYSE:T) , as well as acquisitions, such as Premier Farnell and Hackster.io, to enhance its capabilities in this space. Per the company, the aforementioned acquisitions have expanded its “reach to more than two million customers and an active community of more than 750,000 entrepreneurs, makers and engineers.”

This makes Dragon Innovation’s acquisition more strategically fit for Avnet, in our opinion, as the company will now have more standardized tools to serve this large number of entrepreneurs, makers and engineer community base.

The scope of IoT has made this space more lucrative for organizations. The IoT platform is anticipated to include billions of connected devices and systems, with applications ranging from sensors and mobile devices to home appliances and cars. According to research firm IDC, per the Wall Street Journal, the IoT market could nearly triple in the coming years. In 2014, the global IoT market was worth $655.8 billion and is expected to reach $1.7 trillion by 2020.

Notably, Avnet’s shares have not performed well so far this year. The stock has lost 22.4% of its value year to date, while its industry incurred a loss of 11%.

Currently, Avnet carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Arrow Electronics Inc. (NYSE:ARW) and Applied Optoelectronics, Inc. (NASDAQ:AAOI) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arrow Electronics and Applied Optoelectronics have long-term estimated EPS growth rates of 10.1% and 17.5%, respectively.

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