AVNET INC — Call Transcript 2026

I think we're live. For our track today, we are rounding out the day with Avnet. First, I should introduce myself. I'm Melissa Fairbanks. I am the analog semi and IT supply chain analyst here at Raymond James. Welcome to the conference. We are really excited to have Ken Jacobson, CFO from Avnet, with us today. We also have, hiding in the audience, Lisa Mueller, who handles IR for the company. You know, it's been a pretty full day. Full room, looks like, full day of meetings, that's good. It's been an interesting time in analog semis and distribution, certainly recently. Ken, if you would like to do just kind of a brief introduction of who Avnet is. I don't know if you need to do a Safe Harbor statement. Maybe give us kind of like some background on the company just to get us started. Yeah. Well, thanks, Melissa, for having us out here, and thanks everyone for your interest in Avnet. Avnet's a global, value-added distributor. We connect the world's top technology manufacturers, primarily semiconductor and interconnected passive and electromechanical, manufacturers to customers that use electronic components in everything they design and create. You know, our two areas of expertise at the center of the technology supply chain is design chain and design support, helping customers choose the right electronic components to make into their design. Supply chain, you know, we've talked about a lot of supply chain since COVID times and the shortages and we're experts in supply chain. We've got global scale. We do business in over 140 countries worldwide, we can help customers design or have supply chains anywhere in the world where they need it. You know, as of the last few years, you know, supply chain capabilities are becoming more and more important to making sure you can sustain your operations and have a resilient company. Okay. Maybe go over the two separate businesses. You do have two separate reporting, your reporting structure is two separate businesses. Talk about the difference between the components business and then Farnell. Yeah. Our first segment, Electronic Components business, is what we refer to as a broad line distributor. We've got a broad line card, and we're supporting primarily high-volume customers that are already in production. We're typical customers are the procurement groups of manufacturers, and that business is global, represented in Asia, which is roughly 50% of our business last quarter. The Americas is roughly 20%, and then Europe's roughly 30%. That business effectively supports, you know, production volumes, and we help customers design and support supply chains throughout the world. Our second segment is what we call the high service business called Farnell. That's one of speed and convenience, where you have design engineers and R&D activities going on. They need small quantities. They need it overnight to finish their design and product and, you know, with that, we yield a higher margin. As the EC or Electronic Components business runs around, you know, 10%-12% gross margin, the Farnell business runs closer to 30% gross margin. Definitely a premium there. The mix makes a difference for sure. I would like to kinda go over current trends because you guys do tend to follow the leader in terms of the semiconductor supply chain. Maybe go over some of what you're seeing by the geographic mix. You know, Asia typically leads us out of a correction, followed by North America and then Europe. That would be very helpful to kinda review that. Sure. Maybe the first thing to point out is we're very diverse, so, you know, we've got a very robust line card, but no single supplier technology represents over 10% of our business, and no customer represents, you know, over 4% or so of our business. You know, have a really good breadth of the market. Our key focus areas in terms of end markets would be industrial, transportation, aerospace and defense, networking and communication, as well as, you know, some in the data center and consumer side. You know, really this cycle, you know, I would say the recovery started in Asia. We've got six quarters in a row of recovery and growth in Asia, and, you know, that business now is at record revenue levels as of this last quarter. Now, a little bit of that's driven by the data center and the AI phenomenon, but it's more broadly in terms of the recovery. When we look at our Asia business, it's led by Taiwan, roughly 40% of the business, a lot of strength in Taiwan. Then, you know, next biggest market would be China, followed by Southeast Asia and then Japan. What we've seen is, you know, broad-based recovery and, you know, the growth rates, accelerating. You know, some of that is replenishment from the customer base because they've bled down inventories, but a lot of it's really the increase in broader demand. Feeling really good about that. Just for color, you know, our Asia business was 40% of our total business just five quarters ago, and now it's 50% because of that growth. While in the West, you know, we just got back to growth in Europe this last quarter. Europe's been the slowest region. You know, it's more our most profitable region in terms of gross margin percentage as well as operating margin. You know, that business is heavy industrial for us, followed by transportation and then networking comms. We saw, you know, pretty significant declines. We're about 35%+ off peak revenue levels in Europe, but got back to growth, you know, roughly 1% year-over-year growth this last quarter, and seeing traction there. The Americas is kinda somewhere in between. Had a couple quarters in a row of growth, a little bit more robust than Europe, but still closer to where Europe's at than compared to Asia. You know, what gives us some amount of, you know, confidence, what I would say, you know, very encouraging signs that through all the regions we're seeing, you know, robust book-to-bill ratios. We're seeing our backlog replenish, you know, over the past four quarters. We've been encouraging customers to give us visibility. You know, the more visibility we get, the more forecast we get, we can provide that information to our supplier partners, so they know what to load the fabs in making their semiconductor choices. A lot of it's, you know, based on our visibility, we give them, you know, demand outlook. We're seeing really good signs there in terms of backlog building back up again and getting some of the visibility we had pre-COVID. I would also point to, you know, we called out this last quarter a lot more mismatches and so we're seeing the last few quarters customers ordering within lead times. What that means to us is, you know, customers have depleted some of their excess inventories, and they're ready to buy product now, and they're ready to replenish. When they order within lead times, you're not necessarily able to get that product unless we have inventory on the shelves. What we saw this last quarter is now more signs of suppliers delivering product outside of lead times. If a stated lead time is 12 weeks, maybe the supplier's delivering in 15 or 16 weeks. That mismatch is creating, you know, an imbalance between supply and demand, which, you know, is good for us, but challenging for our customers if they wanna make sure they keep their lines running. We continue to encourage customers to give us visibility. You know, let us help with our supply chain capabilities to pipeline product for you, so you can keep your lines running and avoid, you know, having shortages in certain areas. Okay, great. I'm sure that does help with the visibility longer term. Do you feel as though your customers, even the broad-based customers in Europe, are now shifting more toward real consumption rather than under-shipping demand? I know for many quarters, the suppliers themselves were under-shipping what true demand was, we didn't have a very good representation of what actual consumption was. Do you get a sense that, you know, this is still just shipping to consumption rather than inventory builds? I don't wanna use the word stockpiling because that, you know, that's a bad word. Just curious what you're kind of seeing from your customers there? Yeah, maybe I'll start with our own inventory. I mean, I think, you know, it's important we're a distributor, so inventory is, you know, kinda the lifeblood of our business, and so we gotta make sure we have the right inventory. We've, you know, had our own challenges working down our inventory levels or getting rid of some of the areas of excess, so we can invest in areas of need. Clearly in an environment where there's more demand, with the short interval orders within lead times and then deliveries outside of lead times, you know, if you're well-positioned on inventory, you can capture more of the market. Right. I would say the customers, you know, in particular Europe, but I think as a general statement, you know, are in pretty good shape. I think it took a little longer to consume those excess inventory levels, but I would say, you know, if anything, they're probably too leaned out on inventory. Okay. You know, I think that's a broad statement. There's always some pockets of customers, depending on your end market or vertical that might have, you know, some areas of excess. I think in general, we feel the customer inventory levels are healthy and, you know, we need to make sure we're getting the visibility to make sure they don't come up short. I'd say what you're seeing right now is probably true demand. You know, I think there's areas where things are getting tighter. Mm-hmm. What you tend to see is customer behavior of wanting to order more to think, "If I order more, then maybe I get in line or I get premium access," right? I think we're trying to encourage responsibility is, you know, making sure that, you know, what you're ordering is what you really need for your near term, so we can help, you know, spread those products that are, you know, high in demand across multiple customers. One of the questions that I get quite frequently, there's a little bit of a misunderstanding, and I think some of it was driven during COVID, during the supply chain crisis, when, you know, we saw kind of an explosion in your revenue levels and then also the margin profile, is how does pricing impact your margins? Rising costs that we're seeing on the component level, particularly, you know, I'm thinking of course in memory and storage, are you able to just pass that through to your own customers, or is there some, you know, kind of, elasticity there? I would say when we hit the peak of the shortages, we were seeing, you know, broad-based price increases maybe even multiple times a year. At our peak, you know, I'll use rough numbers, but we were maybe growing 30% in a given year, and we would attribute, you know, roughly 25% of that growth or 7.5% to, you know, pricing increases. A typical scenario would be, you know, a supplier announces a price increase. We tell our customers there's a price increase coming. You know, you might have some consumption of stuff you have on the shelves to be able to get in front of the price increase, going forward, you know, you're buying at the new price. You know, on average, what we would do is pass those through. We wouldn't make any more gross margin percentage necessarily-. Mm-hmm. We would still enjoy more gross profit dollars because of that growth. That helps us with our scale. You know, if we had 30% growth, 7.5% of that or 25% coming from that growth, then we would create additional leverage in the model. We think that's likely to be the scenario going forward again. Mm-hmm. When there's opportunity, when we have product on the shelves, you know, we have opportunity to get a little bit more margin. It's okay to get paid the value we provide. At the same time, you know, we understand if a customer is getting a 20% price increase, that's a lot to digest, right? We still should be enjoying our same, you know, gross margin %. Yeah. You know, in part because we're giving you terms on that. We're holding inventory at the higher price, right? Yeah. there is more value we are providing too. I think, you know, what I would say though, as a caution, everyone, is, you know, we are not anywhere near what we were seeing in that environment with. Right. with broad-based price increase. I think we're hearing some anecdotes on increases. You know, memory comes to mind as, you know, things have been announced, although some of those increases haven't taken effect. There's other price increases that we're aware of or been announced that are, you know, surrounding certain technologies or certain customer bases, but I would not say anything's broad-based, and we're still early innings. You know, the indicators seem to be there of some pricing moves. A lot of that's driven by the input costs. You mentioned that before. Mm-hmm. as, you know, we're seeing, you know, precious metals, gold, things with gold in it. Okay, connectors with gold, hey, there's a price increase, you know. Sure. Tantalum on the passives. There are, you know, true input costs that are rising that are leading to some of these, you know, talked about price increases. I think when we, when we get into periods of growth during the up cycle, typically, you know, you kind of addressed a little bit of the working capital investment that you need to make in order to support that. I'm curious on the OpEx line, like your own internal costs, it seems as though we've got a little bit better leverage in the operating model than maybe in past, you know, quote-unquote, normal cycles, excluding the supply chain crisis. How much has automation, deploying AI within your own internal processes or internal efficiencies allowed you to capitalize on some of those, you know, like drive a little bit more leverage in the operating model as we get to return to growth? I think we are focused. We brought in a Chief Digital Officer, a little over a year ago, with a lot of expertise, not only in e-commerce, but also digital tools and solutions. We think about our two kind of value propositions of design chain and supply chain. You know, there's a lot we can do with technology. You know, 2/3 of our business is comprised of, you know, people and people costs. Mm-hmm. You know, although in the warehouse, there's physical movement, you can always optimize there. I think, you know, as we look at our technical resources, we've got 2,000 technical engineers across the globe that help customers in design options. You know, we can definitely use technology and digital tools and capabilities to help them be more efficient in supporting our customers in our design chain. Same thing as supply chain, customer service, all those kind of things. You know, there's a lot we can use technology and the data we have to make better decisions and to, you know, support our customers better. I'd still say we're early innings in terms of some of those, you know, use cases and capabilities, but we have a roadmap we feel pretty good about, you know, that there is value to provide. Again, some of it's cost reduction, some of it's, you know, efficiency for the team, but it all should yield, you know, our ability to grow and not add a bunch of expense. Mm-hmm. ... you know, so we can drop more through to the bottom line. I think we feel well-positioned with our OpEx right now to be able to have a couple years of nice growth without having to add a lot of costs. Okay, great. That kind of leads us into a natural discussion about the margin targets. At your last investor meeting, which was a few years ago, you had set a target margin of getting operating margins above 5% sustainably. We were able to exceed that during the supply chain crisis. I'm just curious, what are some of the market conditions or maybe product mix that we need to see in order to get that margin target sustainably? I think or above. Yeah, I think the targets necessarily haven't changed. You know, our EC business, you know, was above 5% for a few quarters. Mm-hmm. You know, our floor this time around is roughly 3%. If you think about the last cycle coming out of it, you know, we hit as low as 1.5% of that business. I would say kind of the step-up in revenues and scale has allowed us to now have a new bottom of potentially 3% there, and we're on our way back to growth. I mean, I think, you know, again, growth in the West with the higher margins, the recovery of the West- Mm-hmm. ... I would almost say with the, you know, is gonna help a lot, 'cause that's our higher margin regions. You know, scale does matter in our business, and again, we can control the cost. I think, you know, continuing to drive those initiatives to grow the business faster than the market, you know, focus on the value we provide to get a little bit more gross margin, those are all levers that will help us. We didn't talk about Farnell much, outside of the introduction there. Oh, I was getting there. That will help a lot too. Farnell business runs at 30 points of margin versus, you know, our EC business. You know, we've got some, I think good tailwinds coming our way, and I think we're well-positioned, not only with our customers, but also with our supplier partners. Just this last quarter, we improved operating margin in the EC business by roughly 30 basis points. Our guidance for the March quarter implies another 30 basis point uplift. We're starting to see the traction as we start to recover in the West. Okay, great. I would like to talk about Farnell. You know, talk about how there are synergies between that and the components business in terms of, you know, maybe serving as a funnel for longer term opportunities, but certainly that margin profile it brings some opportunities for you as well. Discuss what's been going on there. You know, I know that we had some disruption coming out of the supply chain crisis, maybe some inefficiencies, and what you've been doing over the past year and a half, almost two years now, in order to get the margin profile back up to where you want it. Yeah. Our Farnell business, you know, thinks gives us a differentiator between our competition, that high service business, and again, the margins are very attractive. I think, you know, what we're continuing to do is get our Farnell business closer to our core business, and I'll give you a couple examples of that. You know, think about our core business. You know, roughly 30% of that business is done through, you know, EMS contract manufacturing, and, you know, there's a long tail of the EMS customers as well as the big guys. You know, we're really under-penetrated in that customer base with Farnell. Although we've got great relationships in the core, and Avnet's got a, you know, there's not a lot of business, not only for on-board components, but also the test and measurement, the maintenance and repair, all the things that, you know, an engineer would need to, you know, design products. We think there's more opportunity really just to continue to cross-sell with our existing customer base with Farnell. I think on the flip side, you know, early identification for, you know, high volume customers coming through Farnell. Mm-hmm. Farnell's got a much bigger customer base than our core business, you know, in the hundreds of thousands through their e-commerce platform. Continuing to identify leads and marketing leads and early in the process to shift those over to Avnet to be able to keep that business is good. Then going back to the Chief Digital Officer, one of the things we're focused on, we believe within our control for the Farnell revenues, is really just the e-commerce penetration. We're getting lots of website hits, lots of eyeballs coming to not only the Farnell, but also the Avnet properties. How do we convert more and capitalize more on making sure we're getting those converted to sales? There's some things we can do in terms of the e-commerce proposition, some of the functionality of the site to help drive that conversion rate better, which then is, you know, additional growth for Farnell. Is the mix of the product or the components meaningfully different between EC and the Farnell business? I think, you know, in general, the types of products that are sold by Farnell, at least for on-board components, are the same as the core business. Although Farnell tends to focus on more SKUs in terms of if a supplier has a portfolio, let's say of 10,000 SKUs, Farnell may support 9,000 of those SKUs. Okay. The core business may be only a couple thousand as an example. You know, Farnell, part of their value proposition is seeding the market with new product introductions. Mm-hmm. Making sure we've got a broad selection of parts. When an engineer goes, they can get anything they need from Farnell. There's a differentiator in Farnell's business in terms of, you know, they sell single-board computers, test and measurement. Mm-hmm. maintenance and repair products that the core business really doesn't support. That's all for the benefit of here's everything an engineer needs at their design workbench and- Mm-hmm. ... to test their products. From an on the board component perspective, we're very aligned in terms of line card and what we have there. Just for a little bit more color, you know, when we talk about a on the board component, that means a semiconductor or all the IP&E parts that are around the board. That's what we refer to as more of electronic components, and that carries a higher margin for Farnell. What you're seeing in Farnell is growth in some of those other areas, but the on the board components have been a little bit depressed and primarily 'cause Farnell is a mostly Europe but also heavy Americas business. Mm-hmm. As that market begins to recover, you'll start to see some tailwinds in Farnell's gross margin because of more sales of semiconductors and IP&E products. That margin has stabilized and is, you know, pretty good margin. Great. You mentioned engineering and services a couple of times at different points in the discussion. Maybe if you could talk about how value-added services within either business are going to be accretive to margin longer term and, you know, kind of categorize what all you're able to provide for your customers? Yeah. I think from a I'll start with supply chain service. I think we're seeing more and more opportunity for customers coming to Avnet to support their supply chain needs. A unique opportunity we're seeing, and we saw some of it coming out of the pandemic, and it's really, you know, the large OEMs, you know, that have complex supply chains and, you know, they buy lots of parts. They have lots of partners that help them with their manufacturing, but they don't actually have warehouses. They don't have, you know. Mm-hmm. ... even legal entity footprints to secure product where they need it. They bring someone like Avnet in to help provide supply chain services. That could be procurement services. It could be, you know, warehouse and logistics. It could be buffer stock. And it could be kinda just-in-time delivery to their network of manufacturing partners. We're seeing a lot more opportunity with the supply chain disruptions to come in and provide services. That's part of the available market or the TAM right now, but Avnet really hasn't played a part. Those are usually the direct customers of the supplier base. We're seeing more opportunities there, you know, to provide supply chain services, and then we can take some of those solutions and provide it to our mass market customers and provide them more supply chain opportunities. We like that. It's a higher gross margin. It's not really a top-line mover, but higher gross margin. Our design capabilities, you know, the more, parts we can help customers select, then we typically get a better cost from our manufacturing partners. Okay. There's a little bit higher gross margin there. There's a few different things that we have in the portfolio to help drive gross margins. The last thing I'll talk about is. Mm-hmm. ... and embedded solutions. Mm-hmm. You know, we're seeing more and more customers eliminate time to market through choosing embedded boards and solutions. We've got a embedded board and solutions business based out of Europe that helps customers design custom boards, or we have standard boards. We, we see that as a win-win-win where the suppliers can wrap more of their technologies within a single board. We can enjoy a higher margin because we own the design, and then our customers get a quicker and cheaper, overall solution. We're seeing that business be a little depressed with what's going on in Europe 'cause it's a heavy industrial- Mm-hmm ... healthcare base, but we're seeing some of that start to come back, and the prospects over the next few years with an embedded space are good. Great. Great. How much does trade and tariff navigation play into either your value-added services or even just, you know, the broader business? You know, you touched on your locations in Asia, locations in Europe. You've got a pretty wide geographic footprint of just availability of warehouses, the distribution centers, even engineers globally. With a lot of the uncertainty in trade and tariffs, you know, has this presented an opportunity for Avnet? I mean, I would say any supply chain disruptions, tariff included, present opportunity, and I would maybe, you know, start with the positives before we get into some of the negatives is just, you know, we have been able to adapt and pivot with some of these changes and again, you know, because we have operations in 140 different countries, we can, you know, move your supply chain where you need it. You know, we saw it back when there was focus on China and China Plus One. Mm-hmm. We're seeing a lot of beneficiary in Southeast Asia, markets like Malaysia, Vietnam, India. We're also seeing more nearshoring. You know, Guadalajara, for example, is big for us. We're seeing a lot more companies move to Mexico. You know, although there was just this disruption a couple weeks ago... Mm-hmm Some of that, and we had to shut down the warehouse. I do think, you know, you never know where your supply chain disruption is going to come. Our global scale and footprint and trying to invest ahead of the curve of where that next, you know, support spot will be is important, and for the tariffs here specifically in the U.S., you know, we've been able to pivot our distribution center in Phoenix, Arizona is a free trade zone, so it allows us to mitigate tariff impacts until we know exactly where the product's going. Mexico has been another beneficiary there. You know, we try our best to mitigate where possible. Unfortunately, if you're going to be manufacturing here in the U.S. and you use a product produced in China, you're going to have to pay a tariff. And so- Mm-hmm. We have to pass it through. We've been, you know, pretty transparent to our customers. It's been a lot of work for the team, the operations team, for all the changes, and you're kind of reacting to news reports real time. Yeah. I think we've got at least some kind of process down. That would be the negative. To be able to react to everything else. Yeah. You know, and again, you know, we've talked about price increase in the past, and I would say customers sometimes are easier to absorb a 20% price increase from a coming from supplier versus a, you know, 2% tariff pass-through. We've worked through it, and I think we're in a pretty good spot now, although we'll continue to monitor the situation. Just for more context, perhaps, you know, our business overall, less than, you know, 2% of our revenues are from tariff billings. Oh, okay. You know, from an America standpoint, sorry. Globally, it's less than 1%. Right. It's pretty insignificant. Okay. ... in terms of the overall impact. It's that, unlike the other pass-throughs, that's a really truly a pass-through where whatever tariff we charge, we're charging the customer that, you know, as almost a tax. Okay. We've just got a few minutes left, so I wanna open it up, see if there are any questions in the audience. Before I move on, I would be remiss, we have the CFO sitting here, I need to ask him about capital allocation and, you know, some of your investment priorities. You know, typically with a cyclical recovery, we touched on this a little bit earlier, requires a significant working capital investment to support the growth. Maybe talk about where your balance sheet is today, your current inventory levels? It seems as though, you know, we're supporting better revenue growth without driving that big spike in working capital investment. Yeah. From an inventory perspective, I would say, you know, we have at least the right amount of dollars. There's still some opportunity. We've been, over the past several quarters, kind of beneath the surface. You know, although the balance sheet number might be one number, beneath the surface, there's been lots of changes in the composition of the inventory and getting some of the aged and excess inventory out and investing in inventory that's gonna turn faster and that's needed. There's still some work to do there, but I feel really good about, you know, the fact that we don't have to necessarily invest a lot of inventory dollars to continue to grow the business. Now we're gonna need to invest in the right kinds of inventory and make sure we've got the right products on the shelf. Sure. As, you know, lead times potentially extend as more demand from customers come within lead times, right? I think we're gonna start turning the inventory faster. From an enterprise perspective, you know, we dip below 90 days of inventory this last quarter, I think we got to 86 days. When you separate our businesses, you know, the Electronic Components business, you know, should be running under 70 days of inventory, so still. Okay. ... runway to go there, but this last quarter they were above or, sorry, below, 80 days. Mm-hmm. ... in the EC business, and that's just a quicker turning. You know, we're looking for, you know, four to six turns a year, so closer to six. And then from the Farnell business, they do need to have more inventory. The, the proposition is one of inventory and having that breadth of SKUs. Mm-hmm. They're gonna run closer to, you know, 200 days is our target for them. You know, this last quarter they were, you know, 220s. Mm-hmm. Some room to go there in Farnell, but again, as they start to grow, they'll have more scale and start turning some products faster. You know, we feel good about the fact that we're not gonna need a lot of cash necessarily to invest in inventory, although we'll continue to get the right kinds of inventory on the shelves. You know, where we're still gonna need some working capital, depending on the growth rates, will be on the receivable side. You know, part of the value we provide to our customers is terms. As we grow, you know, we'll have more in accounts receivable, but the cash conversion cycle overall should shorten. Okay ... in this next go around, at least for the, you know, foreseeable future here... Okay. as we continue to grow. I think from a broader capital allocation standpoint, you know, we wanna return excess cash to shareholders. We've got a dividend that's we've grown every year since we've implemented it. We've historically been aggressive on buybacks, although right now we're a little more focused on getting our leverage back into the three-ish range. We're running, you know, just above four, so we feel much more comfortable in the three-ish range to be able to have, you know, the capital we need to invest in the business. I think from our standpoint, you know, we'll get that taken care of in the next few quarters and then get back to returning excess cash flow to shareholders. Again, CapEx is generally pretty sustainable between $100 million and $150 million a year. Okay. All right. Maybe in the last few seconds, any closing remarks? Anything that we didn't address today? I think that, you know, Avnet is really well positioned to get back into a growth cycle. You know, we feel we're in a really good neighborhood in terms of just the proliferation of electronics and everything we do continues to expand. You know, we see lots of opportunity with content, you know, exciting areas like robotics, drones. Mm-hmm. You know, there's lots of applications that we see, you know, just the continued amount of content growing, so I feel pretty good about the neighborhood we're in and we're well positioned to capitalize on growth and return margins to historical levels. Excellent. I would agree. Thank you very much, Ken. Appreciate it. Thanks, Melissa. Thanks, everyone. Thanks, everyone.

Speaker 2: I think we're live. For our track today, we are rounding out the day with Avnet. First, I should introduce myself. I'm Melissa Fairbanks. I am the analog semi and IT supply chain analyst here at Raymond James. Welcome to the conference. We are really excited to have Ken Jacobson, CFO from Avnet, with us today. We also have, hiding in the audience, Lisa Mueller, who handles IR for the company. You know, it's been a pretty full day. Full room, looks like, full day of meetings, that's good. It's been an interesting time in analog semis and distribution, certainly recently. Ken, if you would like to do just kind of a brief introduction of who Avnet is. I don't know if you need to do a Safe Harbor statement. I think we're live. i think we're live For our track today, we are rounding out the day with Avnet. for our track today we are rounding out the day with avnet First, I should introduce myself. first i should introduce myself I'm Melissa Fairbanks. i'm melissa fairbanks I am the analog semi and IT supply chain analyst here at Raymond James. i am the analog semi and it supply chain analyst here at raymond james Welcome to the conference. welcome to the conference We are really excited to have Ken Jacobson, CFO from Avnet, with us today. we are really excited to have ken jacobson cfo from avnet with us today We also have, hiding in the audience, Lisa Mueller, who handles IR for the company. we also have hiding in the audience lisa mueller who handles ir for the company You know, it's been a pretty full day. you know it's been a pretty full day Full room, looks like, full day of meetings, that's good. full room looks like full day of meetings that's good It's been an interesting time in analog semis and distribution, certainly recently. it's been an interesting time in analog semis and distribution certainly recently Ken, if you would like to do just kind of a brief introduction of who Avnet is. ken if you would like to do just kind of a brief introduction of who avnet is I don't know if you need to do a Safe Harbor statement. i don't know if you need to do a safe harbor statement Maybe give us kind of like some background on the company just to get us started. Maybe give us kind of like some background on the company just to get us started. maybe give us kind of like some background on the company just to get us started

Speaker 1: Yeah. Well, thanks, Melissa, for having us out here, and thanks everyone for your interest in Avnet. Avnet's a global, value-added distributor. We connect the world's top technology manufacturers, primarily semiconductor and interconnected passive and electromechanical, manufacturers to customers that use electronic components in everything they design and create. You know, our two areas of expertise at the center of the technology supply chain is design chain and design support, helping customers choose the right electronic components to make into their design. Supply chain, you know, we've talked about a lot of supply chain since COVID times and the shortages and we're experts in supply chain. We've got global scale. We do business in over 140 countries worldwide, we can help customers design or have supply chains anywhere in the world where they need it. Yeah. yeah Well, thanks, Melissa, for having us out here, and thanks everyone for your interest in Avnet. well thanks melissa for having us out here and thanks everyone for your interest in avnet Avnet's a global, value-added distributor. avnet's a global value-added distributor We connect the world's top technology manufacturers, primarily semiconductor and interconnected passive and electromechanical, manufacturers to customers that use electronic components in everything they design and create. we connect the world's top technology manufacturers primarily semiconductor and interconnected passive and electromechanical manufacturers to customers that use electronic components in everything they design and create You know, our two areas of expertise at the center of the technology supply chain is design chain and design support, helping customers choose the right electronic components to make into their design. you know our two areas of expertise at the center of the technology supply chain is design chain and design support helping customers choose the right electronic components to make into their design Supply chain, you know, we've talked about a lot of supply chain since COVID times and the shortages and we're experts in supply chain. supply chain you know we've talked about a lot of supply chain since covid times and the shortages and we're experts in supply chain We've got global scale. we've got global scale We do business in over 140 countries worldwide, we can help customers design or have supply chains anywhere in the world where they need it. we do business in over 140 countries worldwide we can help customers design or have supply chains anywhere in the world where they need it You know, as of the last few years, you know, supply chain capabilities are becoming more and more important to making sure you can sustain your operations and have a resilient company. You know, as of the last few years, you know, supply chain capabilities are becoming more and more important to making sure you can sustain your operations and have a resilient company. you know as of the last few years you know supply chain capabilities are becoming more and more important to making sure you can sustain your operations and have a resilient company

Speaker 2: Okay. Maybe go over the two separate businesses. You do have two separate reporting, your reporting structure is two separate businesses. Talk about the difference between the components business and then Farnell. Okay. okay Maybe go over the two separate businesses. maybe go over the two separate businesses You do have two separate reporting, your reporting structure is two separate businesses. you do have two separate reporting your reporting structure is two separate businesses Talk about the difference between the components business and then Farnell. talk about the difference between the components business and then farnell

Speaker 1: Yeah. Our first segment, Electronic Components business, is what we refer to as a broad line distributor. We've got a broad line card, and we're supporting primarily high-volume customers that are already in production. We're typical customers are the procurement groups of manufacturers, and that business is global, represented in Asia, which is roughly 50% of our business last quarter. The Americas is roughly 20%, and then Europe's roughly 30%. That business effectively supports, you know, production volumes, and we help customers design and support supply chains throughout the world. Our second segment is what we call the high service business called Farnell. That's one of speed and convenience, where you have design engineers and R&D activities going on. They need small quantities. Yeah. yeah Our first segment, Electronic Components business, is what we refer to as a broad line distributor. our first segment electronic components business is what we refer to as a broad line distributor We've got a broad line card, and we're supporting primarily high-volume customers that are already in production. we've got a broad line card and we're supporting primarily high-volume customers that are already in production We're typical customers are the procurement groups of manufacturers, and that business is global, represented in Asia, which is roughly 50% of our business last quarter. we're typical customers are the procurement groups of manufacturers and that business is global represented in asia which is roughly 50% of our business last quarter The Americas is roughly 20%, and then Europe's roughly 30%. the americas is roughly 20% and then europe's roughly 30% That business effectively supports, you know, production volumes, and we help customers design and support supply chains throughout the world. that business effectively supports you know production volumes and we help customers design and support supply chains throughout the world Our second segment is what we call the high service business called Farnell. our second segment is what we call the high service business called farnell That's one of speed and convenience, where you have design engineers and R&D activities going on. that's one of speed and convenience where you have design engineers and r&d activities going on They need small quantities. they need small quantities They need it overnight to finish their design and product and, you know, with that, we yield a higher margin. As the EC or Electronic Components business runs around, you know, 10%-12% gross margin, the Farnell business runs closer to 30% gross margin. Definitely a premium there. They need it overnight to finish their design and product and, you know, with that, we yield a higher margin. they need it overnight to finish their design and product and you know with that we yield a higher margin As the EC or Electronic Components business runs around, you know, 10%-12% gross margin, the Farnell business runs closer to 30% gross margin. as the ec or electronic components business runs around you know 10%-12% gross margin the farnell business runs closer to 30% gross margin Definitely a premium there. definitely a premium there

Speaker 2: The mix makes a difference for sure. I would like to kinda go over current trends because you guys do tend to follow the leader in terms of the semiconductor supply chain. Maybe go over some of what you're seeing by the geographic mix. You know, Asia typically leads us out of a correction, followed by North America and then Europe. That would be very helpful to kinda review that. The mix makes a difference for sure. the mix makes a difference for sure I would like to kinda go over current trends because you guys do tend to follow the leader in terms of the semiconductor supply chain. i would like to kinda go over current trends because you guys do tend to follow the leader in terms of the semiconductor supply chain Maybe go over some of what you're seeing by the geographic mix. maybe go over some of what you're seeing by the geographic mix You know, Asia typically leads us out of a correction, followed by North America and then Europe. you know asia typically leads us out of a correction followed by north america and then europe That would be very helpful to kinda review that. that would be very helpful to kinda review that

Speaker 1: Sure. Maybe the first thing to point out is we're very diverse, so, you know, we've got a very robust line card, but no single supplier technology represents over 10% of our business, and no customer represents, you know, over 4% or so of our business. You know, have a really good breadth of the market. Our key focus areas in terms of end markets would be industrial, transportation, aerospace and defense, networking and communication, as well as, you know, some in the data center and consumer side. You know, really this cycle, you know, I would say the recovery started in Asia. We've got six quarters in a row of recovery and growth in Asia, and, you know, that business now is at record revenue levels as of this last quarter. Sure. sure Maybe the first thing to point out is we're very diverse, so, you know, we've got a very robust line card, but no single supplier technology represents over 10% of our business, and no customer represents, you know, over 4% or so of our business. maybe the first thing to point out is we're very diverse so you know we've got a very robust line card but no single supplier technology represents over 10% of our business and no customer represents you know over 4% or so of our business You know, have a really good breadth of the market. you know have a really good breadth of the market Our key focus areas in terms of end markets would be industrial, transportation, aerospace and defense, networking and communication, as well as, you know, some in the data center and consumer side. our key focus areas in terms of end markets would be industrial transportation aerospace and defense networking and communication as well as you know some in the data center and consumer side You know, really this cycle, you know, I would say the recovery started in Asia. you know really this cycle you know i would say the recovery started in asia We've got six quarters in a row of recovery and growth in Asia, and, you know, that business now is at record revenue levels as of this last quarter. we've got six quarters in a row of recovery and growth in asia and you know that business now is at record revenue levels as of this last quarter Now, a little bit of that's driven by the data center and the AI phenomenon, but it's more broadly in terms of the recovery. When we look at our Asia business, it's led by Taiwan, roughly 40% of the business, a lot of strength in Taiwan. Then, you know, next biggest market would be China, followed by Southeast Asia and then Japan. What we've seen is, you know, broad-based recovery and, you know, the growth rates, accelerating. You know, some of that is replenishment from the customer base because they've bled down inventories, but a lot of it's really the increase in broader demand. Feeling really good about that. Now, a little bit of that's driven by the data center and the AI phenomenon, but it's more broadly in terms of the recovery. now a little bit of that's driven by the data center and the ai phenomenon but it's more broadly in terms of the recovery When we look at our Asia business, it's led by Taiwan, roughly 40% of the business, a lot of strength in Taiwan. when we look at our asia business it's led by taiwan roughly 40% of the business a lot of strength in taiwan Then, you know, next biggest market would be China, followed by Southeast Asia and then Japan. then you know next biggest market would be china followed by southeast asia and then japan What we've seen is, you know, broad-based recovery and, you know, the growth rates, accelerating. what we've seen is you know broad-based recovery and you know the growth rates accelerating You know, some of that is replenishment from the customer base because they've bled down inventories, but a lot of it's really the increase in broader demand. you know some of that is replenishment from the customer base because they've bled down inventories but a lot of it's really the increase in broader demand Feeling really good about that. feeling really good about that Just for color, you know, our Asia business was 40% of our total business just five quarters ago, and now it's 50% because of that growth. While in the West, you know, we just got back to growth in Europe this last quarter. Europe's been the slowest region. You know, it's more our most profitable region in terms of gross margin percentage as well as operating margin. You know, that business is heavy industrial for us, followed by transportation and then networking comms. We saw, you know, pretty significant declines. We're about 35%+ off peak revenue levels in Europe, but got back to growth, you know, roughly 1% year-over-year growth this last quarter, and seeing traction there. The Americas is kinda somewhere in between. Just for color, you know, our Asia business was 40% of our total business just five quarters ago, and now it's 50% because of that growth. just for color you know our asia business was 40% of our total business just five quarters ago and now it's 50% because of that growth While in the West, you know, we just got back to growth in Europe this last quarter. while in the west you know we just got back to growth in europe this last quarter Europe's been the slowest region. europe's been the slowest region You know, it's more our most profitable region in terms of gross margin percentage as well as operating margin. you know it's more our most profitable region in terms of gross margin percentage as well as operating margin You know, that business is heavy industrial for us, followed by transportation and then networking comms. you know that business is heavy industrial for us followed by transportation and then networking comms We saw, you know, pretty significant declines. we saw you know pretty significant declines We're about 35%+ off peak revenue levels in Europe, but got back to growth, you know, roughly 1% year-over-year growth this last quarter, and seeing traction there. we're about 35%+ off peak revenue levels in europe but got back to growth you know roughly 1% year-over-year growth this last quarter and seeing traction there The Americas is kinda somewhere in between. the americas is kinda somewhere in between Had a couple quarters in a row of growth, a little bit more robust than Europe, but still closer to where Europe's at than compared to Asia. You know, what gives us some amount of, you know, confidence, what I would say, you know, very encouraging signs that through all the regions we're seeing, you know, robust book-to-bill ratios. We're seeing our backlog replenish, you know, over the past four quarters. We've been encouraging customers to give us visibility. You know, the more visibility we get, the more forecast we get, we can provide that information to our supplier partners, so they know what to load the fabs in making their semiconductor choices. A lot of it's, you know, based on our visibility, we give them, you know, demand outlook. Had a couple quarters in a row of growth, a little bit more robust than Europe, but still closer to where Europe's at than compared to Asia. had a couple quarters in a row of growth a little bit more robust than europe but still closer to where europe's at than compared to asia You know, what gives us some amount of, you know, confidence, what I would say, you know, very encouraging signs that through all the regions we're seeing, you know, robust book-to-bill ratios. you know what gives us some amount of you know confidence what i would say you know very encouraging signs that through all the regions we're seeing you know robust book-to-bill ratios We're seeing our backlog replenish, you know, over the past four quarters. we're seeing our backlog replenish you know over the past four quarters We've been encouraging customers to give us visibility. we've been encouraging customers to give us visibility You know, the more visibility we get, the more forecast we get, we can provide that information to our supplier partners, so they know what to load the fabs in making their semiconductor choices. you know the more visibility we get the more forecast we get we can provide that information to our supplier partners so they know what to load the fabs in making their semiconductor choices A lot of it's, you know, based on our visibility, we give them, you know, demand outlook. a lot of it's you know based on our visibility we give them you know demand outlook We're seeing really good signs there in terms of backlog building back up again and getting some of the visibility we had pre-COVID. I would also point to, you know, we called out this last quarter a lot more mismatches and so we're seeing the last few quarters customers ordering within lead times. What that means to us is, you know, customers have depleted some of their excess inventories, and they're ready to buy product now, and they're ready to replenish. When they order within lead times, you're not necessarily able to get that product unless we have inventory on the shelves. What we saw this last quarter is now more signs of suppliers delivering product outside of lead times. If a stated lead time is 12 weeks, maybe the supplier's delivering in 15 or 16 weeks. We're seeing really good signs there in terms of backlog building back up again and getting some of the visibility we had pre-COVID. we're seeing really good signs there in terms of backlog building back up again and getting some of the visibility we had pre-covid I would also point to, you know, we called out this last quarter a lot more mismatches and so we're seeing the last few quarters customers ordering within lead times. i would also point to you know we called out this last quarter a lot more mismatches and so we're seeing the last few quarters customers ordering within lead times What that means to us is, you know, customers have depleted some of their excess inventories, and they're ready to buy product now, and they're ready to replenish. what that means to us is you know customers have depleted some of their excess inventories and they're ready to buy product now and they're ready to replenish When they order within lead times, you're not necessarily able to get that product unless we have inventory on the shelves. when they order within lead times you're not necessarily able to get that product unless we have inventory on the shelves What we saw this last quarter is now more signs of suppliers delivering product outside of lead times. what we saw this last quarter is now more signs of suppliers delivering product outside of lead times If a stated lead time is 12 weeks, maybe the supplier's delivering in 15 or 16 weeks. if a stated lead time is 12 weeks maybe the supplier's delivering in 15 or 16 weeks That mismatch is creating, you know, an imbalance between supply and demand, which, you know, is good for us, but challenging for our customers if they wanna make sure they keep their lines running. We continue to encourage customers to give us visibility. You know, let us help with our supply chain capabilities to pipeline product for you, so you can keep your lines running and avoid, you know, having shortages in certain areas. That mismatch is creating, you know, an imbalance between supply and demand, which, you know, is good for us, but challenging for our customers if they wanna make sure they keep their lines running. that mismatch is creating you know an imbalance between supply and demand which you know is good for us but challenging for our customers if they wanna make sure they keep their lines running We continue to encourage customers to give us visibility. we continue to encourage customers to give us visibility You know, let us help with our supply chain capabilities to pipeline product for you, so you can keep your lines running and avoid, you know, having shortages in certain areas. you know let us help with our supply chain capabilities to pipeline product for you so you can keep your lines running and avoid you know having shortages in certain areas

Speaker 2: Okay, great. I'm sure that does help with the visibility longer term. Do you feel as though your customers, even the broad-based customers in Europe, are now shifting more toward real consumption rather than under-shipping demand? I know for many quarters, the suppliers themselves were under-shipping what true demand was, we didn't have a very good representation of what actual consumption was. Do you get a sense that, you know, this is still just shipping to consumption rather than inventory builds? I don't wanna use the word stockpiling because that, you know, that's a bad word. Just curious what you're kind of seeing from your customers there? Okay, great. okay great I'm sure that does help with the visibility longer term. i'm sure that does help with the visibility longer term Do you feel as though your customers, even the broad-based customers in Europe, are now shifting more toward real consumption rather than under-shipping demand? do you feel as though your customers even the broad-based customers in europe are now shifting more toward real consumption rather than under-shipping demand I know for many quarters, the suppliers themselves were under-shipping what true demand was, we didn't have a very good representation of what actual consumption was. i know for many quarters the suppliers themselves were under-shipping what true demand was we didn't have a very good representation of what actual consumption was Do you get a sense that, you know, this is still just shipping to consumption rather than inventory builds? do you get a sense that you know this is still just shipping to consumption rather than inventory builds I don't wanna use the word stockpiling because that, you know, that's a bad word. i don't wanna use the word stockpiling because that you know that's a bad word Just curious what you're kind of seeing from your customers there? just curious what you're kind of seeing from your customers there

Speaker 1: Yeah, maybe I'll start with our own inventory. I mean, I think, you know, it's important we're a distributor, so inventory is, you know, kinda the lifeblood of our business, and so we gotta make sure we have the right inventory. We've, you know, had our own challenges working down our inventory levels or getting rid of some of the areas of excess, so we can invest in areas of need. Clearly in an environment where there's more demand, with the short interval orders within lead times and then deliveries outside of lead times, you know, if you're well-positioned on inventory, you can capture more of the market. Yeah, maybe I'll start with our own inventory. yeah maybe i'll start with our own inventory I mean, I think, you know, it's important we're a distributor, so inventory is, you know, kinda the lifeblood of our business, and so we gotta make sure we have the right inventory. i mean i think you know it's important we're a distributor so inventory is you know kinda the lifeblood of our business and so we gotta make sure we have the right inventory We've, you know, had our own challenges working down our inventory levels or getting rid of some of the areas of excess, so we can invest in areas of need. we've you know had our own challenges working down our inventory levels or getting rid of some of the areas of excess so we can invest in areas of need Clearly in an environment where there's more demand, with the short interval orders within lead times and then deliveries outside of lead times, you know, if you're well-positioned on inventory, you can capture more of the market. clearly in an environment where there's more demand with the short interval orders within lead times and then deliveries outside of lead times you know if you're well-positioned on inventory you can capture more of the market

Speaker 2: Right. Right. right

Speaker 1: I would say the customers, you know, in particular Europe, but I think as a general statement, you know, are in pretty good shape. I think it took a little longer to consume those excess inventory levels, but I would say, you know, if anything, they're probably too leaned out on inventory. I would say the customers, you know, in particular Europe, but I think as a general statement, you know, are in pretty good shape. i would say the customers you know in particular europe but i think as a general statement you know are in pretty good shape I think it took a little longer to consume those excess inventory levels, but I would say, you know, if anything, they're probably too leaned out on inventory. i think it took a little longer to consume those excess inventory levels but i would say you know if anything they're probably too leaned out on inventory

Speaker 2: Okay. Okay. okay

Speaker 1: You know, I think that's a broad statement. There's always some pockets of customers, depending on your end market or vertical that might have, you know, some areas of excess. I think in general, we feel the customer inventory levels are healthy and, you know, we need to make sure we're getting the visibility to make sure they don't come up short. I'd say what you're seeing right now is probably true demand. You know, I think there's areas where things are getting tighter. You know, I think that's a broad statement. you know i think that's a broad statement There's always some pockets of customers, depending on your end market or vertical that might have, you know, some areas of excess. there's always some pockets of customers depending on your end market or vertical that might have you know some areas of excess I think in general, we feel the customer inventory levels are healthy and, you know, we need to make sure we're getting the visibility to make sure they don't come up short. i think in general we feel the customer inventory levels are healthy and you know we need to make sure we're getting the visibility to make sure they don't come up short I'd say what you're seeing right now is probably true demand. i'd say what you're seeing right now is probably true demand You know, I think there's areas where things are getting tighter. you know i think there's areas where things are getting tighter

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: What you tend to see is customer behavior of wanting to order more to think, "If I order more, then maybe I get in line or I get premium access," right? I think we're trying to encourage responsibility is, you know, making sure that, you know, what you're ordering is what you really need for your near term, so we can help, you know, spread those products that are, you know, high in demand across multiple customers. What you tend to see is customer behavior of wanting to order more to think, "If I order more, then maybe I get in line or I get premium access," right? what you tend to see is customer behavior of wanting to order more to think "if i order more then maybe i get in line or i get premium access," right I think we're trying to encourage responsibility is, you know, making sure that, you know, what you're ordering is what you really need for your near term, so we can help, you know, spread those products that are, you know, high in demand across multiple customers. i think we're trying to encourage responsibility is you know making sure that you know what you're ordering is what you really need for your near term so we can help you know spread those products that are you know high in demand across multiple customers

Speaker 2: One of the questions that I get quite frequently, there's a little bit of a misunderstanding, and I think some of it was driven during COVID, during the supply chain crisis, when, you know, we saw kind of an explosion in your revenue levels and then also the margin profile, is how does pricing impact your margins? Rising costs that we're seeing on the component level, particularly, you know, I'm thinking of course in memory and storage, are you able to just pass that through to your own customers, or is there some, you know, kind of, elasticity there? One of the questions that I get quite frequently, there's a little bit of a misunderstanding, and I think some of it was driven during COVID, during the supply chain crisis, when, you know, we saw kind of an explosion in your revenue levels and then also the margin profile, is how does pricing impact your margins? one of the questions that i get quite frequently there's a little bit of a misunderstanding and i think some of it was driven during covid during the supply chain crisis when you know we saw kind of an explosion in your revenue levels and then also the margin profile is how does pricing impact your margins Rising costs that we're seeing on the component level, particularly, you know, I'm thinking of course in memory and storage, are you able to just pass that through to your own customers, or is there some, you know, kind of, elasticity there? rising costs that we're seeing on the component level particularly you know i'm thinking of course in memory and storage are you able to just pass that through to your own customers or is there some you know kind of elasticity there

Speaker 1: I would say when we hit the peak of the shortages, we were seeing, you know, broad-based price increases maybe even multiple times a year. At our peak, you know, I'll use rough numbers, but we were maybe growing 30% in a given year, and we would attribute, you know, roughly 25% of that growth or 7.5% to, you know, pricing increases. A typical scenario would be, you know, a supplier announces a price increase. We tell our customers there's a price increase coming. You know, you might have some consumption of stuff you have on the shelves to be able to get in front of the price increase, going forward, you know, you're buying at the new price. I would say when we hit the peak of the shortages, we were seeing, you know, broad-based price increases maybe even multiple times a year. i would say when we hit the peak of the shortages we were seeing you know broad-based price increases maybe even multiple times a year At our peak, you know, I'll use rough numbers, but we were maybe growing 30% in a given year, and we would attribute, you know, roughly 25% of that growth or 7.5% to, you know, pricing increases. at our peak you know i'll use rough numbers but we were maybe growing 30% in a given year and we would attribute you know roughly 25% of that growth or 7.5% to you know pricing increases A typical scenario would be, you know, a supplier announces a price increase. a typical scenario would be you know a supplier announces a price increase We tell our customers there's a price increase coming. we tell our customers there's a price increase coming You know, you might have some consumption of stuff you have on the shelves to be able to get in front of the price increase, going forward, you know, you're buying at the new price. you know you might have some consumption of stuff you have on the shelves to be able to get in front of the price increase going forward you know you're buying at the new price You know, on average, what we would do is pass those through. We wouldn't make any more gross margin percentage necessarily-. You know, on average, what we would do is pass those through. you know on average what we would do is pass those through We wouldn't make any more gross margin percentage necessarily-. we wouldn't make any more gross margin percentage necessarily-

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: We would still enjoy more gross profit dollars because of that growth. That helps us with our scale. You know, if we had 30% growth, 7.5% of that or 25% coming from that growth, then we would create additional leverage in the model. We think that's likely to be the scenario going forward again. We would still enjoy more gross profit dollars because of that growth. we would still enjoy more gross profit dollars because of that growth That helps us with our scale. that helps us with our scale You know, if we had 30% growth, 7.5% of that or 25% coming from that growth, then we would create additional leverage in the model. you know if we had 30% growth 7.5% of that or 25% coming from that growth then we would create additional leverage in the model We think that's likely to be the scenario going forward again. we think that's likely to be the scenario going forward again

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: When there's opportunity, when we have product on the shelves, you know, we have opportunity to get a little bit more margin. It's okay to get paid the value we provide. At the same time, you know, we understand if a customer is getting a 20% price increase, that's a lot to digest, right? We still should be enjoying our same, you know, gross margin %. When there's opportunity, when we have product on the shelves, you know, we have opportunity to get a little bit more margin. when there's opportunity when we have product on the shelves you know we have opportunity to get a little bit more margin It's okay to get paid the value we provide. it's okay to get paid the value we provide At the same time, you know, we understand if a customer is getting a 20% price increase, that's a lot to digest, right? at the same time you know we understand if a customer is getting a 20% price increase that's a lot to digest right We still should be enjoying our same, you know, gross margin %. we still should be enjoying our same you know gross margin %

Speaker 2: Yeah. Yeah. yeah

Speaker 1: You know, in part because we're giving you terms on that. We're holding inventory at the higher price, right? You know, in part because we're giving you terms on that. you know in part because we're giving you terms on that We're holding inventory at the higher price, right? we're holding inventory at the higher price right

Speaker 2: Yeah. Yeah. yeah

Speaker 1: there is more value we are providing too. I think, you know, what I would say though, as a caution, everyone, is, you know, we are not anywhere near what we were seeing in that environment with. there is more value we are providing too. there is more value we are providing too I think, you know, what I would say though, as a caution, everyone, is, you know, we are not anywhere near what we were seeing in that environment with. i think you know what i would say though as a caution everyone is you know we are not anywhere near what we were seeing in that environment with

Speaker 2: Right. Right. right

Speaker 1: with broad-based price increase. I think we're hearing some anecdotes on increases. You know, memory comes to mind as, you know, things have been announced, although some of those increases haven't taken effect. There's other price increases that we're aware of or been announced that are, you know, surrounding certain technologies or certain customer bases, but I would not say anything's broad-based, and we're still early innings. You know, the indicators seem to be there of some pricing moves. A lot of that's driven by the input costs. You mentioned that before. with broad-based price increase. with broad-based price increase I think we're hearing some anecdotes on increases. i think we're hearing some anecdotes on increases You know, memory comes to mind as, you know, things have been announced, although some of those increases haven't taken effect. you know memory comes to mind as you know things have been announced although some of those increases haven't taken effect There's other price increases that we're aware of or been announced that are, you know, surrounding certain technologies or certain customer bases, but I would not say anything's broad-based, and we're still early innings. there's other price increases that we're aware of or been announced that are you know surrounding certain technologies or certain customer bases but i would not say anything's broad-based and we're still early innings You know, the indicators seem to be there of some pricing moves. you know the indicators seem to be there of some pricing moves A lot of that's driven by the input costs. a lot of that's driven by the input costs You mentioned that before. you mentioned that before

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: as, you know, we're seeing, you know, precious metals, gold, things with gold in it. Okay, connectors with gold, hey, there's a price increase, you know. as, you know, we're seeing, you know, precious metals, gold, things with gold in it. as you know we're seeing you know precious metals gold things with gold in it Okay, connectors with gold, hey, there's a price increase, you know. okay connectors with gold hey there's a price increase you know

Speaker 2: Sure. Sure. sure

Speaker 1: Tantalum on the passives. There are, you know, true input costs that are rising that are leading to some of these, you know, talked about price increases. Tantalum on the passives. tantalum on the passives There are, you know, true input costs that are rising that are leading to some of these, you know, talked about price increases. there are you know true input costs that are rising that are leading to some of these you know talked about price increases

Speaker 2: I think when we, when we get into periods of growth during the up cycle, typically, you know, you kind of addressed a little bit of the working capital investment that you need to make in order to support that. I'm curious on the OpEx line, like your own internal costs, it seems as though we've got a little bit better leverage in the operating model than maybe in past, you know, quote-unquote, normal cycles, excluding the supply chain crisis. How much has automation, deploying AI within your own internal processes or internal efficiencies allowed you to capitalize on some of those, you know, like drive a little bit more leverage in the operating model as we get to return to growth? I think when we, when we get into periods of growth during the up cycle, typically, you know, you kind of addressed a little bit of the working capital investment that you need to make in order to support that. i think when we when we get into periods of growth during the up cycle typically you know you kind of addressed a little bit of the working capital investment that you need to make in order to support that I'm curious on the OpEx line, like your own internal costs, it seems as though we've got a little bit better leverage in the operating model than maybe in past, you know, quote-unquote, normal cycles, excluding the supply chain crisis. i'm curious on the opex line like your own internal costs it seems as though we've got a little bit better leverage in the operating model than maybe in past you know quote-unquote normal cycles excluding the supply chain crisis How much has automation, deploying AI within your own internal processes or internal efficiencies allowed you to capitalize on some of those, you know, like drive a little bit more leverage in the operating model as we get to return to growth? how much has automation deploying ai within your own internal processes or internal efficiencies allowed you to capitalize on some of those you know like drive a little bit more leverage in the operating model as we get to return to growth

Speaker 1: I think we are focused. We brought in a Chief Digital Officer, a little over a year ago, with a lot of expertise, not only in e-commerce, but also digital tools and solutions. We think about our two kind of value propositions of design chain and supply chain. You know, there's a lot we can do with technology. You know, 2/3 of our business is comprised of, you know, people and people costs. I think we are focused. i think we are focused We brought in a Chief Digital Officer, a little over a year ago, with a lot of expertise, not only in e-commerce, but also digital tools and solutions. we brought in a chief digital officer a little over a year ago with a lot of expertise not only in e-commerce but also digital tools and solutions We think about our two kind of value propositions of design chain and supply chain. we think about our two kind of value propositions of design chain and supply chain You know, there's a lot we can do with technology. you know there's a lot we can do with technology You know, 2/3 of our business is comprised of, you know, people and people costs. you know 2/3 of our business is comprised of you know people and people costs

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: You know, although in the warehouse, there's physical movement, you can always optimize there. I think, you know, as we look at our technical resources, we've got 2,000 technical engineers across the globe that help customers in design options. You know, we can definitely use technology and digital tools and capabilities to help them be more efficient in supporting our customers in our design chain. Same thing as supply chain, customer service, all those kind of things. You know, there's a lot we can use technology and the data we have to make better decisions and to, you know, support our customers better. You know, although in the warehouse, there's physical movement, you can always optimize there. you know although in the warehouse there's physical movement you can always optimize there I think, you know, as we look at our technical resources, we've got 2,000 technical engineers across the globe that help customers in design options. i think you know as we look at our technical resources we've got 2,000 technical engineers across the globe that help customers in design options You know, we can definitely use technology and digital tools and capabilities to help them be more efficient in supporting our customers in our design chain. you know we can definitely use technology and digital tools and capabilities to help them be more efficient in supporting our customers in our design chain Same thing as supply chain, customer service, all those kind of things. same thing as supply chain customer service all those kind of things You know, there's a lot we can use technology and the data we have to make better decisions and to, you know, support our customers better. you know there's a lot we can use technology and the data we have to make better decisions and to you know support our customers better I'd still say we're early innings in terms of some of those, you know, use cases and capabilities, but we have a roadmap we feel pretty good about, you know, that there is value to provide. Again, some of it's cost reduction, some of it's, you know, efficiency for the team, but it all should yield, you know, our ability to grow and not add a bunch of expense. I'd still say we're early innings in terms of some of those, you know, use cases and capabilities, but we have a roadmap we feel pretty good about, you know, that there is value to provide. i'd still say we're early innings in terms of some of those you know use cases and capabilities but we have a roadmap we feel pretty good about you know that there is value to provide Again, some of it's cost reduction, some of it's, you know, efficiency for the team, but it all should yield, you know, our ability to grow and not add a bunch of expense. again some of it's cost reduction some of it's you know efficiency for the team but it all should yield you know our ability to grow and not add a bunch of expense

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: ... you know, so we can drop more through to the bottom line. I think we feel well-positioned with our OpEx right now to be able to have a couple years of nice growth without having to add a lot of costs. ... you know, so we can drop more through to the bottom line. you know so we can drop more through to the bottom line I think we feel well-positioned with our OpEx right now to be able to have a couple years of nice growth without having to add a lot of costs. i think we feel well-positioned with our opex right now to be able to have a couple years of nice growth without having to add a lot of costs

Speaker 2: Okay, great. That kind of leads us into a natural discussion about the margin targets. At your last investor meeting, which was a few years ago, you had set a target margin of getting operating margins above 5% sustainably. We were able to exceed that during the supply chain crisis. I'm just curious, what are some of the market conditions or maybe product mix that we need to see in order to get that margin target sustainably? Okay, great. okay great That kind of leads us into a natural discussion about the margin targets. that kind of leads us into a natural discussion about the margin targets At your last investor meeting, which was a few years ago, you had set a target margin of getting operating margins above 5% sustainably. at your last investor meeting which was a few years ago you had set a target margin of getting operating margins above 5% sustainably We were able to exceed that during the supply chain crisis. we were able to exceed that during the supply chain crisis I'm just curious, what are some of the market conditions or maybe product mix that we need to see in order to get that margin target sustainably? i'm just curious what are some of the market conditions or maybe product mix that we need to see in order to get that margin target sustainably

Speaker 1: I think I think i think

Speaker 2: or above. or above. or above

Speaker 1: Yeah, I think the targets necessarily haven't changed. You know, our EC business, you know, was above 5% for a few quarters. Yeah, I think the targets necessarily haven't changed. yeah i think the targets necessarily haven't changed You know, our EC business, you know, was above 5% for a few quarters. you know our ec business you know was above 5% for a few quarters

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: You know, our floor this time around is roughly 3%. If you think about the last cycle coming out of it, you know, we hit as low as 1.5% of that business. I would say kind of the step-up in revenues and scale has allowed us to now have a new bottom of potentially 3% there, and we're on our way back to growth. I mean, I think, you know, again, growth in the West with the higher margins, the recovery of the West- You know, our floor this time around is roughly 3%. you know our floor this time around is roughly 3% If you think about the last cycle coming out of it, you know, we hit as low as 1.5% of that business. if you think about the last cycle coming out of it you know we hit as low as 1.5% of that business I would say kind of the step-up in revenues and scale has allowed us to now have a new bottom of potentially 3% there, and we're on our way back to growth. i would say kind of the step-up in revenues and scale has allowed us to now have a new bottom of potentially 3% there and we're on our way back to growth I mean, I think, you know, again, growth in the West with the higher margins, the recovery of the West- i mean i think you know again growth in the west with the higher margins the recovery of the west-

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: ... I would almost say with the, you know, is gonna help a lot, 'cause that's our higher margin regions. You know, scale does matter in our business, and again, we can control the cost. I think, you know, continuing to drive those initiatives to grow the business faster than the market, you know, focus on the value we provide to get a little bit more gross margin, those are all levers that will help us. We didn't talk about Farnell much, outside of the introduction there. ... I would almost say with the, you know, is gonna help a lot, 'cause that's our higher margin regions. i would almost say with the you know is gonna help a lot 'cause that's our higher margin regions You know, scale does matter in our business, and again, we can control the cost. you know scale does matter in our business and again we can control the cost I think, you know, continuing to drive those initiatives to grow the business faster than the market, you know, focus on the value we provide to get a little bit more gross margin, those are all levers that will help us. i think you know continuing to drive those initiatives to grow the business faster than the market you know focus on the value we provide to get a little bit more gross margin those are all levers that will help us We didn't talk about Farnell much, outside of the introduction there. we didn't talk about farnell much outside of the introduction there

Speaker 2: Oh, I was getting there. Oh, I was getting there. oh i was getting there

Speaker 1: That will help a lot too. Farnell business runs at 30 points of margin versus, you know, our EC business. You know, we've got some, I think good tailwinds coming our way, and I think we're well-positioned, not only with our customers, but also with our supplier partners. Just this last quarter, we improved operating margin in the EC business by roughly 30 basis points. Our guidance for the March quarter implies another 30 basis point uplift. We're starting to see the traction as we start to recover in the West. That will help a lot too. that will help a lot too Farnell business runs at 30 points of margin versus, you know, our EC business. farnell business runs at 30 points of margin versus you know our ec business You know, we've got some, I think good tailwinds coming our way, and I think we're well-positioned, not only with our customers, but also with our supplier partners. you know we've got some i think good tailwinds coming our way and i think we're well-positioned not only with our customers but also with our supplier partners Just this last quarter, we improved operating margin in the EC business by roughly 30 basis points. just this last quarter we improved operating margin in the ec business by roughly 30 basis points Our guidance for the March quarter implies another 30 basis point uplift. our guidance for the march quarter implies another 30 basis point uplift We're starting to see the traction as we start to recover in the West. we're starting to see the traction as we start to recover in the west

Speaker 2: Okay, great. I would like to talk about Farnell. You know, talk about how there are synergies between that and the components business in terms of, you know, maybe serving as a funnel for longer term opportunities, but certainly that margin profile it brings some opportunities for you as well. Discuss what's been going on there. You know, I know that we had some disruption coming out of the supply chain crisis, maybe some inefficiencies, and what you've been doing over the past year and a half, almost two years now, in order to get the margin profile back up to where you want it. Okay, great. okay great I would like to talk about Farnell. i would like to talk about farnell You know, talk about how there are synergies between that and the components business in terms of, you know, maybe serving as a funnel for longer term opportunities, but certainly that margin profile it brings some opportunities for you as well. you know talk about how there are synergies between that and the components business in terms of you know maybe serving as a funnel for longer term opportunities but certainly that margin profile it brings some opportunities for you as well Discuss what's been going on there. discuss what's been going on there You know, I know that we had some disruption coming out of the supply chain crisis, maybe some inefficiencies, and what you've been doing over the past year and a half, almost two years now, in order to get the margin profile back up to where you want it. you know i know that we had some disruption coming out of the supply chain crisis maybe some inefficiencies and what you've been doing over the past year and a half almost two years now in order to get the margin profile back up to where you want it

Speaker 1: Yeah. Our Farnell business, you know, thinks gives us a differentiator between our competition, that high service business, and again, the margins are very attractive. I think, you know, what we're continuing to do is get our Farnell business closer to our core business, and I'll give you a couple examples of that. You know, think about our core business. You know, roughly 30% of that business is done through, you know, EMS contract manufacturing, and, you know, there's a long tail of the EMS customers as well as the big guys. You know, we're really under-penetrated in that customer base with Farnell. Yeah. yeah Our Farnell business, you know, thinks gives us a differentiator between our competition, that high service business, and again, the margins are very attractive. our farnell business you know thinks gives us a differentiator between our competition that high service business and again the margins are very attractive I think, you know, what we're continuing to do is get our Farnell business closer to our core business, and I'll give you a couple examples of that. i think you know what we're continuing to do is get our farnell business closer to our core business and i'll give you a couple examples of that You know, think about our core business. you know think about our core business You know, roughly 30% of that business is done through, you know, EMS contract manufacturing, and, you know, there's a long tail of the EMS customers as well as the big guys. you know roughly 30% of that business is done through you know ems contract manufacturing and you know there's a long tail of the ems customers as well as the big guys You know, we're really under-penetrated in that customer base with Farnell. you know we're really under-penetrated in that customer base with farnell Although we've got great relationships in the core, and Avnet's got a, you know, there's not a lot of business, not only for on-board components, but also the test and measurement, the maintenance and repair, all the things that, you know, an engineer would need to, you know, design products. We think there's more opportunity really just to continue to cross-sell with our existing customer base with Farnell. I think on the flip side, you know, early identification for, you know, high volume customers coming through Farnell. Although we've got great relationships in the core, and Avnet's got a, you know, there's not a lot of business, not only for on-board components, but also the test and measurement, the maintenance and repair, all the things that, you know, an engineer would need to, you know, design products. although we've got great relationships in the core and avnet's got a you know there's not a lot of business not only for on-board components but also the test and measurement the maintenance and repair all the things that you know an engineer would need to you know design products We think there's more opportunity really just to continue to cross-sell with our existing customer base with Farnell. I think on the flip side, you know, early identification for, you know, high volume customers coming through Farnell. we think there's more opportunity really just to continue to cross-sell with our existing customer base with farnell. i think on the flip side you know early identification for you know high volume customers coming through farnell

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: Farnell's got a much bigger customer base than our core business, you know, in the hundreds of thousands through their e-commerce platform. Continuing to identify leads and marketing leads and early in the process to shift those over to Avnet to be able to keep that business is good. Then going back to the Chief Digital Officer, one of the things we're focused on, we believe within our control for the Farnell revenues, is really just the e-commerce penetration. We're getting lots of website hits, lots of eyeballs coming to not only the Farnell, but also the Avnet properties. How do we convert more and capitalize more on making sure we're getting those converted to sales? Farnell's got a much bigger customer base than our core business, you know, in the hundreds of thousands through their e-commerce platform. farnell's got a much bigger customer base than our core business you know in the hundreds of thousands through their e-commerce platform Continuing to identify leads and marketing leads and early in the process to shift those over to Avnet to be able to keep that business is good. continuing to identify leads and marketing leads and early in the process to shift those over to avnet to be able to keep that business is good Then going back to the Chief Digital Officer, one of the things we're focused on, we believe within our control for the Farnell revenues, is really just the e-commerce penetration. then going back to the chief digital officer one of the things we're focused on we believe within our control for the farnell revenues is really just the e-commerce penetration We're getting lots of website hits, lots of eyeballs coming to not only the Farnell, but also the Avnet properties. we're getting lots of website hits lots of eyeballs coming to not only the farnell but also the avnet properties How do we convert more and capitalize more on making sure we're getting those converted to sales? how do we convert more and capitalize more on making sure we're getting those converted to sales There's some things we can do in terms of the e-commerce proposition, some of the functionality of the site to help drive that conversion rate better, which then is, you know, additional growth for Farnell. There's some things we can do in terms of the e-commerce proposition, some of the functionality of the site to help drive that conversion rate better, which then is, you know, additional growth for Farnell. there's some things we can do in terms of the e-commerce proposition some of the functionality of the site to help drive that conversion rate better which then is you know additional growth for farnell

Speaker 2: Is the mix of the product or the components meaningfully different between EC and the Farnell business? Is the mix of the product or the components meaningfully different between EC and the Farnell business? is the mix of the product or the components meaningfully different between ec and the farnell business

Speaker 1: I think, you know, in general, the types of products that are sold by Farnell, at least for on-board components, are the same as the core business. Although Farnell tends to focus on more SKUs in terms of if a supplier has a portfolio, let's say of 10,000 SKUs, Farnell may support 9,000 of those SKUs. I think, you know, in general, the types of products that are sold by Farnell, at least for on-board components, are the same as the core business. i think you know in general the types of products that are sold by farnell at least for on-board components are the same as the core business Although Farnell tends to focus on more SKUs in terms of if a supplier has a portfolio, let's say of 10,000 SKUs, Farnell may support 9,000 of those SKUs. although farnell tends to focus on more skus in terms of if a supplier has a portfolio let's say of 10,000 skus farnell may support 9,000 of those skus

Speaker 2: Okay. Okay. okay

Speaker 1: The core business may be only a couple thousand as an example. You know, Farnell, part of their value proposition is seeding the market with new product introductions. The core business may be only a couple thousand as an example. the core business may be only a couple thousand as an example You know, Farnell, part of their value proposition is seeding the market with new product introductions. you know farnell part of their value proposition is seeding the market with new product introductions

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: Making sure we've got a broad selection of parts. When an engineer goes, they can get anything they need from Farnell. There's a differentiator in Farnell's business in terms of, you know, they sell single-board computers, test and measurement. Making sure we've got a broad selection of parts. making sure we've got a broad selection of parts When an engineer goes, they can get anything they need from Farnell. when an engineer goes they can get anything they need from farnell There's a differentiator in Farnell's business in terms of, you know, they sell single-board computers, test and measurement. there's a differentiator in farnell's business in terms of you know they sell single-board computers test and measurement

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: maintenance and repair products that the core business really doesn't support. That's all for the benefit of here's everything an engineer needs at their design workbench and- maintenance and repair products that the core business really doesn't support. maintenance and repair products that the core business really doesn't support That's all for the benefit of here's everything an engineer needs at their design workbench and- that's all for the benefit of here's everything an engineer needs at their design workbench and-

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: ... to test their products. From an on the board component perspective, we're very aligned in terms of line card and what we have there. Just for a little bit more color, you know, when we talk about a on the board component, that means a semiconductor or all the IP&E parts that are around the board. That's what we refer to as more of electronic components, and that carries a higher margin for Farnell. What you're seeing in Farnell is growth in some of those other areas, but the on the board components have been a little bit depressed and primarily 'cause Farnell is a mostly Europe but also heavy Americas business. ... to test their products. to test their products From an on the board component perspective, we're very aligned in terms of line card and what we have there. from an on the board component perspective we're very aligned in terms of line card and what we have there Just for a little bit more color, you know, when we talk about a on the board component, that means a semiconductor or all the IP&E parts that are around the board. just for a little bit more color you know when we talk about a on the board component that means a semiconductor or all the ip&e parts that are around the board That's what we refer to as more of electronic components, and that carries a higher margin for Farnell. that's what we refer to as more of electronic components and that carries a higher margin for farnell What you're seeing in Farnell is growth in some of those other areas, but the on the board components have been a little bit depressed and primarily 'cause Farnell is a mostly Europe but also heavy Americas business. what you're seeing in farnell is growth in some of those other areas but the on the board components have been a little bit depressed and primarily 'cause farnell is a mostly europe but also heavy americas business

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: As that market begins to recover, you'll start to see some tailwinds in Farnell's gross margin because of more sales of semiconductors and IP&E products. That margin has stabilized and is, you know, pretty good margin. As that market begins to recover, you'll start to see some tailwinds in Farnell's gross margin because of more sales of semiconductors and IP&E products. as that market begins to recover you'll start to see some tailwinds in farnell's gross margin because of more sales of semiconductors and ip&e products That margin has stabilized and is, you know, pretty good margin. that margin has stabilized and is you know pretty good margin

Speaker 2: Great. You mentioned engineering and services a couple of times at different points in the discussion. Maybe if you could talk about how value-added services within either business are going to be accretive to margin longer term and, you know, kind of categorize what all you're able to provide for your customers? Great. great You mentioned engineering and services a couple of times at different points in the discussion. you mentioned engineering and services a couple of times at different points in the discussion Maybe if you could talk about how value-added services within either business are going to be accretive to margin longer term and, you know, kind of categorize what all you're able to provide for your customers? maybe if you could talk about how value-added services within either business are going to be accretive to margin longer term and you know kind of categorize what all you're able to provide for your customers

Speaker 1: Yeah. I think from a I'll start with supply chain service. I think we're seeing more and more opportunity for customers coming to Avnet to support their supply chain needs. A unique opportunity we're seeing, and we saw some of it coming out of the pandemic, and it's really, you know, the large OEMs, you know, that have complex supply chains and, you know, they buy lots of parts. They have lots of partners that help them with their manufacturing, but they don't actually have warehouses. They don't have, you know. Yeah. yeah I think from a I'll start with supply chain service. i think from a i'll start with supply chain service I think we're seeing more and more opportunity for customers coming to Avnet to support their supply chain needs. i think we're seeing more and more opportunity for customers coming to avnet to support their supply chain needs A unique opportunity we're seeing, and we saw some of it coming out of the pandemic, and it's really, you know, the large OEMs, you know, that have complex supply chains and, you know, they buy lots of parts. a unique opportunity we're seeing and we saw some of it coming out of the pandemic and it's really you know the large oems you know that have complex supply chains and you know they buy lots of parts They have lots of partners that help them with their manufacturing, but they don't actually have warehouses. they have lots of partners that help them with their manufacturing but they don't actually have warehouses They don't have, you know. they don't have you know

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: ... even legal entity footprints to secure product where they need it. They bring someone like Avnet in to help provide supply chain services. That could be procurement services. It could be, you know, warehouse and logistics. It could be buffer stock. And it could be kinda just-in-time delivery to their network of manufacturing partners. We're seeing a lot more opportunity with the supply chain disruptions to come in and provide services. That's part of the available market or the TAM right now, but Avnet really hasn't played a part. Those are usually the direct customers of the supplier base. We're seeing more opportunities there, you know, to provide supply chain services, and then we can take some of those solutions and provide it to our mass market customers and provide them more supply chain opportunities. We like that. ... even legal entity footprints to secure product where they need it. even legal entity footprints to secure product where they need it They bring someone like Avnet in to help provide supply chain services. they bring someone like avnet in to help provide supply chain services That could be procurement services. that could be procurement services It could be, you know, warehouse and logistics. it could be you know warehouse and logistics It could be buffer stock. it could be buffer stock And it could be kinda just-in-time delivery to their network of manufacturing partners. and it could be kinda just-in-time delivery to their network of manufacturing partners We're seeing a lot more opportunity with the supply chain disruptions to come in and provide services. we're seeing a lot more opportunity with the supply chain disruptions to come in and provide services That's part of the available market or the TAM right now, but Avnet really hasn't played a part. that's part of the available market or the tam right now but avnet really hasn't played a part Those are usually the direct customers of the supplier base. those are usually the direct customers of the supplier base We're seeing more opportunities there, you know, to provide supply chain services, and then we can take some of those solutions and provide it to our mass market customers and provide them more supply chain opportunities. we're seeing more opportunities there you know to provide supply chain services and then we can take some of those solutions and provide it to our mass market customers and provide them more supply chain opportunities We like that. we like that It's a higher gross margin. It's not really a top-line mover, but higher gross margin. Our design capabilities, you know, the more, parts we can help customers select, then we typically get a better cost from our manufacturing partners. It's a higher gross margin. it's a higher gross margin It's not really a top-line mover, but higher gross margin. it's not really a top-line mover but higher gross margin Our design capabilities, you know, the more, parts we can help customers select, then we typically get a better cost from our manufacturing partners. our design capabilities you know the more parts we can help customers select then we typically get a better cost from our manufacturing partners

Speaker 2: Okay. Okay. okay

Speaker 1: There's a little bit higher gross margin there. There's a few different things that we have in the portfolio to help drive gross margins. The last thing I'll talk about is. There's a little bit higher gross margin there. there's a little bit higher gross margin there There's a few different things that we have in the portfolio to help drive gross margins. there's a few different things that we have in the portfolio to help drive gross margins The last thing I'll talk about is. the last thing i'll talk about is

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: ... and embedded solutions. ... and embedded solutions. and embedded solutions

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: You know, we're seeing more and more customers eliminate time to market through choosing embedded boards and solutions. We've got a embedded board and solutions business based out of Europe that helps customers design custom boards, or we have standard boards. We, we see that as a win-win-win where the suppliers can wrap more of their technologies within a single board. We can enjoy a higher margin because we own the design, and then our customers get a quicker and cheaper, overall solution. We're seeing that business be a little depressed with what's going on in Europe 'cause it's a heavy industrial- You know, we're seeing more and more customers eliminate time to market through choosing embedded boards and solutions. you know we're seeing more and more customers eliminate time to market through choosing embedded boards and solutions We've got a embedded board and solutions business based out of Europe that helps customers design custom boards, or we have standard boards. we've got a embedded board and solutions business based out of europe that helps customers design custom boards or we have standard boards We, we see that as a win-win-win where the suppliers can wrap more of their technologies within a single board. we we see that as a win-win-win where the suppliers can wrap more of their technologies within a single board We can enjoy a higher margin because we own the design, and then our customers get a quicker and cheaper, overall solution. we can enjoy a higher margin because we own the design and then our customers get a quicker and cheaper overall solution We're seeing that business be a little depressed with what's going on in Europe 'cause it's a heavy industrial- we're seeing that business be a little depressed with what's going on in europe 'cause it's a heavy industrial-

Speaker 2: Mm-hmm Mm-hmm mm-hmm

Speaker 1: ... healthcare base, but we're seeing some of that start to come back, and the prospects over the next few years with an embedded space are good. ... healthcare base, but we're seeing some of that start to come back, and the prospects over the next few years with an embedded space are good. healthcare base but we're seeing some of that start to come back and the prospects over the next few years with an embedded space are good

Speaker 2: Great. Great. How much does trade and tariff navigation play into either your value-added services or even just, you know, the broader business? You know, you touched on your locations in Asia, locations in Europe. You've got a pretty wide geographic footprint of just availability of warehouses, the distribution centers, even engineers globally. With a lot of the uncertainty in trade and tariffs, you know, has this presented an opportunity for Avnet? Great. great Great. great How much does trade and tariff navigation play into either your value-added services or even just, you know, the broader business? how much does trade and tariff navigation play into either your value-added services or even just you know the broader business You know, you touched on your locations in Asia, locations in Europe. you know you touched on your locations in asia locations in europe You've got a pretty wide geographic footprint of just availability of warehouses, the distribution centers, even engineers globally. you've got a pretty wide geographic footprint of just availability of warehouses the distribution centers even engineers globally With a lot of the uncertainty in trade and tariffs, you know, has this presented an opportunity for Avnet? with a lot of the uncertainty in trade and tariffs you know has this presented an opportunity for avnet

Speaker 1: I mean, I would say any supply chain disruptions, tariff included, present opportunity, and I would maybe, you know, start with the positives before we get into some of the negatives is just, you know, we have been able to adapt and pivot with some of these changes and again, you know, because we have operations in 140 different countries, we can, you know, move your supply chain where you need it. You know, we saw it back when there was focus on China and China Plus One. I mean, I would say any supply chain disruptions, tariff included, present opportunity, and I would maybe, you know, start with the positives before we get into some of the negatives is just, you know, we have been able to adapt and pivot with some of these changes and again, you know, because we have operations in 140 different countries, we can, you know, move your supply chain where you need it. i mean i would say any supply chain disruptions tariff included present opportunity and i would maybe you know start with the positives before we get into some of the negatives is just you know we have been able to adapt and pivot with some of these changes and again you know because we have operations in 140 different countries we can you know move your supply chain where you need it You know, we saw it back when there was focus on China and China Plus One. you know we saw it back when there was focus on china and china plus one

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: We're seeing a lot of beneficiary in Southeast Asia, markets like Malaysia, Vietnam, India. We're also seeing more nearshoring. You know, Guadalajara, for example, is big for us. We're seeing a lot more companies move to Mexico. You know, although there was just this disruption a couple weeks ago... We're seeing a lot of beneficiary in Southeast Asia, markets like Malaysia, Vietnam, India. we're seeing a lot of beneficiary in southeast asia markets like malaysia vietnam india We're also seeing more nearshoring. we're also seeing more nearshoring You know, Guadalajara, for example, is big for us. you know guadalajara for example is big for us We're seeing a lot more companies move to Mexico. we're seeing a lot more companies move to mexico You know, although there was just this disruption a couple weeks ago... you know although there was just this disruption a couple weeks ago

Speaker 2: Mm-hmm Mm-hmm mm-hmm

Speaker 1: Some of that, and we had to shut down the warehouse. I do think, you know, you never know where your supply chain disruption is going to come. Our global scale and footprint and trying to invest ahead of the curve of where that next, you know, support spot will be is important, and for the tariffs here specifically in the U.S., you know, we've been able to pivot our distribution center in Phoenix, Arizona is a free trade zone, so it allows us to mitigate tariff impacts until we know exactly where the product's going. Mexico has been another beneficiary there. You know, we try our best to mitigate where possible. Unfortunately, if you're going to be manufacturing here in the U.S. and you use a product produced in China, you're going to have to pay a tariff. Some of that, and we had to shut down the warehouse. some of that and we had to shut down the warehouse I do think, you know, you never know where your supply chain disruption is going to come. i do think you know you never know where your supply chain disruption is going to come Our global scale and footprint and trying to invest ahead of the curve of where that next, you know, support spot will be is important, and for the tariffs here specifically in the U.S., you know, we've been able to pivot our distribution center in Phoenix, Arizona is a free trade zone, so it allows us to mitigate tariff impacts until we know exactly where the product's going. our global scale and footprint and trying to invest ahead of the curve of where that next you know support spot will be is important and for the tariffs here specifically in the u.s you know we've been able to pivot our distribution center in phoenix arizona is a free trade zone so it allows us to mitigate tariff impacts until we know exactly where the product's going Mexico has been another beneficiary there. mexico has been another beneficiary there You know, we try our best to mitigate where possible. you know we try our best to mitigate where possible Unfortunately, if you're going to be manufacturing here in the U.S. and you use a product produced in China, you're going to have to pay a tariff. unfortunately if you're going to be manufacturing here in the u.s and you use a product produced in china you're going to have to pay a tariff And so- And so- and so-

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: We have to pass it through. We've been, you know, pretty transparent to our customers. It's been a lot of work for the team, the operations team, for all the changes, and you're kind of reacting to news reports real time. We have to pass it through. we have to pass it through We've been, you know, pretty transparent to our customers. we've been you know pretty transparent to our customers It's been a lot of work for the team, the operations team, for all the changes, and you're kind of reacting to news reports real time. it's been a lot of work for the team the operations team for all the changes and you're kind of reacting to news reports real time

Speaker 2: Yeah. Yeah. yeah

Speaker 1: I think we've got at least some kind of process down. I think we've got at least some kind of process down. i think we've got at least some kind of process down

Speaker 2: That would be the negative. That would be the negative. that would be the negative

Speaker 1: To be able to react to everything else. Yeah. You know, and again, you know, we've talked about price increase in the past, and I would say customers sometimes are easier to absorb a 20% price increase from a coming from supplier versus a, you know, 2% tariff pass-through. We've worked through it, and I think we're in a pretty good spot now, although we'll continue to monitor the situation. Just for more context, perhaps, you know, our business overall, less than, you know, 2% of our revenues are from tariff billings. To be able to react to everything else. to be able to react to everything else Yeah. yeah You know, and again, you know, we've talked about price increase in the past, and I would say customers sometimes are easier to absorb a 20% price increase from a coming from supplier versus a, you know, 2% tariff pass-through. you know and again you know we've talked about price increase in the past and i would say customers sometimes are easier to absorb a 20% price increase from a coming from supplier versus a you know 2% tariff pass-through We've worked through it, and I think we're in a pretty good spot now, although we'll continue to monitor the situation. we've worked through it and i think we're in a pretty good spot now although we'll continue to monitor the situation Just for more context, perhaps, you know, our business overall, less than, you know, 2% of our revenues are from tariff billings. just for more context perhaps you know our business overall less than you know 2% of our revenues are from tariff billings

Speaker 2: Oh, okay. Oh, okay. oh okay

Speaker 1: You know, from an America standpoint, sorry. Globally, it's less than 1%. You know, from an America standpoint, sorry. you know from an america standpoint sorry Globally, it's less than 1%. globally it's less than 1%

Speaker 2: Right. Right. right

Speaker 1: It's pretty insignificant. It's pretty insignificant. it's pretty insignificant

Speaker 2: Okay. Okay. okay

Speaker 1: ... in terms of the overall impact. It's that, unlike the other pass-throughs, that's a really truly a pass-through where whatever tariff we charge, we're charging the customer that, you know, as almost a tax. ... in terms of the overall impact. in terms of the overall impact It's that, unlike the other pass-throughs, that's a really truly a pass-through where whatever tariff we charge, we're charging the customer that, you know, as almost a tax. it's that unlike the other pass-throughs that's a really truly a pass-through where whatever tariff we charge we're charging the customer that you know as almost a tax

Speaker 2: Okay. We've just got a few minutes left, so I wanna open it up, see if there are any questions in the audience. Before I move on, I would be remiss, we have the CFO sitting here, I need to ask him about capital allocation and, you know, some of your investment priorities. You know, typically with a cyclical recovery, we touched on this a little bit earlier, requires a significant working capital investment to support the growth. Maybe talk about where your balance sheet is today, your current inventory levels? It seems as though, you know, we're supporting better revenue growth without driving that big spike in working capital investment. Okay. okay We've just got a few minutes left, so I wanna open it up, see if there are any questions in the audience. we've just got a few minutes left so i wanna open it up see if there are any questions in the audience Before I move on, I would be remiss, we have the CFO sitting here, I need to ask him about capital allocation and, you know, some of your investment priorities. before i move on i would be remiss we have the cfo sitting here i need to ask him about capital allocation and you know some of your investment priorities You know, typically with a cyclical recovery, we touched on this a little bit earlier, requires a significant working capital investment to support the growth. you know typically with a cyclical recovery we touched on this a little bit earlier requires a significant working capital investment to support the growth Maybe talk about where your balance sheet is today, your current inventory levels? maybe talk about where your balance sheet is today your current inventory levels It seems as though, you know, we're supporting better revenue growth without driving that big spike in working capital investment. it seems as though you know we're supporting better revenue growth without driving that big spike in working capital investment

Speaker 1: Yeah. From an inventory perspective, I would say, you know, we have at least the right amount of dollars. There's still some opportunity. We've been, over the past several quarters, kind of beneath the surface. You know, although the balance sheet number might be one number, beneath the surface, there's been lots of changes in the composition of the inventory and getting some of the aged and excess inventory out and investing in inventory that's gonna turn faster and that's needed. There's still some work to do there, but I feel really good about, you know, the fact that we don't have to necessarily invest a lot of inventory dollars to continue to grow the business. Now we're gonna need to invest in the right kinds of inventory and make sure we've got the right products on the shelf. Yeah. yeah From an inventory perspective, I would say, you know, we have at least the right amount of dollars. from an inventory perspective i would say you know we have at least the right amount of dollars There's still some opportunity. there's still some opportunity We've been, over the past several quarters, kind of beneath the surface. we've been over the past several quarters kind of beneath the surface You know, although the balance sheet number might be one number, beneath the surface, there's been lots of changes in the composition of the inventory and getting some of the aged and excess inventory out and investing in inventory that's gonna turn faster and that's needed. you know although the balance sheet number might be one number beneath the surface there's been lots of changes in the composition of the inventory and getting some of the aged and excess inventory out and investing in inventory that's gonna turn faster and that's needed There's still some work to do there, but I feel really good about, you know, the fact that we don't have to necessarily invest a lot of inventory dollars to continue to grow the business. there's still some work to do there but i feel really good about you know the fact that we don't have to necessarily invest a lot of inventory dollars to continue to grow the business Now we're gonna need to invest in the right kinds of inventory and make sure we've got the right products on the shelf. now we're gonna need to invest in the right kinds of inventory and make sure we've got the right products on the shelf

Speaker 2: Sure. Sure. sure

Speaker 1: As, you know, lead times potentially extend as more demand from customers come within lead times, right? I think we're gonna start turning the inventory faster. From an enterprise perspective, you know, we dip below 90 days of inventory this last quarter, I think we got to 86 days. When you separate our businesses, you know, the Electronic Components business, you know, should be running under 70 days of inventory, so still. As, you know, lead times potentially extend as more demand from customers come within lead times, right? as you know lead times potentially extend as more demand from customers come within lead times right I think we're gonna start turning the inventory faster. i think we're gonna start turning the inventory faster From an enterprise perspective, you know, we dip below 90 days of inventory this last quarter, I think we got to 86 days. from an enterprise perspective you know we dip below 90 days of inventory this last quarter i think we got to 86 days When you separate our businesses, you know, the Electronic Components business, you know, should be running under 70 days of inventory, so still. when you separate our businesses you know the electronic components business you know should be running under 70 days of inventory so still

Speaker 2: Okay. Okay. okay

Speaker 1: ... runway to go there, but this last quarter they were above or, sorry, below, 80 days. ... runway to go there, but this last quarter they were above or, sorry, below, 80 days. runway to go there but this last quarter they were above or sorry below 80 days

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: ... in the EC business, and that's just a quicker turning. You know, we're looking for, you know, four to six turns a year, so closer to six. And then from the Farnell business, they do need to have more inventory. The, the proposition is one of inventory and having that breadth of SKUs. ... in the EC business, and that's just a quicker turning. in the ec business and that's just a quicker turning You know, we're looking for, you know, four to six turns a year, so closer to six. you know we're looking for you know four to six turns a year so closer to six And then from the Farnell business, they do need to have more inventory. and then from the farnell business they do need to have more inventory The, the proposition is one of inventory and having that breadth of SKUs. the the proposition is one of inventory and having that breadth of skus

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: They're gonna run closer to, you know, 200 days is our target for them. You know, this last quarter they were, you know, 220s. They're gonna run closer to, you know, 200 days is our target for them. they're gonna run closer to you know 200 days is our target for them You know, this last quarter they were, you know, 220s. you know this last quarter they were you know 220s

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: Some room to go there in Farnell, but again, as they start to grow, they'll have more scale and start turning some products faster. You know, we feel good about the fact that we're not gonna need a lot of cash necessarily to invest in inventory, although we'll continue to get the right kinds of inventory on the shelves. You know, where we're still gonna need some working capital, depending on the growth rates, will be on the receivable side. You know, part of the value we provide to our customers is terms. As we grow, you know, we'll have more in accounts receivable, but the cash conversion cycle overall should shorten. Some room to go there in Farnell, but again, as they start to grow, they'll have more scale and start turning some products faster. some room to go there in farnell but again as they start to grow they'll have more scale and start turning some products faster You know, we feel good about the fact that we're not gonna need a lot of cash necessarily to invest in inventory, although we'll continue to get the right kinds of inventory on the shelves. you know we feel good about the fact that we're not gonna need a lot of cash necessarily to invest in inventory although we'll continue to get the right kinds of inventory on the shelves You know, where we're still gonna need some working capital, depending on the growth rates, will be on the receivable side. you know where we're still gonna need some working capital depending on the growth rates will be on the receivable side You know, part of the value we provide to our customers is terms. you know part of the value we provide to our customers is terms As we grow, you know, we'll have more in accounts receivable, but the cash conversion cycle overall should shorten. as we grow you know we'll have more in accounts receivable but the cash conversion cycle overall should shorten

Speaker 2: Okay Okay okay

Speaker 1: ... in this next go around, at least for the, you know, foreseeable future here... ... in this next go around, at least for the, you know, foreseeable future here... in this next go around at least for the you know foreseeable future here

Speaker 2: Okay. Okay. okay

Speaker 1: as we continue to grow. I think from a broader capital allocation standpoint, you know, we wanna return excess cash to shareholders. We've got a dividend that's we've grown every year since we've implemented it. We've historically been aggressive on buybacks, although right now we're a little more focused on getting our leverage back into the three-ish range. We're running, you know, just above four, so we feel much more comfortable in the three-ish range to be able to have, you know, the capital we need to invest in the business. I think from our standpoint, you know, we'll get that taken care of in the next few quarters and then get back to returning excess cash flow to shareholders. Again, CapEx is generally pretty sustainable between $100 million and $150 million a year. as we continue to grow. as we continue to grow I think from a broader capital allocation standpoint, you know, we wanna return excess cash to shareholders. i think from a broader capital allocation standpoint you know we wanna return excess cash to shareholders We've got a dividend that's we've grown every year since we've implemented it. we've got a dividend that's we've grown every year since we've implemented it We've historically been aggressive on buybacks, although right now we're a little more focused on getting our leverage back into the three-ish range. we've historically been aggressive on buybacks although right now we're a little more focused on getting our leverage back into the three-ish range We're running, you know, just above four, so we feel much more comfortable in the three-ish range to be able to have, you know, the capital we need to invest in the business. we're running you know just above four so we feel much more comfortable in the three-ish range to be able to have you know the capital we need to invest in the business I think from our standpoint, you know, we'll get that taken care of in the next few quarters and then get back to returning excess cash flow to shareholders. i think from our standpoint you know we'll get that taken care of in the next few quarters and then get back to returning excess cash flow to shareholders Again, CapEx is generally pretty sustainable between $100 million and $150 million a year. again capex is generally pretty sustainable between $100 million and $150 million a year

Speaker 2: Okay. All right. Maybe in the last few seconds, any closing remarks? Anything that we didn't address today? Okay. okay All right. all right Maybe in the last few seconds, any closing remarks? maybe in the last few seconds any closing remarks Anything that we didn't address today? anything that we didn't address today

Speaker 1: I think that, you know, Avnet is really well positioned to get back into a growth cycle. You know, we feel we're in a really good neighborhood in terms of just the proliferation of electronics and everything we do continues to expand. You know, we see lots of opportunity with content, you know, exciting areas like robotics, drones. I think that, you know, Avnet is really well positioned to get back into a growth cycle. i think that you know avnet is really well positioned to get back into a growth cycle You know, we feel we're in a really good neighborhood in terms of just the proliferation of electronics and everything we do continues to expand. you know we feel we're in a really good neighborhood in terms of just the proliferation of electronics and everything we do continues to expand You know, we see lots of opportunity with content, you know, exciting areas like robotics, drones. you know we see lots of opportunity with content you know exciting areas like robotics drones

Speaker 2: Mm-hmm. Mm-hmm. mm-hmm

Speaker 1: You know, there's lots of applications that we see, you know, just the continued amount of content growing, so I feel pretty good about the neighborhood we're in and we're well positioned to capitalize on growth and return margins to historical levels. You know, there's lots of applications that we see, you know, just the continued amount of content growing, so I feel pretty good about the neighborhood we're in and we're well positioned to capitalize on growth and return margins to historical levels. you know there's lots of applications that we see you know just the continued amount of content growing so i feel pretty good about the neighborhood we're in and we're well positioned to capitalize on growth and return margins to historical levels

Speaker 2: Excellent. I would agree. Thank you very much, Ken. Appreciate it. Excellent. excellent I would agree. i would agree Thank you very much, Ken. thank you very much ken Appreciate it. appreciate it

Speaker 1: Thanks, Melissa. Thanks, everyone. Thanks, Melissa. thanks melissa Thanks, everyone. thanks everyone

Speaker 2: Thanks, everyone. Thanks, everyone. thanks everyone