Day one of Citi's Technology Conference. I'm excited to see all of you here. My name is Asiya Merchant. I'm here as part of Citi's Tech Hardware and Tech Hardware research team. For those on the webcast, this event is obviously for Citi investors only, and clients. No media or press is allowed. If you're part of the media or press, please disconnect. We will be audio webcasting this event. I have a set of questions here for Avnet today. Thank you, Avnet's management. We have Phil Gallagher and Ken Jacobson here, as well as Joe from Avnet's IR team here. From my understanding, it's a pretty packed schedule for them, so if you are not on their one-on-ones or group one-on-ones, this is a perfect time to ask questions. This is a fireside chat session, so there will be no slides. I will kick it off with a few questions here, and then happy to take investor questions. If you do have a questions, I believe there's somebody with a mic, so please raise your hand so we can you know, accurately get your question and make sure it's also being audio webcast. So thank you, gentlemen, for this morning. Hope the flight was fine. So I'm just gonna kickstart it you know, with a few questions here, and then we can talk about some specifics on the end markets. So I don't know how many people in the audience here are familiar with Avnet. Maybe like, you know, if you could give us a quick intro to Avnet for those who may not be familiar, that would be super. Sure. Thank you. I thank you very much for the introduction, and thanks for your time today. I've been with Avnet for going on 42 years. We've been around for 102 years. We're one of those companies, one of the larger companies that a lot of people don't know anything about. You know, we're Fortune 162. We sit on the Nasdaq. We're into B2B, so business to business, and we're in the semiconductor side of the equation, along with interconnect, passive, electromechanical. So we carry some of the top-branded manufactured lines in the world. I'd like to call that upstream, and then we sell to, okay, into 140 countries around the world. We're roughly $26 billion, and we got hundreds of thousands of OEM customers. So any equipment you have in your house that has any kind of electronics in it, the automotive segment, defense aero, your thermostat, security system, entertainment systems, all that has semiconductors in it. All that, all, many of those, if not all of those, are companies we sell to, so very, very diversified. Mm-hmm. In the center, well, I'd say we're in the center of the technology supply chain. Great. Maybe, Phil, you can just talk about, you know, you had your recent earnings call. You know, just give the investors an idea of, you know, what your financial outlook is. You know, any overview you can p ut that in context, sort of, you know, how you see the year rolling out for you guys. Yeah, we don't give guidance outside of 90 days, but we did close our fiscal year in June. And let Ken jump in here as well. We were thrilled with our hit in June. It's 13 quarters in a row that we've beat consensus and guidance. We hit for the year a record of north of $8 earnings per share, so very, very positive overall. Our guidance in the September quarter remains at roughly -4% sequentially, much of that due to some seasonality. Okay. The overall outlook, generally, and I'll turn it over to Ken, you know, for our industry and where we play is we're pretty positive. Hey, there's gonna be some short-term bumps along the way and some, you know, detours we need to take, but, you know, with the prevalence of electronics and the expansion of technology and applications, the future is really, really bright. Mm-hmm. I wouldn't say I'm bullish right now, but I'm super optimistic. Okay. Yeah, we closed the year very strong. Our electronic components business, which is, you know, roughly 92% of our business, had 4.8% operating margin, you know, up significantly from the prior year. And how we closed the year, we saw a lot of strength in the West, primarily in the industrial and auto segments, as well as aero defense. Unfortunately, you know, did see some softness in Asia. And so when you think about our Q1 guidance, which is our September quarter, you know, it implied, you know, sequential declines of about 4% at the midpoint, which was, you know, we have a mix shift to Asia from the West in our Q1. And so you would see a little bit softer than seasonal in the West and, you know, softness continuing in Asia, particularly in China, but at the midpoint, down only 4%. So that still, you know, indicates that we would, you know, gain share in the quarter by hitting that guidance. Mm-hmm. If you could, you know, drill it down one more level, you know, you talked about the regional side of things, but maybe by end markets or verticals? Yeah W here you see strength, where you see softness continue- Yeah. That would be great. Yeah. Yeah, I'll start there. Yeah, we did talk about the regions. I mean, so Europe has in particular been, you know, really strong. But we think we're gonna see some more typical summer quarter in Europe, where it's been a bit atypical in the last several years due to COVID, with people not taking vacations and whatnot. But in Europe, we had a record quarter December. We beat that in March and beat that in June again, okay? To your point, driven mostly by industrial. Europe has a very, very strong and broad industrial market that we play in very well, as well as automotive. Some defense, but less than the U.S. So it's just remained strong in Europe. I mean, they've really persevered through all the things we heard from energy, the war, things along those lines. They've continued to show our strength in Europe, but we have a strong team in Europe, and we've gained share. In the Americas, steady as well, so we've seen continued improvement in the Americas. You may recall we needed that. Several years, we had a couple hiccups in the Americas, but, again, driven by industrial, and we say transportation, not just automotive, 'cause it's well beyond cars, right? I mean, just look around the streets here in New York. The e-bikes are everywhere, and all that takes semiconductors. So, anything that moves these days got electronics in it, so we broadened out the transportation. The Americas, defense and aerospace, is a sizable part of the market, and that is strong. You know, we don't play-kinda to build on Ken's point, we play a little bit in consumer PC, but not a ton, so that doesn't really affect us as much. It might affect supply- Okay. But doesn't necessarily affect our, our growth or non-growth. And back to Asia Pac, we're pretty well balanced in Asia. We're not overly weighted to China. I think that's an important note. China, in our total scheme of things, is a little less than 10%, and there's still business in China. Mm-hmm. So if that slows a bit, it doesn't crush us. Okay. Anything to add there? I'd just say that I think, going back to Phil's point, pretty well diversified, both geographically as well as- Yeah E nd market verticals, which I think has helped, you know, our growth. And where we're heavy, industrial and transportation have still been relatively strong, but it's very well-balanced, including, you know, customer and supplier concentration. You know, no supplier represents more than, you know, 10% of our revenues, and no customer represents more than 5%. So we feel that's adding a lot of value 'cause we've got a lot of different partners that we can go to market with, which is different than maybe some of our competition. Yeah. So talking about the auto and transportation market a little bit, I mean, there has been some, you know, noise around whether this can sustain itself. You know, you also talked about aerospace and defense in the Americas, but if we take either of the... you know, each one of those separately, this has been pretty strong for you, both in EMEA and Americas. Do you expect that to continue in the coming quarters? Is there any, you know, weakness around the fringes in either of those end markets? I'll work backwards. Defense and aerospace, I don't see that. Right. Okay. We see the customer set that we're- Mm-hmm W e're servicing in that space. I don't, I don't see that slowing up and what's going on in the world, not at all. So short answer to that one is no, we see that as positive. Yeah, the automotive, yeah, you're, you're hearing some of the numbers softening a bit, but in our world, and but the content's going up, right? So as the units come down, and it shifts to less combustible and to more to EV, that plays in our favor. And if you go back, it's interesting with automotive, some of you have been covering us a long time. I looked around the room. You go back 20-25 years ago, automotive was a very small portion- Mm-hmm O f our business. Most of that was done, we'll call it direct, right? The big three or whatnot. And with the ADAS and just the amount of electronics going in, electronic charging, and then the ecosystem around the EV, right, being built out, there's a much longer tail of customers that we're calling on in the automotive than we were even five years ago. But certainly, if you go back 10 or 20, it wasn't nearly robust. So even if that market slows a bit, which there are some indicators it is, I still think the opportunity is pretty robust in that space due to, again, the whole ecosystem around the EV. I would just say that in Asia, you know, we do have a pretty sizable transportation automotive business as well. So a lot of our strength we saw in Asia, let's say, over the past year, was in the auto space and- Yeah A nd including, you know, things like EV in China. You know, we see plenty of growth opportunities there as well. So, I mean, broadly, globally, you know, transportation's a big, big vertical segment as well as industrial. You know, Asia is very strong industrial too. So even our Asia business, which might be more weighted towards consumer, it's still a relatively small percentage compared to those other lines of business. Mm-hmm. Okay. You, I think, mentioned, you know, something around the midst of an inventory correction, that you guys are operating in the midst of an inventory. Is the industry still experiencing that? Are we past that? How long do you think, you know, it will last? And maybe you can drill a little bit into which components do you see as perhaps excess inventory. Yeah, I'll go first. So yeah, I mean, I think it's pretty well known that there's probably too much inventory out there. And we would say, yeah, we have a few more days of inventory than we like to have. I also want to add that the question of does that concern us? And the answer is no. I mean, it's good inventory, it's fresh inventory. And I always say inventory is not a bad thing, okay, if it's good inventory. I mean, we're a distributor. You're supposed to have inventory, and it's paid for, so that's also gonna be a good cash generator for us when we sell that inventory. We track all the... or most of the top suppliers that are public and customers that are public, EMS providers, that are public, and there's a few outliers where it's still going up. Mm-hmm. I'm not gonna mention company names, but there's also quite a few where it seems to be stabilizing. Stabilizing at a higher number, but not going up like it was, and even some, you know, coming down. So I see that as a good sign. In our own case, what we said on the call, we got to be careful. It's in the middle of our quarter, but what we did say in our last quarter is our inventory is stabilizing, okay? Mm-hmm. And that's the first step, you know, stabilizing, so that's positive. And I also said on the last call, in the prior call, I think we're in that inventory correction already. And I, you know, I believe, you know, demand's not gonna continue to stay at whatever it's been the last couple years, 20% or some crazy numbers. It's gonna have to level off sooner or later. And even if it just levels off like we're talking today, stays somewhat steady, you know, the inventory, you know, should just burn off. Mm-hmm. I'm calling it over 2-3 quarters. Okay. You know, is it 3.5 quarters, or is it... Yeah, I don't know. Okay. I don't know exactly, but I think it's like a 2-3 quarter burn, and then we'll be back to where we want it to be. We think February, March quarter will actually bring the inventory down. We also said, it was an Avnet comment, that we do have one specific opportunity that we're investing in this quarter for a specific suppliers and specific customer, okay, that will artificially show the inventory up a bit, but outside of that, the balance in inventory should be stable to down. Mm-hmm. Ken, you wanna comment anything else on that? Yeah, I mean, I think, I think compared to two quarters ago, we feel much, you know, more comfortable with stabilizing inventory, you know, the inflows coming in, where it's going. You know, still some challenges with our customers' inventory levels, right, which is slowing the turns, which is kind of part of the buildup. Mm-hmm. You know, so that's still dynamic is still there with the customers having, you know, let's say, excess inventory as well, so we're working through that, but we feel pretty good about the inputs coming in and a flattish inventory absent this one, you know, opportunity. So feel pretty, pretty confident in that. Yeah, you mentioned the lead times or some suppliers within that. Again, without mentioning the names, you know, it's interesting, not all everything's same. We hear all inventory is up. Yeah. All inventory is not up. Right. I mean, you know, there's some areas we could use some more inventory, right? So it, it's really, in our case, it's, there's 5-6 suppliers probably driving 80%-the Pareto, you know, 80% of the inventory increase. Mm-hmm. There's a lot of suppliers, that's not the case, or a lot of commodities, that's not the case. And that's okay. These are critical suppliers. That's just happens to be, where they are and, and the space they play in. And in general, I would say the, lead times, in general, if it's, anything tied to, to battery or power, still, still pretty tight. Lead Times, okay. High-end controllers, again, tied to transportation, automotive, still pretty extended. They're coming in, but still extended. Passives have come down more so than the semi guys. But anything tied to certain verticals like we're talking about, you know, power, energy, auto, they're still extended. And even though they've come down a bit, most of the lead times are still extended longer than they were prior to the pre-COVID. Mm-hmm. Right. So although they come down, they're still not at pre-COVID levels. Right. When you talk about excess supply components, which ones are you... Are you able to name which are the ones that you think are a little bit higher than what you'd like to carry, versus the ones that have stretched lead times? Well, I don't like to mention, you know, supplier names. Just categories, yeah. Yeah. There's probably a little bit of excess in some discretes. Mm-hmm. Some controllers were very specific for certain customers. Okay. It's not even, like, I talk about this one opportunity we had. We don't have suppliers coming to us, which is a good sign. You probably have this question too, I'm sure, but our suppliers ask us to take products, or they're trying to get, you know, the, as it comes off the lines—they're trying to get the channel to take more inventory than we need, and that's not happening. Okay T oday, which is a good thing. Yeah. I've been around a long time. That would create then excess inventory- Yeah W here they're telling you to take the product. It's a good product, but you have to go find a home for it. Right. You know, we're not seeing that today, which is good. Maybe we've matured in that end of the line, at least as an industry- Okay W hich would be positive. All right. We have a few questions from the audience, so maybe we can stop my questions a little bit— Sure A nd take questions from the investors. Yeah, go ahead. What happens if the auto industry does go on strike? Do you think that's gonna impact your overall- Inventory -inventory and demand? The auto industry? The strike? Yes. I think you mentioned the auto strike in the auto industry, and if that's going to affect kind of, like, how you guys think about your outlook. Well, I'm sure it will. I haven't done the contingency planning on that to date, but I'm, I'm sure, I'm sure it will. I don't see how it wouldn't, but it'd be tough for me to give an estimate on what that impact would be. We have another question there. Rob, how are you doing? Good, Phil. Good morning. Good to see you. So on an ongoing basis then, do you think you'll be carrying more inventory on a day's basis going forward, just structurally, given the changes in the industry? And if so, back to your comment about parsing that a little bit, where do you think you'll be carrying more inventory? Thank you. So I can't get into the days. Let me think about that for a second. I think the overall answer would be probably yes, a little bit. Because you also got too low, right? Pre-COVID, we got too low. We didn't want, we don't want to be at, I don't know if I remember, 60 days, yeah, we got to a point where that's too low. Do we wanna be at 90 or 87? That might be a little high. Maybe it's somewhere in between. I think the second part of your question is, and where would we want that? What has changed since COVID, and we think it's a positive thing. If you go back, again, unfortunately, I could be the great historian here, you know, inventory used to be at every, just in the U.S., used to be in every local market. Right, we called it every NFL city. We had warehouse, logistics centers, and operations, and then it, you know, fast-forward, it all went to, in our case, Chandler, Arizona, and everything got centralized because of logistics capabilities with UPS, FedEx, DHL, and all those guys. And then it kinda went back out into the field, into, in what they call in-plant stores, and the customer wanted it close by, and then fell in between somewhere else. Same thing around the world. But since COVID and the supply chain breakdown, including the freeze in Austin, the fire in Japan, the Suez Canal, more and more customers largely want that inventory proximity. So actually, what we're seeing is expansion of inventory locations around the world, which is fine by us. We get the question all the time: Does it bother you that XYZ company wants to move out of China? Or I also don't believe everybody's leaving China, but it's the China plus one, right? They wanna offset and hedge out of China into Vietnam or Malaysia or India or Guadalajara, or what have you. It's fine by us. We can move the inventory and the supply chain anywhere they wanna go. So I do believe you're gonna see more locations of inventory as well, based on where the customer wants it in a, in a proximity. A lot of those will become 3PLs, but we manage those and select those. Did you find days- Yeah. Working capital days too, may as well touch on. Phil hit the point in our fiscal 2021, fiscal 2022, as the lead times were extended, inventory turned faster because, you know, product was so much in demand. So I think that was an unusually low number of days, you know, and I think it will kinda normalize between where we're at now and where that was at. How I'd characterize it is, you know, that's kind of more the time, place, utility, the core part of our business. You know, there's always some level of safety stock or buffer stock, you know, let's call it 8-10 weeks of product. But I think the opportunity we're seeing coming out of the pandemic and all of those shortages was, you know, the need to really have resilience in your supply chain. So where we see the big opportunities with these large OEMs that are really now taking more control of their supply chains, really understanding, you know, electronic components better, you know, all these companies, these OEMs that are using technology in their products. Think about 10 years ago, it was really limited, the auto being the great example, the content, the proliferation. So now they're more taking control of their supply chain, so we see a lot of opportunity with running supply chain-type services where perhaps it's not our inventory. We might hold the inventory on behalf of the OEM, and so that's where we're seeing a lot of growth opportunities, and those takes time to kind of ramp up and build because of how complex those supply chains are. But that's where, you know, the, the proximity inventory, the buffer stock, let's say even, you know, is it 90 days? Is it 180 days? Depending on the component, right? There's lots of redesign going on in supply chains, and we're right in the middle of that, which we see as a very exciting opportunity. But the inventory model is different there, or it should be different, right? And unfortunately, with the cost of capital going up, right, there's this dynamic of who pays for the inventory. But we know with the size of these OEMs, you know, we can't fund all that inventory, so the, you know, the OEMs, suppliers, everyone's gonna have to bring some cash to the table. So working with even financial institutions to kind a get creative, kind of, solutions out there. But we do see that as a huge growth opportunity that's really reinforcing our, you know, center, us being the center of technology supply chain, us having those capabilities in the 140 countries to be able to run supply chains for these large OEMs. So very excited about the opportunity there, to supplement our existing business, right? That's not replacing what it is, that's on top of what we have from a day-to-day basis. Grab on that. It's obviously marginal for you. We should think about that, mixing up margins- Yeah Over some period of time. I don't know if you guys have given any, a flavor for how much margin lift you get from doing some of that stuff for some of the larger customers. Yeah, we'd just say that the size of the opportunity or the throughput is sizable, you know, but we have a $26 billion base, so it's hard to get as much services revenue, right, to move the dynamic there. But we do think that's a stabilizing force in gross margin. A lot of the question we get on our gross margin is, you know, "Hey, competitive pressures, now that lead times are coming down, is the gross margin gonna start to deteriorate?" And we feel we can hold the gross margin, you know, for the simple fact we've got higher margin opportunities. Phil will talk about demand creation, supply chain as a service. You know, we have IP&E, which is interconnect, passive, and electromechanical. All those are higher margin to kind of, you know, balance out some of the fulfillment or normal competitive pressures, you know, with margins. It's a good point, but we wanna definitely continue. I like to say, feed the beast. You know, once you get that scale, this is a scale game, and as a supply chain as service models, and Ken just touched on there briefly, they just become kind of an annuity. It just... It's mailbox. It's small today- Mm-hmm. B ut it just, it's automatic, and it just drives that throughput and makes us just more efficient as a company at the same time that you get this annuity coming in every month and week. Great. Maybe, you know, a good segue into working capital, right? So as we talk about inventory correction going on, maybe you can talk about the countercyclicality of your working capital and the balance sheet and how that generates cash conversion—so kind of the outlook on cash conversion and working capital. Yeah, I mean, I think in general, as a distributor, right, as we grow, we have to invest in inventory and AR, and that's what you've seen over the past couple of years, is a significant use of cash to grow the business, the last few years. But, you know, when- Mm-hmm S ales go down, you need less inventory, you collect your AR at the higher level of sales, and it generates more cash. And so, you know, last two quarters, we've generated cash. We expect to generate cash this next quarter. You know, but clearly, the inventory stabilizing, so the inventory is not coming down yet, but as soon as that working capital burns off it, it accelerates cash flow in a downturn. Now, we're hoping to continue to, you know, try to grow the business and see opportunities to kind a fill any demand gaps that we have. There's some opportunities to gain share, to kind of balance that out. So, we're still hoping to continue to try to grow the business, but clearly, if there's a downturn in the market, if that inventory correction happens, then we'd expect to be well-positioned with cash flow generation, and then that gives us a lot of opportunities for flexible capital allocation, you know, priorities. Mm-hmm. We've been prioritizing our business, growing our business as the top priority, which includes CapEx. We've got $319 million left on our share repurchase authorization. The first half of this last fiscal year, we bought back- R oughly 5% or 6% of the shares. If you look at the trend over time, we've taken the share count down from, let's say, 133 million to 93 million. So pretty good return to shareholders, and we do have a healthy dividend. Mm-hmm. About a 2.5% dividend yield. We recently increased that dividend 7% for this next fiscal year, which we think is a good use of cash and a continued track record of, you know, increasing our dividend and have a consistent return as well. So, there's lots of opportunities to put the cash to work that we generate, but our first priority is to grow the business. But when that doesn't happen, and when there is excess cash, you know, we'll put it to work. But we're also gonna, you know, think about balancing that out with paying down debt. It's very expensive. Our interest expense has gone up, you know, 150% over the last year. Mm-hmm. We do think it's good to kind of make sure we're prudent with that and balance out buybacks with paying down some debt at these high interest rates. Okay. Fair enough. Oh, question right here? Okay. Yeah, use the microphone. Yep. Ray, Ed Wachenheim, Greenhaven Associates. You had an Investor Day a little over a year ago, and you gave some intermediate-term targets. One was growth of 5%-8%, and then margins of 5%, I think it was. I just played with numbers, and if your revenues, which are $26 billion today, end up, whether it be higher than 27, 28, I used $27 billion-$28 billion to be conservative, 5% margin, subtracted interest expense, taxes. 93 million shares today, you'll probably be buying some stock back in the next couple of years. I used 90. I come up with close to $10 a share of earnings. First of all, is there anything wrong with my arithmetic? And number two, is the fundamentals still as you stated they were, 15 months ago when you had your Investor Day? I think your math's perfect. Yeah. I'll let Ken, I'll let Ken touch it. Thanks, Ed. Yeah, and we're actually a bit ahead of where we said we'd be in June a year ago as well to get to the 5% on the component side, which we've gotten to now a couple of quarters in a row. But I'll let Ken touch on it. We appreciate that. Yeah, so I'd, I'd just say, you know, thinking about what's actually happened over the past year since that Investor Day, sales were up 9%, approximately, year-over-year, so a little bit ahead of track. Operating margin for the enterprise the last two quarters was 4.8%. Our electronic component, components business was about 5.1%. So if you think about that being a proxy for operating margin, now, what I would say is interest expense is, is much higher than we anticipated necessarily at that Investor Day. But I think when you kind of do the math in terms of, you know, where the revenue growth was, where the operating margin expansion was, and then you look at the EPS growth, it, it's been pretty sizable over the past year. So I wouldn't expect that level of increase necessarily repeat year-over-year, but if you even get, you know, 25% of that on a compounded basis, it's, you know, pretty accretive. So we do think the past few years we've been able to demonstrate, going back to Phil's point, distribution is a scale game. Once we get some scale, we can control our costs, and we think we can, you know, leverage, let's say, operating income expansion two times revenue, which is, you know, we've done that over the past couple of years. That's a good rule of thumb in terms of, you know, profitable growth. Yeah, you had said that, we got to look at it over that 3-year period, not this quarter to quarter. There will be some bumps along the way the last we spoke. But we at high level agree with you. And we need to continue to focus on the execution. I think in the last 3 years, there are several things that we summarized at that meeting: first, we need to secure our supplier relationships, and we think our supplier partnerships are as good as they've ever been. We need to continue to drive demand creation, which is accretive to our margin, and it's much more sticky, and it's now 35% of our business. Interconnect, passive, electromechanical, we need to get that pushed into $4 billion, which we are today. Supply chain as a service and the supply chain resiliency and the value we add, we need to get that nailed down. So we think we're driving most critical, the drop through in the yield, where we're really driving the productivity of the company. We need to stay focused on those things while continuing to look out into the world of digital and- Mm-hmm E fficiencies and AI, and all the things we need to go do. I'm sorry, you have another comment. Thank you. Okay, thank you. We have another question right here. Thanks. Can you talk a little bit about Farnell here o bviously, inventory is in a little bit better place right now. I guess more so on the margins, when you see, you know, not the need to expedite parts right now, from, from those guys? Yeah. So, that's a good question. Actually, the 60% of our increase in inventory last quarter was Farnell. Okay, and for those who don't know Farnell, Farnell is our, what's called our e-business or our catalog business. It's previously known as Newark here in the U.S., and Farnell and element14 in Europe and Asia. It's about a $1.6 billion business for us. We need to get to $2 billion, and he needs to run 10%-15% operating margin. And he got there. He got there last year and the first 2 quarters of this year, fiscal, and then the last 2 quarters, it came back down. So he finished the year around 9%, but it was on a declining trend. Part of the issue the catalog guys had. So we're disappointed with that. So I'm very, also very transparent. With that, that piece, w e're, we're disappointed. Chris knows that. It's nothing we did, or he did, they did fundamentally wrong. They caught some headwinds. We, we, you might recall in the earnings calls, we, we, articulated several calls ago, I can't remember, it's either a year or so ago, they probably had an inflated margin number. Because when the products are really, really tight, our call it nontraditional customers come, they kind of swoop down- Mm-hmm A nd they'll buy from the catalog guys. Mm. You know, and then they'll, they'll swoop back up and come back to us and, and the other larger guys. And he caught a wind of that, and we, we anticipated about 275 basis points. In addition, he had a mix shift change. So he also has- he doesn't just have on-board components, which run a higher margin. He has a really good business in industrial. He does the Raspberry Pi and things along those lines, single-board computers. Well, that picked up as the semis started to slow down. So his revenues aren't down that much, but his margins are, 'cause it's just a different margin mix. Okay, then he had some FX issues. So all those sounds like excuses. They're real, okay? But we need to fix it. So and that's the message we have to the Farnell team. We're bullish on Farnell. We love the model. It's unique to an Avnet to have both, I'll call it the high-touch and low-touch businesses. They're the effect of our e-commerce site. They've got roughly 900,000-1 million customers, so we really love the model. It just had a couple quarters perfect storm of headwinds. We expect him to come out of that, the end of the calendar year and start to pick it back up again in the March quarter. Mm-hmm. But his systems are sound. We have put a lot of investment in inventory, to your point. Yeah, his inventories still are in good shape. His systems are reliable. They weren't when we bought them seven years ago. His e-commerce front end is as competitive as anyone's. Now, he just needs to focus on the execution. Okay. Does that help? Yeah, great. And also, is that a double-digit operating margin? Yes -going forward? Should be. Yep. And I think the implied- It was. I'm sorry. Go ahead, go ahead. Yeah, it- Yeah It has been in the past. It, I guess, the spread is bigger than we'd like it to be, so I think as we grow it and get that mix in the inventory investment right, we'd expect to close the gap in terms of the highs and lows. But, you know, we're coming into another low kind of period. So, you know, our commentary on this last earnings call was, you know, expect it to be mid-single digits coming to their seasonally low quarters in September and December, and then going to high single digits in the March and June quarters. Yeah, we're very transparent with that, very much on the offense with that. Yeah, we don't want hide anything. Okay. Okay, I'm gonna continue with my questions. You know, you talked a lot about gaining share, investing in the business, especially when you have a cash conversion cycle working in your favor. You know, where do you think Avnet's competitive advantage is? Right, and where do you think, based on that, you can gain share? What, what's gonna drive the share gains? Because typically, I think people think of distribution. They think, you know, price. That's what drives share. So maybe you can drill down and see where do you think you have a competitive advantage that's gonna give you share gains? Yeah. So I think, you know, I touched on some of this earlier, but I think our global footprint in and of itself is a competitive advantage over most of our competitors. Being able to have the access and scale in this 140 countries- Mm-hmm There aren't many that can say they can do that. We have our demand creation capabilities, which is really key and critical, not just for our customers, but also very important for our supplier relationships. I would argue, as important for our supplier relationships, as they lean into us for field application resources, our digital technical resources, our tool called Avail. These are differentiators, and we've grown that business to close to 35% of our revenue, and that's with a couple of major line losses. So that's key and critical. Supply chain services, I mean, the positive for us through the challenges. Challenges are opportunities. The last three years are real challenges for companies that manage supply chains. Mm-hmm. Arguably, too many companies kind of disregarded their supply chain or outsourced it or lost focus on it, and they came to us. So us re-architecting some of these large OEM companies' supply chains, you don't do it overnight. Some of them take upwards of 18 months, and they're really sticky. So we think that's a differentiator Avnet has, and it's been, you know, really positive. And they're not going away. The next question is, are customers gonna go back to the old ways or not? I don't think so. I think it'd be really foolish. I've told, we've had many of these guys and ladies in our office, and I say to them, I'm pretty direct. I say: "Hey, look, do you have convenient, convenient amnesia here, or are you gonna stay there?" Like, we're not gonna let a 25-cent part hold up a $500,000 dump truck, as an example, right? It's just got p eople got too lean. So I think that's, that's exciting, it's something that we're, we're providing the market that, that most, most cannot. Those will just be few, and of course, I always talk about our people. We think, and I know this sounds soft, but I've seen good cultures, and I've seen bad ones, and you can, you can feel the culture that's not productive. Mm-hmm. And we have a great team around the world; we have great tenure. And we have great intellectual properties with that tenure, and we think that's a real differentiator in the partnerships and relationships that we've built. And Ken touched on it earlier; our balance sheet's rock solid. I mean, we're, we can handle it. There's a downturn, no problem. We'll spin off cash. So if there's an upturn, we'll continue to invest back in the company. And customers and suppliers wanna deal with strength, and they want, they wanna deal with someone they know they can trust is gonna be around. Mm-hmm. I would just say, I think our supplier line card- Yeah A nd in terms of just, and there's a lot of talk about maybe suppliers we've lost over the past five years, instead of focusing on what suppliers we do have, right, which we think gives us really good competitive advantage, including on the high end of technology, but also the fact we're not overweighted to anyone, so we can really serve a lot of different suppliers, help them grow, but not necessarily be overly concentrated. We feel pretty good about that, and we do think that's led to some of this, you know, market share gains over the past eight quarters or so because of that diversification and lack of concentration. Mm-hmm. So we're at the tech conference, and AI, of course, has been a talk that's, you know, driven a lot of companies, definitely the ones that I cover, you know, up quite a bit, with Dell being up 20% last Friday. You know, maybe you can just, we haven't touched on the topic of AI at all. Just how you guys think you play in that environment, where are you guys focused on, where are the opportunities maybe there aren't any opportunities. Just being funny there, but yeah. Yeah, there's definitely opportunities, and that it's a board topic now. We just got done our board meeting, everybody wants to know what's going on with AI, artificial intelligence. We have to be careful 'cause we have a business called AI inside of our company called Avnet Integrated, so- Oh, okay. You're gonna start seeing us market AI a lot more. So we gotta change that name. Yeah, we're already doing use cases. I mean, a lot of companies would argue it's not, it's not necessarily new. You know- Mm. It's another level of machine learning, you know. We're using it today for our pricing, or parts of our pricing. We're we have some use cases inside for internal applications, as you can imagine, that we're already operating. The real opportunity is how do we differentiate our front end? Yep. You know, how do we differentiate? You know, we get thousands of customers' MRPs in, you know, customers' pricing tables, and lead time charts that we get in or downloads. So how do we really, with integrity, right, and confidentiality, you know, utilize that data even better than we are today? Mm-hmm With utilizing artificial intelligence? So, some people are afraid of it, or scared of it, or what's it gonna do to the company. Our case is that it's not about eliminating jobs, that's the other fear. People say, "Oh, my job's gonna get eliminated." It should make people more productive and more efficient. That's why I'm looking at it. It should make our company a better company to work for, and make jobs, you know, people's jobs better, okay, and more productive. But we have a team working on... our digital team. We already have a digital team- Mm-hmm T hat's under our CIO, Max Chan. So we're well up to speed on it. We're already using elements of it. And we think it's gonna be, for sure, part of the future. But again, I think we need to remind ourselves, it's not brand new. It's been around for decades, really. Mm. It's just now, it's just so much more to the forefront, and I think the accessibility to it- Yep A nd the user-friendliness of it- Yeah Y ou know, is something else. At the same time, can be scary. It's like, holy cow, really? You know, but it's kind of fun. Okay. So I think it's a good thing. I would just say on the sales side, you know, several of our suppliers are focused on growing their AI-type businesses, right? And so we'll participate- Yeah W ith that vertical as well, just like industrial or transportation, right? We're very well diversified in all the end markets, and a lot of our high-end, technology suppliers, you know, are focused on the growth opportunity in AI in terms of, you know, revenues and- Yeah, I was just about to ask you- Sales. It's a good point, Ken. I was talking about our applications of it, but we also have a customer, suppliers that we're gonna be selling into. Mm-hmm. Right? Companies that are building out AI- Yep C apabilities. Yep. We definitely hear of, like, productivity savings coming first, and that's, you know, whether that's in sales, chatbots, like you talked about- Mm-hmm O r e-commerce content, so you know, as it relates to your e-catalog business. Contracts. Yep, and trying to... Yeah, you're trying, you know, exactly, drive productivity savings. Yep. Okay. Mm-hmm. Is that offering going to be, at least within Avnet, is that offering going to be something, you know, as you deploy it, is it gonna result in higher CapEx? Are you looking at it as a service, as you train based on your data? Yeah, I mean, I would say you might see some CapEx, but I don't think it's outside of the norm of what you'd- Okay N ormally see in CapEx, and I think just in general, we look at it. That's another driver to help us control costs, right? Let's grow without increasing the cost a lot. So I wouldn't think about it as a big cost out, but more of a way to kind of keep costs stable by some of those productivity measures. Okay. Last call for questions before I have a couple more. You know, we're 8 seconds to go. Maybe we can talk about what's different about this cycle, if you think it's different. What do people, you know, maybe not appreciate about Avnet. Yeah A nd that's gonna maybe stand out in the next, you know, couple of years as you ride through the inventory correction, come out of the other end? Well, two words jump to mind on what people should appreciate about Avnet. Diversification- Mm-hmm A nd dealing with adversity, is, and resilience. Mm-hmm. We've been around for 100, over 100 years. We think that's really a good thing. We've seen a lot worse than what we're seeing now. If you go back and, well, from World War, World Wars to what we're dealing with today. So I think resiliency, adaptability, is just key and critical to any company surviving in today's environment. Our people are resilient, tenure, and I would say the difference in this market, which makes me excited versus I always use the, I'm a little older than some in the group, I guess, but, 1999, 2000, 2001, you know, Gartner just come out and said, "There'll never be another correction in the industry," and in 2000, it crashed. There was a computer company up in Boston, pretty powerful, and it said, "Why in the world would anybody need a PC in their house," right? "Well, they're gone." Okay, so you got to be listening to the market. But if you go back to 2000, 2001, the market just was so top-heavy, and it just crashed. It crashed pretty hard for anybody that was in the industry or covering the industry. That business is still there today, okay, with the all the networking guys, the com guys, PC guys, et cetera. But now you got all this other proliferation of electronics. Just like I said earlier, you're looking around, the amount of companies utilizing electronics and components, it's just mind-boggling. There's not anything you do today, doesn't have something to do with technology. That excites me, and I think that's what's different about this market. That's why I think everyone's looking for this big market to turn. It may. I, nobody truly knows. I personally think there's an inventory glut, and we're burning through it. The application of electronics is gonna just continue to help us all, you know, grind through it, get through it, whatever, but not be subject to a major correction like we've seen in the past. Okay. All right. Well, we're up for time- Okay. Thank you. You got it. Appreciate it. Thank you very much. Thank you! Good luck with the rest of your schedules. Yeah, thanks for having us.