Avnet Inc Investor Day Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Nikolay Todorov - Longbow Research LLC - Analyst : Nik Todorov, Longbow Research. Thanks for the great Analyst Day. Just to follow up on Jim's question and Tom, to your answer. What exactly do you assume is normalized pricing? Because some suppliers in the market are talking about there's going to be a new normal where prices are not going to come down on an annual basis going forward. So I just want to make sure what are you assuming is a new normal from a pricing standpoint.

Question: Nikolay Todorov - Longbow Research LLC - Analyst : Okay. Got it. And as a follow-up question on supply chain services, you talked about it, it's a new initiative. It has a lot of potential. Just we didn't hear much about targets, outside of potentially 5% attach rate, roughly about 5%, a $5 billion opportunity. But when you think about the 50% pie share coming up from high-touch businesses, does that include supply chain services? And also, can you share at this point how big this business is as a percent of the business? And what is kind of the margins?

Question: Nikolay Todorov - Longbow Research LLC - Analyst : Nik Todorov, Longbow Research again. Tom, first question on OpEx. You spoke about $70 million of potential levers you can pull. Just want to make sure, do you intend to keep OpEx flat and use that $70 million in other areas, investing in demand creation or supply chain services? Or should we think about there's further room for downside for OpEx?

Question: Nikolay Todorov - Longbow Research LLC - Analyst : Okay. And then a second question, broader view. So you guys obviously sit in the center of the supply chain, and you have great visibility, and you talked about how you provide that service to even a new OEM customers. So obviously, you have a pretty good sense of how inventory is currently sitting in the supply chain. But as you look forward, clearly, you have 2 trends working against each other. On one hand, you have localization, which is going to require potentially additional inventory in the supply chain, but then you're providing these services to the OEMs even big guys where you're providing visibility and that typically should lead to lower inventory in the supply chain if they have better visibility. So net-net, as you look forward, clearly, right now, there is an unusual situation, the disruptions. So everybody has built up inventory. What do you see in terms of normalized levels of inventory going forward? Do you see any type of return to the lean, just-in-time? Where is going to be the middle ground in the new normal?

Question: Nikolay Todorov - Longbow Research LLC - Analyst : Just a follow-up. Do you see that inventory...

Question: Nikolay Todorov - Longbow Research LLC - Analyst : Yes. Sorry, just a quick follow-up. Do you see that inventory sitting at customers' warehouses? Or do you see yourself holding that inventory as a buffer for your customer? David Paulson Well, I think at times, it will be a mixture of both, depending on -- we run several programs even today where we're centralizing inventory in a hub-and-spoke kind of manner. So you kind of get the benefit of both in that scenario where you have a pool of inventory and a centralized location and you're feeding that out into a remote location, whether that's customer-owned inventory or Avnet-owned inventory is really model-by-model. We've got customers. We're building supply chain models for -- actually, we have 3 inventory pools that we're holding in our facility: customer-owned inventory; supplier-owned inventory; and ultimately, Avnet-owned inventory. And we rationalize that whole inventory profile on their behalf on a global basis. So I think a lot of it will depend on the architecture, the actual supply chain and what they're -- as the OEM and their manufacturers are striving for. Does that make sense?