Avnet Inc at Stifel Cross Sector Insight Conference Transcript

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

Question: Matt Sheerin - Stifel Nicolaus - Analyst : I thought, Phil, that might be good, just to give a quick -- for those not familiar or have not visited the story in a while sort of a quick overview of Avnet. And also, you've been CEO now for four years. Interesting times to be the CEO, rights, for years, but your metrics are better comparatively in terms of trough where you were less trough. Margins are higher. So talk about that journey in the last four years, how you're positioned going forward?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Okay, great. Great starting point. Let's go to the near-term trends where obviously in the throes of the bottom of the cycle, it's been a very long cycle. And your revenues declined or component revenue year over year for about three quarters in a row now. Clearly, Europe has been lagging where you've had growth there, even. last year, I think. And I know you've talked about book-to-bill is getting a little positive signs, that we're bottoming. But just talk us through the fundamentals, and maybe by region or end market, particularly inventories, any pulse that you have in terms of inventories at customers?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : In assignment in Asia, I'm sure some of the -- they're heavy and consumer, as and when those data come market, it looks like they're coming off the bottom. Yeah, well, but do you get a sense of in terms of like the inventory workdown, you talked about industrial in Europe, at any other pockets where there's more work to be done in others where you're actually seeing companies sort of back to normal order patterns?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Yeah.

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Yeah, well, I was going to get to that. But it looks like what's different in this cycle is that not only are your customers have too much component inventory, but there are channels, right, there are industrial channels, there's too much finished goods that they're working. The EMS guys are a perfect example, right? They're all guiding down because their customers have too much in there. And so it's taking a while. But back to your question -- your comment about your customers not giving you visibility, when lead times are short, though, just order what they need. But I guess the question is, are we going to run into a problem, Again? And if a year from now, the economy, we've got some of these end markets, five or six end markets start to recover, are we going to get into a shortage situation? Are you talking to customers about, we want to manage have more inventory this cycle than last, which four years ago everyone was saying, oh, we're always going to -- we're going to be owning lots of inventory, but now they're like we're particularly with interest rates high, and the cost of capital, your own interest expense obviously is balloon, but your profits are up but yet. So that's the question. Will we get into another problem and of course, for you, that's a good news, bad news. The good news is you've seen profits and then the other side of that is ugly, right?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Yeah, okay. And then, I wanted to talk to -- you talked about one of the issues that Avnet had four or five years ago, it was that some of your major semi, two at least or couple move to either a more direct model or consolidating their distribution channels. And there was concern that I get from investors and maybe that's why your stock still trades at a low multiple of where others have re-rated. They are concerned that semiconductor suppliers as they continue to consolidate are going to move more direct, particularly demand creation where you can have better margin rate than fulfillment. I know you've given lots of reasons why that may not happen in terms of that trend. But I'd love to take your -- get your take on that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 5:15PM, AVT.OQ - Avnet Inc at Stifel Cross Sector Insight Conference

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Okay. That's a good segue to my next question, which is on supply chain or distribution as a service. And your competitor has been talking about this too, where you are actually providing the services, but you don't take title to the inventory, right? So there's a big balance sheet difference there. Could in -- both Arrow and Avnet have been talking about that opportunity. Could you talk about that business model may be different business models within that? How that impacts your top line, your balance sheet, et cetera?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Can you give us the size of that business? I know it's hard because you get a fee. But are we talking about like 20 major OEM customers or dozens or how big? And can you tell whether it's moved the needle in terms of your gross margin or operating margin like or is it hard to tell? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 5:15PM, AVT.OQ - Avnet Inc at Stifel Cross Sector Insight Conference

Question: Matt Sheerin - Stifel Nicolaus - Analyst : But with some of the programs you are buying the inventory and carrying it right, and others, you're not. So are you getting compensated (multiple speakers) there's still a lot of inventory you're carrying?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Yeah, I'd like to talk about the inventory. Can you -- you are still well above where you want to be. You are obviously financing that, your interest expense has been up. I know some of the reasons why it's so high is because of those engagements, but the supply chain -- so how should we think about the inventory, what it looks like over the next few quarters?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : And as you generate cash over the next few quarters, what's the allocation? Are you looking to being the short-term borrowings for the interest expense comes down, stock buybacks, what's the priority?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Any questions, anyone? No? I'd like to talk about your Farnell distribution business, which focuses on design engineers. They buy small volumes. That's a business that you bought a few years ago. Your financial targets of, I think in the teens in terms of operating margins. I mean you've hit that a few times, but not consistently. And I know you're going through a restructuring there. So can you talk about that?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : So you're doing a search right now?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : And that's based on your OpEx costs and the expectation that you're going to grow again?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Okay. We have a couple of minutes left and we haven't talked to it AI. And what's the play for other than the fact that you obviously you're selling into everything, you're doing things with hyperscalers. Are you doing working with the big hardware OEMs?

Question: Matt Sheerin - Stifel Nicolaus - Analyst : Okay. I think, look, we're out of time, but thank you very much, Phil and Ken.