The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Toshiya Hari - Goldman Sachs Research - Analyst
: Maybe a market flush kind of cycle question for Phil. I know this is a tough one but curious how you're thinking about the overall
industry beyond the March quarter. I think last quarter, you sort of hinted that, internally, your expectation was for the environment
to improve in sort of late Q1, Q2 and definitely into the second half. Has anything changed over the past 90 days? And if so, if you
can sort of expand on what has changed, that would be really helpful. And then I have a quick follow-up.
Question: Toshiya Hari - Goldman Sachs Research - Analyst
: And then maybe my follow-up for Ken on gross margins. You mentioned mix was the primary driver in the December quarter and
your implied guidance for March as well. How should we think about gross margins again beyond the March quarter? I know you
guys talked about your focus on demand creation and how the leading indicators look good. And I know you've got things going
on at Farnell that over the medium to long term should improve profitability there. So both in near term and the long term, how
should we be thinking about the puts and takes around gross margins?
Question: William Stein - Truist Securities - Analyst
: A couple quick ones. I suspect that there was a benefit in the quarter from foreign exchange. Can you maybe tell me if I'm right and
please quantify it if that's the case.
Question: William Stein - Truist Securities - Analyst
: And maybe a different way to go with the inventory question. You made some good progress this quarter, but it's still about 20 days
above typical. And I wonder if you see sort of a normal path to reduction there. Maybe when I say normal, I mean sort of straight
line, just a matter of time it'll burn off or maybe is there something else to talk about in inventory? Like I've heard some industry folks
talk about what they call sludge when there's things in the inventory that aren't really moving or stuff that you don't have price
protection or rotation rights on. Maybe you can characterize it that way for us so we can maybe get a better idea as to when we
might see things clear up and normalize on a day's basis.
Question: Joe Quatrochi - Wells Fargo Securities, LLC - Analyst
: Maybe just a follow-up to that. I mean I guess how do we think about just the mix of your investment in strategic inventory of key
verticals relative to the optimization? I mean do you think that inventory at the overall level here get contained or down or I guess
it depends on how fast the cycle kind of turns to see that dynamic?
Question: Joe Quatrochi - Wells Fargo Securities, LLC - Analyst
: And as a follow up, can you talk about just the level of inter-quarter turns or just-in-time demand that you saw in the December
quarter and just how should we think about that level of type of demand that's embedded in the March quarter guidance?
Question: Ruplu Bhattacharya - BofA Global Research - Analyst
: Phil and Ken, I want to ask you a question on operating margins. And the gist of my question is what is under your control that you
can do to help margins? So what are you -- some of the things on the Farnell side that you're doing to improve margins and 1%
operating margin, how do you see that trending over the next couple of quarters? And the same question on the core business. I
know mix is a big driver for margins but are there things under your control?
And what I'm thinking is you recently hired a Chief Digital Officer. I know most of the sales are not through the website I think on
the core side. But is that something that can -- if that can grow and can help you on the cost side? So just give us your thoughts on
what's under your control and what's not and how you see margins improving on the EC side as well?
Question: Ruplu Bhattacharya - BofA Global Research - Analyst
: For my follow-up, if I can ask, in this environment, how are you thinking about capital returns? Phil, do you see any opportunities
for any rollups or any M&A? I mean you talked about investments that you are making to better position the company. Is there any
chance for inorganic growth? Are you taking any share organically versus competitors in this environment? And Ken, how do you
think about free cash flow and buybacks and use of the cash?
Question: William Stein - Truist Securities - Analyst
: I wanted to ask about tariffs and the potential impact and even the impact that we might have seen in the quarter just closed. I think
in your prepared remarks, Phil, you talked about in Asia having received some slight benefit from anticipation of tariffs. That would
be I guess a pull in to try to get ahead of any action. But I think when you were discussing the Americas, you said there's no effect
like this going on. And I'm just hoping you can maybe give us some idea as to how you know when a customer orders, whether
there's upside or downside, how do you know if it's in anticipation or not in anticipation of this? That would be helpful.
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