Q4 2022 Avnet Inc Earnings Call
Please stand by our presentation will now begin welcome to the Avnet fourth quarter fiscal year 2022 earnings call I would now like to turn the floor over to Joe Burke, Vice President Treasury and Investor Relations for Avnet.
Thank you Paul earlier this afternoon Avnet released financial results for the fourth quarter and fiscal year 'twenty to 'twenty two.
The release is available on the Investor Relations section of the company's website, a copy of the slide presentation, a little accompany today's remarks.
It can be found via the link in the earnings release as well as on the IR section of <unk> website.
Some of the information contained in the news release and on this conference call contain forward looking statements that involve risks uncertainties and assumptions that are difficult to predict.
Forward looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements.
Several factors that could cause or contribute to such differences are described in detail in that in its most recent Form 10-Q, and 10-K and subsequent filings with the SEC. These forward looking statements speak only as of the date of this presentation and the company undertakes no obligation to publicly update any forward looking statements or supply new information.
Regarding the circumstances after the date of this presentation.
Today's call will be led by Phil Gallagher Avnet, CEO , Tom Liguori, Avnet, CFO , and Ken Jacobson Avnet as corporate controller and incoming CFO . This September .
With that let me turn the call over to Phil Gallagher Phil.
Thank you Joe and thank you everyone for joining our fourth quarter and fiscal year 2022 earnings conference call.
What are your has been for Avnet on the heels of our Centennial anniversary, we built on the prior year's momentum to deliver robust financial results, including a record EPS year, nearly reaching $7 for the fiscal year.
Our sales for the fiscal year were up nearly 25% year over year. This was supported by a strong year for electronic components, and notably a record revenue year for farnell.
We had a great performance from both operating groups and we're really excited about the revenue synergies, we're seeing between the two as well as announced earlier in the year. We also achieved and surpassed our near term operating margin targets I'm pleased to cap off the fiscal year with operating income margins of four 5%. This recently ended quarter three nine.
For the fiscal year.
Beyond the numbers, we were excited to host our Investor day in June where we had the opportunity to see many of our stakeholders in person in New York, We also announced a couple of key executive succession. This fiscal year, including the appointment of Dana Bad one a 24 year veteran of Avnet as a new Americas leader for electronic components and more recently the appointment of.
Ken Jacobson who's been a key contributor in our finance organization for nine years to CFO effective in September . These moves are part of our succession planning process, which ensures continuity and executing our strategic plan.
We've continued to make investments in inventory, including SKU additions that for now and in field application engineers and online design tools that have delivered meaningful value and growth. Additionally, we continue to make investments in our employees and are kicking off fiscal 2023 with the compensation increase across our employee base.
And merit based rewards to acknowledge strong performers and remain competitive in a challenging labor market.
As I've mentioned throughout the year, we've been immensely proud of our team's commitment to executing on our strategy amid an increasingly complex macro environment. Their contributions have enabled us to grow share and secure exciting new business opportunities in.
Enhanced the value proposition of our supply chain engagements and high service Fearnow offerings provide uninterrupted support to our customers and suppliers looking to decrease risk in their supply chains, and lastly to surpass our near term operating margin targets sooner than anticipated.
Our teams are unmatched in terms of experience expertise and diligence and their efforts are instrumental to avnet success and role at the center of the global technology supply chain.
We have a strong foundation to build upon in the coming fiscal year and are well positioned to deliver value and is that even if market conditions change in the future.
From a demand perspective, this past quarter, we saw continued strength in the industrial automotive transportation and aerospace and defense segments. Additionally, we expect some applications like EV charging and other alternative energy applications to pick up based on current energy supply concerns.
Lingering COVID-19 impacts from inflation and impacts from the conflict in Ukraine continue to have some ripple effects on supply chains.
Well I'll supply some of the parts is modestly improves we expect supply chain challenges to persist throughout the remainder of this calendar year.
It's in these types of environments that our role as a distributor is particularly critical as we've proven over the years the value of adding that in a complex operating environment is our ability to serve as a control tower for our customers, helping them proactively manage their supply chains, we expect customers and suppliers to leverage these solutions more fully.
In the coming years.
Now turning to our electronic components in farnell highlights.
Electronic components had a strong year, reaching nearly $23 billion in sales.
We were pleased to maintain robust sales this quarter following a very strong third quarter.
These results were primarily driven by another record quarter of demand creation engagements expanded sales in Asia and solid sales in the Americas and EMEA regions, notably this was our fifth consecutive quarter of growth in Asia, which enabled us to reach a near term milestone of $10 billion in sales for the region for the fiscal year at least.
So year over year growth this quarter of over 34% in both the Americas and EMEA on a constant currency basis.
Our book to Bill ratios at the end of the quarter remained above parity.
Lead times are mixed some remain extended particularly for controllers, while some lead times of other products have been moderating.
We continue to effectively manage our backlog we brought our inventory levels up this quarter to support the ramp up of sales in Asia into the seasonally strong first fiscal quarter.
As a distributor we pride ourselves on our ability to meet and support strong customer demand and I am proud of the success, we've had in managing key relationships with customers and supplier partners to get the right parts in the right place at the right time.
From a demand creation standpoint, we again had a solid quarter of design and engineering activity across all regions high levels of design registrations and wins in prior quarters resulted in yet another quarter of record demand creation sales and gross profit.
Man creation revenue as a percentage of total electronic components increased to 31, 2% for the year.
Now moving on to for now.
I mentioned earlier it was a record revenue year for for now with full year revenues, increasing 22% year over year with demand indicators remaining fairly consistent we continue to make investments in for now adding over 18000, new inventory skus in the quarter.
Our investment in <unk> E Commerce platform and improving the user experience continues to yield meaningful results.
Nearly 56% of Fernando's total sales and 72% of total orders transact that were placed through farnell E Commerce platform this quarter.
We expect to continue to see increased traffic and new customer acquisitions in quarters to come.
As we continue to improve our digital capabilities, we expect fernando's value proposition to increase and enhance the synergistic collaboration between farnell and electronic components.
This collaboration allows us to serve our customers from new product introduction to mass production and is a key differentiator for avnet.
As we head into fiscal year 'twenty 'twenty, three we see opportunity for avnet to leverage and build upon the value of its demand creation capabilities supply chain services embedded products and Fargo offerings.
We're a different and much more resilient company today due to the durable changes we've made to our business, there's never been a greater need for global distributors and we remain confident in our ability to meet those opportunities.
Before I turn it over to Tom to dig deeper into the financials I'd like to take a moment to thank Tom for his immense contributions to avnet over the past four and a half years, Tom has been a big part of our transition into a stronger more profitable and resilient company.
Our balance sheet hasn't been this strong in decades, Tom and his team has built a high quality finance organization and importantly, he has served as an invaluable partner to me since my transition into the CEO role.
And Miss working alongside Tom and having them join me on these calls, but I'm absolutely confident we're in excellent hands with our incoming CFO Ken Jacobson.
The season that that executive who many of you have already met.
He has served as our corporate controller and has been a critical leader in our financial organization for the past nine years.
So with that let me pass it over to Tom.
Thank you Phil it's been a pleasure working alongside you and the entire Avnet team.
I want to personally thank the finance team at Avnet for their support and friendship during my time here.
They are a talented group of professionals and a joy to work with.
And I Echo your point, Phil Avnet will be in very capable hands with Kennedy CFO .
I look forward to seeing Avnet continued success under your leadership.
We are very pleased with both our fourth quarter results and a record earnings year. If we've just completed.
I will share some of the highlights from the quarter and full year before turning it over to Ken who will discuss first quarter 2023 guidance.
In the fourth quarter, our revenues were $6 4 billion up.
21, 9% year over year.
And at the top end of our guidance range.
Adjusted EPS exceeded guidance.
Coming in at $2, seven compared with $1 12 in the prior year quarter.
For the fiscal year, we achieved sales of $24 3 billion up 24, 5% year over year.
Our record GAAP EPS of $6 94, and.
And our record adjusted EPS of $6 and 93.
Job well done to the entire avnet team.
Throughout the year, our teams continued to improve execution and efficiency.
While also managing expenses.
We achieved and surpassed our near term operating margin targets.
Resulting in fiscal year 'twenty, two operating margins of three 9% for total avnet.
This was supported by operating margins of three 9% for electronic components and 13, 4% for now.
Turning to the income statement.
Our revenue comparisons are affected by changes in foreign currency rates.
Our reported revenues for the fourth quarter or $6 4 billion.
Changes in foreign currencies had a negative impact on our sales up $150 million sequentially and $326 million year over year.
Gross margin of 12, 2% was down just slightly on a sequential basis for.
For the total year gross margin of 12, 2% was up by 73 basis points from the prior year.
Both evidenced that we are effectively managing pricing in a supply constrained market.
In the fourth quarter, we continue to process many price increases.
Adjusted operating expenses of $492 million for the quarter.
Down three 4% sequentially.
Adjusted operating expenses as a percentage of gross profit dollars with 63% in the fourth quarter.
This is a substantial improvement from the 76% in the prior year fourth quarter illustrating.
Illustrating the disciplined expense management of our global teams.
On the nonoperating front interest expense in the quarter was $30 million up $4 million sequentially due to higher levels of debt within the quarter.
As well as a slight increase in short term borrowing rates.
We booked a 25% adjusted tax rate in the fourth quarter.
And as a total year with a 21, 9% adjusted tax rate.
[noise] vanilla achieved revenues of $442 million in the fourth quarter.
And operating margins of 14, 2%.
Revenues declined sequentially due to product shortages of semiconductors.
Single Board computing and test equipment.
As a result for now ended the fourth quarter with a record customer order backlog.
A total year basis, so now achieved record revenues of $1 $8 billion.
Fourth quarter operating margin of 14, 2% benefited favorably from higher year over year pricing, which contributed 180 basis points of margin.
Without the pricing benefit vanilla operating margins would've been 12, 4%.
<unk> with a 10% to 15% range through the cycle that we discussed during Investor day.
We are very pleased with <unk> results and expect to build upon this momentum as we continue to make investments in skus.
Analytical tools and the e-commerce platform.
For now is a large part of our plan to target upwards of 50% of gross profit dollars from higher margin business.
Electronic components achieved revenues of $5 9 billion in the fourth quarter up 23, 9% year over year and down one 5% sequentially. The sequential decline was mainly EMEA due to currency rates.
However, avnet EMEA fourth quarter revenues were 34% higher in constant currency in the year ago quarter.
Operating margins were four 3%.
122 basis point improvement from last year.
Our electronic components groups performance. This quarter was driven by another record quarter of demand creation engagements as well as very strong sales in Asia and Americas.
Turning to cash liquidity and the balance sheet.
Our liquidity position remains strong we ended the quarter with cash and equivalents of $153 7 million and $1 4 billion of available lines of credit.
We are seeing an improvement in our ability to bring in inventory, which increased this past quarter.
This was primarily to support strong sales and bookings in Asia.
And was accompanied by a corresponding increase in accounts payable.
Sales in Asia have grown sequentially for five quarters.
And we require the right inventory to support current demand.
Our total Avnet inventory is 64 days on hand.
Which is still slightly below our normal 65.
Total net working capital days at year end was <unk> 69 down from 74 in the prior year.
We remain committed to disciplined working capital management and to maintaining our strengthened balance sheet.
We are pleased with our debt position with debt coming in at $1 6 billion.
And net debt at $1 5 billion.
Our gross debt leverage was one four and net debt leverage was one three.
Moving on to capital allocation in the fourth quarter, we returned $25 million to shareholders in dividends.
Representing an 18% increase in the per share dividend payment year over year.
As we said at Investor day share repurchases remain a meaningful part of our capital allocation strategy.
This quarter, we repurchased $102 million of shares up from 45 million last quarter.
Moving forward, we remain committed to increasing shareholder value by delivering a reliable increasing dividend and continued share repurchases.
With that I'll now turn it over to Ken to discuss outlook for the first quarter of 2023, Ken.
Thank you Tom.
I will provide some color about our expectations for the next quarter.
Before I begin I'd like to thank Tom for his leadership over the past several years and on a personal note for his mentorship and coaching that has allowed me to succeed him as CFO I look forward to getting to know some of you on this call in the weeks to come.
Turning to guidance for our fiscal Q1, we are guiding revenue in the range of $6 2 billion to $6 $5 billion and adjusted diluted EPS in the range of $1 85 to $1 95.
Our first quarter guidance today is based on current market conditions, including a $100 million negative impact on sales guidance at the midpoint from the recent strengthening of the U S dollar as compared to the fourth quarter. This guidance implies a sequential growth rate range of down 1% to up 4% in constant currency and assumes a typical season.
I'll shift in sales to Asia from the western regions.
This guidance assumes an effective tax rate of between 21% and 25% and 96 million outstanding shares on a diluted basis.
We have spent the last couple of years, making avnet a stronger company.
One that is not only able to operate effectively in today's complex environment, but also one that can provide even greater value for our customers by proactively managing their supply chains.
With the synergies, we're seeing between electronic components and for now our investments to support future organic growth and steady progress toward our operating margin goals. We are confident in our ability to continue delivering value to our customers suppliers and shareholders in fiscal year 2023 and beyond.
With that I will turn it back over to Paul to open it up for Q&A.
Thank you we will now be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from Nikhil for.
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One moment, please while we poll for questions.
Thank you. Our first question is from Nick Todorov with Longbow Research. Please proceed with your question.
Yeah. Thank you and good afternoon, everyone and.
Congrats on great results and Tom <unk>.
For no. It was pleasure working with you and good luck on your in your endeavors.
Thank you well first question I guess is on inventory I guess, you guys spoke about preparing for a season, though volume in Asia, but I guess at the same time, you mentioned still some shortages impacting the Ferndale business. Maybe you can talk about the composition of inventory where are you guys being.
But to build that inventory in and what sections of the component business and are you are you starting to see some some loosening of maybe the components, though were kind of mostly tied to kind of the golden screw call them. That's kind of the first question I had.
Yeah. Nick This is Phil let me take a first crack at that you first of all.
Yeah, we're definitely very confident and comfortable with the inventory levels and the mix as well by the way and you have.
To meet the sales for the coming quarter as we noted in the script and overall days are still 64, which is below typical so we're really comfortable with the quality of the inventory is good.
Very good as matter of fact.
Some of the its.
It's a mixed bag on the commodities and what's coming in and what's going out you know so.
If you look at overall lead times.
Still in the analog discrete M C use et cetera, we're 'twenty 'twenty four weeks 30 weeks plus respectively.
You know moderating for sure, but still above levels pre COVID-19. If you will all right. So we are seeing some moderation.
And some of the passive area, we're definitely starting to see some now based upon based on mostly due to the consumer side of the equation starting to see you know some areas in the MLC C. For example, coming in Oh lead time, but it's really it's really complex, it's really by product by commodity, but overall you know a lot of the.
Inventory did come in came in near the end of the quarter and we'll be we'll be looking to turn that this quarter.
Okay, great and as a second question just on around demand I was wondering if you can provide us a little bit more color. There is obviously, a well known weaknesses in the consumer electronics markets, but recently, there's been some signs of at least in some areas of the semiconductor market that areas like data center automotive and industrials are also start.
To see signs of softening just what are you seeing from a bookings standpoint, particularly in areas where lead times you you mentioned, they're starting to kind of come down.
Yeah, so well, let's start with the latter part of the question of overall book to bills are we like to see moderating.
Moderating, okay, they're not where they were you know six months or a year ago, but still still above one okay, which is.
Which I see as a good thing that that book to bill coming down a bit to begin with you. So maybe that closer to a two in reality.
As far as the yeah. It was already mentioned consumer wouldn't play a whole lot there, but that doesn't mean some capacity can't move from consumer products into other applications were right now as we sit here today, the aerospace defense still.
Strong are the industrial space that we see as our backlog.
And it was booked on us and we will have taken and as you know quite a few mlps.
Supply chain engagements still still strong in and transportation I always thought you know automotive slash transportation because the applications are so broad outside of the automotive.
It's you know.
E bikes to dump trucks, right I mean, they're they're all using more and more electronic components. So still seeing that as we sit here today is still pretty steady.
And the backlog okay.
Got it thanks, guys good luck to them.
Thanks, Nick Thanks, Nick.
Thank you. Our next question is from Toshi Hari with Goldman Sachs. Please proceed with your question.
Hi, Good afternoon. Thank you for taking the question and a big Thank you to Tom as well for all the help over the years.
Two questions as well.
First on the guide again I just wanted to follow up so inventory grew I think 15% sequentially and you talked about supporting growth in Asia.
I get the FX headwinds in the quarter, but even ex the FX headwinds youre guiding.
September quarter revenue up one, 5% or 2% at the midpoint. So I guess, what's the disconnect. There should we expect further growth into December .
Any color around that would be helpful. Thanks.
Okay.
Yeah. This is Ken I think part of that increase is the timing of sales you know it came in later in the quarter, but if you think about EMEA.
EMEA and Asia in particular right.
July is a pretty big month, if you kind of look at the prior year I think our inventory grew like 17% comparable level.
And then kind of moderated so we feel you know the sales demand is there and you know there is a cyclicality within the underlying quarter.
That we see that that drives some of the higher levels at the end then again, our net inventory days is really flattish when you take the inventory days unless the AP days. So you can see a lot of that came in and you know it.
It supports the near term sales.
Yeah, Tahira and in Asia typically in the September December quarter, Yeah. It does accelerate from a growth standpoint.
And we still see and where we're.
We're seeing that as well.
We sit here today, we're still seeing that.
Got it very helpful. Thank you and then as my follow up just wanted to get.
Some context around what you're seeing from a pricing standpoint.
Versus what you were saying on the volume side of the equation.
For June for example, you know your <unk> business grew I think 23, 24% year over year.
Ex.
Some of the foreign exchange dynamics are what was kind of the mix between volume growth versus pricing growth in and whats the outlook for the back half of the calendar year. Thanks, so much.
Yeah, no. Thanks, I'll take first crack at that this is Phil.
So.
The bulk of the growth was still volume growth. Okay. There's no no question about it and we're estimating from a R.
A S. P inflation, if you will somewhere between seven and 8%.
Some of that was pricing inflation, and we track that by commodity and by a S. P.
So you can say, maybe it would take seven 8% on 24%, so 25% to 30% of the growth might have been due to ASP inflation and we're still by the way we still saw a many price increases from our suppliers. This past quarter, and we're foreseeing more coming which is which is interesting.
Thank you so much.
You got it.
Thank you. Our next question is from Jim Suva with Citigroup. Please proceed with your question.
Thank you Tom I'm not sure you're allowed to leave I'm, sorry about that because your coach coach football you might be right back just like Oh by the way I'm going to I'm going to Miss you.
Thank you.
My one question.
I have one question and I might just because I'm not the smartest analyst out there, but it was asked a little bit on the prior question, but.
Your sales outlook again, it's kind of flattish quarter over quarter and if you include FX up a smidge, but your inventory and I'm not saying inventory is bad what's your inventory is up materially both year over year and quarter over quarter about sales. So I guess I don't.
Understand the disconnect around why the inventory build is it translating into a similar or even closer sales growth rates unless maybe you know people will say, you're holding the wrong inventory or it's in the wrong place and then it's going to hurt you. So if you can just help US bridge the gap between the inventory build in the sales outlook.
I know it was asked a little bit earlier, but helps all of US just really conceptual grasp the bridge there. Thank you.
Yeah I'll go I'll take that one Jim this is Phil.
Yeah, It's as Ken said earlier, we did.
It's similar scenario last year, alright, so as we build and bring in the inventory some of it was for as we said the Asia growth other than for strategic customer opportunities that we've we've won in past quarter and had to bring some inventory in and then it was really the timing as you see the a P offset it so as we look into next year.
When we're guiding three months, we look at the next three to six months, we feel the inventory is positioned correctly for the growth that we're seeing in the marketplace from December .
The quality of the inventory, let me when we get on that one it was extremely good at it it's a <unk> or what we call non moving inventory that.
We calculate is at a all time low so the inventory that we have is is the right inventory and the quality of inventory.
Most of the inventory, we have two or more and more.
Versus even many many years ago that we've been around me been around I've been around is for customer contracts right. We have customer contracts, we have firm supply chain engagements. So there's either backlog or contracts backed up with NCR on top of that we pass it through.
From the suppliers.
It gives us the confidence that we're in a good position and going to be just fine.
Yeah.
Okay.
Okay.
Yeah.
Thank you. Our next question is from <unk> <unk> with Bank of America. Please proceed with your question Hi, Thanks for taking my questions.
Like will defend them and Tom that we're going to Miss you and congrats congrats on the new role.
For my first question I'm going to ask the margin question again in a different way.
So on the core side margins were up 120 bps year on year, how much of that was because of asps going up and you.
You said 180 bps on the finance side I guess, so my question to you would be if if you're seeing prices still going up from vendors. How should we think about margins in both of these segments over the next couple of quarters end and when do you think the margins start to normalize back down to.
More of the the levels that you've talked about on a through cycle basis. What are some of the things that can keep these margins high over the next couple of quarters.
Yeah. So on the price I'll go first let Ken jump in at a time, but on the Asps and cost increases from the suppliers a reboot that doesn't have as much impact on margin as it does our.
Growth right that we just talked about on the previous question too because you know we have contracts with customers, we get a price increase we're passing that cost an increased to the customers, but it doesn't necessarily positively impact the margin. Okay. So just FYI.
The balance of most of the margin.
What's weather was sequentially up or or moderate it down is it more of a mix issue, okay that more of a regional mix issue with.
With the west being a stronger in the June quarter, and a little bit less in the September quarter as Asia as we forecast will outpace to the west and that has a different margin model.
It sounds point out before some of the appreciation we've gotten them for now we have a we have seen some positive margin impact based on the way they place things in a market that we've been in it's been 100 to 180 bps. We think we're getting some margin impact there to the positive.
And then maybe maybe outbreak go ahead go ahead.
No I was just going to say Hey, you know.
When we say for now that 180 basis points and that there are 14, 2% would be 12, 4% without the pricing.
That's an extreme that saying if all of the pricing.
Went away and that was to alleviate concerns that all of your margin all of our margins for based on pricing there.
So you know we.
We don't anticipate that happening.
We had.
At current volumes, there's no reason that margins.
It would not stay at current or similar similar levels.
Okay. Thanks for that Tom.
Maybe for my follow up if you can talk about Capex.
Expectations for for the year and also your capital allocation priorities I know you've been investing in for now and you know you've had good.
E Commerce sales there I mean, how much more investment is needed in that business to get to your long term target revenue goes for for now.
So if you can just talk about your investment areas and thoughts on capital allocation. Thank you.
Yeah. This is Ken I would say you know as we kind of communicated at our Investor Day, you know the Capex will go up we'd been at pretty low levels of the past couple of years as part of that pandemic related then.
So I think that the guidance. We gave there was you know around $100 million are kind of double where we've been but a lot of that is focused on foreign outright systems warehouses getting the right digital tools in place.
You know from the rest of the capital allocation priorities I think the thing we talked about was a $600 million of buybacks you know the board authorized and we did a fair amount in the quarter about $100 million and pricing in the market continues to be favorable we'd expect to continue to.
Put some capital towards buybacks.
Yeah Groupon on the bounce of investments, we're making outside of Capex, and we're continuing to which which really ties to your margin right. The higher value businesses. You know farnell, we're seeing terrific success and don't want continued invest in e-commerce.
We continue to invest in inventory, there maybe getting back to Jim's.
Inventory, we will continue to publicly disclose the amount of skus that were adding and we had frankly, we'd like to have even more inventory at farnell, we're doubling down our interconnect passive electromechanical business much of this we talked about at Investor day, because it's higher margin business, our digital offerings for not only demand.
Creation, but supply chain and then demand creation in general right.
Field application engineers.
All of those things will continue to invest in because they they they drive a higher margin business in the last of which was again talk about investor day, the embedded business, which is a higher margin business. So just to.
Reiterate we're still in that investment mode to drive growth and profitability to maintain those margins that we talked about.
Thanks for all the details appreciate it.
Yeah.
Thank you. Our next question is from Matt Sheerin with Stifel. Please proceed with your question.
Yes. Thanks, good afternoon, Phil I'm I'm, hoping to ask another question regarding our inventories are and the outlook and really not just your inventories by the inventories across the supply chain. There are record levels are within the <unk> customer base as well as Oems Micron earlier this week talked about.
I'm seeing an inventory correction not just in consumer, but also auto and industrial and I know the memory market.
A different animal cyclically than that than the business that you're in.
But at some point, we are going to see.
Yeah inventories start to come down and I'm, just wondering you know.
Or are you seeing any signs at all of that and any rescheduling and when when we do see that happen are you likely to be the first guidance here or would the direct Oems.
Will that you start to see the cancellations first.
Yeah. Thanks, Matt.
Great question, because we are tracking the publicly held companies I'm looking at the data now and you aggregate them for sure their inventories are up on Q O Q and up year on year or whether it's our E M S OEM or and in our suppliers set right. So so you're absolutely you're absolutely right we continue to.
Paul said with the with our customers in the OEM in the E. M. S set as you know, we know them well and.
We do most of them were doing supply chain.
Its width and much of that inventory is being held up I think Nicholas mentioned at the what's called the Golden screw. So as we post that I was out this week with a major U S. Guy I didn't say there they've got yeah inventory is up but it's good I mean citizens industrial its defense contract sport.
So you know we're doing the best we can to make sure that we're validating okay. The demand and as far as who will be first to say that's a great question too where we track our cancellations, okay and our push outs right centers, you know what gets cancelled what gets pushed out and we're not seeing.
An increase of any significance, maybe slightly and some cancellations.
Very very little in cancellations, I'm, sorry, and slightly in some push outs, where we're not you know maybe that's surprising demand, but we're not seeing that backlog to support that disappear.
We got to work with our customers to help them to they if they can't take the product right now how do we help them with that and some of the smaller customers et cetera. So it's a it's very complicated as you guys can imagine that's the questions.
But we're just giving you the visibility that we see based on the data that we watch daily multiple times per day on a global basis on what's happening and when we're not seeing those early indicators, but we're watching it very closely.
Okay. That's very helpful and then on the gross margin.
<unk> earlier.
You you talked about really not seeing any any positive impact.
From a ASP increases in the core business.
But on the other hand, you could argue that the.
<unk>.
The competitive environment is less.
A severe now because supply is has been an inch.
Constrained and very strong demand. So we're in an environment. When maybe there is weaker demand would you see at least a return to more competitive pricing, which would put pressure on your margins.
Yeah.
It's possible you know again, we didn't see that much appreciation as we talked about I mean again.
I believe the Asp's are going to more firm up Matt is my take on it I know historically, we can look at a S piece as an average in the industry I think it's going to depend on the technology and the products are if it's a commodity standard products are multiple source, yeah that might get a little bit more pricing pressure, but it might just be a S. P.
Pressure not margin pressure right, because you still might be able to hold the margin just might be an average selling price pressure and a higher end.
Which we're not seeing a lot of move on from a lead time standpoint high end micros and don't get any specific suppliers I don't know I mean, theres still price increases did switch kind of strange about what's happening right or you just called out inventory days going up in these different mixed signals in the marketplace.
Yeah. We have you know north of 25 suppliers are elevated prices in the last 30 to 45 days and so I'm talking about more so it's really going to be I think Matt it's going to come down to buy commodity, Okay, and then and where it sits in the intercept from a technology standpoint.
Okay, Great and then just my last question a modeling question for the incoming and outgoing CFO .
If I may.
Well on the on the mix of margin you talked about some opex increases some some salary.
Salary increases.
What should we expect for Opex and I'm imagining that gross margin should be down a little bit sequentially.
Just on the seasonality issues, you talked about with the strength in Asia does that makes sense.
Yeah, Matt that that makes sense.
I would say the mix shifts going to cause the gross margin impact you know opex.
Flattish, maybe up a little bit from its investments, but we've done some offsetting things as well so we're making investments in our people, but there's still things that we can improve upon on the opex side of things.
Yeah.
Okay, alright, thanks, a lot guys I appreciate it.
Thanks, Matt.
Steve Thank.
Thank you. Our next question is from William Stein with Truth Securities. Please proceed with your question.
Great. Thanks for taking my question I wanted to add my congratulations to everyone. I was hoping to ask about the book to Bill trends I think you highlighted fill that.
Book to Bill faded, a little bit in the quarter, but still nicely above one.
Is that true of both segments and can you give us any color.
In terms of both that the.
Difference.
Bookings performance.
And trends.
And that ratio for.
From last quarter to this quarter.
You broke up a little bit, but I think our I think I got it. Thanks, Thanks will so.
For both operating groups are the components and for now were both positive book to Bill.
Through the quarter and are as of today as well by the way.
As I pointed out just yet but.
It moderated a bit which again I think is a good thing. So you know what it wasn't off the charts just still came in at a good positive book to Bill and remember we look at book to Bill. That's and then we got the supply chain engagements you know so there no kind of outside the bookings. So we got we got to look at that as well, but yeah, though and as.
Yeah, it's really the quarter. It's it's it's at a global level with similar the mixed by region, a little bit different you know in a book to bill, but at the global level. It's still it's still positive close to where it closed out frankly at the end of the June quarter for both our farnell and electronic components.
And then a follow up if I can.
At the Analyst day, you discussed some new tools and services that you're providing to customers I think even in your prepared remarks, you mentioned this.
Control Tower concept can you maybe talk.
About that maybe just help us understand.
The effect on your business is it a direct revenue effect and is it here and now is it more of a future thing or is it less of a revenue or margin impact in more of a matter of increasing your stickiness with customers.
Yeah. Thanks, well, we did talk about both of those so let me start with the both under what I would call the digital category.
One was the or design tool. So long line designed tool we call avail and that is live.
And effectively it has thousands of block diagrams in it yeah, we'll be we're pushing that out directly to customers and an API or a cloud based accessibility and it really helps our demand creation. Okay. It helps us not just with demand creation, but more and more customers and was covered at the investor day with our panel as well.
Now more and more customers are looking for solutions and more of our suppliers are looking for is to sell solutions. So that tool helps us design in influence design and you know when more of the design on the whole board. So that's the tool we talked about is called avail, and that's again, that's been rolled out internally for our field application engineers.
Now, we're kind of turning that around to give a direct accessibility to our customers and that's in process.
Pretty much as we speak and on that note demand creation in general is over 30% almost 31, 31% of our total revenues last quarter, which is a record number.
For us again important because of the U N designed to big chip helps us pull through it helps us with the stickiness down the line and still critical for our suppliers I mean, they they they they lean on us for demand creation and we respond the other one you're right we've talked we call it the control tower.
It's around the supply chain orchestration. We've we've had you know its already roughly 50% of our business, where we're we're more we're actually managing a customers' MRP or were taken in feeds whether it's E. D. I, an API facts wherever they want it however, they want to give it to us where we're managing their their pipelines for us and what's happened.
And in the last couple of years as more and more customers are communist coming to us as they they need more assistance and some of these or maybe tier ones large Oems that weren't doing business with us directly and they're asking us to help them.
We build are there supply chain when it comes to technology in semiconductors, and yes, we've called.
Recall that the control tower.
And we've had some big wins in one it helps revenue.
Some of this is our supply chain as a service as we talked about where it's low working capital no working capital really gross profit kind of a building and then the third is yeah. It does integrate us more with those customers and really the partnerships just go to a new level, where we're integrated and you know it does create more sticky.
So hopefully that answers the question.
Thank you.
Thanks, Paul.
Thank you. Our next question is from Joe Quattrochi with Wells Fargo. Please proceed with your question.
Yeah. Thanks for taking the question and Echo my congrats to Tom and can I, just kind of wanted to another question on the book to Bill and the change that you're seeing there can you maybe just help US understand is this a change in maybe the breadth of orders in terms of the number of customers or maybe the quantity that you.
Customers are ordering in terms of like the <unk> the amount at one time or just the E.
Months of visibility, they're getting on their order book and any help there would be great.
Yeah.
Thanks, Joe.
It's not customer count because I don't get that he can tell you. There are some customers that you guys are slowing down and others that are there are picking up well I've. It has to do with.
The lead times, so as if lead times in some areas do come in a lot of the Mlps.
The drive the bookings are supply chain engagements, although with just those mlps based on a quota lead time published lead time or actual lead time. So more of it's more of a is that a than it is anything else.
And I always thought that some customers are slower than others, I mean that you're going to always have some some verticals that are up or some that are down.
That's helpful. Thank you.
Yes.
Thank you. Our next question is from Joe Cardoso with J P. Morgan. Please proceed with your question.
Hi, Thanks for the question I have just two quick ones for me first you modestly narrowed the revenue guidance range for the quarter. So just curious to see what's driving the better visibility heading into the September quarter. If anything and then second you mentioned the supply shortages with our now has that recruitment at all in the first quarter to date and are you baking in a continued headwind.
From the shortages in the first quarter guide thank you.
But when we work on our side that.
Joe could you repeat the first part of that question you broke up on the phone I got to find out one but I didn't catch the first one.
Yeah sure. So just the first one simple it's just the revenue guidance and narrowed the range that you typically give us.
At least for the hour or two to three quarters, just curious what's driving the more narrowed range there or is it better visibility just curious to hear if there's anything behind that and then the second one just to find out.
Yeah for the guidance question, Josh This is Ken I would say, there's not really anything that's changed you know we are I.
I think maybe the prior quarter, we expand a little bit with some with some maybe more uncertainties, but this would be the typical kind of plus or minus $150 million on the midpoint.
So in that I think you'd see that going forward.
Yeah, and thanks, Ken and then on the for now Yeah, No. What would you say that for now they they've got quite a bit of backlog, we've been increasing our work and increase the skus to 200, plus thousand and we're we're just about 70, 80% there so it's not it.
Well, yeah, we can get more inventory it always helps their growth, but it's not really built into a negative guide or anything on that anything around that would be more just seasonality.
They're also a heavy in Europe , that's where you know and your Europe tends to be a little bit slower in the summer and we will probably see a more normal seasonality in Europe than we had the last two years because last years were somewhat anomalies in your market. So I think we're going to go back to more of a bit of a slower seasonality quarter in Europe , but not it's not.
It's not having a heavy impact.
Got it appreciate the color guys.
Yep you got you.
Sure.
Thank you. Our next question is from William Stein with Truth Securities. Please proceed with your question.
Great. Thanks for taking my follow up I apologize if I missed this but I'm just.
As I look at the segments I'm realizing that for now.
About flat year over year and the traditional components distribution business is still growing at a healthy clip.
Can you comment on the difference between these two as you know.
I noted that.
In times of.
Sort of.
Desperate demand relative to limited supply that you might see this bump in farnell, but.
Could then feed is that the dynamic we're seeing now are customers.
Getting.
Filled slightly better through more traditional methods and therefore backing off with farnell or is there another dynamic there.
Well, yes, and no problems you talked with the guide to September into Q4 versus Q4 Q4 versus Q4.
Yeah, I mean, well I guess, Ken I would say you know some of that is FX driven they've got a lot of your business as Phil Phil mentioned.
So, but they have had some I'll call shortages in some parts that they could including single board computing and things of that nature. So.
I feel like.
In the market demand is still pretty strong.
And the pricing is still relatively good so I don't see anything indicating there.
That that would signal anything more.
Different than what we're seeing in the components business and the broader electronic components business I don't think there's anything to read there. It is the long and short of it will and but they do all the catalog guys do pick up a little.
Maybe a bit below and we've talked about that when when there's shortages out there. They they definitely see a little bit more action than they typically would but we've not seen anything dramatically change there.
Thanks.
You got it well.
Thank you there are no further questions at this time I'd like to turn the floor back over to Phil Gallagher for any closing comments.
Alright, Thank you very much and thanks for the questions and thanks for participating in todays earnings call and I look forward to speaking to you again in our first following our first fiscal quarter earnings report in October and that point, which Ken all the best of luck and Tom Thanks for everything and hope everybody has a good rest of the day. Thanks.
Thanks, everyone.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.