Avnet, Inc. (AVT) Earnings Call Transcript & Summary

Perfect. All right. So we'll go ahead and get started. A little bit of technical difficulties, but thanks, everybody, for bearing with us. My name is Adam Tindle, I cover the IT supply chain, connected devices and security software here at Raymond James. Very happy to have the team from Avnet: Phil Gallagher, CEO; Tom Liguori, CFO; and Joe Burke, VP, Treasury and IR. In terms of format, this is just going to be an open-ended fireside chat, so no formal presentation. I'll try to keep some of the initial questions high level for some of those that are newer to the story. And if you do have any questions during the course of our chat, we'd love to keep it interactive. [Operator Instructions] Now for the most important part of the presentation, I think Joe's going to help us with the safe harbor, and then we'll dive right in. Go ahead, Joe.

Thanks, Adam, and hello, everyone. Today's discussion may include forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict, and actual results could differ materially. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent filings with the SEC and include the scope and duration of the COVID-19 outbreak and its impact on global economic systems in the company's operations, employees, customers and supply chain. Any forward-looking statements are only as of the date of this investor call, and Avnet undertakes no obligation to update or supply new information after this call. So thank you, and over to you, Adam.

Okay. Thanks, Joe. Phil, I just wanted to start by congratulating you, first of all, on your recent centennial landmark with Avnet as a company. Certainly, a testament to the company's ability to adapt alongside a continuously changing tech landscape.

So again, for those that are maybe not as familiar or perhaps even revisiting the story, if you could give us a brief background on the core business and competitive landscape and then some of the adjacent businesses and how that model compares to competitors.

Yes. Thanks, Adam. I appreciate everyone's time today and hope everybody is doing well and staying safe as we get into 2021. Yes. It's a great landmark for us. 1921 is when the -- Avnet was founded, and so we're celebrating the 100 years. We were founded on Radio Row in New York City on the -- at the World War I. There was Surplus connectors and tubes and things along those lines, and that's how we started. So we're really proud. And you hit a couple of key words here, I believe, it's resiliency, perseverance and adaptability. So if you look over the last 100 years, including 2020, the things we've been through, it's a real celebration. So we'll be celebrating that all year. There's very few companies that make it to 100 years. So it speaks to our people, our teams and our adaptability. As we move into 2021, it's been a handful of months that I've been from interim to permanent CEO. And Adam, we've bit focused on execution, focused on the fundamentals, focused on the basics. We've been leaning out the organization from a structure standpoint at the senior level. We're flattening the organization, driving more of the, if you will, the decision making back into the regions, that's where our P&Ls reside, less in corporate. And that doesn't maybe sound all that exciting, but it really is. We're empowering the team. So while we're managing expenses, which we've done a really nice job, and Tom will get into that, or Joe will, we're making investments. So we're still investing in the field. We're investing in inside sales. We're investing in FAEs. We're investing in digital and e-commerce with Farnell. And then to your point, what are some of the other things that we're doing? Well one is Farnell, and I'm sure there'll be some questions on that as we get through and what we're doing on the e-business and the digital side of things. But we're still investing in IoT. Just -- we've just rebalanced some of the talk, if you will, and/or the monies and time because that's a 3- to 5-year kind of play. But we're still in IoT. We still got the Avnet embedded in the server business we're excited about. We're just driving it closer to the core and driving the more natural revenue synergies. But very excited about the past few quarters, positive on the outlook and thrilled with the team's response to some of the changes we've made.

Perfect. And Tom, maybe we'll start with you. Again, thanks for being here today. Maybe you could touch on the financial profile of the business in total, again, for those that might be revisiting the story or newer to the story. And also the differences in either profitability or returns between the 2 reporting segments.

Sure. Thank you, Adam. Good to see you today. Thanks, everybody, for joining. So we're executing better and better. I know I'm thrilled to have Phil as CEO, I think I speak for all of our teams. And people are responding well, going the extra mile, and you see that in our performance. We've had quarter-over-quarter revenue growth. Our EPS is rebounding to where it needs to be. I mean still in the early innings, more to come. But you're right. We have 2 different reporting segments, and they have different profiles. 90% of our revenues is from our electronic components, and this is a high-volume distribution business. This is where customers have products and production. They need thousands of parts. They're going to spend as an MRP run. We're going to buy the inventory, stock it. It may not be delivered for 8 to 10 weeks. We'll have it positioned globally. And when that customer needs it, we deliver it. And the financial profile for that is we'll earn a gross margin of 10% plus, and operating margin target 3% to 4% range. Now when you look at Farnell, it's a different value proposition, it's a different customer. The customer at Farnell is the engineer. Now that engineer may work in the same company that we're providing our global distribution, but the engineer is making the buying decision. And they are going online with a bill of material, and they want to buy one of everything. So breadth of inventory, very, very important. And just as important, they want it on their desk in 2 days, not 8 to 10 weeks, 2 days. And for that, with a lower quantity, in-stock, on their desk in 2 days, it's a totally different financial return. It's a 30% gross profit with -- our target is a 10% operating margin, and more to come. Now there is a difference on capital intensity. You would think that core is the most capital intensive. No, it's not. It's Farnell because you have this breadth of SKUs. So there's a lot of inventory in Farnell. But Farnell, historically, has done very well on a return of capital. So 2 distinct financial profiles, but to our customers, really, really exciting, right, because Avnet, we're really the only people that are serving them from the design phase all the way through their production phase.

Yes. That's Helpful.

It's great to have a CFO that knows our business so darn well. I'll tell you what, Tom is -- he's integrated into the business. Nice job.

That's for sure, yes. And 2 complex businesses, but interesting differentiation. I do know that there's a lot of areas of end markets that are important to investors on the call today that we wanted to touch on, Phil. I always like to talk a little bit high-level macro and then we'll get down to some company specifics on these. You generate nearly $20 billion of revenue across all major regions. So maybe just to start, update us on the pace of business with maybe some color by region. And curious if you've seen any moderation or acceleration as we sit here on March 1.

Yes. Thanks, Adam. So we'll just take it by region. And I'll talk to most of the core here, but we're seeing the same thing at Farnell. So it's kind of an Avnet overview. As we talked in the earnings call, we saw Asia come out hot out of the December quarter. And Asia, typically, in the March quarter, will come down a little bit, and we projected that by the way, because of Chinese New Year and then some -- and again, and December quarter is heavy consumer, October, November, December. Starts to come down a little bit. But there was a condensed Chinese New Year this year, right? So it wasn't quite as lengthy as is typical. So that's going to be a positive outcome for us. It won't be down as much as it typically is. But Asia continues to be strong, Adam. And it's not just China. It's Greater China, including Taiwan. Singapore has been positive, Southeast Asia. Japan showing some good signs as well. So overall, we're really pleased with where we're at in the Asia Pac region. And you move West over into Europe, you might recall, coming out of the -- let me get it right here, coming out of the September quarter, I said, hey, we're starting to see the book-to-bill and the Europe come positive in September. Then we got into October, November, December, that continued and it continues today, driven a lot by automotive, all the regions by automotive, but also in the industrial segment, which is really good because in Europe, that's a really long tail of customers. And then you bring it over to the Americas, again, been pretty positive, okay? So we're sitting -- coming out of October was good, coming out of December is positive. And the March quarter, looking good as well. Again, automotive, industrial. Defense continues to be strong. The challenge with defense is going to be just our year-on-year compares because it was so strong last year, but continues to be a really strong market. Aerospace, not as much, but we think that will start to come back in the balance of this year. And then, overall, in a global aspect, we're playing more and more in transportation, okay, the automotive, to your point on the verticals, Adam. And it's extremely positive. As everybody knows, you read the headlines and everybody is waking up to the fact that semiconductors are in our cars, okay? And now we're seeing some of the constraints there. But it's a high-class problem we're just going to have to navigate through and learn for the future. But the silver lining there is distribution and us being in the center of technology distribution, I think we're going to play a bigger role moving forward, okay, in the automotive transportation sector where maybe in some places we did not because of their program. So there is a silver lining. There's been some articles already written out there by ECIA, that this could be some positives. So right now, feeling pretty good about things.

Good. And I know -- so obviously, demand sounds very healthy in pretty much every region. Curious on inventory levels. Maybe just touch on how you see current inventory levels at the customer level. How has the pace of restocking been trending? And how long do you think we should see this tight supply condition at the customer level? We'll talk about your inventories in a second, but just your end customers.

Yes. And it's always tough to get that view, Adam. We take in -- and just for the investors out there that aren't as familiar with what we do, we take in thousands of MRPs, which are customers' forecasts, on a daily, weekly, monthly basis. I mean that's -- over 50% of our business is actually managing that supply chain for them. So with the suppliers upstream, with the customers downstream, we're right smack in the middle of that. It's hard to get a real flavor for exactly what they're carrying on their inventory shelves, but we watch their forecast and we try to track for inflated quantities. They're using -- Tindo Inc. is using 10 pieces a week, and all of a sudden you want 50, we try to manage that and say what -- do you really need the 50 or don't really need the 50. So there's a lot of analytics that goes into that. But right now, we think the inventories are okay. Our book-to-bills are hot, there's no question about that. So then when the book-to-bills get hot -- and a lot of that is also due to lead times extending, right? So customers are now booking further out. They adjust their MRP forecast. Something goes from 8 weeks to 16 weeks or 26 weeks, they now book it out further. So we're watching the book-to-bill, what's inside of 30, 60, 90 days, and then how much is outside of that. And then what we track very closely is the cancellation rates. What's the push-outs, cancellation rates? And right now, they're running about north. So we're not seeing -- and by the way, in distribution, we're roughly 20%, 25% of adjusted backlog on a daily basis. That's the shock absorbers that we play for the industry. We're not seeing anything outside of, if you will, that norm. So that's a good thing. So right now, as best we can tell, inventories look okay, and this thing can change up or down quickly, but that's how we're seeing it right now. And again, the future looks pretty positive.

Good. And then how about on Avnet's inventory levels? You previously commented that there's shortages across the board, but you also noted that, hey, it's not like we can't get any products, it's just that we can't get some products. So I just would be curious your view of your own inventory level and how shortages are impacting you?

Yes. So we're actually -- I feel like we're in pretty good shape on inventory. We're not going crazy. We're working with the suppliers. Again, we've taken the forecast to work with our suppliers. Some parts are tougher to get than others, okay? And that's pretty public at this point, particularly in the high-end 32-bit space. We'd love to have more of that. But we're actually comfortable with it. Our working capital days are in line. Our return on working capital has increased. Not where we need it to be, but it's moving in the right direction, right, Tom? I mean we've generated cash flow last 8 quarters or so. So we feel pretty good. In some cases, we'd like to have more, to be honest with you. And we're pipeliners, so we're in a cash position to be sure -- in the balance sheet position to make sure we can pipeline for the upside in the marketplace. I think that's important for our customers to hear, by our suppliers and our investors. But no, we're -- there's always -- right now, yes, there are some constraints, okay, and they are by technology. That could increase, but we'll see how it goes. But we're not seeing -- a lot of times you say, well, if you can't get this part, it's going to stop everything else from shipping. We're seeing a little bit of that but not a whole lot of that, to be candid with you. So we're feeling -- Tom, you want to comment on the inventory position? You've been -- I know you've been...

No, I -- we -- in total, it's where we want it to be. We look at each business by days of inventory. Yes, there are shortages. Phil leads every other week with the business president's inventory review, and what are we buying and what's the timing of what we're buying. And if you hear on that, yes, there are select shortages. But overall, so far, so good. Thanks, Phil.

Yes. No, thanks, Tom. And let me just add, Adam. Look, there's going to be some challenges. The word I use with our suppliers and our customers, by the way, and our largest customers, hey, let's be responsible. What is it we really need, okay, on both sides? And how can we manage through each situation to get the parts that you need for -- not an inflated number, not an insurance policy, what do you really need for the line now. And I've been around 39 years, and that's how you have to go. What is it you really need? Give us your drop dead quantities? And by the way, I'm on expedite calls every day with customers and suppliers. That's a good thing. That's not a bad thing, okay? We just need to navigate it. So when there's a will, there's a way. This isn't our first rodeo, we'll get through it.

Yes. Just had a couple of e-mailed questions. One was actually one that I was going to get into next. [Operator Instructions] Investor had two questions, I'm going to ask the one on inflation. I had this kind of loaded up, and it's increasingly relevant across all industries, something we're paying attention to. In tech in particular, it's interesting because the tech distributors are typically used to deflation. So the investor question was just thoughts on current environment and maybe touch on how price inflation flows through the model for each segment.

Great question, and we're managing this one. Back to Tom's point on the calls we have every other week, we're looking at this. It's a tricky one, okay? So the answer is yes, we're seeing some inflation. So let me just get that out. The challenge is when you deal with many suppliers, like we do, and they all have different policies. So we're trying to navigate that without disrupting the supply chain to the customer. But the long and short of the question is, are we going to do everything we can to pass on price increase? The answer is yes. And that should drive some ASP inflation and should drive gross profit dollar inflation. Now you get into the infamous shipping debt, so it gets very, very complex, so I'll try to keep it simple. Bottom line is if a customer raises our price $0.10 on a $0.60 device, we need to be passing that on to the customer, and the suppliers are helping us do that. They're very -- good news is this time, they're actually putting out letters to the industry, basically, here's what we're doing. So that gives us the fair air cover, if you will, to go to the customers. It doesn't make it easy because we got -- I mean we're dealing with major household name customers that have firm contracts on cost plus markup and things like that. So it's not easy. It's not only how you just pass it through. Everything is a bit of a negotiation. But right now, customers -- the priority is getting the parts, okay? They really need the parts, they'll work with us on the resales. But there's some timing in that, Adam. It's not just how easy just flow through. Each case, you've got to work through, but we are working through those as we speak.

And Phil, if I could add, for everybody's benefit. Historically, when you see an environment of material shortages and price increases, distribution does well and Avnet does well. And we think that's going to continue. And just to Phil's point, on the components side, yes, there's a lot of mechanisms and contractual arrangements that kind of keep them in check. There's more on Farnell because Farnell's selling at market prices every day. People are going online, right? So these are all things that, Adam, while they're difficult to manage on a day-to-day basis, it'll benefit us. Right, Phil?

Yes, good add, Tom. Thanks.

Yes. And I think last time we saw this sort of environment, maybe 1.5 years or so ago, Farnell margins -- operating margin was in the double digit category. So maybe a...

Good point, Adam. The catalog guys tend to get a fair share or more of allocated products because that hits that broad market and the suppliers still want to be sure that they're getting into the broad market, right? So they want to be careful not to get their allocations just in that Tier 1 because they want to continue to expand the market, and that tends to be higher margins for them as well, by the way.

Yes. Yes. So I want to break down a couple of questions on core Avnet, a couple of questions on Farnell. And then we're going to get into some financials, capital allocation. Again, good questions, keep them coming. Phil, on core Avnet, you obviously bring a long history of relationships in the industry. I know this was a key aspect of what the Board was seeking in its new CEO. Suppliers have consolidated over the years. There's some more consolidation looming. Maybe just talk about what you expect the impact of this supplier consolidation will be on the component distribution industry in total, to start with?

Yes. I mean first of all, this is going to be Phil Gallagher's view, okay? We're not sitting in a supplier's boardroom, so we don't know who's looking to buy who. But there's no question, similar to what we did, Adam, as you know, back in the '80s and '90s, and we were the big aggregator, right? And Avnet acquired close to 100 companies and aggregated the market, and it's really accelerated now on the supplier side. I don't fear that. I mean sometimes the question, as they get bigger, do they squeeze more distribution? I really don't sense that. Actually, if you look at the last few, I mean AMD and Xilinx, huge one. We feel really good about that acquisition. We have AMD, we have Xilinx. 84 years of history together. Spoke to Victor Peng within 2 weeks of that acquisition happening, and we feel very comfortable with our relationship with Xilinx and AMD. As you know, we lost Cypress several years ago. Infineon acquired Cypress. We have Cypress back now, and Infineon is our -- we're the #1 distributor for Infineon. We got Cypress back. Microsemi, similar with Microchip. So Microchip acquired Microsemi. And Avnet was able to get Microsemi back. So sometimes it's seen as negative. Right now, it's been a positive for us in the last couple of years. So I think there'll be more. We can't predict that. What we need to do is just continue to focus on our execution with our current suppliers, continue to strengthen. I'm going to obviously spend a lot of time -- a lot of time correctly so, by the way, is nurturing and strengthening those supplier relationships. So no matter what happens, whatever hand we're dealt, we should be in a favorable position. So I think I don't see it as -- we can't control. So again, back to the adaptability, persevere. So that's -- we've got to control our execution for what the suppliers want, need us to do for them.

You mentioned a number of suppliers in there had a specific question that was e-mailed on ADI. That was a big -- I'm sorry, if you touched on that one and I missed it. But that was a big one a couple of years ago. Would just be curious that investor was asking about that one specifically.

No, we expect that question. We get that every day, and it's a fair question. Look, we've got -- so the ADI Maxim was announced, I think, last summer. It's going through diligence. We have Maxim just for all the investors. And we are -- probably 85% of Maxim's distribution number is Avnet. We have a really good relationship with Tunç, who's their CEO; Jon Imperato runs the worldwide sales; Patrick Moore worldwide channels. Again, the answer I give to our teams, I get that every day from our team, as you can imagine. Focus on Maxim, continue to drive performance with Maxim, continue to drive demand creation and customer expansion. Again, we're not sitting in ADI's boardroom. I think we have a compelling story for ADI. Of course, we're in touch with ADI. So that's about as much as I can speculate, okay? We've got to focus on our execution of Maxim and look for good things to happen in the future. That's about all I can mention at this point in time. That's all I know.

Fair. How do you think component distributors can respond to the -- Porter's Five Forces of the purchasing power up suppliers is increasing. They're all consolidating. Does it make sense for you to consolidate to respond? Why or why not?

Well, I kind of mentioned it earlier. I mean we've kind of done that aggregation. I mean we're -- us and another guy, kind of consolidated out of the market back in the '80s and '90s, and I guess you could argue into the early 2000s. So -- when we continue to look at acquisition, Tom will touch on that on the balance sheet later. The answer is yes, at the appropriate time. Right now, we're protecting our balance sheet based on the uncertainty in the market, but feel very good about that. Are there any big game changers out there today? I'm not sure I see them like we did years ago. Are there some niche players and things on those lines, we will look at? The answer is yes. But I don't see the suppliers -- Adam, what's changed so much is the commodity play versus proprietary play. That's been a bigger issue. It's not a matter of the suppliers aggregating to leverage against the -- I don't sense that at all. I think it's more commodities versus proprietary, where they can control more pricing, right, in the marketplace, which is proprietary versus 2 or 3 sources for the same product. So I think that's been the bigger challenge that we're navigating through. But I don't -- again, I don't fear because we just need to -- we've been through a bunch, right? The dot-com, you go right on back all the things that were challenging to us, and they continue to be, only makes us better. We just need to drive more efficiency, productivity and deliver. Again, we deliver value. With value you say value equals better than minus costs, we should be able to derive a fair profit.

Yes. I want to ask a strategic question that ties into a margin question. And I also got e-mailed a similar question in the same vein. A lot of investors are just seeing the potential margin opportunity in the model. So when we compare, we've talked about your model, how you have core plus Farnell. Your main competitor doesn't have that higher-margin catalog distribution business, yet their operating margin has been 5% in the past, they're messaging to get there on a go-forward. You guys aren't at half that level, more like 2% operating margin near term. So maybe just for the investors out there, talk about the major differences as you assess Avnet's core operation. How much of that gap can you close? And what are the key drivers?

Yes. Let me touch on the core and Farnell, and Tom's going to hit some of the financials. Well, let me just put it out there, Tom said it really well earlier, I think as we get -- it's early innings. We're very pleased with the last several quarters, Adam. And we think there's continued momentum, okay, in our model, okay? So just so you know that. But we know, clearly, we're not where we need to be and there's upside. And I've been around a long time, as have you, tracking us. We know where we were, okay? We can get back. I know where we were not that long ago in that 3%, 4%, 5% operating model. And that's our goal to get back there. What we like about our model, as I was talking, we got 2 front ends. We got the core distribution that we're talking about, and Tom touched on earlier, which is the Avnet core center technology, and then we got the Farnell, okay? So Farnell touches hundreds of thousands of customers, got hundreds of thousands of SKUs, high service model with higher margins, and we're starting to see them make the progress towards that goal that we're putting out there of 10% and north of. The key is, and the opportunity we have, is the link between Farnell and Avnet, okay, that no one else really has. We are now lead sharing, customer sharing, supplier sharing. I mean since we brought on Farnell, as you know, there were a bit handicapped before we acquired them, right, when they were private or their own company. But we brought on Xilinx, Micron, IDT. We're continuing to expand of IDT Renesas, continue to expand their line card with the leverage that Avnet brings from a supplier standpoint. So we see the path to recovery and the path to get back over the next several years to those margins. Well, I'm very transparent. We had a handicap. We got hit. We had a couple of supplier issues, as you're aware of. And we had the issue with our system from a couple of years ago, about 5 or 6 years ago with the ERP that we're now bouncing back from. So we took a hit here in the America. The biggest needle mover is the Americas. I mean we talked about Farnell, that's a big needle mover. We get that back to 10%, 12% operating, that's nice. The bigger one is getting the Americas back to where we need to get them to. And I know where it was, I ran it at one time. So Tony Roybal has a lot of pressure on him, who is Mr. President of the Americas. Hey, you need to get that margin back to where it was. That's -- those 2 things, and we're well north of where we are today. Tom, any comment there?

Yes. Maybe I'll just take it a little deeper. Adam, if you take the 2 companies' financials, the difference in operating margin is Americas, Farnell and our operating expenses compared to GP. And we've been pretty open about this that our step is let's get to the 3% to 4% range and we think we'll do that by Q4 of fiscal year '22, but there's 3 drivers of that. Americas, we've said that our operating margins did decline. So they've done a good job with expanding their revenues, our Americas group. We got to continue that. But we need to get them back to a 5% plus operating margin. And today, we're about a 2%. So that's a tremendous leverage opportunity. Farnell, I think we've talked a lot about Farnell today that right now, they're at about a 4.5% operating margin. This quarter, we're expecting to cross 5%. We expect 100 basis point improvement quarter-over-quarter until we get 10%. So we're about 5, 6 quarters away from that. We have a defined path for that. Both of those will give us scale. And that's really important because the last part about that difference with our competitor, Adam, and you brought this up to me directly before is our operating expenses compared to our gross profit. And today, we're in the mid-80%. Our OE to GP ratio is about 84%. We want to see that get to 75% or less. We think our global teams have done a terrific job on bringing down our OpEx. And from here on out, we're not really trying to bring it down. We're trying to leverage it, keep it relatively flat as Americas, Farnell and the rest of our businesses and the macro improves. So I hope that helps, Adam.

Yes. Good explanation. So we've got about 5 minutes left. I'm going to do one on Farnell and then go to financials. I guess just on Farnell, investors have observed that it was a stand-alone public company in the U.K. and track record was a little bit scattered, particularly regarding stability in difficult environments. To be fair, great job with operating margin. Like we said, low double digits during up cycles. Just touch on why that volatility occurs in that model. And is there anything you can do to smooth out the volatility of margins and returns over cycles? Or is it just the nature of the business and we should just think about full cycle returns and, overall, still an attractive asset?

Yes. Let me touch on that. Tom can jump in. We're actually -- and to be clear, we're bullish on Farnell, all right? We're expanding the SKUs north of 200,000 SKUs. We're well on our way there. You're right, they were a bit handicapped prior. They were -- let's just call it cash strapped. So a lot of their systems, back office and front office, were not up to speed. So we've spent a lot of time and money investing back in Farnell, on some things that may not -- you may not see every day, just to drive that foundation to stabilize, okay? And now with the SKU expansion, and now we have the leads. We've been very open about the leads. New distribution center, delayed going on close to 9 months to 1 year at this point based -- a lot of it based on the COVID and what happened there with -- and us being conservative. Because it's running, by the way, I should make that really clear. It's running, but it's not scaling where we need it to scale. So we made the intentional decision to keep the other logistics center open, okay, to make sure that we can continue to service our customers at the level that they expect. Once we get out of the other facility and it leads up and running, we think that's upwards of $16 million to $19 million of upside that will be directly to the bottom line over the next 12 to 18 months in Farnell. So no, we actually believe it's the right model, it's positive. I don't think it's going to see the cycle that we saw the last time. Some of those were some self-inflicted issues there. And will there be higher margin and some less? Yes, but it shouldn't go down to where it was. We think we're on the right trajectory right now, Adam. So that's continuing to move in the right direction and will be accretive to Avnet Inc. overall. It still is. I mean we're running at 2% plus. They're, what, 4.5%, Tom? 5%, something like that right now? And moving in the right direction. Tom, anything you want to add on that?

No, I think you covered it, Phil. Thanks.

Just on financials, Tom, you did a nice job outlining the operating margin levers and aspects and Phil mentioned the lead facility, for example. I did want to ask on gross margin. I know this is one not necessarily always under your control and can be a little volatile, but it's been in decline across the industry in total, not just Avnet, for a number of years now and it's kind of a source of investor frustration. But as I think on a go-forward basis, there's a number of potential positive drivers to gross margin in your favor moving forward. Maybe just touch on those good and bad aspects of gross margin on a go-forward basis. And do you think we've seen the bottom in that metric?

No, that's a really good question. First of all, gross margin is a priority in Avnet. If you think about the last 3 years, we've put a lot of time and effort into operating expenses. We got good results. A lot of time and effort on working capital. They're where we need them to be. And we've messaged our 15,000 people strong team that now there's revenue growth and margin expansion on this. So when you look at our gross margin, we want every business to be growing their margin, and it's through things like the pricing initiatives that Phil talked about. Our demand creation wins, which have been going well, but we need to get the margin uplift on that. Inventory reserves, right? We've been through a period of declining demand. That's correcting. And in general, the macro will help our gross margins going forward. So I'd like to be able to say that, like, there's always going to be ups and downs. But from a long-term trend, I think we're going to start seeing this improve. It's not a 30-day exercise. It's going to be like OpEx and working capital. It's going to take several quarters, it's going to go over a couple of years. But there are some things that are working in our favor in the near term. One is, yes, it's a component shortage, price increasing macro environment. Two, especially for the next 6 months, the regional mix is different. This is the peak of -- this is the high points for Americas -- the Western economies, Americas. In EMEA, we've been reporting our demand-creation wins. They take time to hit our financials. We may ever win, that product doesn't go into production for 9 to 12 months. So I do think we got a few good things behind us that will give us some wind in the sail. But other than that, it's execution and it's hard work, and I think the teams are up to the challenge. Thanks, Adam.

Yes. So I think we're going to just ask one final closing question. I know we started a little bit late, so we'll give investors a little overtime here. Phil, just maybe give us some closing thoughts. What's the key message you want to resonate with investors as they think about Avnet under your tenure?

Thanks, Adam. And again, thank you for all the time today. Let me sum it up. We're on offense, not defense. I think Avnet might have been more defense in the last several years with some issues that happened. I'm not going to go through and repeat them all. But we're on offense. We're on our toes, not our heels. We're focused maniacally on execution. We've simplified the structure. We got rid of a lot of silos. We pushed the decision-making back to the regions. Again, it doesn't sound like a lot, but there's some big moves in there. We're driving Avnet integrated closer to the core, IoT closer to the core, driving the synergy around the selling organization. It's very clear what our marching orders are. I think our supplier relationships are as good as they've been, okay, which is key for us moving forward. Farnell, we talked about, it's moving in the right direction. The Americas, Tom was very clear. The Americas -- and I hope Tony's listening. He'll get the transcripts, let me tell you. We need the Americas, that's the needle mover, and they're on the right -- we're making progress. And we're back, again, gaining share in the Americas, which is great, particularly since we're based here, obviously. And then we got AI, we've integrated IoT. And Tom touched on it, which was great, the demand creation is critical. And we're seeing those metrics continue to move in the right direction. So we're focused on the fundamentals, at the same time, looking forward around digital, self-serve, automation, e-commerce. They're the areas that we're focused on. And then we're summing it up. We now have a business without our employees, so we've got to continue to drive employee engagement through these challenging times. We've done everything we can to increase the employee engagement through, again, as we all know, some challenging times. And hopefully, 2021 will continue to get better. Got my hopes up.

Yes. And we wish you guys the best of luck. Thank you for joining us today, Phil, Tom, Joe. We'll leave it there. Thank you.

Thanks a lot, Adam.

Thank you.