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

Good morning, everyone. We'll get started. So good morning. I'm Joe Burke, Vice President of Treasury and Investor Relations for Avnet, Inc. It's my pleasure to welcome you to Avnet Investor Day 2022. We have a great turnout here in Midtown New York, and it's great to see people in real life for a change. So thank you. And I also want to give a welcome to those who are listening in via the webcast. We appreciate everyone's time to visit with us today and learn more about Avnet. It's been 4 years since our last Investor Day here in 2018 at the NASDAQ market site. And since that time, there have been a lot of changes in the world. And there's been a lot of changes at Avnet, too, changes to make the company more durable, stronger and to be able to handle whatever the market brings us. And today, we are excited to share with you our plans to deliver what's next for our customers, our suppliers and importantly, to our shareholders. Today, you will hear from a deep bench of talented and tenured senior executives here at Avnet the strategies and initiatives underway to sustain growth and to broaden our business into our higher-margin segments. Before we get started, as a reminder, some of what you will hear today contains forward-looking statements, including statements about our business strategy, growth and financial results, which all are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties as specified in our most recent filings with the SEC, our 10-K and our 10-Q. We undertake no obligation to update publicly or revise any of these projections or forward-looking statements after today. With that, I will go over today's agenda. First, we are honored to have with us today, Avnet's Chairman of the Board, Rod Adkins, who will kick things off with opening remarks. Rod will be followed by Avnet's CEO, Phil Gallagher, with his unique view from the top. Alex Iuorio will give his view on the market, detailing projected growth in the vertical markets we serve, product types and much more. Dayna Badhorn, our new Americas President, will kick off by the broadening of the business segment. Dayna will share her vision of how we're going to accelerate the Americas going forward. As we've told you before, the Americas are a needle mover for us. So Dayna will dive into that. And then our President of Avnet EMEA, Slobodan Puljarevic or Pulja as he'll be named for hereon, will discuss our IP&E business, interconnect, passive and electromechanical, and -- which we see as a key driver for our future margin expansion. We'll wrap up the morning with a 45-minute panel discussion with a special group of supplier and customer partners, and that'll be led by Alex Iuorio. That will end it at 12:35 p.m., at which time we will take a 30-minute lunch break. There'll be grab-and-go lunches right outside here, which you'll be able to take back to your seat. The afternoon segment will begin at 1:05 p.m. Eastern Time. We'll begin promptly then. Dave Paulson and Ken Jacobson will discuss supply chain opportunities and what their team is doing to help customers and suppliers mitigate supply chain risk. Peggy Carrieres will dive into our technical sales enablement, demand creation, engineering and digital capabilities. We will then continue with our broadening the business segment. Mario Orlandi, President of Avnet EMEA, will start things off with a focus on our growth plans related to our embedded business. Chris Breslin, President of Farnell, will provide a closer look at the Farnell value proposition and the unique synergies derived from the Avnet-Farnell combination. And then wrapping things up, our CFO, Tom Liguori, who will take a look at things from a financial perspective, put it all together in our looking-ahead segment. Then we'll open up, at 2:45 p.m. Eastern, our Q&A. Those listening in on the webcast will be able to pose questions via the online chat box. Phil will wrap up our presentation with concluding comments, and we will adjourn the meeting at 3:30 p.m. Eastern Time, at which time we are hosting a networking hour right out here on the 10th floor. All are welcome. At this point, I have the privilege of introducing Rod Adkins, Avnet's Chairman of the Board of Directors. For those of you who don't know, Rod, Rod has been on our Board since 2015. Avnet -- Rod has a 33-year career at IBM, where he held several senior leadership roles, technical and leadership roles. While at IBM, Rod had the relationship responsibilities for Avnet. So although Rod has been on our Board for 7 years, he's had decades of experience with Avnet. Rod is a highly engaged director, not only focusing on governance, performance and metrics, but also on the people aspect of the business as well. Avnet is very fortunate to have a leader with his technology background and experience on our Board. With that, it's my pleasure to welcome him up, Rod Adkins.

Thank you, Joe. Good morning, everyone.

Good morning, Chairman.

And it's great being here. So first of all, let me extend my welcome to you. And I would be remiss if I didn't say thank you, because I want to thank you for investing your time in us today. As you heard from Joe, we have a, I think, a highly comprehensive agenda. And this is an agenda where he described it as sort of built on where you'll get a closer look at Avnet, but you'll get an opportunity to hear it from what I would describe as the extended team of colleagues. What I want to do, and I want to -- there's a number of things I can talk about, but I decided to prioritize this to 3 points that I want to leave you with. And these 3 points, I want to just touch quickly and these would be quick points just to set the stage. I want to comment on the leadership team, number one. The second thing I want to comment on is our focus on shareholder value. And then the final point I want to wrap up on is active Board engagement with leadership. And this is a question I constantly get as not only a member of the Board here at Avnet, but also in my other Board roles with UPS, Grainger, PayPal and others. It's just one of those points that constantly come up. So I thought it would be a good idea to comment on it. So on the first point, the leadership team, as you heard from Joe, I've been on this board for 7 years. I'm approaching 4 years as the Chairman. And I actually have had the opportunity during that period of time to work with 3 CEOs. And I must tell you that Phil Gallagher is a great choice. He is a great choice based on company performance. He is a great choice based on the breadth of his relationships. He's a great choice in terms of engagement and he's a great choice in terms of leadership. Another measurement of leadership you can look at is the team that a leader sort of assembles and surround themselves with. And you're going to see more of the team today, where he has assembled, in my opinion, a very experienced and skillful team that will continue to focus on what we are describing as the next phase of growth for Avnet. So great leadership team. from a Board perspective. The second point is on shareholder value. And I think we've been making the case and we'll continue to make the case around why we think we are the preferred distribution partner for what we will describe as the full life cycle of solutions, starting from conceptual design, all the way through how we help customers manage on distribution and logistics. I know a number of you have been with Avnet over the years. and you've been through, frankly, our ups and downs in terms of performance. But I think now we can sort of assert that we have a better recipe for consistent execution. And you're going to hear from Phil and Tom and others in terms of that execution is grounded by how we will continue to deliver on growth and margin expansion, how we will continue to improve our operational efficiency and how we continue to invest in what we describe as new growth opportunities. And when you sort of put that recipe together, this is how we will continue to generate favorable shareholder returns. The final point I want to comment on is active Board engagement with management. And I was just thinking through this. Since joining the Board, we have turned over this Board -- over 60% of the Avnet Board during my tenure. And as part of that turnover equation we do, I think, have one of the most diverse Boards in the industry. And I'm going to use diversity in a much broader sense because no matter what dimension you look at, in terms of gender, in terms of ethnicity, in terms of geographic skills and experiences, we have a very diverse Board. We also have added to the Board deeper skills in terms of industry expertise. But we also have other skills, what I'll call domain skills that we added to the Board that will be useful as Avnet continued to focus on this next phase of growth. So when you look at the Board, the Board, I think as a -- in terms of skills, experiences and background, a very solid Board. The engagement with management is active. And I think you should expect, as investors, the role that we play as Board members, and we focus on a lot of different things, but I will comment on quickly 5 things that I think a good Board should always focus on. First and foremost, number one, the strategy of the company. Because at the end of the day, this is about sustainability, durability in terms of having, back to the recipe, a consistent equation of performance and generating value and return. The second thing we focus on with management is financial performance. That's how we all get measured. And the Board is highly engaged in that area with the leadership team. Third, talent and succession management in terms of having the right leadership team today, but also making sure that we have a bench for tomorrow. The fourth area, which is becoming more and more important is compliance and trust, business controls, how do you adhere to regulatory requirements. Trust, given this unprecedented growth of information and data and what we're dealing with, companies are looking at enterprises like Avnet to be sort of a trusted partner. And then the final area is vitality. And this is not just the vitality of the company, but it's also, as I described, the vitality of the Board in terms of making sure that we have the right talent, skills and capabilities and experiences, along with education and training to keep this -- the capabilities go on to run the enterprise. So those are the 5 things that -- and there are always more, but those are my top 5 things in terms of what we will continue to focus on as a Board. So those were 3 things that I picked out of a list of things, but I do think -- on behalf of the Avnet Board, I think we have the right leadership team. We do have -- and you'll hear more throughout the day in terms of our game plan or the right recipe around driving growth. And then the Avnet Board is in active engagement on a continuous basis with the leadership team. With that, I want to sort of conclude here by just making a comment that last year, and I've been fortunate because of -- this is actually the second company I've been associated with to have had the opportunity to celebrate a centennial. I mean, last year, Avnet celebrated being a 100-year-old enterprise. And sometimes you have to pause and think about that, because when you think about the dynamics and the change that we deal with, this is a company that constantly transform itself to be in the ready position as the market moves, which I think is a huge major milestone for Avnet. In a special way, we had the opportunity to do this with the 10th CEO of Avnet. And with that as an introduction, I'd like to bring up Phil Gallagher, CEO of Avnet, who will give you a much more deeper perspective around Avnet's performance and future. So Phil?

Thank you, Rod. Thank you very much. That's a bit overwhelming. Thank you, Rod, very much, and thank you for being here and flying in specifically for this event. Let me just go back one. Go there. Okay. So again, thanks, Chairman. I appreciate that humbling kickoff. I just have a few comments. Well, we kicked off the opening bell today. So I'm still calming down off of that one. I was really excited to have the team here -- we do have the extended leadership team here, which you'll see here, as Joe introduced, it's really high energy and just a great way to start today. I want to thank and reiterate Rod's appreciation for all of you being here today, those that are live, those that are online, as Joe pointed out. It is great to see the faces that some meeting for the first time. We've been on teleconferences or Teams or what have you and others I haven't seen for a long time, and it's good to see again. One of those is Jim, Matt, Melissa, whoever, Nick, et cetera. So it's really, really -- thank you very much for that, and hope all are well. As Rod pointed out, we brought in a lot of the extended leadership team because you hear from Tom and myself and Joe all the time, or any time any of you want. And we thought this time, some of your feedback, by the way, hey, we want to meet the people that's actually getting the job done. Okay. Let's get the regional -- some of the regional presidents in, some of the staff that drives the execution, the supply chain, demand creation, et cetera. So you're going to hear from all of them as Joe pointed out. And a lot of it is where we were -- Rod kind of touched on this, where are we today? And then where are we going? Okay? It's -- or some of you say, hey -- we get this on the earnings call. Hey, what's next? Okay. Well, you're going to hear about what's next, but even more important than that is how we're going to do it, the "What is easy." The how is the bigger challenge. And again, that's what you're going to hear from the team. So very excited to be here. Thank you again, for the introduction, Rod. And then let me just kick it off, because we want to be sure we stay on time. Okay, we got ample time for Q&A, and really important, at the breaks, again, you're going to meet the team. Any and all questions, don't have to tell this group that, are welcome, okay? So well, look, it's who we are. We're a leading technology distributor. We're in the center technology supply chain. It's what we do. And this is a very fundamental slide that I share all the time internally. And this is kind of getting back to our fundamentals and back to our foundation. Not going backwards, but just saying what's really important. And there's 3 pillars in our business. You got suppliers, okay, which you'll hear from some today. I call that the upstream. And then you got the customers' downstream. And we need to take care of those suppliers because those suppliers, what we bundle our value proposition around to the customers. right? It sounds very fundamental. But in between, you've got to have employees. You got to have employee engagement. You got to -- have to have the right team. And then through that, you drive execution and performance. Got to have the right team. So our vision, to be the preferred distributor partner at the center of the world's technology supply chain. We've been kind of coining that, the center technology supply chain. And doing that, through your core values, right? Again, easy to say, harder to do. Got to have integrity. We had trusted partners that we've been with for over 60 years in some cases, some even longer. People talk about trust, and you build trust, really, $0.01 at a time. You build it over time. Unfortunately, some people spend it like a buck. So it doesn't take long to lose the trust. So that is -- you don't build a 100-year company, 101, now without trust. Customer focus, upstream, downstream. Suppliers are in this. We've got to take care of our customers. If we don't have customers, we're out of business, okay? And we got -- through that, we've got to hold ourselves accountable and responsible and have ownership. Not look around for other issues, hold ourselves responsible, hold ourselves accountable. Team work's my favorite, okay? Team work. I'm not a big fan of the I word. It doesn't work. Nobody does anything by themselves. It's about the team, okay? And it's about we. And how do we, particularly in these last several years, we've all dealt with the different issues from pandemic, to supply chains, to shortages, et cetera. You know what I'm talking about. As a team, we'll get through that. Not easy, but teams are successful, not Is. And then inclusiveness, okay, diversity of thought, of race, gender. We got to have inclusion, okay? Everybody's voice matters, right? And I'll come back to that at the end of the day. We actually have some compensation tied around inclusion at the executive level. Supply chain management, we intentionally use the word, "never been more vital." A little impactful maybe. I kind of coined to think that people take supply chains for granted until they can't get what they need, whether it's chips, connectors, plywood, Sub Zeros, La-Z-Boy chairs or it's across the board, people realize, hey, what's going on with the supply chains? What's happening out there? And it's, for us, and you'll hear from Dave Paulson and some others, it's been a real opportunity. We're seeing customers and suppliers come to us, and you're going to hear from some of them today, by the way, during Alex's panel coming and saying, "Hey, we need some help. We need to rebuild our supply chain." And effectively, you're going to hear from our leadership team, as well as customer suppliers. What have we done to scale our size and scale, okay, from a component standpoint? Building on the first slide, we've got to take care of our suppliers. We've got to have the best relationships with our suppliers in the world, and we feel really, really good about our supplier line card. And you got to have strong customer relationships. And we continue to pulse our customers with Net Promoter Scores. We do the same thing with our suppliers. We've got to be locked and set. We know the role we have in the supply chain. Unmatched offering, you're going to hear again from some of the supply chain folks say what we're offering to our customers and our suppliers, both upstream and downstream. And Tom will talk about the disciplined approach we've had around earnings and shareholder returns that the Chairman talked about. We're absolutely committed to that. You're going to get a view looking forward of what we're doing to drive further discipline around that area. This is some of the team. There's over 100-plus years' experience. We call this the functional leadership team, if you will, kind of more of the corporate staff. You're going to -- the role here with the exception of Beth. So please I encourage you to engage with them. I encourage them to engage with you. Of course, you'll be hearing from Tom in greater detail. But we've got a great leadership over 100 years of experience just at the functional level. And then this is a part of the team you're going to hear from. The only one -- I'll just -- help me out here. The only one that's not here is Prince. He saw this ringing the bell. He sent me the thumbs up from Taiwan. We just couldn't get him in from Asia. But you're going to hear from this team, and this team wanted to do some more now. They'll have their chance. We have over 208 years of experience just with this leadership team. Okay? So we know what we're doing. We've built trust over long periods of time. We also know what not to do. And maybe, in the last several years, maybe we kind of got off track of that a little bit. We're on track. We're on offense. We've got a great team driving the execution. Hey, we think we're stronger and more durable today. As I said in the beginning, we kind of got back to the -- again, I don't want to say back to the base, but we've got our foundation set, right? We know what we need to do. We know what we need to stop doing. Okay. The first thing we did, we've got arms around our suppliers as I talked about earlier. We got to have strong supplier relationships. We went back and said, okay, what does the organization need to look like? Yes. We managed expenses pretty well through this. And again, Tom will touch on that a little bit later. And then we aligned what's the strategy and then structure follows strategy. And so what you see today and we're going to hear from, his team is very well aligned, very well focused by their areas of responsibilities. There's no confusion on who owns what. So the results, improved earnings. We got the strongest balance sheet. Joe has been Treasurer for multiple decades. We have the strongest balance sheets we've had in years with low debt. Improved our working capital metrics. Disciplined financial policies continue, okay? And we got through the COVID situation. We're much more conservative at that point in time, how to strengthen the balance sheet, which we've done, which is now going to give us some of the resiliency to go look at some other things, okay? Organic investments, maybe some M&A, don't get anxious, tuck-in. Tom, we're very clear. Tuck-in M&As that makes sense around our core, but we're going to be very, very careful around that. But we got the strength to go do it and whether it be buybacks, dividend commitment, et cetera. So we feel really, really good about where we're at right now. Hey, some fun facts. We were founded over 100 years ago. We were founded post World War I. There are surplus parts coming out of the war. Transistors from big back then, obviously, still are today. We're based in Arizona. I want to thank the NASDAQ. We're now listed on the NASDAQ in the last 4 years. As I said, we opened the bell. They've been a great, not only just a host, but a great partner as well. And we were listed as #180 coming out of last year on the Fortune 500. 14,000-plus employees, 2.6 million engineers, more and more in the software space. You'll hear from Mario talk about that, million-plus customers when you compound it with -- combine it with Farnell, which you'll be hearing more. I'll talk about on the next slide, our position globally, and we ship 245 billion units per year. This is really important. You go back -- I've been with the company going on 40 years. It will be 40 years in November. So again, just blessed to be in this position, never thought that when it started out of Philly. But a lot of it back then, if you just look at Americas alone, a lot of those are local inventory. Everything was local back in the '80s, right? We had 50-plus locations in the U.S. at the time. We're barely in Mexico and Canada. Then you start to centralize everything. Of course, everything is globalized, right? So then you got global connectivity. And you've got the global size and scale. We did all the M&A that expanded into Europe and Asia. Thank goodness, Roy Vallee and Leon Machiz and team saw that back when they did, because it enabled us to continue to drive the growth that we're seeing today. So we all talk a lot about global. Still key and critical to scale and leverage that we get on the global front. Then, of course, we've got the design centers, and we've got programming centers that are tied around globally, where we program parts for major OEM customers, and they want the part here in New York to be the same part program tested in Asia, same part program tested in Mexico and back into Eastern Europe or Germany or Italy. We can do that. We noticed the 300-plus other sites. That's continuing to grow. Particularly being accelerated in the last couple of years with what happened with products being -- lead times going out, ships getting caught at Swiss Canal, of course, COVID, and the continuous supply chain issues. There's a ton of movement afoot. Not going all back to local, but hey, we want some proximity inventory. We want inventory a little bit closer to where our manufacturing plan is. We might even put a little bit of a buffer inventory and pay that modest cost of capital to carry it. And these are the -- we have supply chain architects under Dave. That's what they're doing. We're starting to reengineer the supply chains. So it's an and, not an or, right? So this is something that you're going to continue to hear about, and we're talking to our partners about constantly. We touched on this a little bit earlier. So we didn't get here overnight. We've been around for 100 years. Started in radio parts in 1921. Then, of course, migrated into switches and fasteners, connectors. They're all still around today. Then you get into the microprocessor, the micro-control or memory in the '80s. And today, it's all that, plus what I just talked about with the compounding supply chain challenges. So you don't get to where we are without resiliency and adaptability, okay? And by the way, many of you celebrated with us, one of our suppliers celebrated this with us, because we cannot do it alone. But it's a real thank you to our customers and our suppliers, and of course, our employees. So just some numbers on -- through Q3, kind of rolling 12 or past 12 months. And you see electronic components numbers, Tom will go into these in a lot more detail, and then you can see Farnell. You're going to hear us talk about Avnet and Farnell. And we're really proud of the performance of what we've accomplished in the last year plus, over last 2 years actually. But we have a ways to go. So we definitely have -- I always tell the team, great job. We've got more work to do. But you can see the differences in the business, the Farnell, like somebody was asking, what's its SKUs? Well, SKUs are part numbers. So you see on the Avnet core side, we've got roughly 300,000 part numbers in inventory. And we typically go, let's say, about that wide, but really deep, because we're managing all those supply chains, where Farnell is going to be pushing over 1 million SKUs. And then you can see the average order size on the Avnet side, $4,300 per line, it's $380 on Farnell. And again, you'll hear from Chris and how we're doubling down. I mean Avnet is doubling down on Farnell. We're really, really excited about the opportunity there. Farnell is -- the execution and the continued opportunity. Farnell is roughly 8% of our sales and 25% to 28% of our profits. So it makes sense. We're going to continue to invest in Farnell. So we'll break this down for you a little bit more, give you some further outlooks when Tom comes up and closes out today, but we've got some room. We've got some real opportunity. And it's really a unique position we have with Farnell and Avnet combined. And we, the friends, going to continue to stay separate, because there's a different value proposition of what Farnell does versus what Avnet does or what Avnet does versus what Farnell does. But we share customers. We get leads from Farnell. Avnet's helped Farnell build their line card out. I don't want to get into mentioning lines, because if I miss one, I'll get in trouble. But we helped them with our line card and our leverage, okay, at Avnet to help Farnell. E-commerce, 70-plus percent of the line items transacted for -- in Farnell or online. I mean, just boom, click and go. And it's roughly 53%, 54% of the revenues, okay? And how can we take that expertise and how can Farnell power -- help power Avnet's e-commerce? And how can Avnet's digital tools complement Farnell? Because there's a difference between e-com and digital. I mean we tend to overlap them, but customers want more digital self-serve tools. You'll hear Peggy talk about this a little bit later on demand creation. So it's and not an or, but we've got to continue to drive digital in everything that we do, because it drives productivity and efficiency, better customer experience, better supplier experience, so on and so forth. But these 2 companies have great complement, okay, and great synergistic collaboration, really, really excited about where we are. And we're just hitting stride in some of that area. This is the life cycle. So you can come in to Avnet anywhere you want. We've got really, really large OEMs that are now coming into us and some large suppliers coming in and say, "Hey, we need to help with the supply chain. So it may not be as much design, but we're helping them re-architect and rebuild their supply chain, okay, in places we may not have been planning before, okay? On the other hand, if you got an idea or a concept and you need engineering support, you need design services, you need software support, you need embedded design support, we've got that, too. New products introduction, we're going to drive as much of that through Farnell as we can, because we just showed their number of line items, activity, the way they inventory, that's what customers want, and they do it really, really well. So this is the life cycle, where we're building our investments around, both organically -- and we'll continue to complement through strategic, as we like to call them, tuck-in M&A. Move the tune. First thing I want to say is, we'll be very public here. Obviously, we didn't -- with this slide, most of these slides, we didn't create them for today, particularly this one. This is a report card that we put out on our strategies. Each one of these up there from revenue growth, to employee engagement, to e-commerce, I just commented on supply chain services, with KPI with each and every one of these. We review them monthly on our global town halls, quarterly and with the Board. This is right out of the Board of Director deck that we went through 2 weeks ago with the Board. These are the priorities as we move forward. So it's got a driver as the holds, but that's kind of the what. How are we going to do that? Through our people, through the acceleration of the core businesses. You're going to hear about that today. How do we continue to expand Farnell? That's one of the new ones. We made that a separate pillar. That's so key and critical to 25% of our profits and growing. Then how do we drive the high service, and you will hear from Mario and David, on our embedded, okay, then our supply chain services. And at the foundation is OpEx. We've got to do that being more efficient. I talked about digital transformation already. We've got to drive appropriate returns, return on working capital. How do we continue to drive this? That hits all pillars, okay? Because we've got to continue to maintain efficiency and productivity. So I want to share that with all our shareholders, analysts, the like. This is the ultimate report card and we measure it every single month, every quarter with the team and with the Board. So with that, I will give you a bit of a market overview of the market and with Alex Iuorio, 40-year veteran, Senior Vice President of Supplier Development. So Alex, why don't you pop one up? Thank you very much. I'll catch up with you later. Thanks, Alex.

I think I might. Well, I have to tell you, I'm a bit exhilarated by the ringing of the bell as well. I feel like we've celebrated, and now we're going to start the game. So bear with me. Welcome. I want to add my heartfelt thank you to the attendees, along with what Rod and Phil had to say. I'm Alex Iuorio, I've been with the company for 40 years. There's -- it comes a point in your career, where you don't even want to say that, right? You say, "I've been with the company for 40 years," and people go, "Oh, nobody wanted you?" But it turns out that 40 years ago, thereabouts, when Phil started and I started, we're having a discussion with some of you earlier, what is accomplished today by securing other jobs and building your resume and your competency, we could do internally when we went from essentially a $1 billion company to the $21.6 billion you see on a run rate basis. So don't feel bad for me. I've gained a lot of experience as the company has changed, and we've changed with the market. What I get to present to you today is our view of the marketplace. And it's almost obligatory in presentations to say you're excited about it. All right. So I'm going to tell you, I'm excited about it, okay? But I'm going to tell you why. I'm excited about it. We're excited about it because clearly, you see semiconductors and component electronics, in general, showing up everywhere, right? It's no longer proliferation. It's no longer increased semiconductor and component content. We're all calling it pervasion. And that's really the concept that I'll do my best to deliver to you today. When we think, in terms of where we reside, why we're so excited, I think I'd like to present Avnet in these 4 -- with these 4 lenses, if you will. To your left, right, you see the complexion of the business, green box or green slice of the pie, broadline distribution. The black slice, the 8% of our overall revenue, Farnell or high-service distribution. And first, I'll say from a vantage point and assessing the marketplace standpoint, we're the only distributor in the world that is able to view the market through those 2 lenses. When you think in terms of the customer base, and it was mentioned earlier, Farnell, approaching 1 million customers traditional broadline distributor, maybe 1/10 of that. But what that allows us to do in today's world is assess the market, address the market, and most importantly, provoke the market so we can continue to position technologies with our suppliers -- or excuse me, with our customers via our design chain efforts and our supply chain efforts. You see the next box in from the left, that's our revenue around the world actually transacted in those regions. It's interesting that, 40 years ago, the Americas slice of that pie probably would have been 80%. And more than that, it would have been very, very focused on particular segments. You may all remember at the turn of the century 10BASE-T and the networking explosion. We're positioned this way geographically today. Over 100 acquisitions later, those 10 CEOs, the last 3 had the foresight to at least position us where growth was going to occur. And you see we've taken advantage of that. From a product standpoint, we are still predominantly a semiconductor distributor. But you can see when we talk about our IP&E, interconnect, passive and electromechanical products at approaching $4 billion, arguably certainly top 1, 2 at worst 3 in the entire world for those products. So collectively, if you think of the positioning, it really gives us a good view of where the market is migrating. The last pie that you see on your right is revenue today in those segments. And you can see industrial is large. Consumer is large. But really, operating under the heading of pervasion, this is happening in every segment. So, so much so that the idea that the pervasiveness of electronics will create long-term secular growth and having that growth maybe mitigate the cycle. Cycles will likely occur, but the difference today is information flow and the application of semiconductors everywhere may help us there. Our current outlook via verticals, and you'll see this talked about with a variety of the presenters, absolutely transportation is hot, right? This used to be like the Olympics. Distributors didn't play, and designs changed every 4 years. Today, in our Americas business, there are 300 innovators in that space, dealing well beyond infotainment, right, into harsh environments, into techs blocking, into radio communication, it grows and grows. Industrial, certainly, as you saw, a large piece of our business today, but really more or less a catch-all as to what's happening with applications. And it was called to my attention that we continue to talk about pervasiveness and then we wonder what does that mean. Well, certainly, industrial applications factor automation. You can see that. But I take it down to the daily life, the mascara applicator that has an LED. The water bottle that tells you it's time to hydrate. The puck that you drop into your gym bag that uses electro-vital light to sanitize your close or as simple as robotic delivery, if you've been on any college campus lately. This is big and this is getting bigger. Semiconductor market dynamics, however, our -- let's call them, less than stable at this point, okay? We've got lots of investment in leading-edge technologies, and we're not going to bore you with 7 nanometers and 22 nanometers and 90 nanometers. Look at it this way. You have mature nodes that sit right in the middle. You have trailing edge nodes and you have high and bleeding edge nodes. Most of the investments that you hear, whether it's TSMC and Arizona, Samsung in Dallas, Intel and the Ohio Valley, these are focusing on high-end nodes, not the mature nodes. There is investment there. But it's going to be a while before we get to stability in those products. And those products can generally be looked at as the products of the industrial base. So I would say, as the instability continues to occur, that's really where our supply chain capabilities help customers get their products to market and our design chain capabilities allow customers to take advantage of our expertise and prowess to be able to technically enhance their offerings. Last thing I'll say on the slide here is that customer requirements are absolutely changing. Supply chain is at the forefront. How much so? You may not recall the name, but Lake Superior University is the organization that banishes words and phrases from the English language on an annual basis. A few years ago, it was a paradigm shift. I was very happy that it was extricated. This year, there were 8. The first made me pause. The first was, wait what. That made me say, wait, what? But when you got to #8, it was staggering. Number 8 was supply chain. Now we've come a long way, right? A year ago, 2 years ago, nobody knew what the supply chain was. And I'll contend you today that what Phil said is exactly right. It's not the supply chain, it's the shortages. It's the effect of the supply chain or the effect of the supply chain that's not working properly. And this is the excitement that generates inside as customers take advantage of those services to be able to navigate through a very uncertain world. We talk about COVID, but it really starts with the volcanic cloud, and it moves to Tsunami, and it moves to flood plain in Thailand. COVID obviously an accelerant. Tariff's an accelerant. Every one of these simply represent a disruption in the supply chain that effective high-technology supply chain managers like Avnet have to work programs to mitigate. David Paulson will talk to you about that in great length. So I'll finish this slide by saying from a forecast standpoint, overall market 8.3%. That will be the combination of semiconductors at 8.8% and interconnect, passive and electromechanical products at 1.7%. I will tell you that, that is a bit of a muted growth rate from actuals in '21, but a solid and robust growth rate by any historical measure in this business. So you'll hear a lot from the regional presidents about our attack of the verticals that are producing. Dayna will talk about industrial and automotive as key growth verticals for us. And you can see that, in both those cases, they will not only put substantial growth rates on the Board over a 5-year -- 3-year period, but also generate substantial associated dollars. So we're very excited about this opportunity for us as the market moves forward. I should have brought my water. Excuse me. So I'll wrap here by saying that the market will grow substantially for us. You see what the CAGRs represent across the regions. Select component products will continue to be maybe severely is a bit harsh, but will continue to be significantly constrained. And we think our ability to help customers navigate those uncertainties in the high-tech component market is a real benefit to our value prop. Continued strong demand, but again, sustained inventory availability and mix impacts, this is the instability. This could potentially be trapped inventory or the golden screw, but our scale allows us to deploy programs, work with our overall customer base to the greatest extent possible, solve those problems on a customer-by-customer basis. Companies continue to invest. You can see the top ones that are listed in bullet 2 are 70% of that investment. But that's all at leading edge nodes and the investments at the mature nodes and even bleeding edge -- or excuse me, trailing edge nodes are somewhat less, but there are a ton of companies investing in it around the region and around the world. And we would expect we'll get to stability soon. But until we do, we will leverage both our design chain and supply chain capabilities to solve customers' problems. Thank you. And with that, I will introduce Dayna Badhorn, a colleague for 25 years. Here you are.

Thanks. Good morning, everyone. As Alex mentioned, my name is Dayna Badhorn. I am the Regional President, responsible for Avnet Americas. I'm new to this role. I've been in the role now for 5 months, but I have been, as you saw on the chart earlier, at Avnet for over 24 years. So I'm very familiar with Avnet and our capabilities and our go-to-market strategies. I'll give you a little bit of background about myself. I graduated from the university with my electrical engineering degree. And I got recruited right out of school by a large-scale semiconductor supplier company to do technical sales. So I did grow up in the industry, as you've heard some of us mention. And although it sounds that it's been an exciting place to be, with all the new technologies that's developed over the years and it's been great working with customers on that technology. From there, I ended up transferring, by way of acquisition, to Avnet. I came in as a sales manager for Avnet. But being at Avnet for 24 years has afforded me the luxury of being able to try a bunch of different roles. So beyond doing sales, I had the opportunity to start up a technical call center, the first-ever in the Americas at its time and managed the technology specialists. From there, I moved into the global level, and I ran global strategy for Avnet for multiple years. I had the opportunity to manage the digital transformation team, where we built out a brand new and designed a brand-new website and deployed that globally. And most recently, I've been working -- when Phil became CEO, I retained strategy again. I added global marketing to my skills as well as working with both Chris Breslin, who you'll hear later today, and Max Chan on the digital capabilities and what's next for Avnet. So today I have the opportunity to talk to you about where we're at from an Americas perspective as well as then discuss where we're going from a strategic perspective for fiscal year '23. So as you can see on the chart, I'm really excited to be back in the Americas, again, from a global standpoint. We have great momentum here in the Americas, and we're really focused on the fundamentals. Yes, we got a little bit of help from the market. But I will tell you, we have strategically focused on the fundamentals, as you've heard from both Phil and Alex, and those fundamentals being design, taking our suppliers' key technologies and introducing those to our customers, as well as supply. No surprise there. You'll hear it all day long. We are getting more questions about how can we help our customers with supply chain orchestration more than ever before. And what's interesting is typically, in the past, we've started with a customer on the design side, and then we brought them through to production where we've introduced supply. Now we're seeing the opposite happen. We're seeing new customers come in asking us to help them orchestrate their supply chain. And then while we're orchestrating their design chain, we'll now be asked to help with design, helping design fill in the gaps for those parts they can't get or working with our customers to bring their products to market faster. So as you can see, the plan is paying off. We've grown our revenue year-over-year by 40% and the transportation miller, when industrial segments that we focus on from a vertical perspective are growing as well. Our design work were up 66% in design revenue. And lastly, again, IP&E. Why do we talk about interconnect and passive and electromechanical so much beyond just semiconductors? Every single Board that we design has one of those technologies every single time, and 80% to 85% of the components that typically go on an average Board are in those 3 technologies. And the nice part about those technologies, they tend to garner a higher GP for us. So it is a really nice place to focus and a technology that we want to continue to drive with our customers. So what's next for Avnet Americas? As I met with the team 5 months ago, we talked about what are those strategies that are going to continue now that we have the fundamentals in place to drive growth for the Americas moving forward? So today, I'm going to talk briefly about the vertical focus, the fundamentals or our growth initiatives, operations and the most important pillar, our people. So from a vertical focus, you saw Alex talked about the company as a whole and where we're driving the verticals. Military/aerospace tends to be a larger vertical in the United -- in the Americas region. And we're going to stay focused on that military aerospace vertical because it does require large-scale capabilities and knowledge and specialization, and we've worked many years in that space, building those skill sets. And when you have a contract with the military customer base, it tends to be a longer contract period, too. So we keep that business for a longer period of time. We do -- the industry experts say that the military aerospace for the Americas are going to grow approximately 3% with a 3-year CAGR. So it is a place to stay focused on. And we're seeing a lot of growth now in the space level side of the business. So a lot of start-ups in the aerospace side. You have exciting launches going off, I feel like every day when you get online, you see another launch going in. So there's a lot of opportunity still in space, and that'll allow us to continue to grow out our customer segment as well as work with our supplier partners on introducing their new technologies into that space. Transportation is a vertical that we really got focused on from fulfillment to design approximately 5 years ago. And when I talk about focus, we've brought in technology specialists that drive certain technologies in those applications like sensors. So we continue to add to those capabilities. We've built out block diagrams. We've created a global playbook because this is one particular vertical that hits all 3 of our regions. And it's nice that we can share best practices across those regions. With the focus over the last 5 years, we've grown the transportation vertical, from fiscal year '17 to fiscal '22, by 170% increase in revenue. So again, the focus on this particular space is important. We started in the electric vehicle side, and now we're going to take what we learned by building out those blocks and applications and move it into the rest of the e-mobility and continue to expand our customer base this year. That particular vertical, a 3-year CAGR is expected to run about 6%. So there's really nice growth for transportation here in the Americas. The last piece that you see Alex talked about is industrial. The industrial segment is typically our key segment for distribution. So the question I asked is, "What about industrial this year is going to grow faster than the rest of the market?" And we saw that energy management, and when I talk about energy management, it's particularly around EV charging and solar panel -- solar storage technology and the EV charging is a nice synergy with what we're doing with the electric vehicles, and that had a 5% growth rate. So we're going to build out a team. Similar to what we did with transportation, we're going to add technology specialists in those areas that are key to those applications to win such as silicon carbide, which is a hot new technology that you probably hear from a lot of our supplier partners. And we'll continue to build out the blocks that help drive those applications. And the second deep dive that we're going to do in industrial this year is around the automation space. And by automation, we're going to look into factory automation, building automation, robotics, the little robotics that we see, as Alex said, my daughter is in college now, and they deliver her coffee to her, so she doesn't have to leave her dorm room. And so there's a lot being done in robotics today, and we see a lot around motion control. Now we'll get to the fundamentals, growth initiatives, demand creation. All right. He's telling me to get over here, so I don't echo. Sorry. So demand creation or design, again, a critical component to what we do for our suppliers. You saw Phil mention that big curve, and we didn't spend a ton of time on it. But our customers come to us at various points. There's very few times that a customer comes at the very beginning and hits us for every single thing in the cycle. So we've built out that cycle to engage with them anywhere they want to come in. So whether that's at the very beginning, where they're doing their design and they just want to research, what's new, we have 2 great communities. You'll hear Chris talk about the Element14 community, and we have the Hackster.io community, with over 2 million engineers that go on those daily and research that -- the next great technology. They are available to answer questions to different engineers in this space. So it's a good place and a starting ground. We also have engineers developing reference platforms, design application, block diagrams. So -- we can work with you at the beginning stages all the way through. We tie in, in the Americas with Chris' Farnell brand to be able to enable our customers to get prototype quantities. And then lastly, from a production standpoint, we have capabilities in supply chain. So from a supply chain perspective, no surprise, we're going to continue to invest in our supply chain architects this year. We get asked further for more and more capabilities. Traditional capabilities for us in the Americas is doing an implant store, where we have product in on-site at our customer. We do forecast management, where we take feeds from our customer and help manage and get out the bumps in the cycle for the supply chain. We can do vendor-managed inventory. But what's been great is these large-scale Tier 1 companies are now coming to Avnet, and you'll hear Dave talk about that later today. And they're asking for what's next in supply chain. So Dave's going to talk to you today about the digital capabilities, the control towers that he's building out, the digital portals where our customers get that -- those key things, reliability, visibility, all those things. And then what's nice about what Dave's working on is then we can take the common themes across those large-scale Tier 1 supply chain customers and then build and commoditize out feature sets that we can now offer to our customers that might have been just doing a supply chain implant store. Now I can go in using Dave's technology that he's building out and say, "Do you want to see visibility? Do you want to know exactly where your parts are in the world? We can show you that now because we have this digital portal that gives you those capabilities. So supply chain will stay important." Interconnect, passive and electromechanical, I touched on prior, and I'm going to let Poolie talk more about that in a moment, but it's a critical piece to our technology's success. And lastly, customer growth. I wouldn't be a distributor in doing my job if I wasn't continually looking for new customers and ways to grow and expand out through the Tier 3, Tier 4. We will continue to invest in account managers, field applications engineers and inside salespeople that need the support of those customer base. Operations to me is all about driving efficiencies and ease of doing business. We need to continually evaluate how we engage with our customers as well as our suppliers and be easy to do business with, how they want to do business with us. So that can be having them go into the digital portal and build that out. It could be working with our sales teams or it could be seamlessly connecting to them through an API, so they work in the ERP that they work in every day, and they don't have to go off and do other things. So we'll continue to work on our efficiencies, our process optimization, and the ultimate goal is to be efficient and drive more profitability that way. And the last piece I'm going to talk about is our people. No surprise, employee retention is key in the top of our list. We want to keep our people engaged. We do employee-based surveys, so we can understand what's on their mind and address those through employee engagement scores. Talent development. We're going to continue to do training for our teams, whether it's a technology training or a management skill level training. It's critical that we keep developing our employees and bring them along on the journey and enhance their skill sets. And lastly, acquisition, where we find skill sets that we need in these new areas as we expand supply chain being a great example. We'll continue to invest and look for new talent in a variety of applications. And as Phil mentioned, nothing gets done, and we can't be held accountable if we don't have the KPIs at the bottom. So we do have a very robust list of KPIs that we measure ourselves on to ensure that we're making progress on these. And with that, I just want to say thank you for your time today, and I appreciate you taking the time to come and listen to our story. And with that, I'm going to bring up my colleague, Poolie to talk about interconnect, passive and electromechanical. Thanks.

Hello, everybody. First, I would like to introduce myself. As Joe said, my name is not an easiest one. This is the reason why we have decided to call me Poolie. By the way, Joe, you pronounced it perfectly, and it does not happen so often. I am now 35 years with the company, coming to Avnet through the EBV acquisition in Europe, almost 22 years ago. Education, electronic engineer. We love our industry. We still believe the industry has a great perspective, great future -- nothing, as we can see today, is working without the semiconductors. Everybody is speaking today about these famous chips. And everybody -- a few years ago, speaking to our friends and so on, nobody had a clue what semiconductors are. Today, everybody knows how important the entire industry is. But I'm not going to speak about semiconductors today. I'm coming from this world, and I'm learning very, very fast. The IP&E world, most of the people believe it's much easier, but it is not for several reasons. Just this IP&E where it comes from interconnect means everything what you have to connect together, PCB boards and several -- in all equipment or the one equipment to the other one. Passives are resistors, capacitors, coils and so on to populate the entire board, and electromechanical are released switches ventilators and everything else. How Avnet sells IP&E products? First, we have these 2 ways of selling our core business to our big customers and on the other hand, Farnell is a high service company servicing thousands of smaller customers. Demand creation. Most of the people believe we do not need field application engineers like the semiconductors for this passive easy-to-do stuff, but this is really not the case. We need people who are specialized on IP&E, and we have them. Then we are collaborating heavily with our semiconductors colleagues. As soon as they have an opportunity, we talk to each other and try to populate the entire Board. And then what's very important for a distributor is the inventory. We are carrying everywhere, wherever we have our warehouse, our IP&E staff around the globe and are able to fulfill the demand from all our customers. Global business support. We offered to our old global customers, the same prices, the same service in China, in Europe, in Americas and so on. And then a large supply chain programs, Dayna mentioned it, and they will speak later on more about this. Growth drivers. No, I'm on the wrong one. Value and -- which 1 do I have here now?

Just go on a little bit.

Yes. We are adding value to -- for -- also for our IP&E products. The broadline is our core business and high service models. As I have mentioned before, we are offering to our customer demand creation also for connectors and all the stuff mentioned before. We are semi -- we are attaching our passive staff to our semi products to help customers to populate the entire board. And as I've mentioned before, we have the inventory to deliver to our customers off the shelf. We have a global business support. And as I have mentioned, a large supply partnering. Growth drivers, as Dayna has mentioned before, we are focused on -- or our bread and butter is industrial. But on top of this transportation and automotive and mil/aero. Biggest mil/aero business we have here in U.S. In Europe, we do not have so much and in Paris, not as well. What's next in IP&E? Growth. How are we going to grow? We are going to make organic investments. This means we are investing in people and inventory. In the distribution world, you need people and you need inventory. And we are looking at this highly fragmented markets for opportunities to make some positions. Inventory. Again, at Farnell, we have, what we call it NPI, new product introduction, smaller quantities parts offering to our customers, samples and preproduction quantities and then later on, from our core, business thousands of part numbers, having them on our shelves. People. We have learned in Europe to have dedicated people for this kind of business. So we have a company so-called Abacus in Europe. They are only selling IP&E. And this works quite well, and we are going to do similar investments here in U.S. as well. So Dayna is employing people who will be really dedicated to IP&E and not mixing up semiconductors. And this IP&E-focused engineers, as I mentioned before, we have to be specialized on IP&E for our field application engineers, like, we have specialized engineers for the semiconductors and then dedicated field salespeople, because it's really not easy to sell resistors, Pentiums and so on. We have really to divide the markets and to be specialized on this one. And our purchasing stuff, to purchase resistors or semiconductors or connectors. These are completely different worlds. So we have this dedicated -- we have to have these dedicated people as well. With this, Alex, I would like to transfer again to you.

Okay. Thank you very much. So we're going to invite our customer and supplier panelists to the stage, but I think we're going to get some stools brought up here for you to sit down. Just waiting for the stools. No. Gentlemen, thank you so much. Okay. Well, we have screens on the side. So we have 3 distinguished panelists here this morning, and I'd like to thank you for participating. We did a lot of pre-work, kind of talking about value proposition and how it applies to the 2 supplier companies as well as to the customer company. And what we'd like to do is just have a discussion about those issues that are driving our market today. But before I start, I would like to introduce the 3 panelists. We'll start with Heath Nunnemacher, who is the Vice President of Global Electronics Sourcing at TTI, parent of brands, RYOBI, Milwaukee tool, but in the power tool business. Heath is a -- well, actually, all 3 of our panelists are 20-year veterans. All 3 of our panelists have lived in multi-regions of the world, and all 3 of our panelists are extremely opinionated. So I have a very difficult job here. So that's Heath. If we move on to Chris, also a 20-year veteran, today, the Vice President of Worldwide Sales and Marketing for Renesas. He has lived in EMEA, Asia Pacific and the Americas, and I think that pretty much covers it from a market standpoint. Another EE here, and Chris, thank you very much. And certainly, last but not least, our panelist in the middle is Paul Cihak. Paul is the Executive Vice President of Sales and Marketing for the Americas with ST. Paul started his career with Hewlett Packard when I was already 20 years in the saddle, okay? And from there, after 5 years with HP, moved to ST in 1999 and has had a successive run of promotions, running Asia, Europe and now the Americas for ST. So Paul, welcome.

Yes. I haven't been in Asia.

You haven't been in Asia?

EMEA and Americas.

It looks like I mixed up the notes, Paul. Okay.

So I'd like to get right into the questions if I may. And I'm going to start with Chris, and I'm going to start with our highest level question. Chris, what are the advantages of using distribution for design chain services, for example, demand creation, opportunity identification, post-sales support, the entire gamut? Chris?

Okay. Thank you. So I think the -- I'll start with the value that the distributors and Avnet, in particular, bringing to the suppliers, right? We talked about IP&E. We talked about feet on the ground. I think Dayna covered that. We talked about Farnell. In my opinion, with that, they have the highest touch points to every customer design, and they provide us visibility, identification and demand creation to make sure that we can touch more customers. But the best value they bring, in my opinion, is to the customers. Because they bring more value to the customers, they bring more value to us as a supplier. The customers need help. They need help on the technology side. They don't have enough expertise to know how to design the system the most efficient way. They don't have the best expertise to know how to optimize their design from a supply chain standpoint, and Avnet got that right. And the distributors got that right. And you might have heard a few years ago, some suppliers thinking, the distribution model is obsolete. And I think one thing that we've seen over the last few years is actually going the opposite direction. The customers need more and more the help of those aggregators that basically touch every technology from capacitors, to connectors, to semiconductor. And no supplier today has enough to cover the board. And as such, it's actually going to the enforcement of the distribution and the global distribution, in particular.

Great answer. If you can't provide solutions, then you're providing something less. Paul, anything that you'd like to add to that from Avnet from a design chain?

Yes. I think we have over 200,000 customers, and we would like that to continue to grow. And obviously, as an organization, to cover that many customers is a big challenge and you need partners and distributors that can contribute to developing those customers, servicing those customers. We probably would only have a direct relationship with a very small percentage of those companies. So having partnerships with companies like Avnet enable us to cover those 200,000 customers and build upon that.

I really appreciate that. Heath, I don't want to leave you out. So even though we have the question separated by supplier and customer, I'm going to jump you right into the supplier stuff. Obviously, we've had protracted supply and demand imbalances. Relative new customer at scale for us, but can you give us some commentary as to what the decision process was for selection and what problems we're solving for you in today's imbalanced world?

Yes, absolutely. So first of all, just thanks to the Avnet team for the opportunity to be here, very privileged. And I will admit, I don't quite yet have 20 years of experience in the industry. That would be artificially inflating my age quite a bit.

Thanks for that.

But to answer your question here, so just a little bit of context about TTI. We are over a $13 billion global company, as was mentioned, operating in the power tool, hand tool accessories, outdoor power equipment and floor care spaces. And when I walked into this role as, November, December of 2020, the looming semiconductor shortage crisis was just on the horizon. We were maybe managing maybe half a dozen, a dozen discrete shortage issues. But what was really immediately apparent was the complete lack of transparency in our supply chain at that time. We utilized maybe 15 to 20 different, what we would call contract manufacturing, or EMS partners around the world, and each of those individual businesses were, at the time, free to select their upstream distribution partners. So it became pretty apparent that to manage through this increasing complexity with semiconductor shortages, we were going to need consolidation and transparency. And so we initiated, at that time, request for proposals to a number of businesses around the world, and ultimately selected Avnet to really collapse and consolidate that supply chain to, as mentioned, really drive transparency, drive -- and we'll talk about it a little bit here, particularly around the digital tools and the systems that allow us to make real-time accurate decisions.

Really enjoyed the answer. David will do a supply chain section later, and he'll always talk in terms of visibility and resilience. Meaning, if you don't have the visibility, right, how could you possibly architect...

That's correct, the solution. Yes.

The supply chain, but as long as you brought up the digital piece, how important is it to you and to your company that distributors are capable within the digital space for all the optimization that it can create?

Yes. So again, so for some context, TTI buys between $400 million to $500 million annually of critical electronics, semiconductors, sensors and so forth. And again, having something north of 20 different EMS partners around the world, what the digital systems integration allows us to do is to take what was previously a manual error-prone, time-consuming process. So literally a team of maybe 15 to 20 analysts that were literally within PRC, Southeast Asia making calls, trying to understand where inventory placement was, supply-demand fluctuations throw all of that out the window. And what Avnet allows us to do is have a control tower, we'll call it, or a digital portal, whereby we can see, in real-time, inventory around the world. We can make decisions based on that information if we need to reposition inventory, let's say, from Avnet's Hong Kong hub into maybe Mexico to support one of my EMS or CM partners there. So it really can't be understated how critical the digital piece is to us. It allows real-time, accurate information and therefore, obviously, significantly better decision-making.

Thanks very much. Chris, anything you would add on the digital piece?

Yes. I think when -- what Heath's saying is critical. We have never seen so many global customers coming to us and asking us to work with one single distributor. And I think Paul will talk about it, right? But I won't drop names, but there are very large customers today that don't even know the backlog that they have in place through their multiple EMS, there are multiple sites around the world. And I think what partners like Avnet provides is this transparency and aggregation, okay, and facility to manage the supply chain. When you think about the crisis that we are going through and have gone through for the last 2 years, that has become very critical. On the flip side, the small customers as well don't have the expertise. They don't know, beside the lead time that we publicize, they don't know how to optimize their design from a supply chain standpoint. And this is where distributors and the digital presence and the digital tools that you have is also helping customers.

I think also Heath hit it on the head. Most of our customers have a very fragmented supply chain. And when you have a very fragmented supply chain, you have inventory that builds up throughout the whole value chain. And we have a lot of customers coming to us saying, look, we have 20 EMSs, 15 different distributors. We're very exposed to China. We need to find a way to maybe balance and reduce and simplify to try to get that line of sight of really the true demand that's needed in the industry and who better to bring that expertise and to teach our customers supply chain, but companies like Avnet?

I really appreciate it.

If I can add?

Please.

Of course, nobody was immune to the supply challenges that we've seen over the last 2.5 years, partly in semiconductor. But I would say the one that I had before this globalized supply chain, in my opinion, we're the one that's resisting the most to a crisis. Because we've seen many customers coming and being lined down somewhere in the world without even knowing it, okay? Because they didn't have the right inventory, they didn't have the right orders. So this crisis will reinforce what I think Paul and the team are doing. And every customer has realized the importance of supply chain that you said, we take for granted. It's actually not granted, okay? I think this will reinforce the distribution model moving forward.

Well, this whole idea of the fragmented supply chain really hasn't come to the forefront because material has been readily available. David and I have had situations where customers come in on an emergency basis in that tier, you're talking about, right, the top 100, the brand names. And we actually had a meeting start with, "I know you guys can help, but I don't know what I buy, who I buy it from or where." And our response in situations like that has to be, "Well, we're going to need to tighten that up just a little bit, and then we can help." But that's the phenomenon that we're in. But the fragment is -- it wasn't like we weren't thinking about it. There was no need to think about it. That's why supply chain has come to the forefront. I really appreciate that. So we talk about the supply and demand imbalance. We think about the specific programs we have between all 3 companies, I'll go to you, Paul. Can you cite a specific example were Avnet's extensive and unique capabilities were able to solve a business problem?

Yes. Well, I'll mention it in kind of a broader context, because earlier, when you were talking about the market, the potential and opportunity the market is providing today, we hit the global semiconductor market in 2020, hit about $500 billion. So it took -- you have to go back to 1959, 1960 when mainframe computing started and the semiconductor market was really born. It took us 60 years to get to $500 billion, 60 years. So if you look back in the history, there's usually just one application driving semiconductors forward. There is mainframe computing. There was office computing, gaming, personal computing, smartphone. There was one application that was driving the investments forward. Now fast forward to today and looking at the future, you have electric vehicles, you have autonomous drive, you have 5G infrastructure, 5G handsets. You have low earth orbit satellites. You have companies moving from mechanical to digital to electrification everywhere. Everything is connected. So you have 10, 12 applications driving, I think you said, pervasion of semiconductor forward. We need partners to try to help manage that demand, and it will take just 12 to 15 years to get to the next 5 billion. So it took 60, now it will take 12. So talk about pervasion. I mean you look at a car today, $300 semiconductor content in a combustion engine car today. Level 3 autonomous electric vehicle has between $1,200 and $1,500. A home today, $300 semiconductor content in your home. A connected home of tomorrow, $1,500. So forget what the market's doing, what about the content and the pervasion of the silicon content in every application? And it's becoming even more part of the -- what's defining the application, what's defining the project is the semiconductor. So you have now this great market opportunity and potential and how do we serve it? I mean, we can't serve it by ourselves. And so there's so many examples to answer your question, Alex, of partnerships where the market is moving in different directions. And those distributors and value-added services providers that are able to enable and adapt to the new models and having carmakers and people come and ask for strategic supply chain health. This is really -- and we have many examples of that together. This is the future.

I appreciate that. That statistic that it took us 60 years to get to $500 million...

Billion.

And we will only take 14 to go to a billion, I guess, really does support the view that secular usage could help us over time to mitigate cycles just because it's so, I hate to use the word, but pervasive. And in all that, you never mentioned the LED mascara applicators. That's plus, plus.

But we have a customer that has tools that you don't need a cord anymore. You can have a jackhammer that's running off of battery, providing the power and the torque.

It really is amazing. So Heath, I'll move to you for a second. You think about where we are today, where we're going and in the case of the relationship between the 2 companies, really at pace, right? I hate to use the tagline. But what's next? Where do you see it going from here?

Well, at TTI, we're going to continue dominating our industries. So in those respective industries we play in, whether that's power tools or floor care, we are, by far and away, the fastest-growing company. We've had 13 years of 13% compound annual growth rate. And to kind of tie this into what Paul said, the majority of that growth rate has been driven by this transition into cordless lithium brushless technology, the pervasiveness aspect again. So we're going to continue to really focus our teams on driving, not just corded to cordless transitions, but as was mentioned, taking gas conversions, pneumatic conversions, hydraulic conversions. So tools that previously -- a jackhammer had to be pneumatic -- with a pneumatic hose tube, another generator running, all of that goes away, framing nailer, same thing. We used to have a compressor 20, 30 feet of hose. All of that goes away and the tools transition into cordless, which takes, again, massive, massive pervasion in critical electronics, MCUs, MOSFETs, hall sensors, gate drivers, all of these component counts are going to continue to go up. And as we have this increasing complexity and added to the underlying growth of the business, the types of partnerships and programs we've put in place here with Avnet are going to be absolutely critically strategic for us.

And then you get into the sustainability aspect of that. If you digitalize and electrify all these products, you're now coming in to the sustainability world that everybody is very, very much interested in.

Chris, I know you've got input here.

Yes, I want to talk about what I mentioned earlier, which is this design consultancy, right, okay? So as Paul said, in the old days, we could master, on our own, the main application, okay? We had vertical teams in our -- in the suppliers, and we could manage most of it. The applications are so broad now. Semiconductor, as you mentioned, pervasion goes to any application. In IoT, bunch of guys somewhere are designing stuff. So there's no way we can have enough expertise to offer them the full solution that they're looking for. And as much as we invest in those full solutions, and we -- I'm spending a lot of money on building our capability in full solution. I think one thing we should mention, I believe you guys will talk about it, that have raised is the mindset of Avnet, which is around a veil, which is kind of going to the customer and say, "I'm not going to try to tell you what to design as a product, but how you serve your needs as a solution." And there is no distributor I know of today that does that, okay? So kudos to Phil and the team to have viewed that early on, including the acquisition of Farnell, which gives you a touch point that nobody else has. There is no customer today as big as they are or as small as they are that are interested in suppliers coming with one product. They want full solutions. They want design services. They want design consultancy. And I think this is why it's growing. Paul is investing, I'm investing, all semiconductor suppliers today are talking about solutions. What they don't talk about is the fact that they've never have enough product to serve the board. And as such, okay, I think Avnet bridged the gap to the customers, okay? And I think this a veil investment that you're making, the partnership you're having with us will get to the next level in terms of system selling.

I'd like to add on to that. So of the dollars that TTI buys, a not insignificant portion flows to these 2 gentlemen's, teams.

That's a coincidence.

Just a coincidence, right? And despite that maybe the coffee and donuts budgets, a great point that was made there is really the agnostic technology viewpoint that Avnet brings. So while both of these gentlemen and their companies, absolutely unquestionably are leaders in their respective fields with certain product technologies, what Avnet can do for us is come in and meet with my engineers at point of decision-making and bring an agnostic viewpoint. They're going to help guide a component selection that is the best, most optimal component for that particular application, rather than being necessarily tied, obviously, to maybe trying to drive a sales number. And that's an enormous advantage for us.

Can I add one point on this?

Of course you can, Chris.

As you said, we have a very strong opinion. The last few years, customers have realized that we compete, okay? When I go to customer, I say, "My product are the best." And he says his products are the best. That's what we all do, right? Customers have realized that to be resilient, both from a design standpoint, from a supply chain, they need that neutrality. Switzerland, the Switzerland of semiconductor, okay? And I think this has more value today than ever before. Because at the end of the day, customers need to get their designs done and get the supply. And they've realized that 1 screw missing, the board doesn't get produced, right? So I think 1 aggregator holds the accountability and the hub to 1 player instead of multiple players. I think we'll see that even more important moving forward. You still have the best part, by the way.

Did you want to add something there?

What is it?

Do you want to add something?

No, I think it was very well said, Chris.

I -- it's interesting, we focus a bit here on questions associated with the supply chain. And I think it's very, very important, right, because the supply chain today is broken. Supply and demand are out of balance, and I think we're working very, very hard. That's the supply chain side. On the design chain side, I find this -- the 3 very interesting here as well. I hope I don't go too far when I say Heath's company is working on compound semiconductor designs and specifically wide band gap, in their case, silicon carbide. These are one of the materials that are going to allow us to sustain Moore's Law as we go forward, right? You've all heard that Moore's Law is starting to slow down, but it's starting to slow down because silicon is the base material. As we expand into other compounds, we can do even greater things with semiconductor technology and Heath's company's at the forefront of that. Of course, Paul is a gigantic provider, and Chris provides alternative products. So with that as a backdrop and thinking about distributions play, the agnostic play, the support of demand creation and innovative technology, tell me about utilizing distributors in that regard?

Yes, it's a follow-on to what was mentioned previously. So TTI likely isn't going to invest full development teams to have full expertise in a particular technology. We'd like to do that, but obviously, everyone has certain SG&A budgets and constraints. So instead, we can rely on an Avnet to come to us and sort of deliver what is a state of the industry or state of the technology overview. So wide band gap is a great example. It's simplistically stated in our applications, whether they be power tools or floor care. We'll get longer run time. We get overall better efficiency, but what we might not yet understand is where is the inflection point at which it makes sense to start the design in of that type of technology? It's from both a pricing constraint aspect right now and, frankly, a capacity and supply constraint. So as Avnet has considerably more touch points, with not just a Renesas or not just an ST, but the dozens and dozens of other device manufacturers and technology companies working in that space, they bring us a much more comprehensive set of opinions, we'll say, and feedback so that we can start to drive the right, again, component selection decisions that make sense for our business that point in time.

Very good. Paul, could you expand for me on the utilization of distribution in a demand creation standpoint?

So for us, I mean, the 2 big value propositions is customer expansion. We can't be everywhere at the same time. So having partners that help find the next big customer and having the ear to the ground and finding those new customers is fundamental, but demand creation is the other. I mean, demand creation, we -- at existing customers, we want more bomb share. So it's, again, being able to come in and create the demand, not having ST driving the design win, but trusting our partnership with distributors and value-add like Avnet to go in there and actually do the design work. To have the FAE master the bill of materials, to do the block diagramming, these types of things are fundamental, and to master the application. So we can't do it. We would like to, but there's just no -- the physics don't allow for it.

It's a scale and reach game.

We need good partners that understand our technology, understand our strategy and put boots in the field that do the actual demand creation.

Fantastic. Chris, can you give me a Renesas perspective?

Yes. Just to piggyback on what Paul said. If you look at our top 50 customers, a good portion of them were not even existing 15, 20 years ago, right? So -- and actually some of them were designing the first time by a distributor, okay? So this is important, not only to broaden the customer base, which is good for revenue generation, margin expansion, but to find the next big ones. But the one thing I would add is this concept of simplifying the technology. If you look at a couple of years ago, question we were getting as suppliers is, "Hey, technology becomes so complex. How can a distributor be competent enough to support the customers? Are you not guys supposed to send your own engineers to go there?" And it was true. But now what's happening is because customers are going to solutions, we are actually removing the complexity of the technology. We just released, with Avnet -- that's a very specific example. We just released with Avnet a system solution with one of our most complex MPU. This is things like a few guys in our company can design on. We're -- working with Avnet. We've removed all the complexity away for the customers, and made it much more [ easier ]. In this way, you can actually broaden, okay, the pervasion of technology. And I think this is what has changed from 5 to 10 years ago. And this will continue. Nobody has -- nobody wants to spend more R&D to do things that others can do, okay? And I think this is where this user experience, easiness of use of technology will help the better use of this limit is more important.

And the embedded system works you guys are doing that maybe Mario will talk about later, the artificial intelligence and the software on top of the hardware, being able to specialize and customize for a customer solution, they're not -- they're going to need to get that from somebody who can provide it.

And one thing that I think Phil mentioned this morning, I don't think there's any distributors that has both the e-commerce as well as the mainstream distributors. And what we see is a lot of new customers are coming through this sight. And I think, as Renesas, we've made the decision to concentrate more and more on Avnet. We've made the decision to reduce our distribution network. We believe fewer, strong relationship are better than many small relationships. And one of the criteria was just the commitment to demand creation, which is obvious. But this Farnell acquisition for me means a lot, because it means that they're going to have the highest number of touch points for the future that will make a huge difference.

That really makes a lot of sense. Later in the program, you'll hear from my colleague, Peggy Carrieres, about our demand creation and the science that we apply to it. But Paul, you made a very interesting comment relative to the physics that you just can't get there, right? So therefore, the debate about is it demand creation, is it demand identification, whatever it might be, really should go away in favor of exposure and reach. Now I'll pause there and tell you that I'll put our engineers up against anybody in the world. But on a very specific basis, beyond that identifying and getting out to the customers to position your technology to drive pervasion. So I really appreciate those comments. Okay. I -- or is there anything else on your mind that you'd like to share with the listening audience?

I think one thing that Dayna said, in the old days, find the customer, identify the opportunity, get the design, go to production. Over the last few years, especially the last 2, what we've seen is, the starting point is anywhere. If I look at some of our biggest MCU new customers, over the last few years, are coming through distribution, through customers not getting always the part they need and wanted to diversify. Engineers tend to copy. If they've used a partner for a long time, we tend to use as long as the partner is good, right? This has kind of changed the game. In my opinion for both, Paul, ourselves and many other suppliers, it has changed the game because it kind of remixed a bit the touch point. And I think now, I think the -- we enter into customer engagement through multiple aspects of the design, which is a complete different way to operate than it was 5 years ago. I think this is critical. That's why, for me, this concept of distribution is kind of the old model. It's actually a very short-sighted view, okay? And I think the future will show that customers will, including the big ones like TTI, want to have more support from people that are aggregating the whole supply and the design expertise.

The last 3 years have fundamentally changed, at least the semiconductor market. And I think those who are able to adapt to the new models -- I know David, this is part of the organization, but the new models of customer engagement and bringing services that are different than it was in the past, this is the future. And we have to be adaptive to this pervasion that we're talking about and the great opportunity in terms of demand that everyone's investing in, being able to adapt to what the customer needs, being the expert in how to optimize their supply chains. This is -- it can provide tremendous value.

And in some respects, the design game itself changes, right? We tend to -- maybe me more so than you guys, tend to think of the historical chip down, build a solution around it. Mario or Landy will talk to you this afternoon about Avnet Embedded. Avnet Embedded really addresses that buy versus make. And the implication there is make is you take the chip down, you populate the Board, all those great products. We do that all day every day. However, right, higher levels of integration of products are now taking more customers, particularly startups, into the Board as a starting point as opposed to the chip. And we have solutions to be able to optimize that market dynamic as well. So I really appreciate everybody jumping in. Heath, you're the customer, you always get last word.

Thanks for that. Yes. I think to just add a little bit more, not only is Avnet bringing the technology expertise that we talked about. But at the point of decision-making, we are getting so much more intelligence around the supply chain friendliness of a particular component selection. Because no longer is it just what is necessarily the best chip or component for an application, but can I get that chip when I need it? So TTI, we launched in excess of about 500 new products per year. These are, again, largely cordless. And in some of those cases, we launched them on time lines that might be as short as 6 months. Concept to on your shelf at your Walmart or Home Depot in 6 months. How do you do that when lead times 45, 50, 52 weeks right now? So partnerships with Avnet allow us to, again, make good technology-based decisions, but supply chain friendliness-based decisions as well.

Remember, I have responsibility for the suppliers. And when you said you were getting a lot of intelligence from Avnet, they had some very strange looks on their faces. So I want them to know that, that comes from David Paulson, Supply Chain. Okay. Anything, Paul, that you'd like to close with?

Thank you. It was a great panel discussion. I appreciate it, Phil. It was a great event this morning of bringing it in. So thank you.

Likewise. Chris?

Of course, I extend my thanks as well to the Avnet team and Phil, in particular, to be here. But I think it goes back to what you said this morning, right? So we feel as a partner. And today, we are here as suppliers, but mostly as a partner, okay? And I think the old model of the supplier, the distributor and the customer has kind of changed, okay, with Avnet, in particular, where we work together, challenging each other, okay, were for the good and the bad, but I think it's a good testimony of your triangle with the suppliers and the customers being both pillars on top of your employees.

That speaks to culture and vision and most importantly, leadership. So with that, I'll thank all 3 of you.

Thank you.

It's really exciting, and we're finishing up a little early. So what we'll do is we're just setting up for our grab-and-go lunch. So we're going to kick -- stick to our schedule. And we'll be back here at 1:05 p.m. Eastern Time for those listening in online, and we will take it from there to go through what's next in the afternoon segment. So thank you. [Break]

We're all going to get started in just one minute. So welcome back to Avnet Investor Day 2022. I think we had a great morning, and I hope you're all as excited as I am after this morning's events. So with that, before I call up Ken Jacobson and David Paulson to talk about supply chain opportunities, please take a few minutes to watch this 2-minute video. [Presentation]

And with that, David Paulson and Ken Jacobs in on what's next in supply chain opportunities.

All right. Thanks, Joe. And thanks, everybody, for attending today. I couldn't be more excited to talk about our supply chain opportunities. First, I just want to take a minute, introduce myself. I'm David Paulson. You may have heard my name a couple of times this morning. I'm not really sure. It seemed like there was a couple of hot topics talked about. I've been at Avnet 28 years. And in my career, I've done several different jobs, but it's really broken into 3 kind of major categories. So the first part of my career was exclusively customer-facing, spending time with the customer, understanding their needs, both from a design perspective as well as the supply chain. I had the opportunity to take a job within the corporation working for Alex Iuorio in the supplier organization. I did that for another 8 years, focusing exclusively on the needs and wants of our suppliers and bringing that to our team, ultimately bringing those needs to our customer base. After that, I did make a jump from the supplier side into 10 years in our supply chain -- global supply chain innovation team, which is really the team I'll talk a little bit about today, that's out doing these interesting and unique programs that you heard a lot about this morning. In the last couple of years, I've taken all 3 of those kind of disciplines within Avnet and run a team of global customer-facing individuals. So we have a global strategic account team that calls on the largest customers in the world. And then they are backed up by our global supply chain innovation team, which then ultimately builds customized supply chain, personalized supply chain, tailored supply chain models on behalf of our suppliers and customers. So that's what I'm doing today. Just a couple of quick things from this morning. I'm not really sure there was a lot of discussion about supply chain, but I want to just call one thing out that I'm pretty sure Heath called Alex old. Did anybody else catch that? Or was it the other way around? It felt like maybe you called him out, Heath. All kidding aside, the outpouring of this morning's discussion in regards to the importance of supply chain. I changed my script. It is truly an ecosystem play. The excitement, you heard many times, excitement, excitement, challenge, challenge, opportunity, opportunity. And you heard it from our ecosystem directly today. So I did tweak my script a little bit because I was going to describe it to you. But really, you've heard it right? There is a tremendous opportunity before us as Avnet, to harness our capabilities to really evolve and change where the market is going. And I'm going to walk you through a little bit of that today. One quick housekeeping note, Ken Jacobson is going to come up in the middle of the presentation, and I'll have him speak to a couple of elements within the supply chain model. So when we look at our customer stratification from a supply chain lens, right, just the supply chain portion of it, we have a continuum that is unique and special to the industry. You heard a little bit about that this morning, and Chris will expand on that when we get to the speed and convenience section. So in the -- in our space, we are the only ones in our supply chain continuum that are able to ship one of something, whether that's a part, a development kit, a piece of test equipment and do so rapidly, overnight, really feeding the mass market. So that's one stratification of the supply chain. The next layer then, is the broad market, as I call it, from a supply chain perspective, where we're taking our hundreds of thousands of customers and bridging them to our supplier so that they can service them with efficiency and scale. And you heard a lot about that this morning from the supplier participants around demand creation, but the same is true of supply chain. And then the opposite occurs. From a customer perspective, we're also providing them an aggregated supply access to our thousands of suppliers. So it's very mutual, very bidirectional in terms of our services that we put towards supply chain from our customers and suppliers, aggregating back and forth. The top of the pyramid is actually where I spend most of my time, which is you get into this customer base with our global OEMs, the contract manufacturers that support them and ultimately, the component suppliers where we are really building supply chain models around the needs of the supply chain, right? Very specifically -- very specific problem statements that we drive toward, and that's really where the innovation comes. The supply chain at the top of the pyramid, drives innovation, and you just saw -- and if you haven't, it just was announced, Gartner announced their top 25 high-tech companies in supply chain -- or excuse me, Top 10 -- sorry, Top 25 supply chain companies and Cisco was #1 over Johnson & Johnson, right? All of these large juggernauts. And when they look at the complexity of the supply chain, Cisco runs and ultimately, how they run it, it is truly a complex supply chain. And those are the kinds of engagements that we're seeing developed inside of that. So even inside of the complexity of that, there's been a shift, and you heard a little bit about that this morning, where there's even more emphasis than historic Tier 1s have put towards assurance of supply and resiliency. So when I talk through the shift, I'll spend a lot of time focusing on how we're positioning for that shift, what it means to Avnet and then ultimately, bring it all together in terms of the ecosystem, okay? So really, our role inside of that shift is all about simplifying the complexities that are associated with the dynamic that was all described this morning. It really starts first with our strategically placed infrastructure. So our global supply chain ability to orchestrate and harness our physical infrastructure, tap into our systemic system, synchronizing them, ultimately leading to a global execution. Along with that then, comes the customer service. There are still people in this business. We still aren't pushing buttons and things just happening. So we strategically place those resources the best in the best locations possible. And this is really the foundation by which we build these supply chain models. The layer on top of that then, and this is where you heard a lot of discussions about, well, how do we tailor this in a supply chain environment is, as I mentioned, we're very problem statement based, but we've developed a methodology to tailoring these over time. We've been at this tailoring of supply chain models for 13 years at this point. And we've learned a lot along the way, not the least of which is our work shopping practice. So ultimately, what we do is we really get all of the parties together and really talk about what the supply chain models need to do, right, and build around that. And we've built a practice around that, that compresses that time, helps our customers and the suppliers define what those problem statements are, and then we build around them. Okay. And the people that do that on our supply chain team don't come from distribution. They're actually practitioners. We hire them from academia, we hire them from the Navy, we've got a gentleman who worked in point-of-sale hardware terminals, but we really pull from this practitioner pool who have real-world experience and understand how to do these things and then take that knowledge and bring it to our customers and suppliers. Okay. Tightly coupled then with our supply chain architects is our agile, nimble enablement team. So today's world, and again, you heard it a lot today. The visibility, the transparency, all of the data that needs to be harmonized and brought together to have our suppliers be able to make decisions, have our customers be able to make decisions is paramount, and that is where supply chain is going especially in these large global engagements. And so we have a dedicated team then that personalizes that digital experience for our customers on a global basis. Tying together and harmonizing all of the data in the model, our data, our suppliers' data and customer data ultimately turning it into something that the parties can make decisions on, okay? And this team, as they're building that out and with the complexities of the model, I'll talk through in just a little bit, ultimately, they're doing things outside of the box. So those of you who are familiar with IT, this is loosely known as a Mode 2 IT team. You have your Mode 1, which is taking care of the core of the business and the enterprise, then you have an agile, nimble team that sits next to it and they collaborate. Your agile nimble team gets things done fast, they're very tailored, very specific, very custom, very personalized, where the enterprise team then runs the business, and they correlate between the 2 of them. And Max Chan, over here to our right of seats -- or your left, our CIO, and I, work very closely to make sure our teams are tightly aligned in that. And you heard reference to some of the output from Heath of the power of that. Agile, nimble, I don't mean to get too specific on Heath's case, but Heath came to us with a unique scenario of what he wanted to see out of his supply chain, and we built it in 2 weeks. We had a prototype running. And then inside of that, not only do we meet the customers' need, but then we also take that back internal in the initial Phase 1 of our application, we had some people touching things. And what the agile team did was say, "Okay, now that we've got this up and running, how do we improve it, how do we make that a better experience," so the -- Heath and his team can look at this at a daily basis and see brand-new data as opposed to a weekly basis. And that's really the power of digital. And that's the power of harnessing that data and turning it in to usable information in order to make decisions. And so with that, the shifting of these priorities inside of our customer base has created an enormous opportunity because now we've got this team, this agile nimble supply chain team, coupled with the digital team, and then the change in the market of looking toward assurance of supply and global visibility has led to a really robust funnel. And just run you through some fast facts. From a customer expansion perspective in the Supply Chain as a Service area, we grew 32% year-on-year -- excuse me, our customer base grew 32% year-on-year. Our services GP dollars on like quarters was up 35%. So -- and we'll talk about this in Ken's section. These programs take a while to develop to architect and then ultimately to implement. And now we are seeing the benefits of these programs that we were working on a year ago or 18 months ago, are now just starting to ramp and including all of the things that we've been working on as things really started to escalate. So the business is growing in calendar year '21. We shipped 31 billion units through the -- just this organization. So it was a really good year, and it's going to continue to go that way. And the reason I'm confident about that, one was a lot of the discussion this morning in terms of the trajectory of supply chain. But if I can go back to just shifting of the supply chain, it's challenged. The high-tech supply chain is extremely complex, and that's driven -- and there's continued pressure on labor capacity, on supply and demand, material imbalances, the logistics capacity and constraints that it takes to service this production, not the least of which elements are nationalistic policy is changing and also our commitment to ESG. All of these things are changing the way our customers are orchestrating their supply chain. And that change is making even a complex model that exists today, even more complex. So out of this, they're having these assessment discussions that say, "Okay, now I have to build a resilient supply chain, and I need to do an assessment that says how much resiliency do I need versus how much cost it's going to get me." And out of that comes a list of enablers. But every time that the OEM is going down this path and doing the enablement, they do this assessment, obviously looking for, "okay, well, what does the business environment look like." Can I -- what's the culture, the legal, the tax, the regulatory issues that I need to look out for. Is there enough infrastructure for transportation. Is there enough energy grid for me to run a factory there or is the market consideration safe enough, but ultimately coming down to that supply chain ecosystem and that cost trade-off. The example I'll give you is this is not an uncommon thing, where a few years ago, we would have a customer who would build 100% of their product in China, right? They've gone through this assessment. They've looked at the enablers and ultimately, have shifted their designs to their supply chain architecture to design, to really look a little bit more like China for China and then maybe for cost in Southeast Asia, it ends up to be Vietnam or Thailand. And then out of that comes another leg that says, well, for North America, I need low cost, but I also need proximity. And so I say all of that, and it camps on top of the discussion from this morning because that -- just that scenario triples the complexity of the supply chain that needs to be administered by the OEMs and by the suppliers that need to attach to it. That, on top of this graphic on the right, which really shows the complexity of the model as it sits today. So this model times 3 is really where we're going. And this represents the opportunity in front of Avnet today. And that's why we're so excited about it. I think we heard this morning, excited attached to supply chain at least 7x. This is why, this is our core business, and this is what we do. So we've taken a little bit of time to size the market -- and so we took the overall served TAM, minus DRAM, flash and MPU, and we estimate that to be about $490 million. If you take out the distribution total available market, you end up with something we're defining as serviceable available market, and that number is around $250 billion, that today, suppliers are servicing a supply chain that's going to become increasingly more complex over time. So we've taken another stab at the number and said, "Okay, well, let's really focus in on the suppliers that we are partnered with." And out of that, we've already defined of that $250 billion, $110 billion of revenue that potentially we could engage our supplier community or the customers that they're servicing to make that a better, more efficient model. And if we conservatively put 5% on that, that equates to about $5.5 billion of flow through that we may be able to attach a services revenue to, okay? Now from the excitement around this morning's discussion, I think Phil will be looking for [ 10 ] or maybe [ 15 ]. But with that, I want to turn it over to Ken Jacobson to talk a little bit more about what that impact has on the corporation. Okay. Ken?

Thanks, Dave.

You got it.

As Dave mentioned, my name is Ken Jacobson, and I've been with Avnet about [ 10 years ]. And I'm the Corporate Controller, so within the finance organization. But one of the most exciting things about my responsibility is getting to partner with Dave and his talented team, working on these supply chain models, including the financial model. When I think about the services, this isn't really our traditional fulfillment type service, right? This is a service revenue comes with a higher gross profit percentage and tends to grow as our customers grow. But it's not the sale of inventory. We are not taking on inventory risk when we're taking on these engagements, right? We're providing a service. So therefore, the inventory risk doesn't reside with Avnet. But as part of the solution package because everything is customizable, we can hold product for an additional fee. So it all depends on what the customers' needs are. From an overall perspective -- excuse me, the cycle could take many months, as Dave said. But once these get implemented, they tend to be very integrated into our customer supply chains, and that creates a recurring revenue stream that we see over and over again. And last point, Dayna raised a little earlier, I would just highlight is that we believe once we get into these supply chain engagements, our customers are more willing to hear what Avnet can do on the design services, in Farnell, IP&E. So it really is an enabler to expand the solutions we provide within this customer base, which is typically a very large customer base with a lot of spend, as Heath mentioned earlier. So Dave, I'll pass it back to you.

All right. Thanks, Ken. Yes. Just to expand on that, I strive and I say this tongue in cheek, but I really mean it. I strive to be Chris Breslin's best sales guy, and I say that very publicly because ultimately, that's the package that we're bringing as Ken mentioned. It's broader than just supply chain. It's bringing forward the design tools that you'll see from Peggy. It's bringing in our capabilities with Chris. And there is an appetite at the largest customers in the world to engage both of those models in conjunction with what we're doing today, and you heard a little bit of that from Heath this morning. So in terms of bringing it all home, really, what we're doing is bridging the supply chain gap, okay? On a customer side in terms of their priorities, business continuity and electronic components inside of their boardroom, inside of their C-suite has risen to the highest priority. And they're building now their models around risk mitigation, right? Those are equations, those aren't feelings. Risk mitigation is a math equation to assurance of supply and how many days can I run my supply chain when something breaks inside of it. When a disruption happens, when an ice storm happens, how long can I run my supply chain? That's an equation. If I have unforecasted upside and need assurance of supply, those are equations that are real life being driven from the highest levels of the corporations. Also hitting critical time to market and revenue targets have become increasingly important as well as this idea that says, especially in the OEM community, I can no longer not be associated with my key suppliers. And so we're seeing an outreach there. Obviously, inventory and payment terms and flexibility inside of that is all kind of baked in. On the supplier side of it, you're loud and clear from both Chris and Paul, clear, long-term global demand visibility. They don't know what to build if they can't see it. And in the case of the large top of the pyramid, largest companies in the world, you heard a little bit about how that demand can get washed out through 20 contract manufacturers, who place business with different providers. And so that is a high priority. So they know what to load in the fab. They know what raw materials to acquire in order to load that fab appropriately. And ultimately, they need that single version of the truth. And you heard that a little bit this morning, too, and that the suppliers are seeking that. They're seeking the version of the truth in a world that's becoming more and more complex, okay? Obviously, ability to define their own revenue. And another thing I'll hit on here in a place of the demand creation side is in a lot of cases, the supply chain team and -- or excuse me, the sales team of the suppliers are getting caught up in the supply chain, expediting parts, when really their charter is to be off design -- winning new designs. And so that kind of goes twofold. One, we'll help them with the design part, but also on the supply chain side, relieve them of that. And ultimately, they need to have trust in their partner, okay? Trust that the products are going to get to where they need to go. And so the gap that we fill is exactly that, the resilience piece, the agility to move those products all over the globe, the visibility to have both parties see what their supply chain looks like, the global orchestration, bringing that all together, assurance of supply and the flexibility that allows them to move that product around to their priorities as opposed to someone else's. So with that, I'll turn it over to Peggy Carrieres to talk about technical enablement, and I look forward to Q&a little bit later. Thank you.

Thanks, Dave. Thanks, Ken. It's always fun to go after lunch. Hopefully, everyone is still awake. I'm Peggy Carrieres, I'm the -- I'm not a supply chain bridge. There I am. I've been with Avnet only 7 years, so I'm kind of looking like new compared to the rest of my colleagues, but I've been in the industry for over 25 years. I come from a supplier. I've been in multiple positions at the supplier and also at Avnet. So when I came to Avnet, I initially started running the analytics around the voice of the customer and voice of the supplier, which really played into our technical acceleration and enablement. Another function I led at Avnet was I led the integration of Farnell from Day 1 for the first year. And that was a great experience getting to know Chris -- he left. Getting to know Chris and team. And then I was also Phil's strategy partner when he was the Global President. And a lot of these KPIs that you're seeing are balanced scorecard started with that core team that we've now pulled forward to unique level. So I'm really fortunate to be able to have identified those working with the team in developing those KPIs and now being responsible for a few of them. So I'm going to talk to you today about technical enablement, technical acceleration. I could just say ditto, because so many have said, "Dayna, you've said so many things about demand creation." Alex has said a few words, even Dave. This is the pictorial representation of how we've converged. So we have the electronic pervasion, but we're seeing a convergence across the end-to-end designed to supply chain. Traditionally, they've been pretty bifurcated. You had engineers working on designs at a full toolbox. They develop their products, and they throw it over the wall to procurement. And then they had to go figure out how to build it. The last 2.5, 3 years have given rise to much more complexities that are not cycle-driven. We've seen a permanent shift in our supply chain. For instance, on our suppliers, they don't own the end-to-end. So what I call from sand to hand in the semiconductor industry, they don't own everything, right? There's so many different players. From our customer base, a lot of them use contract manufacturers, some build direct. They move from one region to another, that flexibility. So we've had to move that up the design chain to almost a first sketch to consider availability, where you're going to build your product and sustainability of the life cycle as well. So demand creation, you heard demand identification, design chain. Demand creation is really an industry term that you don't -- like our customers, we don't talk to them about demand creation. We talk to them about design, design capability and enablement. But demand creation in a nutshell, and this is really the process, the benefits are twofold. First, it's like a triangle. So we have our suppliers, they're great products. And if a product is registerable, that's determined by the supplier. We have Avnet in the center, and then we also have our customers trying to get their products to market. The process starts with us identifying an opportunity. So the supplier tells us what's part is registerable. We identify the opportunity, but we're also focused on maximizing the effectiveness of that touch point. So on a given board, you may have 5, 6, 7 products that are registerable in that process. So you're looking holistically at the design rather than a simple chip down. But through that process, the engineers identify, they design and then they go back to the supplier and they say, "We've done this work, here's this design with this customer, do you acknowledge that design?" And the supplier comes back and says, "Yes, we acknowledge that design." So the second benefit is in sourcing. Once we have that design identified and locked in, it's extremely sticky business. It stays with Avnet, regardless if it's in region that moves to another region, if it goes indirect through what we call a contract manufacturer or if it moves any time in the life cycle of that product, that secured sourcing is anywhere from 2 years to 5 years. So even as the markets rise and fall, this business, it stays very stable and is extremely sticky. So there is a technical aspect to this, but also sourcing. So Avnet, our demand creation at Avnet, from a facts standpoint, we have over 2,000 engineers worldwide, I think we said that several times, our people are our most valuable asset. We are in a relationship business. And they collaborate across the regions. We drive the uplift in the verticals and applications. You heard Dayna talking about the industrial focus, transportation focus. So just a tidbit on transportation. We shifted that strategy about 3.5, 4 years ago from Tier 1, Tier 2 fulfillment to Tier 2, Tier 3 and nontraditional startups. We've literally -- it's 2.5x more revenue in that vertical in that 4-year time frame. The capabilities from a technical acceleration, we have technical specialists as well. And it's really a differentiator for suppliers and customers. So you can see the stats. Year-over-year, we're up 35% our design win funnel. So demand creation is a bookend strategy because it's a long time to value. We have to work on that front end of the funnel, making that as healthy as possible because that's a predictor of future revenue. So to see that going up at the same time that our revenue is going up, it's a very healthy model. Demand creation, the profitability is about 100 basis points up year-over-year, and it runs about 400 bps higher than our fulfillment business. So it is differentiated. There's 5 pillars, some of this is very simple fundamentals. Again, our people, the applications, digital, our supplier products and technologies and then design services, the IoT software. The solutions are becoming much more complex than they've been in the past. It's not the traditional chip down design. We still sell components, but we solve customers' problems. I'm going to focus a little bit on digital. We've talked a little bit about the digital enablement, digital acceleration of the engineer. So Avnet has something that's very differentiated. It's called AVAIL. You heard Chris talk about it during the panel. It's Avnet's visual and integrated library. So repository of over 140,000 block diagrams aligned by vertical markets, aligned by applications. We get input from our engineers, from our suppliers. It comes in from all different areas. We standardize those, and we move that to a cloud-based solution. The goal is more registrations per project. And we now are moving that to a cloud-based solution. It was a Visio-based solution. We've -- it was internally generated. It was designed in-house. It's been in place for about 5 years now. We're moving that to the cloud. And in the summer, it's going to be customer self-serve. So that's a huge differentiator. It's a tool for our engineers, but now our customers will be able to have control and choice when and how they want to design. So engineers can get up at midnight, log on, design and have that capability and route from an offline to online to offline interaction. AVAIL is part of a larger suite of our digital enablement. So we have what's called our design hub or MyAvnet Design Hub. It's a personalized experience that's robust, enables design canvas through AVAIL, but also My Avnet on the tools and signals, that's the associate of selling. That's maximizing the value of that whole project and getting the product to market more effectively and efficiently and holistically. You heard earlier during the panel, the word agnostic. Avnet is in the business of solving our customers' challenges and their problems. And we do that either through digital but also routing into those off-line interactions. So overall, demand creation is extremely healthy at Avnet, our highest revenue that we've had in history we've reported that last quarter. And our front end that from a digital perspective is very healthy as well. So with that, we're going to talk through -- we've talked through -- demand creation has been around for a long time. And chip-down design has been in play, it's one of our foundational value propositions. But now we're moving up the chain. Our customer need more support. Our supplier products are much more complex. They need software enablement, IoT, embedded capabilities. And so Mario, I'm going to call you up and you can talk through the embedded IoT capabilities. Mario?

Thank you, Peggy, and good afternoon. My name is Mario Orlandi. I'm responsible for the EMEA business and as well for the global IoT initiative, Global Avnet, Embedded & Avnet Integrated. So what I'm going to do today, what I'd like to give you today is a quick overview about Avnet Embedded or as I'd like to call it, Avnet in-house embedded solution. So that's what we are today. So -- and as Peggy was just mentioning, we see a transformation in our customers, in our OEMs, where thanks also to the complexity, Chris was referring earlier on about the complexity of the devices, where we are now going to look -- so customer more customers, they're looking for to buy products rather than design due to the complexity of these items. Now what is Avnet Embedded, so very simple, it's not a new business to us. So this is just a result of realignment and rebranding we did 1 year ago. Basically, we are -- and the reason is very simple. We are addressing the same customer base, the same suppliers and as well, in other words, the same as the core business does. So we are basically playing the same -- exactly in the same field. So we are not going for a new customer or new initiative. It's just exactly mirroring or leveraging what we are already doing in our core, what we call core customer organization. So therefore, instead of running a parallel organic sales organization, we are now leveraging the 1,000-plus salespeople and that is really where we are very strong. So in other words, today, this is a business of $600 million, selling more than 2 million of system and boards on a yearly basis. We have 15 design center, 6 production plants around the world, and we are employing 750 software engineers and 130 hardware engineers. Last not least, as I was mentioning before, we are leveraging the 1,000-plus sales team we have in the field. So now where do you focus on? So we do support key technology from edge to cloud for our core customer base. So we are now, as I said before, we are really focusing on our strength,, on our value proposition, so leveraging on our customer base. That is very important. In compute, we hold partnership with the most and the key -- most key global manufacturer in the embedded computing system, where we can supply those solutions to customers either out of the shelf solution or with a various level of customization, depending, of course, on the application. But not only that, so we do as well our own design capability in-house, so where we basically design our own modules for the global market. We designed a manufacturer of this in our campus in Germany, primarily and in India. And we are positioning to expand furthermore these solution centers. Those modules, I was -- as mentioned earlier on, they are becoming extremely popular right now, as more and more OEMs are moving toward -- from their own chip-down design to buy rather than to make, as I said before. So -- and that is very simple. The reason is to speed up the development, to reduce the risk and as well to reduce time to market. In display, so we are leading in the supplier on the both display and touchscreen solution on the industrial market. And we are partnering with the major vendors in the display manufacturer, and we also have our own team of innovation team, which are developing -- helping our customers to design their solution based on their application. So that's where we are. And the third one, the third pillar, very important is the -- what is the embedded system. It's just a combination of compute, display and software. So when you put all the 3 things together, then we are providing an embedded system, what we call a full solution system. Now with regards of IoT solution, this was mentioned earlier on, that is becoming now more as we see in our industry, almost every application as a kind of IoT solution in it. So we are uniquely capable today to offer secure IoT connectivity into any of our hardware. But as well, we can also support the software from the edge to the cloud and to provide all the elements in it. So in other words, this closed loop is very valuable to our suppliers, to our customers, where they are looking for a high level of security and as well that analytics. So in other words, we are one of the few capable today of offering this close loop. Connected with this, and that was mentioned before by Paul, we are also offering intelligent solution at the edge, where we are partnering with our main suppliers, just to name some, AMD, Intel, NXP, Renesas, ST, and so on and so on, where we are providing and we are optimizing this. They are chipset and processor from edge, base data to consumption and processing. So last but not least, underpinning all of this, we have our software offering and that is coming from the acquisition of Witekio and Softweb, which we did 2 or 3 years ago. This allow us to provide full support, software support to all of our customers. So -- and just -- Peggy just mentioned this. So the -- we always -- so that is part of our demand creation as a distributor, we always help our customers, our suppliers as well to bring their products, their technology to the market. And again, I'm referring to Chris, it was mentioned before the complexity of these -- of the new devices, which are coming now on the market, is really -- is becoming -- the complexity of this technology is becoming more and more difficult for many companies to design by themselves. So therefore, they are looking for even more support in the hardware and as well on the software side. And that is also, as we said, a shift from the make to buy, and we have not embedded is the go-to source for those customers, who are looking to source those complex technology from -- in the marketplace. So our customers benefit from faster time to market. So the time to market is key. Risk reduction and cost reduction, so suppliers are working with us as we help them to bring their complex solution to the go-to-market more efficiently and faster. And Avnet, for Avnet, what is the benefit? Higher margin, strong customer relation as we're able to retain those customers, which are moving from chip-down design to a module buy. And last but not least, allow us also to find or to expand our customer base as we are engaging on a new touch point as was mentioned earlier on from other people. So that is an additional opportunity for us to expand our customer base as we mentioned, as explained before, that is key for our industry. Okay. So which market do we serve. So Avnet Embedded plays in almost all the key industry and the key verticals, not very different from what we have seen before. Again, that's -- which is good. Otherwise, I would have said something not right. So therefore, the market are very similar. So we talk about transportation, mainly the many commercial and agricultural vehicles. Industrial Automation was mentioned before by Dayna, factory automation, Factory 4.0, robotics, EV charging. Energy efficiency, so smart buildings, smart home smart city. Medical, that is also another important field for us and is another growth market for our business. Last but not least, of course, professional consumer, appliances, smart vending machine and so on. So that's where we are playing. And where do we want to go? So today, as I said before, this is a $600 million business in terms of revenue, 6% to high. So our expectation in the next 3 years is to almost double this business to reach $1 billion and to go -- to grow in excess of the 10% OI. How we're going to grow? So we are going to grow with the expansion of the design capabilities of course, mainly on the software side, the expansion of our global footprint, leveraging again our sales core team organization and also providing more support. Doesn't matter where the customers are, making sure they're going to get their support everywhere as this is in the nature of our traditional business nowadays. And at the same time, we will be expanding our product with our technology and our technology partners, of course, and as well providing software as a service solution to grow our margin, alongside and on the other side, as well to increase our hardware sales. So the software is not only an enabling to provide additional higher margin, but it's also an opportunity for us to expand our overall hardware sales. And with this, I'd like to call Chris Breslin, President of Farnell, and thanks.

All right. Good afternoon. It's a pleasure to be here. I'm not sure if I start the video or someone starts the video, but start the video. [Presentation]

Okay. Thank you very much. So my name is Chris Breslin. I look after Farnell's global businesses. It's a pleasure to be back at the NASDAQ. I'm going to touch on -- the reason I showed the video, obviously, if I didn't know what a good job that Chris and Paul and Heath were going to do or otherwise, I could have saved the last part because the opportunities are everywhere, right? I think everyone's kind of pick that theme up. But the other reason I showed this was the difference in product offering that we have, right? We are -- clearly, we play in the industrial and the component space, but we also have a much broader footprint, and I'll touch on that in a minute. So again, my name is Chris Breslin. I've been with Farnell for 8 years, so about 3 years before the acquisition. I've been in the industry for 22 years. Let me just jump into the -- everyone see. So I look at the -- what do people know about Farnell. I mean I think people are obviously aware that we play in the electronic components space similar to Avnet. And that accounts for about 50%, 55% of our sales, right? And this is an area where we've gotten tremendously stronger since the acquisition of -- by Avnet. In the last 5 years, we've onboarded over 40 new supplier franchises, right? So when you're in a business like we are -- Phil showed some numbers, our average order size is $380. No one customer makes up more than 1% of our sales. It's all about suppliers, right, and the breadth of offering you can bring. So 40 new supplier franchises is huge for us. So we play in that same space. You saw that $490 billion number that Avnet plays in. If you remember back to the slide that Alex showed earlier, where he showed the split of business, he showed 75% of Avnet's business is semiconductors and then there was IP&E and made up the other products. Ours is a little bit different. We're 20% semiconductors, right, 50% IP&E and then a bunch of other products like test and measurement equipment, tools and production supplies. When you saw that engineer's desk on the video, we make everything from the antistatic mat that the engineer is sitting on, to the test and measure equipment, to the -- we sell the soldering paste, soldering irons, all those kind of things. So we also play heavy in the MRO space, right? So that's -- it's obviously a little bit more stable of a market, doesn't have the same highs and lows. It may not be sexy, but it is a market that continually grows usually with GDP of the nations that it's driving. When I think of this conversation that Mario just had with you, we'll continue to invest heavily and we've talked about it all the earnings calls. You hear Phil and Tom talk about investing in our inventory, we'll continue to invest heavily in the electronic component space, but we see tremendous value in expanding our existing MRO footprint further into customers' operations. And by that, I mean, we help customers keep their factory floors running, right? Mario just talked about IoT and IIoT, which is the Industrial Internet of Things. To make that really simple, in my opinion, it's -- this context, it's basically marrying the factory floor to your IT department to big data. And that's what it is. When is your machine going to go down, predictive maintenance,, and the conversations that we're having with the MRO organizations of our customers are becoming much more sophisticated saying, "Hey, as this Industry 4.0, which is basically a connected factory, small and midsized customers, they can't get there on their own." So similar to the conversation that the panel had they need someone to help them get there. And that is sophisticated IoT solutions as well as a very broad breadth of products. So that's a place we play in. So lots of opportunities in our business. Had I known what a good job the panel was going to do, I probably wouldn't have had to show this slide. But when I think of -- customers face a lot of challenges. As I think it was Chris was talking about, you want a partner that has a broad breadth of products, you want a partner that is well-financed, their quality and their experts in their field, right? You also want someone that knows the products and can stand by them. So they're franchise, they're not buying on gray market or any of those kind of things. When you look at other things customers need is the ability to help them scale, kind of the examples I just gave about a smart factory, right? So they don't just want someone selling parts as Chris talked about in the panel, you want someone selling solutions or helping them find solutions to their problems, right? So these are the challenges that our customers have as well as service. And it's not -- I'm not just talking about where is my order and will it be on time, but service in general of an engineer or a technician talking to another engineer technician, right? We also have -- I'll talk about our footprint, but we have 70 engineers in our organization in the marketing and in the customer service organizations. So we fill that need when I think of what does Farnell do, how do we fill that need. One is both on the electronic component side and the industrial product side, we give customers one place to buy those products, right? You can buy them online. Some of the challenges that exist for customers when they're really narrowly focused partners in industrial supply, they don't have that breadth of knowledge and they can't really support those areas. So a single e-commerce platform globally around the world, 27 different languages, we provide that service and we maintain those products. We're also the only high service provider in the industry that has both inside sales, telesales and field sales in every region of the world, right? So when you think about competitors, they mostly transact only online. We also have field sales organizations, inside support and technical support everywhere in the world, right? So we help close that gap. And then when you think of warehouses, if you're only selling computer, onboard PCB electronic components, you can probably do that centrally, right, from one major warehouse. But when you're selling other products, like we sell like enclosures and fans and power supplies and big bulky products that are used as the guts of products that people build and to help maintain the factories in which they build it, you also need local warehousing. So we have warehouses in every region of the world as well. So we like that model. We've invested very heavily in the e-commerce side. So when you look at part of the reason for the acquisition, you heard a lot of my coworkers talk about the digital space in terms of digital demand creation in terms of digital tools. The calculators that we've had on our website for years, we now work with Avnet to make sure that they can go up on the Avnet.com site to make sure that customers get that consistent experience, right? So that's a really pretty slick offering that we have besides just selling components and supply and demand in components. We really like the place that we fill right now. This is a -- just a quick look at our numbers. I won't go through all of this, I think Phil and Tom showed some of it. But when I look at the business of where we are now, and again, I was with this organization prior to the acquisition, I'll talk a little bit about the synergies in the next slide. But the growth that we've seen has been really solid even before the market uptick, right? So we've really started adding to our inventory breadth. We built new warehouses, new systems, our ERP is on path now. But also our eCommerce platform, we went from worst to first, right? We had a 5-second download time for our e-commerce platform, now we're at 2 seconds, right? So we really invested partnering with Avnet to make this a much better user experience. That's driven the $1.8 billion in sales and a much more efficient model, right? So 13.2% is year-to-date. We closed last quarter at 14.9%. I think that was on a prior slide. We do have 900,000 active customers, right? So we cast a very wide net. And I'll show you on the next slide, we can help shepherd those customers from the very early stages of design and prototype right on through mass production. So we'll get into that in a minute. The other thing I want to touch base on was, and I think Dayna mentioned it before, was the element14 community. So we have 850,000 members. This is a very active community. So it provides a service to our supplier partners as well as to our customers, right? Suppliers can put their products on there and engineers will tell them what they think of those products, right? They'll give them complete summaries of how that's working, should they add other products, or the technologies inside the offering that they're bringing to market, right? So that, in addition to the Hackster.io, you have this huge net cast to bring in that early demand creation because at the early stages, the ideation stages of building a product, people want information before they even start buying products. So we play in that space, and it's been a good business for us so far. When I look at the -- supporting the technology and the community at every stage, right? So when we look at the synergies with Avnet and with Farnell, a lot of people have talked about it. I think there's a few things to me that jump to mind. Mario and [ Pulley ] talked about IP&E, right? These are thousands and thousands and thousands of different SKUs that, when Phil was talking about the narrow width of Avnet's inventory, you don't want to buy every new product because not everything is going to make it to mass volume production, right? And you only have a couple of thousand customers. When you're Farnell and you have 900,000 customers, you can put more parts on the shelf, and you can help merchandise and market them to become successful. So what we've done with Dayna and [ Pulley ] and Mario and their teams is, we do the NPI. When the product is introduced to market, we do that initial buy. And then as it starts getting traction, you get a first-time buyer report or multiple-time buyer report, then we push that out to Dayna and Mario and [ Pulley ] saying, "Hey, you guys should start stocking this." The reason that becomes real important, think about the conversation you just heard around demand creation, right? You have a high paid engineer at Avnet going out designing in a product, right? You don't know quite when it's going to hit production. But when it does, you darn well better have some inventory there, right? And that's where the model becomes really sophisticated, that the handoff and the close working relationship between the 2 businesses. No one else has this in the industry. This is a business connected by -- I mean, all the business presence. We all work for the same leader. We all have the same KPIs. We're connected by systems, processes and an aligned management team. So those handoffs are not physical handoffs anymore, they're actually systemic handoffs. I can mine my data. We use Microsoft Azure. We look at that. We find out what technologies might be interested to Dayna or to Mario or [ Pulley ] and say, okay -- or Prince, and say, "I want to know about sensing technology." We'll push those leads into Marketo, which is our marketing scoring tool, and they'll look at that and say, "Yes, I'm interested in this. It has a potential to get really big and really successful." And then we push that into Salesforce.com. It hits the salesperson's desk, and now they have a hot qualified lead because someone bought a product. So really sophisticated, really unique. It doesn't exist anywhere else in the industry. Okay. When I think of the value chain at Farnell, it -- again, it starts with community. You're casting a wide net. The reason why we have maybe only 8% of sales and 20%, 25% of the profit of the company is because we play in spaces that are a little less price-sensitive. And of course, we'd like to think we add quite a bit of value as well. But when you're looking at the ends of the life cycle, when a customer is doing a design and they're only going to buy a couple of different flavors of a microcontroller, a couple of different sizes of memory and say, "What do I need?" It's not a price negotiation, right? It's more of a, "Can you get me the product the next day?" The same reality exists at the end when it's MRO. They're saying, "My line is down. Something's broken. I need some products tomorrow. And can you get it there tomorrow?" Again, it's not a price negotiation. That becomes part of it. Customers -- I'll break the customer's activity into 3 main areas. I want to say design, prototype and NPI, I'm going to add those all together, right? That's the early stages. At that point, we're selling customers a product. We're selling them a component. We're selling them something they're going to put inside something they're going to build. And that's, again, usually at lower volume there, right? We're also -- if you think back to the video, it showed an engineer's desk. Every engineering lab in the world has usually between $10,000 and $100,000 worth of test and measurement equipment, soldering equipment and then consumables, their production supply material. We sell all of that, right? It's not just the component side of it. So that becomes really important. The production space, I think, is sometimes a little confusing because we will support customers that are huge. We support some of the biggest customers in the world, but usually when they just have shortages. Our main production is customers that are high mix, low volume, right? These are customers that would never hit the radar screen of the big volume distributors, right? They might be making very sophisticated marine radar systems, but there's only going to be 30 of them made in the world, right? They might be making test equipment. They're certainly not making iPhones and other consumer products where there's going to be millions of them made. So some of those customers stay with us forever. As Dayna and the team said, sometimes, teams get handed off and the customer can join that life cycle anywhere through. Some customers stay forever. And some that go into mass production, we can move those on to Avnet. And then on the service side, again, the MRO space, this is an area we've done very well, and this is a market that we think has tremendous opportunity as you start looking at smart factories. If I leave you with where we're going. It's a really exciting time to be at Farnell. We are a dramatically better business than we were when we acquired 5 years ago, right? If you look at the amount of inventory, the amount of SKUs that we have on hand. If you look at the system speed, the web user experience, if you look at the number of supplier franchises we carry, you look at where new warehouses, new systems. This is a business where, in the last 3 or 4 years, it has completely turned around to when the market was hot, we would struggle to keep up. Now in a hot market, we're actually taking share from our competitors, right, which is really a sign that we've done some really good things. And none of that would have been would have been possible without the investment and the close working relationship with Avnet that we've put together. So we have -- we look at this as we say 3 to 4 years. I look at this as we think we've built a business that should have a double-digit CAGR, whether it's 13% or 15%, compounded annual growth rate. We feel that, that is very achievable. We presented that at our Board a few weeks ago, but I won't give you all the details because I'm sure some of my competitors are listening. But we have a very good line of sight to a business that looks at that shape. We have done -- invested in pricing tools. We've invested in other technologies to make sure that we can retain and grow the profits that we have. We do see an opportunity, as I said, in the industrial space to expand further into some of the industrial products, right? As the Internet of Things and the smart factory takes off, we do see that as an opportunity to start pushing some of our inventory breadth and depth beyond the components and products that we currently sell. And we think that opens up a great opportunity. So we're excited about the future, we're thrilled to be here. And thank you for your time.

With that, let me introduce you to our CFO, Tom Liguori.

Thank you, Chris. Chris is an excellent leader. He leads a great team, and it's a very important business to all of us at Avnet. So we are going to end today with the financials. And I promise to be efficient as we go through this. I'm going to concentrate on really 3 themes. One is our revenue growth and our margin expansion, both from what have we delivered so far and what is yet to come? The second is really this portfolio of our businesses. It's really exciting. We are high-volume, core distribution. You need thousands of parts anywhere in the world. But we're also, as Chris said, you need 30 of them, and you need them tomorrow with Farnell. And now a software business with Embedded, it's just very exciting. The ones we're investing in are the higher margins. So I think as an investor, it's very important to understand our portfolio of businesses. And lastly, free cash flow generation. We know the audience, and this is very important to us, it's very important to the Board. I think that was one of the 3 things that Rod talked about this morning, is providing shareholder returns. So since our last Investor Day, we've made investments in growth and margin expansion as well as improve the efficiency of our business. So we're going to end this year, fiscal year '22, at about $24 billion of revenue and a 4% operating margin, and that's 4% for the entire year. And let's talk about how did we deliver that? Well, first, we invested in demand creation. And as Peggy said, this is about the FAEs, about putting their tools online. So now the FAEs are much more productive than they have been in the past, and it's just a better customer experience. So not only have our revenues grown, but the percentage of revenues from demand creation has gone from 25% to 29%. It's a very large number and it's at a much higher gross margin for us. The second, and it's great to follow Chris, is investing in Farnell. And think of it from a customer perspective. If I'm a customer, I go on the Farnell website. I now have 900,000 SKUs that I can choose from. That's more than double what it was 4 years ago. And the online buying experience is much, much better. The response time is now best in class. And guess what? I'm going to get the parts tomorrow. He's going to ship today, arrive tomorrow. So if I can find what I need, have a good buying experience, get it tomorrow, I'm going to keep coming back to the Farnell website, which is right now, we're at 1.5 million visits a week to Farnell. All of which have enabled, Farnell, Chris and his team, to reach an operating margin close to 15%, 14.9%. And I know everybody here, or many of you here, you're concerned about, "Hey, this is a great market. Hey, this is great pricing." But I think it's really important to understand that for 4 years, that team has worked on improvement after improvement with adding inventory, improving the system, putting data analytics behind this. Like remember, 71% of all orders are being done online. So it's more efficient, but we have data analytics behind that to understand who the customer is, what they're buying and what the pricing is. Online payments, one of my favorites because we collect cash faster. But really a lot of good things. Now as far as the pricing, we try to be very transparent. If we take out the year-over-year pricing, the 14.9% is still a very healthy 12.5%, 12.7%. And the reason I say that, it's very important in going forward. When we build our plan for the next 3 to 4 years, we're working off the 12.5% type margin range and building on that. And that is important to know as we go through this. That's a bummer. I don't know what happened.

Look at the sides.

Okay. Look at the sides. Thank you. The other thing that's important to know is we serve the high-growth markets. Semi itself is a high-growth market. But this is showing our revenue pie. And today, about 28% of our revenue is from industrial. And the reason that's important, when you go over to the far side, you'll see that that's one of the higher growth, that's a 7% growth going forward. Now we've always been strong in industrial. If you come down here to transportation, that's a 10% piece of the revenue pie for us. But if you look at the growth rate, automotive is the fastest-growing piece of semi. So we're well positioned in the high-growth markets. And what's important to know is we did a weighted average of all of these. Going forward, for each of the next 3 years, the markets we serve are going to grow about 5% a year. And then on top of that, we can add market share gains and the investments we're making in Farnell and Embedded to do better than 5%. Okay. Next, while we've been busy expanding margins and growing revenues, we've also been working on the inside of the company, right? The first is OpEx. So we spoke to all of you for 3 years, every quarter, talking about reducing our OpEx by $245 million. And that was taking more efficiencies in the back office so we can invest in the front office. And the reason that's important is, as we grew, well, we lowered our cost base. So when we had more revenues and we needed more people in distribution, more overtime, more sales commission, our OpEx really didn't change that much. Last earnings call, we talked about -- compared to 4 years ago, our March quarter was $1.7 billion higher revenue, but only $30 million more OpEx. So when you look at the financials, and you see that drop-through, well that's really a primary reason for the drop-through. The same with our net working capital. We talked to you about 3 years every quarter, reporting on our progress with that as well. That was very important for us because we wanted to take some cash off the balance sheet, invest it in the business and return it to shareholders. And that's what we did. So if we go over the last 4 years, we generated $1.8 billion of cash. Yes, we reinvested in the business, but we also increased the dividend by 35%. And this was a lot of time spent with our Board, but specifically our Finance Committee. We spent meeting after meeting determining what was the right measure of how much should our dividend be? With the objective of making it reliable and something you could count on. So the way to think of our dividend is we'll probably have one more increase this coming quarter, and then we'll be going to an annual cadence of increases every Q1. And this is through the cycle. So it's very, very important. We worked with the Finance Committee so that we could do this through the cycle. Likewise, we also spend a lot of money, a lot of time on our buybacks. And we reduced the outstanding shares from 120 million to 100 million. That's a 17% reduction. And everybody in the room here knows, if you reduce your share count by 17%, you're going to get an approximate 17% increase in your earnings per share. The reason for saying that, all of what I just talked about is why our EPS has gone from $3.57 to $6.80. So yes, it is a very good market. Yes, pricing is very good. But there's been a lot of sustainable, durable changes made inside Avnet over the last 4 years. Demand creation is now 30% of revenues. Farnell is 1/4 of our profits. Americas is growing. We have a better cost structure, that $245 million is about $2 per share. And we have a lower share count. I'm also going to share with you something we looked at over the weekend, which was what did we tell you 4 years ago? And there's a reason for bringing this up to you. 4 years ago, when we were all in this building, we had revenues of $19 billion and $3.57 earnings per share. And we said this is what we're going to work on over the next 4 years. We're going to improve our mix, more Farnell, more demand creation, more IoT. By the way, IoT is really what is repackaged into Embedded. We were going to optimize our OpEx. We were going to accelerate Americas. Lower our tax rate. I didn't talk about that, but we did lower our tax rate. Reduce net working capital and buy back shares. And by doing that, we could get to a $7 EPS, okay? So we ended at $6.80. We got pretty far along the road and kudos to the team here. But that's not why I'm bringing it up to you. The reason I'm bringing it up to you, if you think about 4 years ago, we all sat here, we had no idea a pandemic was going to come. We didn't know what a pandemic was going to look like. We had no idea that 4 years later, we'd have this great imbalance of supply and demand or that we'd have tariffs. So there was a lot of uncertainty you couldn't predict. But one thing we knew as a team was, "Hey, we focus on mix, Farnell, OpEx, buybacks, Americas, that we could get to $7." And we're pretty close. I say that because now we're going to go look at the next 3 or 4 years. And the spirit of it is we cannot predict what this December looks like. We cannot predict what a year from March will look like. But we can tell you that this is what we're going to focus on for the next 3 or 4 years. And by executing fairly well to those, what the financials will look like in 3 to 4 years, okay? All right. So going forward, continue to invest in accelerating our higher-margin businesses, which is Farnell, Embedded, IP&E, supply chain engagements. Dave, which is fairly new. We've done it a while, but the opportunity is new and bigger. And demand creation. We're going to continue the operational improvements. We're not going to have a formal program where we give you a number in every quarter we track to. But it's important to note, as of today, in operating expenses, we have about $70 million of projects going on today that will help our OpEx structure. And there's things like our Farnell Logistics Center, the EMEA logistics, moving more tasks to Serbia, Guadalajara, India and things of that nature, okay? So just know that. Whether that reduces it or allows us to grow without raising our costs, both benefit us. The same thing with our working capital. We're not going to have a formal program where we talk to you every quarter, but we believe there's another $300 million to $400 million that we can take off the balance sheet and use to reinvest in the business and to do shareholder returns. Inorganic growth opportunities. There will be some smaller tuck-in acquisitions through 3 to 4 years. And the purpose is to make Farnell a stronger business, to make Embedded a stronger business. We got a great opportunity in IP&E, especially in Europe, under [ Pulley ] and expected. It's not going to be large transformational, it's going to be smaller to build a better business. And finally, we're going to generate cash. I'm going to spend a little time on this in a slide or 2, and increase our dividend continually as well as do more share repurchases. So let's talk about growing the higher-margin businesses. I think enough said on Chris, right? You've heard from Chris. We've talked about this every quarter. It's very exciting. We can get this, we think to $3 billion, in 3 to 4 years. The time frame for all of this is 3 to 4 years. And grow it to 10% to 15% operating margin through the cycle. Very important: Through the cycle. Embedded, Mario. I'm going to add a few things about Embedded that -- just to reinforce what Mario said. I'm going to tell you, from the CFO, what I really like about Embedded. When that team gets into a program, well, we have backlog, right? That program is going to go on for a year. We have a forecast, go multiple years. And it's very important to us, as Avnet the distributor, that, that is a backlog business. It is primarily in Americas and EMEA. Those are both higher-margin regions. It has a software piece. We all know what software gross margins can be. So Mario is building on acquisitions we did 2 or 3 years ago, the Softweb and Witekio, both IoT-related. Another thing that gives, at least me personally, and I think all of us, a high degree of comfort and excitement is the leadership team. You should all know that we've always said to you that our EMEA distribution business is our highest-profit distribution business. And it's been that way for years and it's been that way for probably a couple of decades. That is run by Mario and by [ Pulley ]. So having Mario and a man of his capability supporting this is very, very promising. And lastly, IP&E. So you may not know this, but we are a leader in IP&E in Europe. We do very well. We're going to take the best practices of Europe, spread it around the world. And again, that is under [ Pulley ], who also has run one of our highest-margin businesses for the last couple of decades. So a lot of good opportunity. The reason we are focused on these, if we can grow them, that is how we get to a 5% total Avnet operating margin. So this is a pie depicting our revenue. And remember, semis are growing, so our revenue pie is getting bigger and bigger. But what we want to do is, in that revenue pie, have at least half of our gross profits come from these businesses: Farnell, IP&E and Embedded. And we think we have a pretty good plan to do that, and that will get us to the 5%. Now we feel very good about our plan, and we wanted to give you some insight into where we think we can be in 3 to 4 years. Now I am going to repeat what I said earlier, right? We can't predict December or March, but by executing, this is where we can be in 3 to 4 years. Also, it's really important. What are our 2 key assumptions? One is that supply and demand come back into a normal balance and therefore pricing comes back into a normalized level. Okay? So these are not stress/peak market targets. These are through the cycle targets we think we can achieve. Revenue growth. Our markets that we serve are growing 5% a year with some market share gains. And focus on Embedded and Farnell, 5% to 8%. Our adjusted operating margin, greater than 5%. Net working capital. We told you we have a couple of hundred million on the balance sheet. This is -- no, I will say this. We need more inventory. And I know sometimes in an earnings call, not everybody appreciates that. But we want more inventory. So these are financing receivable programs as well as supplier payable programs that we're going to execute on to take $300 million off the balance sheet. Our CapEx, it's going to go back to the normal level of about $100 million a year. And again, it's distribution center systems. We've been a little light the last year or 2 because we had our Farnell Leeds distribution center complete, and we're just in the planning phases for some future. But plan on $100 million a year. And gross leverage, this is all about being investment-grade. Investment-grade is very important to us as far as our customers and suppliers. To be investment-grade, gross leverage less than 2.5x. So think of this as a through-the-cycle kind of maximum leverage, the way we think about it. All right. Cash. Executing to these plans, we intend to generate about $1.5 billion to $2 billion in cash flow from operations. The usage for the cash will be investing in growth, which is our distribution centers, in our systems, in our e-commerce abilities; M&A, the smaller tuck-in acquisitions; and our shareholder returns. So again, the dividend, making it reliable and increasing every year, and buybacks. And a little perspective on today. Today, when we look at M&A, Well, most targets are going to -- a nice term might be fully valued, and it's a little expensive. Whereas when we look at our share price today, we have an earnings per share of $7, $49 share price. We trade at about a 7x multiple. Normally, we sell 9 to 12x multiple. So we do consider it undervalued. So in the near term, we're going to be taking the cash and focusing more on the buybacks. And hopefully, over time, our multiple will improve, perhaps M&A will get less expensive. And that will -- that may change. Either way, it's going to be accretive to our EPS. So because of that, you did see in the announcement today, we're going to increase our share repurchase authorization to $600 million. So we had about $300 million left on the old one, we're topping it up to $600 million total. The way -- why $600 million? At our current market cap, it's about 13% of our market cap. So we do think it's meaningful. Our intent is executed over 3 years, okay? So about 3% to 4% a year. What's very important to know is there's 2 pieces of it. One is a systematic piece, meaning most quarters, we are going to be buying back shares. And by doing that for 12 quarters in a row, we will use up the $600 million. But there's a second piece, which is more of the opportunistic. Sell -- the share price we consider undervalued, we'll be buying more, and the reverse at higher prices. So the commitment is $600 million, 13% of our outstanding shares, over 3 years or sooner. And if we do it sooner, you'll probably see another share repurchase authorization. So today, we talked about revenue, margins, cost, working capital, buybacks. What does it mean to everybody in the room as far as being an investor? Well, first of all, it's very hard for us to predict the stock price, right? So we're not going to try to predict the stock price. But what we can do is we can tell you how we view it as a return to shareholders by looking at our net income, our EPS, our dividend and our buybacks. So on a 5% market growth, a 5% to 8% Avnet revenue growth, what we believe, we'll grow our net income dollars 12% to 14%, right? That seems like a reasonable ratio, and that's what our plan is. From an EPS perspective, though, we'll also be buying back shares, and that $600 million is 13% of our total shares over 3 years. So a 3%, 4%, 5% benefit from our buyback program. So when you look at EPS, we should be able to grow at 15%, the high teens. On top of that, we provide a dividend. And again, it's hard to predict the yield, but we've been averaging 2% to 3%. So as a shareholder, assume that, on top of the EPS growth per year, you'll be getting a 2% to 3% dividend yield. And not to lose sight of acquisitions. Okay, they will be smaller, they will be tuck-ins, they will be to make our business better, but they will be accretive. So there could be another 1%, 2%, 3%. So the key is while we can't predict a share price, we can tell you that our expectation and our desire for you is to be able to have a 20%-plus annual return for the next 3 years, which is from growth, margin expansion, buybacks, tuck-in M&A. Now that is totally -- don't look here. All right. Oh, there it goes. Okay. So let's just kind of wrap this whole thing up. Why would you invest in Avnet or why do we think you should invest in Avnet? Well first of all, we're a leader in a very high-growth market, right? We were doing electronic components, semiconductors. Semiconductors are everywhere. They're in your home, your office, your car. And the usage keeps on getting larger and larger. Second, Avnet is very important today in the supply chain. In the last 3 years, we've seen pandemic, lockdown, tariffs, shortages. If I'm a stand-alone company, it's very hard for me to manage our supply chain. But if I come to Avnet, I have supply chain architects like Dave, I have distribution centers around the world. We have a lot of inventory, not enough. And we can help you manage through your supply chain problems. And we have a really well-formed, we think, well-thought-out business portfolio, both for the market to our customer and that we can do high-volume core distribution everywhere, but we also have our Farnell business. And we think, as an investor, that's important because Farnell's higher-margin, Embedded's higher-margin. And that portfolio will help lift our margins over the next 2 to 3 years. Lastly, for those that are concerned about the economy, we do provide some downside protection because of our cash flows. We often talk about a countercyclical balance sheet, meaning when the economy slows, what happens? We collect our receivables, but we have lower inventory purchases going forward, so we generate cash. 2 or 3 years ago, in the pandemic, we generated over $1 billion of cash flow in 5 quarters. And lastly, to use a sports term, and anybody see the hockey game? We saw the Rangers, since we were in New York lost last night. We have many shots on goal, meaning: Our core distribution, Americas, EMEA, Asia; our Farnell business is a shot on goal; Embedded; efficiency improvements with OpEx, with our working capital; and our return with dividend and buybacks. So overall, we think these are the reasons that Avnet is a good investment. I want to end with thanking you for coming today. Many of you are investors, many of you are potential investors. But I think most people have invested in Avnet over the years, so we really appreciate your time. We know your time is critical. I want to thank our analysts because, without you, you help us get in touch with our investor base, you share our message. You ask us tough questions, but we always think that they're constructive and productive. I want to thank Jamie Dipiazza. She's our Investor Relations program manager. Jamie, are you in the room? Jamie is not in the room. Okay, she's probably still working. There is Jamie, yes. So to many of you, right, Jamie is the face of Avnet, and we couldn't have done this without you. We also have our [ Abernathy ] team, [ Sheila, Eliza and Diedra ] in the back. And somebody that's not here, Nicole Freeman, who did all of our videos. So the last is Joe Burke, and Joe is going to lead us through Q&A. And I will say, Joe wears many hats within Avnet. While he was preparing for this Investor Day, he also just recently completed a $300 million note refinancing. And I'm going to thank the bankers in the room for letting Joe come back in one piece, still healthy, still happy. Because you may know, it's been a very turbulent market. And another hat that Joe wears is insurance. Tomorrow, we're meeting with our directors and the underwriter our D&O policy. So Joe, I hope I didn't say anything inappropriate and we'll still get a good rate tomorrow. But why don't you come on up and lead us through the Q&A session now?

Okay. Okay. We're going to take a few minutes to set up for our Q&A. We're going to bring a couple of chairs up here for Tom and Phil.

So as we move into Q&A, just a couple of ground rules. [Operator Instructions] And then at this time, I would just like to say we will not be taking any questions regarding our current quarter, progress or results. We provided guidance at our last quarterly earnings, and we stand by it. But we look forward to seeing you in August with our fiscal year results. And with that, we will start fielding questions. Yes, Jim? I mean, we'll go back to Will. He's got the -- well, come [ to me ]. Go ahead, Will.

Somehow the microphone winced. It's Will Stein from Truist. Thanks so much for hosting this very informative Analyst Day. I wanted to ask about the current dynamic of over-earning that you've highlighted in Farnell. And it occurs to me that, when you're accounting for inventory on a FIFO basis and when prices are rising, you're likely to be over-earning in the core business as well. Can you address that, either correct me or maybe quantify how much you might be over-earning in the core business? And then I have a follow-up.

Sure. I think we want to be very transparent about that, and I think we did it in the earnings call. So in Farnell, if you look at year-over-year pricing, it's about 220 basis points. We should be about, without it, 12.5%. And I don't want everybody to immediately go to 12.5% because we haven't seen any change in pricing, okay? But I think it's really important to note, especially when you look at our targets, that we're going to assume more or less mid-cycle starting point of 12.5%. I think the core -- well, go ahead.

No, I was just going to ask about the ASP. Yes, sorry.

Yes. I think we said it from 4.4% to 4.1% if you took out the pricing. And again, on all of these, we haven't seen a change in pricing, but we want everybody to understand that. Because when we built the targets going forward for 3 or 4 years, we assumed a more normal pricing environment.

So we'll -- to build on that. So what we talked about in the last earnings call, I'll get this within a point, because we get this ASP inflation, how much is the growth inflation in ASPs versus not? And firstly remember, not everything is going up in price. Okay? There's a lot of commodities that are still commodities that are flat. There's another segment that are still competitive. There was a percentage, and what we amortized, it was more to the high-end stuff, okay? Higher-end [ MFCUs ], FPGAs, things on those lines. When we average that out across the balance, it was roughly, roughly 7% ASP inflation in total. Okay?

Great. The follow-up, if I may, relates to the buyback. You sound quite confident in the pace of demand and certainly your own execution as well, and it's great to see the topping off of the buyback. But I wonder if you had considered an ASR, considering the profitability of the company today and the consensus estimates for next year. Why not favoring that?

So no offense to any banker in the room before I answer this. No, we did look at an ASR. And we just thought that -- [ Zeke ] is laughing. We thought -- we actually thought we could do it quicker doing it ourselves. That's why we didn't do an ASR. The only reason.

Let me take a question here.

Hi, it's Jim Suva from Citigroup. My question for Phil is at the beginning of your presentation, you talked about the first thing you really wanted to do was to improve your relationships with your suppliers. From those of us on the outside, give some examples or what exactly does that mean? Because that just seems like every day putting on your shoes, you do it. And then for Phil, the question I have about the revenue outgrowth, I think you said the revenue growth of 5% to 8% outlook, aren't we in a world right now where ASPs being announced today, yesterday and tomorrow are all going up at least that amount anyway? So are you building in a deflationary environment? Or why wouldn't 5% to 8% just simply be, without doing anything, that's what's going to go through in every part of society?

Let me go first.

You go first.

You can think about the second one. Jim, yes, no, it sounds -- it does sound like first time tying your shoes. But when you go to Kmart, you buy a pair of shoes and they're kind of stuck together, you can trip over yourself. And I think we found ourselves, without being negative, we were -- we took our focus off the quarter. We took our focus off 95% of the profits of the company. And as I said earlier on my first slide, relationships matter. We are still in the people business. And if people lose trust or confidence in us, those trust and confidence in our ability to perform and you heard from 2 suppliers today, what do they care about? Of course, they love us to do well, and it was very nice for them to say that. But at the end of the day, they care about customer expansion, demand creation, growth. I mean that's what -- that's basically how we get there, they care, but that's the end result. And we had just taken -- well, we had a couple of hits. We're not going to go back when we do those. As a matter of fact, you don't hear us talk about it because we've overgrown or outgrown those losses. But there is a real sense from some suppliers that, hey, are you out of this distribution business, are you still committed to demand creation? Chris subtly touched on it. We had -- remember, we have also deliberately said structure follows strategy. People need to understand what's the strategy and who owns it, okay. And we were very fragmented in our approach to the marketplace, and we had -- and Mario touched on it directly. We had -- IoT is a thing. There is no doubt about it. That is a great business for us and -- but it's already within the core, and I'm not being critical of any previous at all, but what we had is sitting outside the core. So we weren't leveraging this $20 billion machine to go help us go get IoT solutions inside of our industrial customer base, our automation customer base or defense, aero, whatever it might be. So we just -- so I did share with you that we had a very -- within the first 3 months we take on, we had a supplier IP. We had 400 plus -- 450 suppliers on it. When they wanted to hear and say, what are you going to do for us? Are you committed to us? And we're committed to you. Okay. Then we'll go downstream, we'll make sure we're servicing the customers. I think again, our first slide, it's kind of a heart and brain debate. What's more important, our suppliers or customers? Well, they both are. We can't service Heath without the best supplier relationships in the world, okay. We can help Chris and Paul and the rest of the suppliers grow, but we don't have good customer relationships. So it feeds upstream and downstream. And that's -- there wasn't any magic about it. It was a personal commitment from us that we're going to continue to dedicate resources in the areas that they really cared about, okay? Thank you.

Then on the price, that's a very good question. So when we look at the 5%, the market growth, we use a lot of outside studies for that. And we do that so that it's more objective. And keep in mind, one of the assumptions in our number is a more normalized pricing, okay? If the price accelerations continue, we'll get to a 5% operating margin quicker, right? And we'll get to these numbers quicker. But what we wanted to convey is at a normal supply-demand balance, a more normalized pricing environment where we thought we'd be in 3 years by doing these things.

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

That's really good because internally, we kind of believe that, that the supplier said it was a market reset. They have -- these are more proprietary designs. If the market slows, many of them, at least on the proprietary, they may not have to change their pricing at all. So I kind of look at it from the opposite. We didn't want to come in here assuming price increases, and that was going to be the basis for our margin improvement and hitting those goals. What were you assuming, we're assuming most of the 5% is a volume increase.

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

Yes. So first of all, the 50% does not include supply chain services, okay. So supply chain services today is we report 2 segments, Electronic Components and Farnell, and it's in the Electronic Components. So it will be a driver for the electronic components growth and margin expansion. Do you want to -- go ahead.

Yes, let me add on that. Let me jump on that for a second. Supply chain services, really quick, always been in supply chain services. The complexity of it has increased. We've been doing -- Dayna touched on it. We've been doing forecast management for years. We take in APIs, EDI, looks like [ faxes ] we don't care. Now 50% of our business go close to in the core, is some type of supply chain servers, VMI, consignment, implant store, kitting, et cetera. What we're doing and what Dave talked about is that's going to another level of supply chain services, almost as a service, okay. And when Dave developed some of these really high-end programs you talked about, we can take some of those now and take them into our core. So he almost becomes an R&D, if you will, for us back in the quarter. Frankly, that's kind of what happened with Heath, right? We had developed something, hey, that might be portable to this application, which is why he was able to turn it in 2 weeks. So it's kind of semi-custom, if you will. They're all going to have a little bit of a custom flare, but there's a foundation that is similar that we can build on. So it's really -- except it's not new, it's just going to a new level. Did you want to comment on anything else here?

Yes, thought I'd just say that Dave talked about it being a longer-ramp process, right? These are critical to our customer supply chain, so they want to make sure they can go slow that it's working well, all those things but it is accretive to gross profit percentage, and it will help our overall mix.

Okay. At this point, I'm going to check in, in the back to see if there's any webcast questions that are coming in.

Yes. We have a few. So there's 2 from Ruplu Bhattacharya with Bank of America. The first one is for Phil. So Phil, some investors are concerned about the possibility of a downturn. If we have a recession in the U.S. or slowdown in Europe, how would your playbook change? What assumptions are embedded in your 5% to 8% revenue growth guidance? Going forward, if the core market is expected to grow at 5% year-over-year, and you are guiding Avnet to grow faster at 5% to 8% year-over-year, do you need to hire more FAEs, make any changes in your go-to-market strategy to capture the value from higher growth areas? And how is sales force compensation aligned with your growth targets?

That's an easy one. Okay. Thanks, Ruplu. We appreciate it. And this time you got me and some of the others, I'll make sure I get this right. Thanks, [ Lisa. ] First of all, our sales team, our entire sales organization is paid on some type of gross profit dollar incentive. Okay. There's no one in our organization paid on the revenue growth. The executive team that's with us today is paid on either operating income, with a combination of [ ROC ], RWC. And the executive team, myself and, well, it's going to be everybody in here now. It's paid on ESG as well. So we have a component of the executive team on the environment. As far as -- I'm going to work backwards. But as far as capturing growth in the marketplace where we see there's growth in verticals, we have been hiring group. We have not stopped investing in sales, field application, engineers, account managers, complementing that with investments in digital that Peggy talked about in demand creation, that is not -- we're not going digital and saying what these other folks go. No, no, no. That just becomes a higher touch value for the FAEs when the customer can do something to self-serve, let's call it, Level 1, Level 2. Bang, it's really complex. And it might need what Chris and Paul talked about, they might need some additional technology or technical support to help develop and build out the solution. So we're investing. And you saw that's why it was not by accident, every presentation, there's something around industrial, transportation, I mean, defense, aero's there, consumers continuing to grow. But we see the big opportunity and where our supplier partners see us adding a lot of value is at industrial. And outside of industrial has medical as well. So some of that gets a little gray. But industrial transportation, keep in mind, we don't call automotive because it's what's broader than automotive. And Dave talks about a large dump truck manufacturer. It's had a $0.5 billion dump -- $0.5 billion?

Yes.

$0.5 billion dump truck, they couldn't build it because they couldn't get a $0.50 park, okay? So it's golf carts, it's e-bikes. It's -- you name it, stuff that -- he called it the battery. It's about battery management, power. It's just proliferating the marketplace. How would we react? Well, Tom, I'll let Tom touch on some of this. The good news is we have a variable model, Ruplu. And yes, of course, we're concerned about market. I mean we're not magicians up here, so we were concerned like every single one -- everyone is on what's going on. The key is how fast can we react, okay? And we have built out what if models already. Internal -- okay, for that. But a big percentage of our cost -- we're dealing with inflation, some of that might go away, logistics, freight. We have variable comp plans with our teams, so they kind of take the market softness. Sometimes compensation might go down. So we've got a lot of things built into that. We're getting Tom talked about the $70 million, right, $70 million, work already being done. When the market goes up, we're correct. We're going to work on that $70 million. We've got to continue to drive more productivity and efficiency. So I think I got it, Ruplu. Tom, you want to add to that?

Yes. No, I think, right, in a slower market, it's easier to accelerate the cost reductions. But more importantly, we would be generating a lot of cash, and our debt is quite low today. So we're pretty comfortable with where our debt is. So if we generated a lot of cash, it allows us to be more opportunistic, depending on what the valuations are with maybe M&A or the buybacks, right? I mean we can use this to our -- I don't want to say use it to -- we can just be more opportunistic with our cash flow. Go ahead, Matt.

Next question.

We'll come back to you, [ Lisa.] She's going to go back.

Matt Sheerin from Stifel. Thanks again for the presentation. So I actually wanted to follow up on Ruplu's question, because I think it's an important one. In a downturn environment, if you look at in 2018 to mid-'19, your gross margins were down 200-plus basis points, right, just on a down market. And you talked about why the mix will help you. But what keeps you from that kind of margin compression if we're in, let's say, a down 10% to 15% market, inventory correction or demand correction?

We start from a different point, and this is really important. Compared to 3 years ago, we have done the cost streamlining, right? We have done lowering our OpEx as a percent of revenue. We have gotten our inventories and everything more in line. So I mean we were definitely seeing margin compression. I think the last time we went down to 1%, we think we'd be more 2.5% to 3%. And because we're just starting from a different place, Matt.

Okay. Fair enough. And then on the Farnell business, and we appreciate that presentation and the growth opportunities there. Is most of that long-term net double-digit growth, is that coming from improving the mix, expanding the MRO business and IP&E versus the semiconductor business, which is only 20%. And that's a huge market. Every semi-macro suppliers utilizes the engineering distributors, and you've got 2 big competitors that are so much larger than you in semiconductors. So what's the opportunity to grow that business?

So a couple of things driving. So some of it is franchises, right? So there's a couple of new franchises that we've onboarded that are already top 5 franchises for us in the test equipment space, slightly different margin profile. Quite a bit of it is product, inventory depth and breadth. So if you look at the NPIs that we come in, that we bring in, over history, they'll generate -- we're going to bring in 350,000 SKUs over the period that we were showing. They generate $970 of SKU on average. So that's $400 million. There's -- so there's a bunch of things that we've actually built out. I'd say, SKUs and supplier expansion are a good portion of that. Some of it is our e-commerce business. I didn't really touch on the -- some of the formation and transformative changes that we've done, right? We've become a much more agile environment where we used to take -- we used to do a web release every 2 months. Now we do one every 2 weeks, right? That's driving web speed, all those things drive growth. So that's a portion of it as well. I'm trying to think which other ones I can mention without giving too much of the strategy away. Those are probably the main drivers of it. What was the first of the question, Matt?

Semi. The opportunity in semi.

Expand with the semi-macro supplier.

Yes. So semiconductors for us has -- again, using around 18% or 19% of our business this year, I think it's 21%. So that's growing, particularly in the Americas where we trade under the Newark brand, semiconductors has historically been less than 10%. That business grew over 100% this past year. And there's market ways to try to retain that. Some of it is marketing and merchandising. Some of it is pricing, and do you have to be more aggressive to keep that business. So right now, we are not playing the pricing lever yet. The market is still strong. We've done a really good job, we believe, in merchandising. We like our -- where we stand. We know we have to keep -- we have to have some catch-up in play with our competitors in terms of breadth of inventory in semis. But when you look at how we merchandise and how we market suppliers, products, they like it a lot, right? So I mean, we've maintained some suppliers in the semi space. We do have Maxim. And we have a couple of other lines that are interested in our business. So I think semis will continue to be an attractive area for us. I don't know that I see it growing beyond -- it's 22%. I think it will -- as the rest of the business grows, it will probably stay in that range.

So Matt, we definitely see semis as an opportunity. If you look at his SKU count expansion in semis and interconnect gas, electric, it's been a lot. And then it just takes some time then you've got to brand it, you've got to market it. Yes, we have 2 very good competitors out there. It's great. They make us better and we'll continue to push ourselves to get more share there, too.

Okay. More questions in the audience?

So there's been a few developments that seem to suggest there's more intersection between you and EMS providers across the Avnet integrated business and also in terms of how you're managing supply chain from sort of cradle-to-grave. Do you envision the company competing head-to-head in portions more often with EMS providers? And could that be a trend in the future, if not today?

No. I mean I guess the long and short, we know, [ Steve, ] and I appreciate you being here and appreciate the question. EMS, we did all that because what we did is we took the burden. We took the EMS portion, which we usually have on the pie chart broke that out because EMS is just a makeup of industrial, medical and defense. So that's why Alex didn't have it on his chart. EMS has been roughly 30%, 33% of our business, it is today, and it was 20 years ago. And if you go back way back when, which you and I have been around for a while, we were kind of who's going to -- are we going to bang heads, are we going to work together? Are we going to buy each other and I think we've settled into a great place. They're a great customer base for us. We do very well with them. There can always be a little bit of conflict here and there. The key is transparency and communication upfront, say, "Hey, we're being asked to go do this. We don't step on your toes, things along those lines. But at the end of the day, you've got to do what the customers want, right? You've got to -- and the suppliers, and we'll do that with transparency. But right now, we're doing -- I don't want to get into mentioning names. We're doing really well with the EMS providers. And by the way, I always think that the top 6 or 7, there's thousands of them. I mean just in the U.S., we have well over 1,000 quoted as EMS providers. So they become the smaller ones that are more regional and local, they're like little, mini aggregators for us of OEMs in that regional marketplace. It's a good customer set. I don't see any kind of major conflict.

And then just on one of the other growth areas, the IP&E business. I mean connector and passive guys are generally have not shy about adding another distributor to have more stocking available. Is that trend reversing? Is there a reason why you're a little bit more bullish on IP than maybe a few years ago versus competition, versus how you're dealing with those suppliers or like customers?

Yes, it's a good question. Obviously, I don't know they've added a lot, [ Steve, ] organically. I think when they've done a lot a few of the big guys did a lot of acquisitions. And they just never rationalized their channel, right? Where the semi guys tend to do that. So we just see the IP&E one, where it's about a $4-plus billion business for us. We don't market it enough, that's why we're going to start. We're a player at that. We're one of the top, as Alex said, 1 or 2 -- 1, 2, 3, depending on the region. It's a higher margin business, and it is much more fragmented. So when we talk about M&A, it is much more fragmented. So we look at our share, let's talk about it in the West, that we have in semiconductor. When we look at the share we have in IP&E, it's a really good opportunity at higher margins. So we're just putting more focus on it. Puli mentioned Abacus in Europe, great model. We're not necessarily doing that exactly here in the U.S. because it's a different market, but we can put a lot more dedication and focus on it, though. Yes. Yes. Thank you.

I think what we'll do is we'll check in -- we have a question in the back here. So Nik, Nik again. Then we'll check in, in the back after this with an online question.

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

All of this is reinvesting in the front end. So with the revenue growth, we would help to moderate any increases in OpEx by these in a flat market. No, you should expect some reduction of OpEx.

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

Well, maybe Dave could touch on this a little bit. We can get Dave a mic, he's in the middle of it. I would say, I think what's caused a lot of the issue we're in today is that JIT and lean taking a little too far, particularly with the cost of money and holding up major products because you don't have a very small dollar chip is kind of -- we all know that it is not smart. So I think what we'll see is, I don't know if it's more inventory, Nik, more strategically placed inventory and some of the aggregation we're doing to give someone like Heath, who explained really well the visibility, so he doesn't have to have inventories in 15 different places. It doesn't mean he has more inventory, but if you can leverage what he has because he may -- I'm not speaking for him, but he may have more inventory in one location. He has no inventory over here. So we can help aggregate that. So I would say it's going to be -- or any kind of major increase in inventory. Might be, the cost of money is good. Why would you not hold a little bit more buffer? So maybe it's JIT light or something along those lines. Dave, what's your sense?

No, Phil, I think you hit it very well. And I think there will be some normalization that will happen and maybe even some rationalization around what products I'm going to hold inventory on in the future. Right now, the entire industry is pretty constrained. But there may be a future state that says, well, I've got a couple of different segmentations of part numbers that I can't live without or are very customized to me, and I need to build a robust supply chain in order to harness that. And then that stacks on to Phil's comment then as well. So I've got a strategic inventory position that I'm aggregating and feeding multiples as opposed to having multiple tools out in the field that's completely inflexible and lacks any kind of agility.

Just a follow-up. Do you see that inventory...

One second.

Yes. Sorry, just a quick follow-up. Do you see that inventory sitting at customers' warehouses? Or do you see yourself holding that inventory as a buffer for your customer?

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

Thanks for your question, Nik. We're going to check in with the table to see what questions webcast participants may have. So Eliza?

Yes. So we have one from Joe Quatrochi with Wells Fargo. How do we think about your expectations of cycle risk relative to what Avnet noted earlier, strong but muted growth expectations for 2023 and your server TAM forecast growing each year year-over-year, from 2022 to 2025. How does the company think about incremental EBIT margin as part of your greater than 5% EBIT target and revenue CAGR target?

You'll take that?

Yes. Sure, I understood all of it. But the reason we gave 3 to 4 years as a target, if the economy stays good, we should hit this in 3 years. If there is a correction of some time, we'll do it in 4 years. The way we think about it is just like we thought about it 4 years ago. You can't predict a quarter, but you know if you execute to these, you'll get to the 5%. So that's how we think about it. We don't -- it's very -- we started answering scenarios of probably 100 different scenarios, right? But the important thing is, 3 to 4 years, we execute to this plan, we should be at 5%...

Or more or greater -- plus. Yes.

Plus.

Is there any follow-up on that, Eliza? Or should we move on? Are we good?

I do have a follow-up question from Ruplu from earlier.

Okay. We'll take that.

So this one is for Tom. So you're guiding a strong 5% to 8% revenue growth over the next 3 to 4 years. So it makes sense that you also need to invest for that growth. Your target CapEx per year is doubling from $50 million to $100 million at the midpoint. How much of annual CapEx is maintenance CapEx versus growth CapEx? You talked about investing in distribution center efficiency and expansion. What utilization are your distribution centers running at now? And what does -- what goes into the decision to add a new facility?

Sure. So when you look at our -- it's a combination of maintenance and growth. But here's how we look at it just in basic words. Three years ago, we opened a new Hong Kong distribution center. A year ago, we opened a new Leeds distribution center. These are investments to both do efficiency and to meet growth. We're due for EMEA. We've announced, at least internally to our teams that we're adding a distribution center in Northern -- in [ Leeds ], which is it's both lower cost but it's also a distribution hub, okay? We will then probably go back to Asia and do more in Asia. So this is with keeping up with growth. The other piece of internal CapEx is systems. And this is like a business-by-business at a time. I think the last region we updated was EMEA, which -- when was it, 2 years ago. And again, these 2 gentlemen, thank you, everyone, very, very well. And we'll be taking that model and really going region-by-region in the future. So I would call that, I guess, maintenance. And also with Chris, with e-commerce, I would encourage all of you go on the Farnell website, go on the element14, I love element14. You go in there, you want to find out about Xilinx Spartan-6. You see all types of specs. You find all of the engineers commenting about usage and what they've done. And that's just continual investment in Farnell systems. So the reason it's going up, and you're right, like this year it's about $50 million. Well, we just hit a temporary pause. If you went over the last 10 years, it's probably averaged $90 million, $100 million. And the pause was, well, we had upgraded distribution centers in 2 of the regions. We had implemented an upgrade in EMEA, and this is a beneficial pause, but really go back to the $100 million. And we don't view that as abnormal. We kind of view that as really more historical.

Tom, just on the distribution centers, we're constantly analyzing our footprint. We have to. We just talked about the globalization, the regional to local. So we got to study right now is actually our logistics team with -- and also supply chain teams. Where do we need strategic hubs of inventory? Some of that is also risk-mitigation, right? So we've got to make sure that we can service our customers anywhere they go in the world. We get that question a lot, does it bother you that there might be a movement out of China or moving to anywhere our customers want us to go? We ship in 140 countries. So that is no problem with us. We might have to make some investments to do it.

Okay. More questions. Go ahead.

I'm [ Daniel Neistat ] from [ Trier Investments ]. Sorry to bring us back to the inventory question, but Nik got me on the line of thinking that I thought was very interesting. You had mentioned that some of the key growth areas would be in transportation, in industrial, in aerospace and defense. And in inventories in terms of what you can do with chips, those are certainly industries where you can hold a lot more inventory. And there's a German defense company, Rheinmetall, who had a -- I don't know if it was Investor Day, but they announced they had 5 years now of semiconductor inventory. So I'm just kind of curious what you see as the post-COVID inventory, especially when you're talking about long product life cycles, where they actually need to have those older chips because that's kind of an interesting space going forward.

Well, it's a good question. I think you're definitely going to have companies that you mentioned, like the ones you mentioned are large industrial, large medical, large defense that the component is also a smaller cost of the total system. So it's a smaller cost of the total system. They can afford -- and they got higher margins, they can afford to carry more inventory. It's something you wear on your wrist. Lower margin may not be able to do that. So I think it's going to be sector-by-sector, vertical-by-vertical, where you see maybe more inventory or less. Alex touched on it earlier, maybe he called it maybe not, older technologies are going to become a bigger issue. So you're also -- if that's what you're alluding to. You're right on that. A lot of the fab investments are going into the higher tech stuff where some of the lower -- that isn't the same [ comp ], industrial, defense, medical, there are going to be inventory programs, and we are working with customers on that already, and they say, okay, how can we help you because they don't want to have to do a redesign every 6 months. They can't. They want something guaranteed for 5 years. Yes. And we have call it, special programs, we'll work with those customers on, and there's different ways to finance that, okay? But you're right on. You're absolutely right.

Thanks for the question. Are there any more questions in the house here? Any more online, Eliza? Well, there being no more questions, then I think we'll turn it over to Phil for closing comments.

Okay. Thanks, Joe. Thanks, Tom. Okay. Thanks for the questions. By the way, we know there's more questions, and we got to break in the social area. So that's why -- I won't -- I just need to get to the restroom first, okay? Okay. So -- and please, not to put you on the spot, but I already talked to some of the guys about your question and make sure we get that answered for you to and from sort of technology standpoint that we had at break as well as Chris. So let me bring it home. We wanted to make sure we touched on ESG. This is key and critical. There's a lot more information on our website, as noted. It is about governance, environment of people. As I mentioned earlier, this is a component. Yes. I did mention people. Okay. Don't worry about the middle one, if it's not operating. Just go to the -- and this is a component of the executive team's compensation as well from the Board of Directors, which is key and critical to us. And this is important because you got -- it's important to the environment. It's important to our customers. It's important to our suppliers. You guys all know that they come in. We get audits constantly in this area, and it's important to our employees. And it's important to recruitment and retention. So we're absolutely committed, again, more on the website, but we sure to least touched on that with you here today. Look, the added value prop, we think, is as relevant as ever. The pervasiveness you've heard about with electronics, secular long-term growth. We're really thrilled about the Avnet, and Chris did a great job, the Avnet Farnell opportunity really in its relative infancy as we're really leveraging the connectivity between the two. Tom did a great job of talking about the acceleration of the higher-margin businesses while still driving all the other growth in the company just at a greater rate of growth. The countercyclical balance sheet. So Ruplu, to your question and one of the others, yes, we know that, that could happen. Well, then we spin off more cash and we do other things, right? So we're not going to be immune. None of us are if there's any kind of correction. We're not going to be immune to that. I mean we're just not. It's how we react to it, okay, and operate and execute in it. And that will -- the cash flow will give us more opportunity for growth, buybacks, dividends, things on those lines that Tom touched on. These are just a couple of nice slides I wanted to throw in before I close out. By the way, in the video, same thing. They're all our employees. We are at the center of technology. Our partners, with our suppliers and customers, these are all different shots. This one particularly is kind of special. That was for logistics centers around the world. We did a recognition. They never had a -- I was talking to someone at break. They got the CEO award, all logistics centers around the world because they never had a chance to go home, okay? We never shut down 1 day of operation around the world in servicing our suppliers and our customers. That one, particularly in the bottom left, but really new stuff. And then in closing -- this should be -- there you go. It's been talked that we accelerate our customer success. We want to be a trusted partner with our suppliers to go do that. And these are, again, just some of the end products that we service. And I wanted to close out with something that was relatively light, pleasing to the eye of our employees, our customers, our suppliers. We don't have a business without all 3 as I kicked off today. We are -- can you just go to the -- yes, you go. We're in the people business. Okay. That is -- that's what we do. We're in a relationship business over long periods of time. And it's times like now that you really even further accelerate that opportunity to help. It's easy when business is easy, okay? You test partnerships. Any relationship are tested in more difficult times than they are in easy times. And I'm really proud of the team across Avnet. So before I close, let me just -- 4 key messages. Then Tom, I'm going to add a few thank yous as well if that's okay, at the end. The past few years, Avnet's prioritized the back-to-basics approach to right-size and focus the organization on where we need to deliver results. The increasing complexity and crisis in the supply chain has further heightened the appreciation for Avnet's value proposition. We've always owned there. It's just even further accelerated and recognized. Tom talked about the durable changes that we've made and the strong team we have positioned within Avnet in a diversified portfolio of verticals with no one vertical being that sizable, okay? So we can further sustain adjustments in the marketplace. And we're well positioned. Thanks for the last question. That came across to hit the term goal of greater than 5% in operating income and continue to increase the shareholder value. So let me just, in closing, thank you all for coming. I thank all those that are online. We really appreciate the opportunity to tell our story. And a lot of what we put together was, hey, what's next? And hopefully, we hope to answer, hey, here's where we were as I started, here's where we are, and here's where we're going. And the team did a great job, I think, of articulating that. It's -- somebody told me a long time ago, distribution is an easy business, but it's really, really hard, right? We're managing and balancing so many different priorities, and we love it. And frankly, the more complex, the better, okay? Because that's how we build out longer-term solutions and partnerships. So let me just thank a few people as well. Thank all of you again. I want to thank Nasdaq. They did a really great job this morning, was exciting as heck. It really was. I want to thank the Abernathy team: Sheila, Eliza and [ DW ]. We appreciate your help and guidance. Rose, right here somewhere too. Rose gave a little assistance. Oh, there she is. She's right behind me, and Heather standing next to her. And then I want to mention a couple of -- Tom mentioned Nicole Freeman, but there's -- all these folks are listening, I can assure you. There's [ Karen Pawlikowski ] and Rosemarie Garrel that you know are listening and are behind the scenes that really helped us. This is a very complex thing to put together. Of course, I want to thank Chris, Puli, and Heath, they're also here, by the way, and love to talk to anyone in here about what they discussed today or anything else. And then last but not least, of course, which is already recognized, but thanks, [ Regine ]. She's in the back corner. So special thanks, Jamie, a really great job, and Joe Burke. Really appreciate it. Okay. Super job. Thank you. And I think that's a close. So we'll catch you on the social hour.