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

Day 1 of Citi's Technology Conference. I'm excited to see all of you here. My name is Asiya Merchant. I'm here as part of Citi's Tech Hardware Research team. For those on the webcast, this event is obviously for Citi investors only and clients. No media or press is allowed. If you're part of the media or press, please disconnect. We will be audio webcasting this event. I have a set of questions here for Avnet today. Thank you, Avnet's management. We have Phil Gallagher and Ken Jacobson here as well as Joe from Avnet's IR team here. From my understanding, it's a pretty packed schedule for them. So if you are not on their one-on-ones or Group one-on-ones, this is a perfect time to ask questions. This is a fireside chat session. So there will be no slides. I will kick it off with a few questions here and then happy to take investor questions. If you do have a question, I believe there's somebody with the mic, so please raise your hand, so we can accurately get to your question and make sure it's also being audio webcast. So thank you, gentlemen, for this morning. I hope the flight was fine. So I'm just going to kick started with a few questions here, and then we can talk about some specifics on the end markets. So I don't know how many people in the audience here are familiar with Avnet, maybe like if you could give us a quick intro to Avnet, for those who may not be familiar, that would be super.

Sure. Let me -- thank you very much for the introduction. Thanks for your time today. I've been with Avnet for going at 42 years. We've been around for 102 years. We're one of those companies -- one of the larger companies that people don't know anything about. We're Fortune 162. We listed in the NASDAQ. We're in the B2B, so business to business, and we're in the semiconductor side of the equation, along with interconnect passive electromechanical. So we carry some of the top branded manufactured lines in the world. I think to call that upstream and then we sell 2, okay, into 140 countries around the world, we're roughly $26 billion, and we've got hundreds of thousands of OEM customers. So any equipment you have in your house has any kind of electronics in it, the Automotive segment, Defense, Aero, your Thermostat, Security system, Entertainment systems, all of that has semiconductors in it, all that -- many of those, if not all of those are companies we sell to. So very, very diversified. And the center -- what I'd say, we're in the center of the technology supply chain.

Maybe, Phil, you can just talk about -- you had your recent earnings call. Can you just give the investors an idea of what your financial outlook is? Any overview, and put that in context, sort of how you see the year rolling out for you guys?

Yes. We don't give guidance outside of 90 days, but we did close our fiscal year in June and let Ken jump in here as well. We were thrilled with our hit in June. It's 13 quarters in a row that we've beat consensus and guidance. We hit for the year, a record of north of $8 earnings per share. So very, very positive overall. Our guidance in the September quarter remains at roughly minus 4% sequentially, much of that due to some seasonality. And the overall, I will generally now turn it over to Ken for our industry and where we play is we're pretty positive. There's going to be some short-term bumps along the way and some detours we need to take, but with the prevalence of electronics and expansion of technology and applications and the future is really, really bright. So I wouldn't say I'm bullish right now, but I'm super optimistic.

Okay. We closed the year very strong our electronic components business, which is roughly 92% of our business had 4.8% operating margin, up significantly from the prior year and how we close the year, we saw a lot of strength in the West, primarily in industrial and auto segments as well as AeroDefense unfortunately, did see some softness in Asia. And so when you think about our Q1 guidance, which is our September quarter, it implied sequential declines at about 4% at the midpoint, which was we have a mix shift to Asia from the West in our first quarter and so you would see a little bit softer than seasonal in the West and softness continuing in Asia, particularly in China, but at the midpoint, down only 4%. So that still indicates that we would gain share in the quarter by hitting that guidance.

If you could drill it down one more level. You talked about the regional side of things, but maybe by end markets or verticals where you see strength, where you see softness continue? That would be great. Yes.

Yes, I'll start there. We do talk about the regions. I mean, so Europe, has, in particular, been really strong. Now we think we're going to see some more typical summer quarter in Europe where it's been a bit atypical several years due to COVID with people not taking vacations and whatnot. But in Europe, we had a record quarter in December. We beat that in March and beat that in June again, okay? To your point, driven mostly by industrial. Europe is a very, very strong and broad industrial market we play in very well as well as automotive, some defense but less than the U.S. So it just remains strong in Europe. I mean they really persevered through all the things we heard from energy, the war, things along those lines. They have continued to show their strength in Europe. But we have a strong team in Europe and have gained share. In the Americas, steady as well. So we've seen continued improvement in the Americas. You may recall we needed that several years, we had a couple of hiccups in the Americas. But again, driven by industrial. When we say transportation, not just automotive because it's well beyond cars, right? I mean look around the streets here in New York, e-bikes are everywhere, and all that takes semiconductors. So anything that moves these days got electronics in it. So we broadened out the transportation. And the Americas, defense and aerospace is a sizable part of the market, and that is strong. We don't play -- kind of build on [indiscernible] We play a little bit in consumer PC, but not a ton. So that doesn't really affect us as much. It might affect supply, but doesn't necessarily affect our growth or nongrowth and back to Asia Pac, we're pretty well balanced in Asia. We're not overly weighted to China. I think that's an important note. I'm trying in our total scheme of things is a little less than 10% and vendors do business in China. So if that slows a bit, it doesn't crush us.

Okay. Anything to add there?

I'd just say that I think going back to Phil's point, pretty well diversified, both geographically as well as end market verticals, which I think has helped our growth and where we're heavy. Industrial and Transportation has still been relatively strong, but it's very well balanced, including customer and supplier concentration. No supplier represents more than 10% of our revenues and no customer represents more than 5% so we feel that's adding a lot of value because we've got a lot of different partners that we can go to market with, which is different than maybe some of our competition.

Yes. So talking about the auto and transportation market a little bit. I mean there has been some noise around whether this can sustain itself. You also talked about aerospace and defense in the Americas. But if we take either of the -- each one of those separately, that's been pretty strong for you, both in EMEA and Americas. Do you expect that to continue in the coming quarters? Is there any weakness around the fringes in either of those end markets?

Our backwards Defense and Aerospace, I don't see that -- at least the customer said that we're servicing in that space. I don't see that slowing up on what's going on in the world, not at all. So sure to answer that one is no, we see that as positive. Yes, the automotive, yes, you're hearing some of the numbers softening a bit. But in our world -- but the content is going up, right? So as the units come down and it shifts to less combustible into more to EV, that plays in our favor. And if you go back, it's interesting to go automotive, some have been covering for a long time, I look around the room. If you go back 20, 25 years ago, automotive was a very small portion of our business. Most of that was done, we'll call it direct, right, the big 3 or whatnot. And with the ADAS and just the amount of electronics going in, the electronic charging and then the ecosystem around the EV, right, being built out. There's a much longer tail of customers that we're calling on in the automotive than we were even 5 years ago, but certainly if you go back 10 or 20, it was not nearly robust. So even if that market slows a bit, which are some indicators, it is, still think the opportunity is pretty robust in that space due to, again, the whole ecosystem around the EV.

I would just say that in Asia, we do have a pretty sizable transportation of automotive business as well. So a lot of our strength in South Asia. Let's say, over the past year was in the auto space and including things like EV in China, we see plenty of growth opportunities there as well. So I mean, broadly, globally, transportation is a big vertical segment as well as industrial. Asia is very strong industrial too. So even our Asia business, which might be more weighted towards consumer, it's still a relatively small percentage compared to those other lines of business.

Okay. You -- I think, mentioned something around midst of an inventory correction that you guys are operating in the midst of an inventory. Is the industry still experiencing that? How we pass that? How long do you think it will last? And maybe you can drill a little bit into which components do you see as perhaps excess inventory?

Yes. I'll go first. So yes. I mean, I think it's pretty well known that there's probably too much inventory out there. And we would say, yes, we have a few more days of inventory that we'd like to have. I also want to add that the question of, does that concern us? And the answer is no. I mean it's good inventory. It's fresh inventory. And I would say inventory is not a bad thing, okay? If it's a good inventory. I mean we're a distributor, you're supposed to have inventory and is paid for. So that's also going to be a good cash generator for us when we sell that inventory. We track all the -- or most of the top suppliers that are public and customers that are public, EMS providers that are public. And there's a few outliers where it's still going up. I'm going to mention company names. But there's also quite a few what seems to be stabilizing. Stabilizing at a higher number, but not going up like it was and even some coming down. So I see that as a good sign. In our own case, what we said on the call, we got the capability in the middle of the quarter, but what we did say in the last quarter is our inventory is stabilizing, okay? And that's the first step. Stabilizing, so that's positive. And I also said on the last call, in the prior call, I think we're in that inventory correction already. I believe demand is not going to continue to stay whatever it's been the last couple of years, 20% or some crazy numbers. It's going to have to level off sooner or later. And even if it just levels off, like we're talking today, stays somewhat steady. The inventory should just burn off and I'm calling it over 2 to 3 quarter. Is it 3.5 quarters? Or is it -- I don't know. I don't know -- exactly right it's like a 2 to 3 quarter burn and then we'll be back to where we want it to be. We think March quarter will actually bring inventory down. We also said, if there's an advent comment that we do have one specific opportunity that we're investing in this quarter for a specific suppliers and specific customer, okay, that will artificially show the inventory up a bit. But outside of that, the balance of inventory should be stable to down. Ken, will you comment anything else?

Yes. I mean I think compared to 2 quarters ago, we feel much more comfortable with stabilizing inventory, the inflows coming in, where it's going still some challenges with our customers' inventory levels, right, which is slowing the churns, which is kind of part of the buildup. So that's still -- dynamic is still there with the customers having let's say, excess inventory as well. So we're working through that, but we feel pretty good about the inputs coming in and flattish inventory absent this one opportunity. So I feel pretty confident in that.

And you mentioned the lead times or some suppliers within that -- without mentioning the names, it's interesting, not all -- everything [indiscernible] all inventories up. All inventory is not up. There's some areas we could use some more inventory, right? So it's really -- in our case, there's 5, there's 6 suppliers prior driving -- 80% of the inventory increase. There's a lot of suppliers. It's not the case or a lot of commodities. That's not the case. And that's okay. These are critical suppliers that just happens to be where they are and the space they play in. And in general, I would say the lead times, in general, if it's ending tied to battery or power still pretty tight, high-end controllers again tied to transportation, automotive, still pretty extended, coming in, but still extended. Passes have come down more so than the semi guys. But anything tied to certain verticals like we're talking about, power, energy, auto, they're still extended. And even though they've come down a bit, most of the lead times are still extended longer than they were prior to pre-COVID, right? So although they come down, still not pre-COVID.

Right. So when you talk about excess supply components, which ones are you able to name, which are the ones that you think are a little bit higher than what you'd like to carry versus the ones that have stretched lead times?

Well, I don't like to mention supplier names.

Just categories, yes.

Yes, there's just probably a little bit of excess in some discretes. Some controllers were very specific for certain customers. It's not even -- I talked about this one opportunity we had. We don't have suppliers come to us, which is a good sign. You probably have this question, too, I'm sure. But our suppliers asking us to take products, are they trying to get -- as it comes off the line, trying to get the channel to take more inventory than we need and that's not happening today, which is a good thing. I've been around a long time. And that would create an excess inventory, what you're telling you to take the parts a good product, but you have to go find a home for it. We're not seeing that today, which is good. Maybe we've matured in that end of the line, at least as an industry would be positive.

All right. We have a question -- we have a few questions from the audience. So maybe we can stop my questions a little bit and take questions from the investors. Yes, go ahead.

[indiscernible] go on strike. Do you think that's going to impact your overall inventory and demand?

The auto industry?

The strike, you mentioned the strike in the auto industry and if that's going to affect kind of like how you guys think about your outlook.?

Well, I'm sure it will. I haven't done the contingency planning on that to date. But I'm sure it will -- I don't see how it wouldn't, but it'd be tough for me to give an estimate of what that impact would be.

We have another question here.

So on ongoing basis, do you think you'll be carrying more inventory on days basis going forward? Just structurally given the changes in your industry and if so back to your comment about [indiscernible] where do you think you will be carrying more inventory?

So I'll let Ken get into the days. Let me think about that for a second. I think the overall answer would be probably yes a little bit because we also got too low, right? Pre-COVID, we got too low. We don't want to be -- I got my memory in 60 days, we got to a point that's too low. We want to be at 90% or 80%. It might be a little high, maybe it's somewhere in between. I think the second point I would -- can come back to us. I think the second part of your question is, and where would we want that? What has changed since COVID? And we think it's a positive thing. If you go back and again fortunate, I could be the greatest story in here. Inventory used to be in every [indiscernible] in the U.S. used to be in every local market, right? We [indiscernible] every NFL City with warehouse logistic centers and operations in it -- fast forward all went to, in our case, channel Arizona, everything got centralized because of logistics capabilities with UPS, FedEx, [indiscernible] and all those guys. And then I kind of went back out into the field in what you call implant stores and the customers wanted it close by and then fell in between somewhere else. Same thing around the world. Since COVID and the supply chain breakdown, including the freeze in Austin, the fire in Japan, the Suez Canal, more and more customers largely want that inventory proximity. So actually, what we're seeing is expansion of inventory locations around the world, which is by us. We get the question all the time. Does it bother you that XYZ company wants to move out of China or -- I also don't believe everybody is leaving China, but the China plus one, right? They want to offset and hedge out of China into Vietnam or Malaysia or India or Guadalajara or what have you. It's fine by us. We just -- we can move the inventory in the supply chain anywhere they want to go. So I do believe we're going to see more locations of inventory as well based on where the customer wants it in the proximity. And a lot of those will become 3PLs, but we manage those and select those [indiscernible] will touch on.

Phil hit the point in our fiscal '21, fiscal '22, as the lead times were extended, inventory turned faster because product was so much in demand. So I think that was an unusually low number of days, and I think it will kind of normalize between where we're at right now and where that was at. How I'd characterize it is, that's kind of more of the time-place utility the core part of our business. There's always some level of safety stock or buffer stock, let's call it, 8 to 10 weeks of product. But I think the opportunity we're seeing coming out of the pandemic and all of those shortages was the need to really have resilience in your supply chain. So where we see the big opportunities with these large OEMs that are really not taking more control of their supply chains really understanding electronic components better. All these companies, these OEMs that are using technology in their products, think about 10 years ago, it was really limited. The auto being a great example, the content, the proliferation. So now we're taking control of their supply chain. So we see a lot of opportunity with running supply chain type services where perhaps it's not our inventory. We hold -- my old inventory on behalf of the OEM. And so that's where we're seeing a lot of growth opportunities. And those takes time to kind of ramp up and build because of how complex those supply chains are, but that's where the proximity inventory, the buffer stock, let's say, even is it 90 days? Is it 180 days depending on the component, right? There's lots of redesign going on in supply chains, and we're right in the middle of that, which we see as a very exciting opportunity. But the inventory model is different there or it should be different, right? And unfortunately, with the cost of capital going up, right? There's this dynamic of who pays for the inventory, but we know what the size of these OEMs. We can't fund all that inventory. So the OEMs, suppliers, everyone is going to have to bring some cash to the table. So working with even financial institutions to kind get creative kind of solutions out there, but we do see that as a huge growth opportunity that's really reinforcing our center -- us being the center of technology, supply chain, us having those capabilities in the 140 countries to be able to run supply chains for these large OEMs. So very excited about the opportunity there, to supplement our existing business, right? That's not replacing what it is that's on top of what we have from a day-to-day basis.

[indiscernible] should think about that mixing up margins over some period of time? I know you guys have given a flavor for how much margin lift you get from doing some of that stuff for some of the larger customers?

We'd just say that the size of the opportunity or the throughput is sizable, but we have a $26 billion base, so it's hard to get as much services revenue, right, to move the dynamic there. But we do think that's a stabilizing force in gross margin. A lot of the questions we get on our gross margin is, hey, competitive pressures now that lead times are coming down as the gross margin can start to deteriorate, and we feel we can hold the gross margin for the simple fact we've got higher margin opportunities until we'll talk about demand creation. Supply Chain as a service. We have IP&E, which is interconnect passive and electromechanical. All those are higher margin to kind of balance out some of the fulfillment of normal competitive pressures with margins.

It's a good point, but we want to definitely continue. I like to say, feed the beast. I want to get that scale. This is a scale game. And there's a supply chain as service models that Ken just touched on there briefly. They just become kind of an annuity and just mailbox. So it's small today, but it just -- it's automatic. And it just drives that throughput and makes us just more efficient as a company at the same time that you get this annuity coming in every month and week.

Okay. Maybe a good segue into working capital, right? So as we talk about inventory correction going on, you can talk about the counter cyclicality of your working capital and the balance sheet and how that generates cash -- so kind of the outlook on cash conversion and working capital?

Yes. I mean I think in general, as a distributor, right, as we grow, we have to invest in inventory in AR and that's what you've seen over the past couple of years, there is a significant use of cash to grow the business the last few years, but when sales go down, you need less inventory, you collect your AR at the higher level of sales and it generates more cash and so last 2 quarters, we've generated cash, we expect to generate cash this next quarter. But clearly, inventory stabilized and the inventory is not coming down yet. But as soon as that working capital burns off, it accelerates cash flow in a downturn. Now we're hoping to continue to try to grow the business and see opportunities to kind of fill any demand gaps that we have, there's some opportunities to gain share to kind of balance that out. So we're still hoping to continue to try to grow the business. But clearly, if there's a downtrend in the market, if that inventory correction happens, then we'd expect to be well positioned with cash flow generation and that gives us a lot of opportunities for flexible capital allocation priorities. So we've been prioritizing our business, growing our business as the top priority, which includes CapEx. We've got $319 million left on our share repurchase authorization. In the first half of last fiscal year, we bought back roughly 5% or 6% of the shares. If you look at the trend over time, we've taken the share count down from, let's say, $133 million to $93 million. So pretty good return to shareholders, and we do have a healthy dividend, about a 2.5% dividend yield. We recently increased that dividend 7% for this next fiscal year, which we think is a good use of cash and a continued track record of increasing our dividend and have a consistent return as well. So there's lots of opportunities to put the cash to work that we generate. There are still priorities to grow the business. But when that doesn't happen and when there is excess cash, we'll put it to work. We're also going to think about balancing that out with paying down debt. It's very expensive. Our interest expense has gone up 150% over the last year. We do think it's good to kind of make sure we're prudent with that and balance out buybacks with paying down some debt at these high interest rates.

Okay. Fair enough. Question right here.

Yes. Ed Wachenheim of Greenhaven Associates. You've had an Investor Day a little over a year ago, and you gave some intermediate-term targets. One was growth of 5% to 8%. And then margins of 5%, I think, it was. I just played with numbers. And if your revenues where are $26 billion today, end up whether they are higher than $27 billion, $28 billion, I used $27 billion to $28 billion to be conservative, 5% margin subtracted interest expense, taxes. $93 million shares today probably we're buying some stock back in the next couple of years. I used 90. I call up close to $10 a share of earnings. First of all, is there anything more with my arithmetic and number two, is the fundamentals still as you stated they were 15 months ago when you had your Investor Day?

I think your math's perfect. I'll let Ken touch with it. Thanks. Yes. And we're actually a bit ahead of where we said we'd be in June a year ago as well to get to the 5% on the component side, which we've gotten to now a couple of quarters in a row. But I'll let Ken touch on. We appreciate that.

Yes. So I'd just say, thinking about what's actually happened over the past year since that Investor Day, sales were up 9% approximately year-over-year, so a little bit ahead of track. Operating margin for the enterprise. The last 2 quarters was 4.8%. Our electronic components business was about 5.1%. So we think about that being a proxy for operating margin. Now what I would say is interest expense is much higher than we anticipated necessarily at that Investor Day. But I think when you kind of do the math in terms of where the revenue growth was, where the operating margin expansion was and then you look at the EPS growth, it's been pretty sizable over the past year. So I wouldn't expect that level of increase necessarily repeat year-over-year. But if you even get 25% of that on a compounded basis, it's pretty accretive. So we do think the past few years, we've been able to demonstrate going back to Phil's point, distribution as a scale game. Once we get some scale, we can control our costs, and we think we can leverage, let's say, operating income expansion, 2x revenue, which is -- we've done over that -- over the past couple of years. So that's a good rule of thumb in terms of profitable growth.

Yes. As you have said that we got to look at over that 3-year period other than this quarter-to-quarter. There will be some bumps on the [indiscernible] we spoke. We, at a high level, I agree with you. And we need to continue to focus on the execution. I think in the last 3 years, several things that we summarize at that meeting is, first, we need to secure our supplier relationships. And we think our supplier partnerships are as good as they've ever been. We need to continue to drive demand creation, which is accretive to our margin, and much more sticky, and it's now 35% of our business. [indiscernible] mechanical, we need to get that push into $4 billion, which we are today. Supply Chain as a Service and the supply chain resilience and the value we add, we need to get that nail down. So we think we're driving most critical of the drop-through in the yield where we're really driving the productivity of the company. We need to stay focused on those things while continuing to look out into the world of digital and efficiencies and AI and all the things we need to go and do. Sorry, you have another comment?

Have another question right here.

Can you talk a little bit about Farnell here with, obviously, inventory is in a little bit better place right now. I guess, more so on the margins when you see you are not the need to expedite parts right now from those guys.

Yes. So it's a good question. Actually, the 60% of our increase in inventory last quarter was far now. Okay. And for those who don't know Farnell's are [indiscernible] e-business or catalog business. It's previously known as Newark here in the U.S. and Farnell and Element14 in Europe and Asia. It's about a $1.6 billion business for us. We need to get to $2 billion and in this run between 10% and 15% operating margin. And we got there. We got there last year and the first 2 quarters of this year, fiscal and in the last 2 quarters, it came back down. So we finished the year around 9%, but it was on a declining trend. Part of the issue the catalog guys had -- so we're disappointed with that. So I'm also very transparent. With that piece, we're disappointing. Chris knows that. It's nothing we did or he did -- they did fundamentally wrong. They caused some headwinds. You might recall on the earnings calls. We articulated several calls ago, I can't remember it's either a year or so ago. They probably had an inflated margin number. Because when the products are really, really tight, I'll call it nontraditional customers, they kind of swoop down and they'll buy it from the catalog guys, and then they'll scoop back up and come back to us and the other larger guys. And he carved a window that we anticipated about 275 bps. In addition, he had a [indiscernible] change. So he also has -- he doesn't just have one of the board components, which run at higher margin, is a really good business and industrial, it does very high things on those are single-board computers. Well, that picked up as the semi started to slow down. So as revenues aren't down that much, but the margins are -- because it's just a different margin mix and had some FX issues. Although it sounds like excuses, they're real, okay, but we need to fix it. So and that's the message we have to the Farnell team. We're bullish on Farnell. We love the model. It's unique to -- and to have both, I'll call it, the high tough, low touch businesses. They're effective of our e-commerce site, at roughly 900,000 to 1 million customers. So we love the model. It's just these have a couple of quarter perfect storm of headwinds. We expect them to come out of that at the end of the calendar year and start to pick it back up again in the March quarter. But as systems are sound, we have put a lot of investment in inventory to your point. Yes, his inventories [indiscernible] inventory is in good shape. His systems are reliable. They weren't when we bought them 7 years ago. As e-commerce front end is as competitive as anyone's. Now we just need to focus on the execution. Does that help?

Is that a double-digit operating margin?

Yes, it should be. And I think -- It has been in the past. I guess the spread is bigger than we'd like to be. So I think as we grow it and get that mix and the inventory investment, right. We'd expect to close the gap in terms of the highs and lows but we're coming into another low kind of period. So our commentary on this last earnings call was expected to be mid-single digits coming to their seasonally low quarters in September and December and then going to high single digits in the March and June quarters. We're very transparent with that, very much on the offense with that. Okay, [indiscernible].

Okay. I'm going to continue with my questions. You talked a lot about gaining share, investing in the business, especially when you have a cash conversion cycle working in your favor. Where do you think Avnet's competitive advantages and where do you think, based on that, you can gain share? What's going to drive the share gains? Because typically, I think people think of distribution, I think price, that's what drives share. So maybe you can drill down and see where do you think you have a competitive advantage that's going to give you share gains?

Yes. So I think I touched on some of this earlier. But I think our global footprint in and of itself as a competitive advantage over most of our competitors, able to have access and scale in 140 countries. Not many that can say they can do that. We live our demand creation capabilities, which is really key and critical, not just for our customers, but also very important for our supplier relationships. I would argue as important for our supplier relationships as they lean into us for field application resources, our digital technical resources, our tool called Avail. These are differentiators. And we've grown that business to close to 35% of our revenue, and that's with a couple of major line losses. That's key and critical. Supply Chain Services, I mean, the positive for us through the challenges. Challenges are opportunities. The last 3 years are real challenges for companies that manage supply chains arguably too many companies kind of disregarded their supply chain or outsourced at a lost focus on it, and it came to us. So us rearchitecting some of these large OEM companies, supply chains, you don't do it overnight. Some of them take upwards at 18 months, they are really sticky. So we think that's a differentiated Avnet has and has been really positive. And they're not going away, the next question. A customer is going to go back to the old ways and I don't think so. I think it'd be really foolish. I've told -- we've had many of these guys and ladies in our office. And I'd say that I'm pretty direct, you have convenient amnesia here? Or are you going to stay there like we're not going to get $0.25 part hold up to $500,000 dump truck as an example, right? It's just got -- people got too lean. So I think that's exciting. It's something that we're providing in the market that most cannot. So [indiscernible] and of course, I always talk about our people. We think and I know this sounds soft, but I've seen good cultures and I've seen bad ones, and you can feel the culture that's not productive. And we have a great team around the world with great tenure. And we have great intellectual properties with that tenure, and we think that's a real differentiator in the partnerships and relationships that we've built. And Ken touched on it earlier, our balance sheet is rock solid. I mean we can handle it. There's a downturn, no problem, we'll spin off cash so there's an upturn, we'll continue to invest back in the company. And customers and suppliers want to deal with strength. And they want to deal with some of the -- know they can trust -- it's going to be around.

I would just say, I think our supplier line card in terms of just -- there's a lot of talk about maybe suppliers we've lost over the past 5 years. And you really -- instead of focusing on what suppliers we do have, right, which we think gives us a really good competitive advantage, including on the high end of technology, but also the fact we're not overweighted anyone, so we can really serve a lot of different suppliers help them grow, but not necessarily be overly concentrated. We feel pretty good about that. And we do think that's led to some of this market share gains over the past 8 quarters or so because of that diversification and lack of concentration.

So we're at the tech conference and AI, of course, has been a talk that's driven a lot of companies, definitely the ones that I cover up quite a bit with Dell being up 20% last Friday, maybe you can just -- we haven't touched on the topic of AI at all. Just how you guys think you play in that environment? Where are you guys focused on? Where the opportunities are? Maybe there aren't any opportunities, just being fun either, but yes.

Yes, there's definitely opportunities and that it's a Board topic now. I just got done with Board meeting, everybody wants to know what's going on with AI, artificial intelligence. We have to be careful because we have a business called AI inside of our company called Adnet Innovating [indiscernible] so you must have a chance to mark it AI or [indiscernible] more -- so we've got to change that name. . We're already doing use cases. I mean a lot of companies would argue it's not necessarily new. It's another level of machine learning. We're using it today for our pricing or parts of our pricing. We have some use cases inside for internal applications, you can imagine that we're already operating. The real opportunity is how do we differentiate our front end, how do we differentiate -- we get thousands of customers MRPs in, customers' pricing tables and lead time charts that we get in our downloads. So how do we really with integrity, right, and confidentiality, utilize that data even better than we are today with utilizing artificial intelligence. So some people are afraid of it or scared of it like what it's going to do to the company. Our case is it's not about eliminating jobs. It's [indiscernible] my job is going to get eliminated. It should make people more productive and more efficient, and that's what I'm looking at it. It should make our company a better company to work for and make jobs -- people's jobs better, okay, and more productive. We have a team working on our digital team, where we have a digital team that's under our CIO, Max Chan. So we'll have to speed on it. We're already using elements of it, and we think it's going to be for short part of the future. But again, I think we need to remind ourselves, it's not brand new. It's been around for decades really. It's just now is so much more to the forefront. And I think the accessibility to it and the user friendliness of it is something else. At the same time, it can be scary. [indiscernible] really, but it's kind of fun. So I think it will be a good thing.

I would just say on the sales side, several of our suppliers are focused on growing their AI type businesses, right? And so we'll participate with that vertical as well, just like industrial or transportation, right? We're very well diversified in all the end markets and a lot of our high-end technology suppliers are focused on the growth opportunity in AI in terms of revenues and...

Yes, I was trying to -- it's a good point, Ken. [indiscernible] our applications of it, but [indiscernible] customers acquirers that we're going to be selling into, right, companies that are building out AI capabilities.

Yes, we definitely hear like productivity savings coming first, and that's -- whether that's in sales, chat bots like you talked about or e-commerce content. So as it relates to your eCatalog business.

Contracts?

Yes. And trying to -- yes, you're trying -- exactly drive productivity savings. Okay. Is that offering going to be at least within Avnet? Is that offering going to be something -- as you deploy it, is it going to result in higher CapEx? Are you looking at it as a service as you train based on your data?

Yes. I mean I would say you might see some CapEx, but I don't think it's outside of the norm of what you normally see in CapEx. And I think it's, in general, we look at -- that's another driver to help us control costs, right? Let's grow without increasing the cost a lot. So I wouldn't think about it as a big cost out, but more of a way to kind of keep costs stable by some of those productivity measures.

Okay. Last call for questions before I have a couple more. We're 8 seconds to go. Maybe we can talk about what's different about this cycle? Do you think it's different? What do people maybe not appreciate about Avnet and that's going to maybe stand out in the next couple of years as you ride through the inventory correction come out of the other end?

Well, 2 words coming up to mind on what people should appreciate about Avnet diversification and dealing diversity is in resilience. We've been around for over 100 years. We think that's really a good thing we've seen a lot worse than what we're seeing now. If you go back and from where we're at worst to what we're dealing with today. So I think resiliency, adaptability is just key and critical to any company surviving in today's environment. Our people are resilient, tenure. And I would say the difference in this market, which makes me excited versus -- I always use the -- I'm a little older than some in the group, I guess. But '99, 2000, 2001, Gartner just come out and said there'll never be another correction in the industry. In 2000, it crashed. There was a computer company up in Boston, pretty powerful when I said why in the world would anybody need a PC in their house, right? They're gone, okay? So you got to be listening to the market. But if you go back to 2000, 2001, the market just was so top heavy, and it just crashed -- it crashed pretty hard for anybody who was in the industry or cover in the industry. That business is still there today, okay, with all the networking guys, the common guys, DC guys, et cetera. But now you've got all these other proliferation electronics. And just like I said earlier, you're looking around the amount of companies utilizing electronics and components, it's just mind-boggling. There's not anything you do today. It doesn't have something to do with technology. That excites me. And I think that's what's different about this market. That's why I think everyone's looking for this big market to turn, it may, nobody truly knows. I personally think there's an inventory [indiscernible] we're burning through it, the application of electronics then just continue to help us all grind through it, get through it, whatever will not be subject to a major correction like we've seen in the past.

Okay. All right. Well, we're up for time. So thank you. Appreciate it. Thank you very much and good luck with the rest of your schedule.