All right. I believe I hear my voice here. So we are going to get kicked off. Good morning, everybody. I know this is probably number two, three, or four for you all, but thank you all for being here. Very excited for our conversation today. I'm Jack Cassel, Senior Vice President with Nasdaq, and joining us for this session are Ken Jacobson, CFO of Avnet, as well as Joe Burke, VP of Treasury and IR. So maybe just to kick things off for the audience, let's level set on an overview of Avnet today.
Sure. Maybe I'll start with, maybe for those of you who may not be as familiar with Avnet, I'll just kick off with a little bit of background on who we are. We're a leading global distributor of technology, distribution, and services. And we've been doing this for over 100 years. We were founded in 1921 in Radio Row in New York City by Charles Avnet. So it's a family name. It's not a name that we pay someone a lot of money for. So Avnet's been in business for over 103 years. And during that time, what we've been doing is adapting and evolving to changing markets. We started off selling radio parts on Radio Row in New York City. And over time, we've evolved to switches, fasteners, onto design services and supply chain services. To today, we provide end-to-end solutions for our customers.
What we do is we connect leading suppliers of technology with over one million customers. Those customers can be OEMs, electronic manufacturing services, contract manufacturers, to small, medium-sized businesses, all the way down to engineers. We serve a long tail of customers. We had $28.3 billion in sales for our fiscal year that ended in June. That wouldn't have been possible without our 15,000 employees and 2,000 field application engineers serving over a million customers worldwide. I just start with that as a backdrop of who we are.
Let's then maybe double-click into what you view as the competitive advantage for Avnet, from automation to geography. And then maybe we can a second question would just be around the pricing element for your model.
Yeah, maybe I'll start with, I think a big competitive advantage we have is our people and our culture. Joe mentioned we've been around for 103 years. And we've got a very experienced management and leadership team. Our CEO has been in the business nearly 43 years. And we've got a very stable business unit base, not only in Asia and in Europe, but also in the Americas. One of our competitive positions is global scale. We operate in 140 countries. We've got distribution centers throughout the world. So we can service our customers anywhere they need to be serviced. Another key part of our value proposition, our competitive advantage, is our diversification. So when you think about the end markets we serve, industrial is our biggest end market. It's roughly 30%-35% of our business, followed by transportation, aerospace, defense, consumer, compute, and data center.
We're really everywhere. But we don't have any single market that's overly concentrated. Industrial is a very broad business for us. When we think about geographic footprint, Asia right now is roughly 40%-45% of our business. Europe is roughly 35%. America is the rest of it. We're very well diversified globally. From a technologies, we bring a lot of the top semiconductor companies' technologies to market, as well as other electronic component manufacturers in the IP&E space, interconnect, passive, electromechanical. No single supplier or technology represents over 10% of our business. We're very broad-based and diversified. Our global expertise in design chain capabilities helps a lot of customers select the right parts for whatever they're bringing to market.
And we're also experts at supply chain, which has really come in handy over the past few years with everything that's been going on. So our core capabilities are design chain and supply chain.
Okay. Now, we are in the middle or maybe even at the end of a prolonged cycle. I guess, what do you feel is different about this cycle and what's your outlook on how Avnet will fare going forward?
Yeah, I guess we're sure hoping we're at the end, so I don't have the crystal ball out, but it's been interesting. It's been kind of vertical by vertical market has kind of had different aspects of how the cycle has gone out, and I think this cycle is maybe best explained by the fact that the inventories are still elevated, whereas perhaps in past cycles, the inventories come down faster, which has enabled us to get through the cycle. So we've still got pockets of elevated inventory. When you couple that with some of the demand trends that we've seen now, in particular in Europe, where industrial's soft, the transportation or auto markets are soft, and so that's kind of delaying the consumption of the inventory levels at our customers. And therefore, our inventory levels are elevated in certain areas, as well as our supplier partners.
I think progress is being made there. There's still some more work to do on the inventory side of things to be able to kind of get things back to a more normal level. What I would say is, what's going to change or how do we feel about our position? I think we're very well positioned in part because we've got great relationships with all of our supplier partners. We're working well together through all the shortages and now the excesses. I think the entire supply chain has partnered well together. Although no one's happy with kind of their current position on inventory, we've tried to work well together to ultimately get through the challenges. It started with the shortages and the expedites, and now it's going through the excess.
I would say the silver lining with all this is people and companies appreciate supply chain much more than they did before. You think about a big automaker that now they're making computers on wheels. The appreciation for the semiconductor industry and how semiconductors are produced, and more importantly, how to have an optimized supply chain to make sure that you have all the parts when you need them, where you need them, has become a very big focus area of a lot of customers. We can really help provide solutions in that space with our supply chain capabilities. That's probably the silver lining is people appreciate supply chains a lot more when you don't have the parts you need to build what you need to build. We can really help add value there.
Maybe off that, how many months or quarters do you typically have from a visibility standpoint? For example, how far in advance are you able to forecast the customer's needs?
We'd like a lot more visibility. I think that's consistent with the semiconductor companies, right? What do we need to build or what do we need to pipeline? We're pretty good a quarter out, so 90 days, a little bit less than six months. But I think part of the challenge now has been lead times or the time it takes when you place an order to get a part are back to more normal levels. And so what we saw in the shortage environment is we were getting forecasts or backlog even greater than a year. So we had a lot more visibility. And now it's less than that. So our backlog has kind of been depleted with where the current markets are at now.
I think the challenge is we want to get more visibility so we can make sure we're building the right things that have the right parts available for customers to avoid some of the things that happened in the past. I think there's been some reluctance to give that visibility just because of the fact that inventory levels are still elevated. There was some forced buying that happened that people are still hesitant to give more visibility. I think we're messaging that to our customers along with our supplier partners, trying to deliver that message is, hey, the visibility is going to be very helpful to make sure we build the right parts that you need so we can kind of get through the next growth phase.
Do you believe the past few years have permanently changed the way distributors are used?
I would say yes. I think we've always been experts in supply chain and design chain. But I think now with our global scale and reach, customers are appreciating more what value we can bring to their solutions, especially when you think about big OEMs and global customer bases that really do need someone to have a different solution. So whether structurally more inventory is going to be held into the future, I think that's to be determined. But I think how we hold the inventory, where we hold the inventory, it's going to be a little different, right? We're seeing a lot more, I'll call it back to the future, where supply chains are being localized.
People are expanding outside of China, having places like Vietnam, Malaysia, even Guadalajara, Mexico, are big markets for us where people are trying to optimize their supply chain and kind of move things around a little bit more than what they had in the past.
Okay. Switching gears a bit, it wouldn't be a conversation in 2024 without asking about AI. So how does Avnet play in AI as a semi-distributor?
Generally, we don't sell CPUs and things like that, but what we do sell as a distributor are the parts that surround that, so right now, we do feed some product into data centers and servers that support that primarily over in Asia, but what really gets us excited about AI is the fact that we have a great line card that can carry many of the products that go along with the production of servers and such for AI, and particularly, as you think about what the future holds for as things move out towards the edge, whether it's security, power management, and things like that on devices in your home, laptop, phones, and things like that, that's what gets us excited, so we think there's plenty of opportunity for us on the things that go around.
Some of the big names that you see, well, we're not a CPU distributor. But we believe in the future we can do well just on the parts that go around that.
I'd say we can help with some of the supply chain needs of that. The hyperscalers and some of the other ones, a lot of components that go into that. And they get complicated. So we can help with supply chain services surrounding that as well. So I think we're excited about the opportunity. But again, we're very diversified. So we serve as just another example of a vertical market that we do participate in. We expect it to grow nicely. But we're not overweighted there either.
No, good point. And maybe let's talk about your recent earnings calls in terms of your financials and outlook. Maybe you can just kind of give an overview on that.
Yeah, so last quarter, we did about $5.6 billion in revenue, and that's been a few quarters in a row we've had about that sales level. The difference has been the geographic shift. Normally, we're a June fiscal year end, so normally, Asia is strong in the September and December quarters, and Europe and the Americas are stronger in the March and the June quarters. But what's happened here is we really started to see softness in Europe over the past couple of quarters and a return to growth in Asia. So it's created a mix shift, a more than seasonal mix shift. Although the revenues are flattish, the mix is more Asia, which tends to be a lower gross margin region for us versus Europe, which is our highest gross margin region. Just this last quarter, Asia grew sequentially 14%.
And Europe was down 13%. So that is a pretty big mix shift for us in a given quarter. So that put a lot of pressure on overall profitability. But the good news is we're back to growing in Asia, two quarters in a row of sequential growth, but the first quarter in many quarters of year-over-year growth. And typically for our industry, you see Asia the first to go into these cyclical downturns, but the first to come out of it. So we view that as a very positive sign. The other positive sign we had this past quarter was an increase in our turns business, which is orders being placed within lead times. So customers are within lead times placing orders. And we call that turns business. So typically, that's a good sign when your turns business is healthy. It's a good indicator.
There's still some challenges, obviously, in Europe. The Americas is probably somewhere in between Asia and Europe. So still some wood to chop to get through this correction. But some positive signs, we've generated over $800 million in cash over the past four quarters. Our business model is one of a countercyclical balance sheet. So as sales go down, we tend to generate a lot of cash because inventory comes down and we collect on receivables. So that's happening a little slower than we like with the elevated inventory levels, but still has had some healthy cash flow. And our OpEx is well under control as well. So a pretty decent decline from last quarter. But overall, we feel good about the return to growth. The December quarter guidance was more of the same, a little less in Europe and the Americas, a little bit more in Asia.
So that mix shift continues, but at a pretty stable revenue level.
The countercyclical balance sheet has allowed us, as Ken said, to generate cash. We generated, again, $100 million in the $106 million in the quarter. It allowed us to buy back close to $100 million worth of shares and gave confidence with our board to increase our dividend 6%. So we're doing well on the cash generation side. Expect to do more to come.
Okay. Maybe sticking with Asia, what would you identify as the key drivers in kind of that uptick that you've seen? And also, do you believe that's sustainable heading into 2025 and beyond?
I'd say we feel pretty good about Asia in the December quarter continuing. I think the March quarter typically is a little slower with the Lunar New Year celebrations and some of the shutdowns. There's just less shipping days for us. I would say, honestly, it was pretty broad-based that although we saw the compute or data center business grow, obviously, some of the trends there in AI, we also saw growth in the industrial and the transportation markets in Asia, as well as consumer markets, so pretty broad-based, and geographically, we're the strongest in Taiwan. China is our second biggest market there, followed by ASEAN and then Japan, but for the most part, all of those regional businesses were growing pretty broad-based, so we think that was a pretty good sign. That had been down for five or six quarters, right, so you have a low compares.
But it was still good that we saw it kind of across the board over in Asia. And I think that's more of the same to continue into the December quarter.
Yeah. Sticking with demand, what are you seeing? I mean, you kind of covered the regional basis, but also maybe which end markets or verticals are you seeing that could be the strongest or even the weakest?
The strongest, for better or for worse, aerospace and defense, particularly in the Americas and in Europe, are strong. Then the weaker ones would tend to be the industrial. We're weighted towards in the EMEA region. We're weighted towards industrial and automotive and just some challenges going on in the EMEA region economically and with the conflicts going on. That's been one of the tougher markets for us. In the Americas, aerospace and defense are doing OK. Transportation, lesser so, but still hanging in there.
Okay. Farnell has had a tough go recently. Can you give us an update on that business and why Avnet's confident on improving its margin profile?
Yeah. For those of you who don't know Farnell, it's our high-service distribution business. And so think about their model being one of speed and convenience, where our model is more of one of scale and size. So what happened in the shortage environment was that nontraditional customers were coming to Farnell, buying the parts that they couldn't get from, let's say, a regular distribution. And so they kind of got a little bit of inflated gross margin. And demand kind of upticked a little bit now. And now that the kind of market softened, the tide has declined. And we've seen some operational things that we want to fix and some strategic things that we want to make sure we're doing to partner better with Avnet. So I think the first thing I'd say is we're very disappointed in the performance of that business.
It should be a double-digit operating margin type business versus, let's say, our core business of 4% or 5% operating margin. So it's very healthy, very accretive to Avnet. At one point, it was 6% of the revenue, but over 20% of the operating income. So I think we feel really good about the value proposition Farnell provides. But we've got some work to do to make sure we've got the right team and strategy in place and also have to execute. So some of the things we're doing with Farnell, in addition to kind of right-sizing the cost structure, are really bringing Farnell closer to Avnet and Avnet closer to Farnell. We do business with a lot of big customers that Farnell is not playing as much as they should be playing with them.
We've also got a lot of e-commerce capabilities at Farnell and a lot of traffic to the website. But we need to capitalize on conversion there. So there's a lot of good things going on at Farnell. And what I would say is the gross margin stabilized right now. But we've had a kind of negative mix as the sales have gone down. Our mix of semiconductors and on-the-board products have gone down even further than our sales decline. So that negative mix is also hurting gross margin. So I think we've got the right leadership in place now, the right team in place, the right strategies. But we just need to execute. So it's going to take some time. But we're very confident that we can return that business to double digits over the next several quarters.
Yeah. We're still high on the prospects for Farnell into the future. And I think one of the differentiators for Avnet is that if you take a look at the broadline distributors around the world, there's no other broadline distributor that has a property like Farnell, which is a high-service business. And as we take a look at some of the high-service businesses, some of which are private, there's no other high-service business that has the ability or the resources that Avnet has as a broadline. So we think the combination, we're calling it the Power of One, creates a lot of opportunity for us into the future, which we really haven't picked up on over the past six, seven years that we've owned them. So we're very optimistic about the future for the combination of Farnell and Avnet together. Okay. Excited.
You both mentioned the countercyclical nature of the balance sheet. What are your thoughts on the working capital requirements over the next few quarters and free cash flow?
I think we expect to continue to drive inventory down in the areas where it's excess, which should be positive for cash flow and free cash flow. From our capital allocation standpoint, we don't require a lot of CapEx. A lot of our capital requirements are the inventory and accounts receivable terms we grant to our customers. So from a CapEx perspective or a free cash flow, we don't have a huge capital requirement. And so we see free cash flow generation over the next couple of quarters. And we're going to take that free cash flow and do two things with it in addition to supporting our dividend. One is making sure we're keeping our leverage under control and paying down debt and getting the savings from lower interest expense. But at the same time, being aggressive with share buybacks, considering our shares continue to trade below book value.
Even though we've had a decent run over the past couple of years, we still feel we're undervalued and that our shares are a very good use of cash right now. So we'll be balanced in our approach there. Our commitment this year is to reduce share count by 5%. Over the past 10 years or so, that's been on average every year, 5% reduction in share count, and so continue to see good value of the share price where it's trading right now.
Right. Investors have been concerned that distribution runs the risk of disintermediation, that more suppliers will shift to a direct distribution model. What are you seeing from your seats?
Yeah. I would start by saying the value proposition for distribution has probably never been greater. I think I've been in the business with Avnet for 35 years now, and there's always been talk about disintermediation at some point. At one point, it was EMS disintermediating and the internet and things like that, and time and time again, we've been able to demonstrate that we have a value not just for our customers, but for our suppliers too. So we don't know what the future holds, but we believe there's plenty of opportunity for us to continue to demonstrate the value of a distribution.
We see our key supplier partners leaning into the channel, so although some suppliers have taken a more direct approach, we see our supplier partners leaning into the channel, and we can help provide access to that long tail of customers, especially in the transportation industrial space, right? Customers are out there, and we really can reach them with our breadth, so we see more suppliers leaning in to distribution. Now, again, they may rationalize their own channels. Do I need 100 distributors? Do I need five distributors, whatever that number is? Because of our global breadth and reach, we feel confident that we'll be selected to help them bring their products to market, and there's a lot of things we can do that really the supplier partners don't want to do, right? You think about the complication of supply chains, some of the things customers are demanding, right?
I think the suppliers want to focus on bringing the best technologies to market and not doing a lot of things. Customers need them to service their supply chain. So it's a perfect match for us to come in and step in there. So we're confident, but never comfortable. And again, we've dealt with consolidation. So if someone buys someone else, sometimes we win some, sometimes we lose some. But we feel very good that our value proposition, not only to our customers, but also our supplier partners, positions us well to win more than we lose.
We've got a few more questions. But at this point, did want to open it up to the audience to see if we have any questions. Don't be bashful.
I mean, picking up on what Ken said, the value that we do provide, it's not just distribution. We say it sounds simple, but it really is complex. There's a lot of things that we do to work with our customers. I mean, we've talked about our distribution centers. But we also have things such as programming. Maybe it's just programming software on a chip that we have a bulk order for. It could be date labeling a chip. It could be certain things that we do that it's just very, very difficult to do for others who don't have that inventory on their shelves. So we've got programming centers, integration centers. We do some embedded work where we're not just selling parts. We're creating a board based on specification for a customer. So we say it can sound simple on the outside. But it really is a complex business.
Maybe in closing, as you've been meeting with investors and for the audience, what's one maybe key takeaway for the Avnet story that you want to make sure everybody hears?
I would say our resiliency and ability to adapt to changes in the markets, up markets, down markets. Over the past 103 years, we've been able to demonstrate our resiliency. We believe we're coming out of this. We'll come out of this downturn stronger than ever based on some of the things that Ken mentioned, the leadership that we have, the focus on cost control. We haven't taken a lot of costs out of our business. We've actually invested some. I brought on a chief digital officer recently. I think we haven't overreacted on the downturn. We're staying the course. We believe we're well positioned for the future.
Yeah. I would just say we're at the center of the technology supply chain, and it's a great neighborhood to be in. And although there are some challenges with inventory and potentially tariffs and other things coming in, the proliferation of electronics is kind of here to stay. And we're well positioned and diversified to take advantage of that. So the future is going to be bright, even if there are some bumps in the road here. Very optimistic about our positioning for that future growth wave in semiconductor and components. And I think we're going to leverage our scale even further over the next several years.
Last call. Any questions from the audience? Cool. Well, Ken, Joe, thank you so much for taking the time to speak with us today. This is very insightful and educational, and excited to see Avnet's continued scale.
Thank you. Thank you for your interest in Avnet. Appreciate it.