Alright. I think we're gonna get started. So thank you everyone for attending day three of Bank of America's Global Technology Conference. My name is Ruplu Bhattacharya, and I'm part of the equity research team here at the bank covering IT hardware and technology supply chain companies. This year, we've had great attendance.
You know, this is the first time we're holding this conference virtually, and we've had over a 150 corporates attending and over 1,100 clients registered for the conference. So, you know, for the clients who are listening in, you can text me your questions using the box that's on your screen as we go through the chat, and I'll try and include as many as possible. So today, we're honored to have the the team from Avnet. Avnet, as you know, is a global components distribution company. We have CEO Bill Emilio on the line.
Bill has over forty years of experience in this space, so he's seen many ups and downs. He joined Avnet as CEO in 2016, but prior to that, he's held leading positions at CHC Group, Lenovo, Dell, NCR Corporation, Honeywell, and IBM. We also have CFO Tom Liguori. He has been with Avnet since January 2018, but prior to that, he was CFO of Advanced Energy. And then prior to that, he was also CFO of Emflex.
And on the call, we also have Phil Gallagher, who is global president of the electronics components business. As you may know, Phil has been with Avnet since 1982. And and so, again, he's seen a lot of the ups and downs, and and he's held various positions in sales and marketing and operations. So before we get started, I'm gonna pass the call on to Ken Jacobson, who you may know as Avnet's corporate controller, who will, give a a fair harbor statement. So so go ahead, Ken.
Hello, everyone. As a public company, we are subject to the requirements of Regulation FD prohibiting the selective disclosure of material nonpublic information. Today's discussion may include forward looking statements that involve risks, uncertainties and assumptions that are difficult to predict, and actual results could differ materially. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10 Q, Form 10 ks and subsequent filings with the SEC and include the scope and duration of the COVID-nineteen outbreak and its impact on global economic systems and the company's operations, employees, customers and supply chain. Any forward looking statements are only as of the date of this investor call and Aetna undertakes no obligation to update or supply new information after this call.
Back to you, Ruplu.
Thanks, Ken. So, Bill, thanks again for attending our call. I think, you have a set of slides you wanna run through, so so maybe I'll hand over the call to you.
Sure. If we could turn to slide three since everyone's on the webcast and they can control their own slides. Let me give you a little overview about Avnet. We play literally a critical fundamental role in the entire supply chain of electronic components, both for semiconductors as well as interconnect passes and electromechanicals. We supply components to over a 140 different countries.
We stock inventory and ship components to those customers. And if you think about it, we are the bridge between our supplier partners and our customers. Our suppliers, when they go to market, if you think about their top customers, they'll they'll tend to take those direct. So anywhere from 20 to 40 or 50 customers, they will handle themselves. But then their cost to serve gets prohibitive, and the longer tail customers are what distribution handles.
So that's kinda where we fit. Our our function that we provide for our customers is the following. We do demand creation for them, and we actually help them select the right technology for the project they're working on. So we have field application engineers that are all over the world that spend time with their customers, understanding their needs and wants, and are able to select components that help them get cost competitive, improve their time to market, and reduce their complexity. So that's what our field application engineer is doing, the value that we help provide to our our customers.
We additionally give customers inventory and receivable financing because our rates are are are clearly better than a lot of our customer rates because we're investment grade and we're you know, hold that to the highest standard. We provide technology solutions as well as as just being able to ship components to our customers where we actually give a completed solution to a customer. We can actually do the design, the early build, the manufacturing, and the shipment to their their end customers. Our model's been very resilient. I mean, if you think about the the we've been a 100 year old company.
We've been around a long time. We've seen a lot of technology cycles, and we'll we've been able to weather those cycles. And one of the things that's great about our business model, it's counter cyclical, which means that in a downturn, we will not buy inventory and collect receivables till we generate a lot of cash. And we've seen that model through all all the down cycles, and we're seeing, in fact, on this down cycle where we almost generated a a almost a a billion dollars of cash in the past twelve months. We ensure that we have liquidity and financial flexibility no matter what the economic situation is, and we have a strict disciplined focus on working capital to ensure that we maintain our positive operating cash flow.
And when you think about COVID nineteen and and what's happened with respect to that around the world, we've been right in the center of that helping produce life saving equipment for our customers, whether they're being part of the supply chain for ventilators, respirators, and personal protection gear. Abnet was there. Additionally, we kept running all of our warehouse facilities across the world, and we implemented the latest and greatest and best practices that are out there for personal protection as well as sanitation as well as remote temperature monitoring. All of that has been installed on our facilities, and we're happy to say that we've been able to keep our people very safe during this pandemic in in order to be able to keep the supply chain flowing throughout the time frame. And we have a culture of diversity, inclusion, and innovation in everything that we do.
If you could switch now to slide four, please. This gives a good snapshot of who we are. 15,000 employees worldwide, 3,000 engineers. Of that 3,000, about 600 are software capable, and I'll talk a little bit about that towards the end of the presentation when we speak about what we're doing trying to do with IoT. We also have 2,200,000 engineers and makers in our communities, which means that that's a great body to be able to get lots of information from.
Our suppliers love the communities because they're able to launch into the communities various contests to see how their new products will be use cases or new products can be used for, and they've got some really super ideas associated with that. Our customers like the communities because they can cut down their research time by asking qualified questions into the community and getting a a a very robust answer to their question. We literally have over 2,000,000 customers in the 140 countries I mentioned earlier, and we have on our line card, we have over 1,400 suppliers, although the top 20 represents something like 6065% of our revenue. And we ship a 122,000,000,000 annually. If you move to the next slide, five.
This describes kind of what we built over the last several years. And it's an ecosystem that allows us to be able to take an idea off a back of an envelope and go into early production, then full scale production, and end of life. So we provide those services throughout the life cycle of a of a of a product for our customers. Some of the solutions that we provide are the Internet of Things, and I'll talk a little bit more about that in a moment, Artificial intelligence at the edge as well as in the cloud. We have hardware and software solutions that we provide.
We provide components and devices to our customers as well as the full integration of a particular product. So we can do server storage, networking solutions, and and a software stack and and deliver that product to our OEM customers as an example. We can do display solutions. So plenty of the consumer electronics that you see today that have a display on it, some of those displays come from Avnet. Additionally, we do embedded boards and cards for our customers, and we put sophisticated technology on cards and boards that we manufacture, and we ship them into our customers' OEM solutions.
If you move move to slide six, this is our five point strategy. Heading a list is amplifying our distribution opportunities, meaning that that's our core business, biggest part of who we are, and we wanna continue to make that business stronger and stronger, and we work diligently to do that. And then scaling some of our newer high profit margin businesses, which include our admin integrated businesses, which I described a little bit about earlier, which was the display business, the embedded card business, and our data storage data data business. And additionally, on top of that, we have our IoT business, which is a brand new business. It's ramping up right now.
We put in place an IoT practice that allows us to deliver devices, the gateway, the network, the cloud, the applications in the cloud, well as the insights we can give to a customer on the deployment they have on their particular IoT solution. And we're seeing that ramp with with the marquee customers today. Additionally, on top of the IoT practice, we have actually built a platform called IoT Connect. That's a marketplace for systems integrators to be able to enable their IoT practice because they don't have to write write that middleware. We've already written it, and we've all already provided them opportunities to use existing applications and new applications that'll be written to that platform by app developers as well as devices that are plug and play, which means with one click, they're able to connect to the cloud, connect to the artificial app intelligence applications, and be able to get immediate insights for their customers.
We're extending our digital capabilities, which helps improve the our core efficiency with tools like salesforce.com, Marketo, which is a lead management tool, as well as Vendavo, which is a artificial intelligent pricing tool. All of that helps us fortify our ability to be able to deliver the value from our distribution capabilities. We built out an ecosystem that I'll talk about in a few moments to share what that looks like, and I mentioned it a bit earlier, which essentially allows us to be able to handle customers' desires everywhere through their product life cycle, from early life all the way through end of life. And then we're driving always continuous improvement, and we announced several quarters ago a $245,000,000 OpEx reduction plan. We're well on our way to achieving that.
We have $50,000,000 left in that, and we're continuing to stretch to look for more opportunities. If you go to slide seven, with respect to PROMERFOR analysis, what p f stands for, this is our road map to make sure that we are well positioned for the next upturn that occurs in the marketplace. The catalog businesses, which are a little different than our core distribution business, tend to have a higher growth rates when lead times start extending and things get tight out in the marketplace. In the last cycle, we participated well on that, but we could've even had more growth if we had the these five things in place. And I'm I'm happy to say that these five areas now were well on the way to have them completed.
And as the market starts to turn around, these things will allow us to be able to capture more of the share of the growth that happens in the next up cycle. Specifically, what we're doing is we're improving our inventory breadth by increasing the number of SKU count. As you can imagine, when you go to a website to buy one or two parts, if the part's there, you buy it. If the part's not there, you go to your competitor. That's why it's so important to have a great inventory breadth.
We're improving our pricing and quoting tools, and we're using various different techniques in order for us to get highly efficient there. And we measure ourselves against all of our key competitors to make sure that we're either best in class or very close to best in class. We're we also, from a marketing point of view, we're making sure that the marketing dollars that we spend on pay per click is the most efficient and effective it possibly can be. Under operational efficiency, we continue to get improve our capabilities and our efficiencies in all of our factories. We're in fact building a new facility that's in in the process of getting ramped up in Leeds, England, and it will be fully online later in this year.
And it's now at about 20% of ramp up rate, And it will deliver us lower cost and better abilities to deliver quicker to our customers. And finally, web UX is the user interface and the speed associated with the web performance, and and self serve tools are a a key part of that as well as the journey that you take as a customer when you go online first to do a little research, eventually, to buy something, go into the put your part your with your purchases in your cart and get the checkout. We want that to be as efficient and effective as possible so we don't lose anybody in that journey, and we, in fact, can make them essentially buy what they need to buy. If you move to slide eight, this is, Avnet's end to end ecosystem capability. I I mentioned the idea that we have we we essentially built out a strategy in IoT to be a one stop shop for our customer, meaning that we can provide the device, we can provide the gateway, the network, the cloud, the applications, and and therefore give you the insights that you need.
This is the things that we've built out, some of which we've acquired and some of which we're partnering with. For example, Softweb and Meticia are two acquisitions that we've made that are really critical for us to build out our IoT practice. Software has been integral part of us helping build out our IoT platform that I mentioned earlier that allows us to to be a force multiplier from a revenue point of view because it enables systems integrators to also use some of our particular tried and true tools that we built. If you move to slide nine and my final slide, look. We've been around almost a hundred years, and we're gonna continue to build on Avnet's core foundation.
As I mentioned previously, we adapted to technology change after change that occurred in the world. We've been able to get stronger because of it. And we sustained decades of trusted partnership with all of our suppliers. I mean, we have some relationships that go back fifty years and sixty years with some of our suppliers. It's truly remarkable the long term relationships we've had with our suppliers.
And we're always there to support our customers' business needs no matter what they need. So with that, we can open up the q and a's now.
Hey. Thanks, Bill. That was a great overview. So let me, just dive right in. Maybe, Bill, to start off with, can you talk about supply and demand trends you're seeing by region?
Sure. I'll I'll say a few words on that, and I'll get get Phil to jump in as well. Look. We're seeing a rebound now in Asia because it's it's clear that Asia got first hit with COVID, but they've responded well and coming back. Although you'll see some countries that they they actually had a reoccurrence of the the virus, namely Philippines, Malaysia, Japan, and and and India, but some of the bigger countries, China and Taiwan, are are humming along, which is really nice.
So we're we're we're seeing a stabilization, and and they've moved the growth in Asia. Europe is showing some signs of stabilization, but I'd say that's still a jump ball and still very concerning for all of us as we watch automotive turn back on and then, of course, turn back off again. And I'd I'd say that in America, it's more of a wait and see because we've been pleasantly surprised that it's holding up, but we're concerned that, in fact, the demand could fall off on us. But at this juncture, it looks like we're in a a decent position, and most of our customers are tied to the automotive supply chain, as you know. With that, Phil, you want a couple comments as well?
No. I I yeah. Bill, thanks, and thanks everyone for being on the call. I just confirmed what you said, though. Think the big the big question mark is Europe.
I mean, it's it's a it's a great region for us. They're all great regions. That's particularly one of our strongest regions. And the automotive, as Bill pointed out, is is a big play for Avnet as well as the industry in general. So and then that leaks into industrial.
So that's that's that's probably biggest wildcard, Bill, with the I and I agree with you. Asia. I just hung up on the Asia team this morning. Things things are looking good and rebounding in Asia Pac, and America seems to be holding on okay so far. So and then no one has that real crystal ball right now, but the Americas right now is is okay.
We play a little we play a little bit less in The Americas in the automotive than we do in Europe, but I think you summarized it well, Bill.
Okay. So thanks for that. So given this environment, both Bill and Tom, can each of you maybe talk about your top two to three two to three priorities for the next twelve months?
Go ahead, Tom. You start off I'll back clean up.
Sure. Thank you, Ruplu. Well, mine are first would be cash generation, which is continue to bring bring bring in cash. We wanna ensure a strong balance sheet. You know, I think the activities of the last twelve to eighteen months serve us well.
Calendar year '19, we generated 950,000,000 of of cash from operations, which was 5% of revenue, seems like that would be best in class. March was another 100,000,000. We're really proud of the teams in each of the regions, meaning the asset management teams and finance are doing that. You know, the second thing would be more on ensuring that we get good operating leverage as we get a recovery. We made a conscious decision to keep our cost structure in place, meaning our engineers or FAEs will need these resources when things pick up.
And that means when things pick up, we will not need to be adding cost. So we feel good about the operating leverage on the upside, but those are the two things that, you know, we in finance, myself work on every day. Go ahead, Bill.
If I think operationally for a moment, what what are needle movers with respect to improving our performance dramatically? The two that pop in my mind first is getting Americans back to our OI percent that we had pre ERP days. And we're making progress there, and that's a big area for for us as well as as we implement the five pronged strategy I showed you just previously on Farnell to see when we can get to the up cycle to watch Farnell's operating margins get back into double digit again. So those two are real needle movers for us. The second one would be scaling the high margin businesses, which include our demand creation activities, which include Avnet Integrated, which is a higher margin business, and our IoT activities that I talked about in my remarks.
And the third thing would be ecommerce growth out of Farnell as well as our Avnet core business. And that's typically a higher margin opportunity for us, and we're we're growing that nicely. And we have some key initiatives there to even help turbocharge that that particular growth. And then finally, I'd say improving operational performance and a lot which allows us to scale our OpEx using various different digital tools, some of which I mentioned like Salesforce, Marketo, Vendavo, but also robotic process automation tools that are springing up across the company and improving our productivity pretty dramatically. And I I make one final point of one of the things that we're doing to help our suppliers out dramatically is the work that we're doing with asset management.
We've got some new tools in place and some new rigor and cadence that Phil's team has put in place to look really carefully at every one of our customers and analyze when we think there's potential panic buying or double ordering. And we have tools now that can call out some outliers that allow us to go in there, interrogate the the customer, and ensure that if they are, in fact, or we believe they are putting double orders in place, we can change the terms to non cancelable, nonreturnable, or other terms to make sure that there are real orders. Because when our suppliers aren't running at full capacity, they wanna make sure that what they do build actually gets shipped to an end customer, not just put on the shelf.
Got it. That makes sense. Maybe, Bill or or Phil, if you can comment on the competitive landscape. I mean, how are you seeing things like pricing? Do you think Avnet can gain share in this market?
Yeah. Phil, you wanna take that out? Like, clean clean up. Go ahead.
Sure. Sure. Well, yeah, on the on the pricing front, not a whole lot of change out there, frankly. It's it's pretty much steady as she goes. And and and a lot of that, as you know, will be tied to lead times.
Right? So right now, times, other than memory and and, obviously, sensors because of all the new devices being built, Lead times are pretty steady. Some some up, some down, but nothing dramatic. As you see, as the market recovers and depending how fast it recovers, you could see some differences in lead time, then, generally, that would would impact pricing. So pricing, yep, pretty pretty steady as you go.
Far as competitive in the in the landscape, absolutely. We we we feel really good about our position in the marketplace in all regions of the world. We're number one or two with all the top suppliers we have. We have lines like Broadcom, you know, the top semiconductor, a big chip company that we're we're not only number one with. We're exclusive.
Xynx, the big chip on the board as well. We're exclusive with them and and continue to grow extremely well in partnership partnership with with with Xilinx, Marvell, exclusive with them. Then we got ONCEMI, Infineon, number one. We got the global global distributor of the year award for ONCEMI two years in a row. Then you round it out with Renesas, Nexperia, NXP.
We're number one with NXP. So we, yeah, we feel very confident, never comfortable, but confident in our competitiveness in the marketplace for sure. Bill, you wanna add anything?
Yeah. Sure. I'd say the other key competitive advantage we have over everybody in the industry is we're the only one that's tied together a catalog business called Farnell and our core business that was typically our history in Avnet. And and with our ecosystem that I talked a little bit about in our remarks, it allows us to to do some new really unique things, like create a IoT practice and an IoT platform. We can service customer anywhere in the world world and anywhere in their design life cycle.
Additionally, when you think about Farnell, the things that we're trying to do is ensure that we can get time to customer delivery in in world class levels, and we're working diligently to do that. And as I pointed out earlier, our five point prong prong plan there will get us well positioned to when we're able to see the uptick in the market.
Got it. Can I can
I make one more comment? Sure.
Can I
just add one more, Bill, if you if you yeah? Thank you. Sorry. The other thing that, you know, as Bill pointed out earlier, one of the biggest and we've used that term internally, the needle movers, is The Americas and Farnell. And The Americas, as you know, we had some issues a few years ago in the ERP.
That's behind us. And now we're back in the growth mode in The Americas. I think that's really important. We've actually based on public records between us and the and the the other public distributor we compete head to head with, we've actually gained share for six quarters in a row. So while we gain momentum on the top line, now we're gonna, you know, work to maximize to Bill's point, the profitability and OI on the bottom line.
So I do wanna add that point as well. In Six quarters in a row, we've actually, have that grown, in The Americas.
Great. That makes sense. You know, I wanna ask you a question that we get from investors quite often. You know, how do you think this economic downturn is different from the o eight, o nine downturn? And, how do you think Avnet is better prepared to face, you know, this downturn?
I'll take a shot at that first, and then my colleagues can jump in. Look. We've kept our cost down significantly. I think it I I think we've been well recognized over the course of the last few years of how we've been able to manage OpEx really efficiently and effectively. We've survived many downturns beyond two when you think about the February, we got through that.
We've been around ninety nine year years. We saw the great depression. We saw the .com bubble. This town this downtown, however, is different in many ways. It was caused by a health crisis, which we hadn't seen previously.
And it came on the heels of the industry correction that had persisted for over a year with the semi cycle being down. Our business is different now than it was in o eight and o nine because we sold off Tech Data. We acquired Farnell, and we built out an ecosystem. However, I will tell you this. We're controlling all the things that we can control, and we're encouraged by the resiliency of our business model and the strength of our countercyclical balance sheet.
So those are some of the things I think are real highlights of the company.
Got it. Tom, I wanna turn to you now, and I wanna ask you a question again that that's been coming up quite often over the last couple of months. As investors are focused on company balance sheets and liquidity positions. So maybe can you give us your thoughts on how you think about your liquidity, your the strength of your balance sheet and cash flows? I mean, this is a countercyclical kind of balance sheet.
So how should we think about cash flows in a downturn?
Sure. Thanks, Ruplu. First of all, we have a very healthy balance sheet, a good amount of cash, reasonable levels of debt, modest levels of debt, and we're generating cash flow. So we've had six quarters in a row of positive cash flow from operations. We're on track to have seventh quarter in a row this quarter.
On top of that, we have $2,000,000,000 of cash and available credit lines to fund our business going forward. So we feel we're in a very, very healthy position financially, and that's important as a distributor because we are we are providing financing to the to our customers, to the market. For everybody's knowledge, Ruplu indicated we have a countercyclical balance sheet, which simply means that as a distributor, during a downturn, we lower our inventory purchases, but we continue to collect receivables. So we typically or historically have generated fairly strong cash flows during a downturn. So Ruplu, we feel very good about our balance sheet and liquidity position going forward.
Okay. Thanks for that, Tom. Bill, I want to come back to you. You mentioned in your presentation the Farnell business. Maybe talk to us about some of the trends that you're seeing in that business.
How is that business different from the component side? And under what circumstances do you think Farnell typically outperforms? And how should we, given the current environment, how should we think about revenues and margins, maybe over the medium term?
I'll let Phil comment first, and I'll and I'll, finish up. Phil?
Sure, Bill. Thanks. Yeah. Great question. First of we're very excited about the Farnell, acquisition now several years ago and excited about the progress we're making.
It really differentiates us in the marketplace, and we're and we're really starting to see some leverage on that. We were the only distributor, and and I call it the front end. We're keep that front end of Farnell, ecommerce, low touch, high service, high margin, separate from the core, as we call the core business, the core distribution business. However, it gives us leverage between the two. What do I mean by that?
Well, Farnell is getting a great look at at at at hundreds of thousands of customers that are born in NPI, many case, n NPI or MRO, the new product introduction for those who know the acronym, that we can now pass leads, okay, through our Marketo marketing system to the core to go follow-up for the volume piece and vice versa, you know, where we have a strong and we have extremely strong relationships with customers. If Farnell is a little underpenetrated there, we're now doing joint selling calls with Farnell to help them continue to grow where we're already kind of a land and expand scenario. So very excited about that. As far as the allows it us from a supplier reach standpoint, we've been actually adding suppliers to Farnell's line card. We just announced last month.
We've added Micron Semiconductor. We've added Renesas. So their line card is getting stronger in the semiconductor component side of the equation as well, which which is great. And we're very confident, okay, that we can get to the 10% operating margin. We were there last year.
We actually got north of 12. Okay? Then the market correction came and, you know, with the high margin business, it's you know, you you get off just a few points of revenue and it can the negative drop through is there while we see the positive drop through coming back in the next six months to nine months. As far as the investments, Bill kinda touched on this in the opening comments. I won't spend a lot of time, and I'll turn it over to Bill.
But we're we are in a down market expanding our SKU counts quite substantially. We are investing in the ecommerce, the digital side of the equation, working on the on the click, etcetera, and the and the speed of of the response from from the ecommerce site, adding additional marketing resources. And as Bill touched on, we got a a new logistics center that's within a month or two, okay, of of opening up. It's gonna allow us to further expand and invest. So we're really, really, pleased with the progress we're making.
Always work to do, and that's fine. That's what we're here for. But we think it's gonna continue to have a positive impact on our position in the market and our position of financials. Bill?
Thanks, Bill. I I'd add a couple of things. One of the things that we've been able to do that's pretty unique is by hooking together a catalog business and a broad line business, we're now able to seamlessly move a customer that's ramping up from pilot production into full scale production and move it from Farnell over to core Avnet. Additionally, one of the things that Phil's been dwelling on with his team is the ability that in core accounts in core Avnet accounts where we have a great position and they're not using Farnell, why not bring the Farnell team in there and do some joint selling? And that's been going extremely well.
So those two things have added some unique synergies that we hadn't expected to be as as as forceful as they are in the marketplace for us. And as Phil said, that gives us great confidence to be able to get our our operating margins into double digit digit space.
Got it. One of the things that, you know, I wanna touch on that investors ask us a lot about is, you know, the trend in IoT. And so I wanna ask you, do you think IoT is a real meaningful demand driver for the semi cycle and hence, for distribution as well? How big an opportunity do you think IoT is for Avnet? And would you say you have a competitive advantage in this space?
Well, I I the best way to look at IoT is to say, how many connected devices are out there? By the end of this year, there's projection to be 20,000,000,000 connected devices. And by 2025, that'll that number grows to 50,000,000,000. So it's a it's a spot that is being talked about in every boardroom and every bit major company across the across the world, people talking about what do you need to do to have a solid IoT strategy and how you participate in this area. We believe we put in place a a really differentiated end to end solution where we go from the device, the gateway, the cloud, the the applications, the network, and be able to hook hook that all together seamlessly and provide insights to our customers on whatever application they want.
Applications like predictive maintenance, asset monitoring, smart worker, smart factory, smart city. And it's it's it's truly remarkable, all the different proof of proof of concepts that we're in, and we're in the process of ramping up or scaling several of those and rolling those out across our our customers. Additionally, we built out the platform that I mentioned earlier called IOPT Connect platform that's allowed us to be able to act as a force multiplier from a standpoint of getting other systems integrators with their IoT practices enabled quickly to be able to deliver their customized IoT solutions to their customers in a cost effective, lead time optimized, and, least complexity way. So that's what we think the the the two areas are that we have some level of differentiation. This is a potential business that can grow double high double digits potentially as as we start to see has hit the tipping point, which means where customers understand the return on investment associated with their proof of value or proof of concept they have on their particular IoT deployment.
And once they see that and they start rolling it out in mass scale across their company, then we can then take that same use case and replicate it across the industry or or other industries. And all of a sudden, the we start to see some real scale develop in this marketplace. The pipeline is rich. We just now gotta convert more of that into revenue. So we're pretty excited about this opportunity.
And as I said, I think it's gonna be a a growth growth engine for the company, and it's gonna yield operating margins in the 15 plus percent range. So it's a real big value driver and a chance for us to turn our operating income percentage up in the company.
Got it. Bill, can I add something to that? Just let you maybe reemphasize. You know, so we got the nontraditional customers and people like IoT, and where we're seeing some terrific new opportunities. Okay?
And it's around solutions. And anything you get more into a solution with a customer that will drive higher margin and our suppliers is right smack in middle of the core. We talked earlier about, whether it be industrial, consumer. I mean, many of the opportunities are coming out of the industrial space, and that's that's our strength. We're right there already.
And and and with this solution, it's something that none of our peers, traditional peers, you know, have as a a total solution. Medical. Medical is a a nice industry for us. They'll talk better early with all the things we're doing, COVID and whatnot. Again, right smack in the middle of our core.
And and we're not consumer. We've got some, you'd be surprised at some of the, coffee manufacturers, machines, and whatnot that we're calling on already, that that now all of sudden, there's an IoT solution in addition to the designs we're already doing for them. So I just wanna reemphasize it. Something different, something new. It's because the sales cycle's a little bit, longer as is typical with the, more complex solutions, but the pipeline, as Bill pointed out, is really rich.
So just wanna add that in there, Bill.
Got it. You know, we're out of time, but I'm going to go a little bit over because I see we have questions in the pipeline. You know, Texas Instruments has decided, as you know, to consolidate its suppliers. Can you give us your thoughts on this? Is it progressing as you had expected?
And maybe talk to investors about the plan of action you have in order to make up the revenue that would go away.
Sure. I'll start and fill in some of blanks. Well, Texas Instruments, for all of us on the phone, made a decision years ago to start transitioning to a total direct model. They first cut out demand creation and went fulfillment only, and now this is the the next logical step for them to consolidate into one distributor and take a lot of that business already direct to TI. So that was not a major surprise to us.
The timing, of course, always is a surprise. Where where where their stated objective is is that they will be out of the business by December 31. We have not seen much of it sell off yet if you look quarter to quarter. Year to year, there's been some changes, but quarter to quarter, it's essentially not moved as fast as we thought it was. But we're still planning for it to leave us by the end of the calendar year.
However, most likely, there's a there's a there's a probability that it could extend beyond that. We've done a really nice job of of replacing the TI business, the TI fulfillment business with higher margin opportunities, and there's three areas that we focus on. One is where there's a pin to pin compatible part with one of our other suppliers that we can quickly switch the customer to. Two is a lot of customers wanna make sure they have a balance between their distributors so they will share shift other suppliers' volumes towards us. And the third thing is is demand creation, which gives us a long term sticky foothold with our customers as we design in other technology partners' solutions into that design.
And we've seen a rich funnel in place, and we're converting that funnel very rapidly. And it's at a higher margin than the business that was leaving us. So if we work this well, this will become a speed bump, not a hole for us as we work through into fiscal twenty one and fiscal twenty two. Phil?
Yeah. Thanks, Phil. Just a couple additional comments. You you really outlined it well. We have a real, rigorous process around those three areas, pin for pin replacement, demand creation, designing them out for the next generation, share shift.
I'll just add that, you know, we actually have held held share, believe it or not, in the West with with TI, the West being Europe and and The Americas, and and we're obviously pleased with that. But I think the message it's really sending is the customers like Avnet. Our service levels are high. Their loyalties are high, and the customers really are not wanting to ship this business. Is it gonna ship?
Yeah. Are we prepared for that? Absolutely. But those customers are gonna wanna balance. They typically like to balance the competitive landscape inside their own shop, They don't want anyone, having too much or too little.
K? So and they gotta balance out the receivables or or, in their case, the payables. So we're very confident. Again, a lot of work. This is this is boots on the ground, you know, account by account, but we've got a tracking system by region, country, city, account manager, and GP dollars of what we need to do, k, to go replace that business, and that's the marching orders for the team.
So I just want and and let oh, guys. Come on. So I'm just sending it to the suppliers. They're they're they're not too sad about this. K?
So they're actually quite pleased, and and they're they're doing some things for us to help us go find this business and work with us from the technical side as well.
Great. I think, you know, we covered a lot of different things. So I I wanted to thank the whole team. I wanna thank Bill, Tom, Phil. Thank you all for, you know, joining us today.
I know we've got lots of questions, you know, that the investors have asked, and we we were not able to cover. So so if you have questions, please email them to me. Thanks, everyone, for attending the webcast today. We'll make sure, you know, we get the your questions to management, and we'll try and get them answered as soon as possible. So thanks everyone for joining today.
Thanks again the team from Avnet, and thanks everyone. Have a good day.
Bye bye.
Thank you. Thank you, Ruplu. Bye bye now.
Bye.