All right, we'll go ahead and get started. Thanks everybody for joining. My name is Adam Tindle. I cover IT supply chain and connected devices here at Raymond James. Very happy to have the team from Avnet introduce you to Avnet, for those of you not that familiar. We also have CFO Tom Liguori here, who will go through a couple financial slides. We'll keep it fairly informal. If you do have questions along the way, please feel free to raise your hand. We're also going to do a breakout session after this downstairs to explore further topics. With that, Bill?
Thanks, Adam. Let me get the clicker over here. I understand some of you aren't familiar with the distribution space and electronic components. Let me start with that before I get into any slides. We sit between major semiconductor suppliers, interconnect passive, and electromechanical suppliers to a lot of customers. The way the process works is as follows. If you think about any one given supplier, their top customers, call them their top 20 to 40 customers, they will take direct, and they will spend time with them generating demand, and they have a direct relationship with them. Unfortunately, there's a point in time where the cost to serve a smaller customer becomes unbearable for our suppliers.
Therefore, distribution provides a great service because we have such a broad line card of suppliers, thousands of suppliers, our cost to serve on all those suppliers is less than any one individual supplier. That's the reason why distribution exists to begin with. Second point I'd make is one of the big services we do for our suppliers is we generate demand, and we have customer expansion. The way we do that is we work with individual customers, with our engineering team, and we select technologies for them. As they're designing a particular part, component, product, they want the best ideas on the technologies that will give them a competitive advantage, cost reduction, a better time to market, and we're there to help them select those components.
When we do that, we get a, what's called, a design registration that the supplier then gives us preferential margin for when we start shipping that product in volume. That's one of the key elements of our distribution business. We've been around a long time, almost 100 years. We're in our 99th year, and we've seen wave after wave of technology change, and we've survived. If you look at an interesting statistic from the year 2000 to 2010, of the Fortune 500, only 50% of the companies are still around. It goes to show you how technology disruption can change business models and change companies in real-time. We've been able to survive lots of different issues, and the coronavirus is no different. We'll get through this one, and we'll be on to the next. We have a presence all over the world. We're in 125 different countries.
We have 15,000 employees across the world, 3,000-plus technical people. We have a software group called Softweb, that's part of the technical team of people that allows us to be able to put together end-to-end solutions in a very important space called IoT, which I'll talk about in a few moments. If you think about our key objectives of what we're trying to do over the next, call it 6-1 2 months, first and foremost is being able to manage the impacts from the virus, and there are plenty. We've seen pressure on our Asia business as we speak today. We were starting to see some firming of demand in the Americas as well as in Europe, and most recently, actually, in Asia until the virus hit. We saw softening in February.
Hopefully, this will be a transient thing and we'll get through it within a few months. As we sit today, we're still seeing pretty solid demand in the Americas and in Europe. Some of that may be because some customers are a bit nervous with respect to having parts available since there is going to be a supply disruption out of China, because they had an extra week for Chinese New Year. They were slow to get back up and running again because of being able to do all the appropriate protocols and checks in all of their facilities, temperature checks, et cetera, and are running something like anywhere from 60%-80% capacity at many of the factories in China today. That clearly will create some level of supply disruption over time. Second thing is, we picked up a catalog business called Premier Farnell.
The difference between Farnell and our core business is the following. Our core business has fewer SKUs, stock keeping units, but we have a lot of depth of inventory for each stock keeping unit, so we can handle production runs of our customers. The Farnell space is what's called the catalog space, and that's in place to help customers at the front end of their production. Pilot runs, onesies and twosies, engineers coming up with a new idea they want to experiment. The margin profile is much different than the margin profile in our core business. Our core business runs somewhere like 11%-12% gross profit. In our Farnell business, we run somewhere north of 35%-40% gross profit. Much different business dynamics. However, in the cycles, the economic cycles that happen have an interesting effect on our catalog business.
If you're in an upcycle, what occurs is lead times get extended out and parts become less available except in the catalog space. A lot of our customers will buy from the catalog space, and you see their growth rates at an upcycle actually faster than the overall market growth rates. Their profitability is higher. However, when the market turns to a down market, lead times start to collapse, parts become more readily available, and customers switch their purchases from the catalog guys to the broad line guys because the parts are available at less cost. You'll see their market growth rates actually are slower than the overall market. That dynamic happens through each one of the cycles that we go through. We're right now working on getting those margins from where they sit today at about 6%.
We believe in the upcycle, they'll be somewhere like 15%. We've got work to do quarter-over-quarter to make that happen. Expanding our electronic components revenue and margin while transitioning from TI. One of our major suppliers, Texas Instruments, had made a change to their entire go-to-market process, where they valued distributors historically. They were, in fact, one of the biggest companies supporting demand creation in the distribution space. A few years ago, they stopped supporting demand creation. Most recently, they decided that they were going to take the majority of their accounts direct, with the concept of over the course of the next several years, to essentially have no distribution in their particular go-to-market strategy. That's their thought process.
No other supplier has gone that route or has even contemplated that route, and they believe that's not the right idea, but that's the idea that Texas Instruments is on course to do, and we will be disengaged with them as we finish out this year. Our last parts purchase will be in November. There is a chance that could extend, given the fact that this is a very complicated set of customers they got to get through, and there's literally tens of thousands and hundreds of thousands of parts that we're talking about that need to get transitioned. Fourth element there is growing high-margin businesses like continue the journey that we have with Farnell. Avnet Integrated is a business that we actually do manufacturing. In this business, we have three different legs of the stool here.
One of them is the display business, and many of the displays you see in a lot of OEM products come from Avnet, and we have a very slick process that helps customers reduce their time to market as they pick display solutions. Second business we have is an embedded board business, where we provide embedded boards for many different products across the world. Our secret sauce there is we've figured out how to digitize the front end and stay competitive in the surface mount technology space, where others have had to abdicate that space to China or Taiwan. In fact, where we have three employees to do a particular line, it takes 30-plus to do that over in China.
We have some secret sauce there that allows us to be able to have a great growth potential, which we've been able to have, as well as higher margins than the rest of our business. The third business is the data center business, where we do server storage and networking solutions with a software stack that we sell to customers who embed that into their products. Finally, we've done a really nice job over the course of the last several years to continue to manage our costs down and get more productive in everything that we do.
We've implemented tools like Salesforce.com, Vendavo, which is an artificial intelligence pricing tool that essentially takes all of the information that's in the world, as well as from what we've done historically with our customers, and offers up the best price for our salespeople to select that we can still win the job but get the best margins out of. That's now implemented in almost every one of our units, and we're now just at the early stages of getting some real results and benefits associated with a tool like that. We've implemented several robotic process automation tools across the entire company, which has helped us dramatically improve productivity. We've migrated lots of our growth, as far as headcount goes, to cost-effective geographies.
Think about Serbia in Europe, Guadalajara in Mexico, Bangalore, and Ahmedabad in India, just to name a few of the sites that we have as what I'll call cost-effective geographies. We set in place, a year and a half ago, a $245 million game plan to take out of the company. We're roughly two-thirds of the way there now, we're well on our way to be able to make our $245 million OpEx target over time. One of the unique things that we put in place was a ecosystem. It was anchored with this idea from Premier Farnell, being a specialty catalog guy who services customers at the front end of their life cycle.
With this ecosystem, we're able to take an idea off the back of an envelope and be able to convert that into a design, take it into pilot production, full scale production, all the way through end of life. That's the magic associated with ecosystem. There isn't any other distributor today who's assembled the set of companies that we have that's in place to be able to pull this off. We have a five-point strategy that we're going after. One is to amplify our distribution opportunities and continue to win customers and expand our opportunities there. Second is to grow and scale our high-margin businesses, and I mentioned Farnell, and I mentioned Avnet Integrated. I didn't mention IoT yet. Let me just talk for a moment about IoT. There isn't a boardroom that somebody isn't talking about IoT, Internet of Things.
We developed a practice where we understood all the customer pain points to be able to do a proof of concept and then be able to scale that. As we sit today, there's roughly 20 billion devices connected worldwide, growing to 50 billion devices. It's clearly a major opportunity for most everybody in the space. What we've been able to do is put together a solution that allows us to not just do the devices, but we can have our own gateway, the network, the cloud, the applications in the cloud that provide insights to customers in use cases such as predictive maintenance, asset monitoring, smart worker, smart factory, smart cities, just to name a few things of where IoT will play. The difficulty has been getting that proof of concept that demonstrates a return on investment that can scale.
We've been able to do that with many of the marquee companies that you know that are daily household names that we're working with today, and we're in the process of ramping that up. Today, that solution revenue, as we call it, versus component revenue, represents a little less than $100 million today, but clearly is going to grow rapidly. Our objective will be to eventually break that out as a reporting segment to demonstrate that it's growing much faster than our core, with profitability that's more like 15% operating income versus where we're sitting today at less than 3% on our core business. It's an exciting opportunity for us to be able to grow our high-margin opportunities. Expanding digital capabilities. I mentioned a few of the tools already, Salesforce, Vendavo. I didn't mention Marketo.
It's another tool that essentially allows us to be able to take the leads that are out there and score the leads so we can get a hot list of leads to our salespeople that have a high probability of converting, which is something that's really terrific to have that sort of intelligence built into a tool. Digitization is what a lot of companies are talking about in order to be able to get their productivity and efficiency and effectiveness improved. Leveraging the ecosystem, I showed you on the last chart, is how can we allow a customer to come in at any part of their life cycle, and we're still able to service them.
Additionally, because of our massive coverage in our core space, we have the ability to take a company like Farnell into our core customers who were using different catalog suppliers previously and now get them convinced that they should use our Farnell business. That's exactly what we're doing, and we're seeing some pickup with that, and we're able to get additional margin because of it. Finally, driving continuous improvement. That's that $245 million OpEx reduction plan that I talked about earlier that we're well on the way of completing. With respect to Farnell, we bought the property in October 2016. It was an underperforming asset at the time. We set in place this five-prong plan that essentially gets us well prepared to be able to get our unfair share when we go back into the upside again.
Most notably, I'll just talk about one on there, is the product and SKU expansion. We bought the unit. It didn't have as many SKUs as some of its nearest competitors. In this space, when you go to the website, if the part's there, you buy it. If the part's not there, you go to a competing website to buy it. By expanding the SKUs and getting prepared for when the upside occurs, when they come to our website, the parts will be there. Additionally, we improved the speed on the site as well as some of the self-serve tools that are on there. For example, an Amazon-like experience where we say, "If you bought this part, most people would have bought this part as well, so you should consider that." That cross-referencing of parts gives us more revenue and margin opportunities.
We bought these three acquisitions recently. Softweb is kind of the heart and soul of what we're trying to do with our IoT business. We created something called IoTConnect. I'll talk a little bit more about that platform play that allows us to be able to seamlessly connect devices into the cloud. Witekio is a company that's helping us with our security at the edge. One of the things that all of us are most nervous about, you have Nest or you have a Amazon Echo at home, you get concerned that somebody could hack into that and get to one of your bank accounts. We've perfected some real security through Witekio as well as Microsoft that allows us to have the ultimate protection at the edge. Finally, Phoenix is a smaller core distribution distributor. There's not many of those left in the world.
We were lucky to get this one and be able to roll it up into our business. They're a focused line card, meaning they have a lot fewer level of suppliers on their line card compared to core Avnet, and they're really focused on demand creation. They're a higher margin opportunity. They're in the mid to high single-digit operating income, and so far, they've been a very successful acquisition for us as well. Finally, let me talk about the platform play. In CES, we announced that we are having a platform that will allow other partners to be able to connect seamlessly in their practice to the Internet with devices. We certify devices from our suppliers that we make them plug and play.
What we do is we enable systems integrators who have their own IoT practices to be able to now go to market faster at less cost and less complexity, so they're able to get their solutions to their customers much quicker by using this platform. We signed up over dozen since CES. This will grow to tens and hundreds over time. We have a marketplace where people will be putting up, developers will put up their applications, whether the application is an asset monitoring application, predictive maintenance, et cetera. Think about that like the Apple iTunes Store or App Store, where they have apps that are being developed and put up on the site that others can purchase in order to be able to speed their time to market with respect to their IoT deployment. With that, let me turn it over to Tom.
Well, thank you, Bill. Good afternoon, everyone. I want to make sure we have plenty of time for Q&A, so I'm going to be a little brief. Today, our demand is uncertain because of the coronavirus, because of the economy, many factors. We've been saying for the last few quarters that we are going to manage those factors under our control, and that is our cost structure, our working capital, and our cash generation. When we look at our cost structure, as Bill said, we started this about 18 months ago, June of 2018. We said the plan is to get $245 million of OpEx savings. As of the beginning of our fiscal year, we were down $117 million, and you can go right to our financials and see that.
Today, we're about two-thirds of the way through at 170. What's really good is we have a very clear path to how to get to 245 or higher. These projects, which have been in the works for several quarters, but now are being implemented, which is a new distribution center in Leeds for Farnell, and that's a distribution center that'll have higher capacity, but lower total cost. We're moving global IS, that's our IT department, more to a managed service process. In finance, we're outsourcing many of our transaction processing activities. As Bill said, moving things to low-cost geographies. We have Belgrade, Guadalajara, India, and this should be complete by basically June of 2021, so about a year and a half. That's correct. Let me tell you why this is important.
Yeah, it's important for the dollars, but it's really important for a recovery, because when we're in a recovery, we want to see what we call drop-through, meaning as revenues go up, we earn gross margin dollars. We want those gross margin dollars to drop-through straight to the operating income. By having a lean cost structure, we can have a pretty high drop-through rate on our margin dollars during a recovery. The second thing is our working capital and cash generation. When we started this also in June 2018, we looked at working capital in terms of days. We had 96 days of working capital. Today, we have 83. Why is that important? Every day is worth $50 million of cash, and we have a goal to get to 70.
If you look at the last 12 months, we've generated about $950 million of cash flow from operations. To put that in perspective, good or bad, our market cap is $3 billion, we generated a third of our market cap in terms of cash. We've used that, we've taken half of that, and we've returned it to our shareholders, predominantly in terms of share repurchases, but we also have a dividend program. Our dividend is now yielding 2.7%, 2.8%. Our share count when we started was 118 million. Today, it's under 100 million. Again, just like cost, these are things that during a recovery are going to benefit us and benefit our financials. I'll just leave you with the thought that Bill mentioned we have 15,000 employees.
We're 15,000 strong, and really what all of this tells you is that our team, they're good operators. They're focused on their cost. They're focused on their working capital. They're focused on serving our customers and our suppliers. One thing we didn't talk about was Americas performance. We've been taking share in Americas for about six quarters in a row. These are all things, while you see them in our financials today, as we go through a recovery, they're going to benefit us quite a bit. With that, I'm going to turn it over to Adam to start the Q&A.
Sure. I'll kick it off, and obviously please raise your hand if you have questions. Maybe we'll start just near term. You made some comments about regional demand. I think last time we spoke, each of the different regions were approaching parity for book-to-bill. Can you just maybe double-click and give us more of a sense of magnitude of book-to-bill by region and how that's trended?
Europe, if you went back several months in, say, September of last year, I think we went negative, and we've been negative all the way through until now. We're back to parity in Europe. Europe is headed in the right direction, although, whatever happens with this virus thing. Right now, we're still positive, and checks today would say we're positive today. Same with Americas. Americas didn't go through as much of a dip as Europe did. They stayed a little bit more robust, and now they're two above one. Asia was actually above one in January, and then when this hit, they've now fallen below one.
Below one, down to 0.8 like it was before?
Yeah.
That's fair. Okay. On customer inventory levels, book-to-bill, leading indicator for demand, how about inventories by region? Are you seeing any major notable changes there?
No. In fact, we look at expedite rates and cancellation rates very carefully, and expedite rates has been actually increasing a bit, and cancellation rates have actually gone down. There's a shot that we will see some customers actually ordering before they need it now because they're worried about that disruption I talked about in China to try to get parts in sooner. There's some chance that that will happen over the course of the next several weeks.
Questions from the audience? I'll keep going. You alluded to Texas Instruments, and that's obviously a point of interest for investors who are nervous that other suppliers will go that direction. Maybe just touch on what was unique to that particular supplier, and then also, they are retaining a global distributor, so what that process was like and why you were not the one that was retained.
Texas Instruments has the broadest array of analog devices as well as devices in general. They view themselves as if they are a distributor from the standpoint of how broad they are. The value add the distributor brings to the market is we bring technology to our customers in a cost-effective, lead time optimized way. Over time, they said, "We can pick that margin up," TI said, "We can pick the margin up with the distributor by doing it ourselves, and if we build out a world-class website, customers will come. They have to come to buy TI parts." That's kind of the concept is that over time, they will have all their long-tail customers, which distribution serves, go through their website, and all of their top customers, they'll go direct. Their game plan, most recent, I should say this first.
They stopped demand creation about three years ago. In 2017, January was the last day they paid for any demand creation, and from there on, it was only fulfillment level work with them. In this past year, they made a decision and said, "We are going to consolidate to one distributor today with the vision of going to no distributors over time." That's the game plan. The process of doing that, when they make this change by the end of this year, 40% of all the work that was added, all the distributors will be already taken direct by TI, leaving the lower margin stuff consolidated into one distributor, and biased towards Asia. More Asia volume than anywhere else. That's kind of the current game plan in place.
To answer your question, the choice there is, I think the European disruptions that we had a few years ago created some level of pain for them, as well as their view of stability. They decided they wanted to go with somebody else. I don't know that being the last man standing is a bonus prize or not, we'll see how that plays out, because if the margin profile is as we expect, that could actually end up being dilutive.
How are customers responding? This news has obviously been out there for a while. We haven't seen a lot of impact on your business so far. What are the contingency plans, and is there any evidence that you're going to lose customers through this?
No. In fact, customers aren't happy with Texas Instruments for making this move because it disrupts their supply line, and they don't see a payback for them to go have disruption. That's why they don't like it. What they're doing is the following: They're working with us on where there's pin-compatible changes to actually change out TI parts immediately. That represents about 10% of the TI volume, and we've already started changing out parts with compatible other supplier parts. Customers are motivated to do that because of this change that's been thrust upon them. Second thing is share shift. A given customer doesn't want any one distributor to be too large, so what they do is they look at the spend and they say, "Okay, now more spend is going to go over to this guy over here.
We're going to take some supplier work now and move it into us. We're seeing share shift happen real time. The third part of the strategy is for us to demand create out of this. As there's a new product that rolls off, we're working with our engineers right now and selecting parts that aren't TI parts to be able to do that design. We think because there's so much time that this is going to take, we started this process back in last November, it will exit most likely in December, but it could actually go longer than that, because this is very complicated for them.
If it goes longer, it's even better for us to be able to replace a bunch of sockets that we'll fill with TI parts with somebody else at higher margins, because the margins we were getting with TI were fulfillment margins. The margins we'll replace them with will be more like demand creation margins. We have an opportunity to be able to further this in and have this be a speed bump versus a crater.
Did you want to add something, Tom?
No, I'm good.
Okay. Maybe we'll talk about Farnell a little bit. A differentiator for you, higher margin business, your largest competitor doesn't really have a presence, certainly not to this scale that you do. Pretty interesting story within Avnet. Maybe just touch on the economics of the business, some recent trends and why they're temporary, and then maybe the advantage to having this unique model with catalog and volume together.
Let me hit the last question first. The uniqueness about having catalog and broadline together is we've been able to demonstrate synergies of lead sharing from Farnell as a customer starts to grow. If you think about it, early in the cycle, they have limited parts. As that customer starts to grow or that product line starts to grow, they reach a point where Farnell can no longer service them, and historically, that would go out to broadline distribution with a bid. Now we're able to seamlessly hand that over to Avnet, so we capture that lead inside the company without losing it to the rest of the market. Additionally, what we found that became an interesting opportunity was this idea of joint selling, where we have our Avnet team in accounts that aren't using Farnell.
Now we can sell Farnell and displace the competitors to Farnell out of those particular accounts. That's starting to work extremely well. With respect to the overall ecosystem, we now have the opportunity to be able to touch customers all through the entire life cycle, which we weren't able to do before. That was what makes the power of the ecosystem really come to life. Now, with respect to margin profiles, because we sell lots of SKUs and a few of them to customers that need them right away, that margin profile is much higher. It's more like in a 35%-40% versus 10%-15%, which is in our core business.
Despite the need to invest in inventory, Tom, you've been able to still shepherd some really healthy cash flow trends. I know you touched on the trailing cash flow, but how you think about a more normalized cash flow profile for the company and why you think share repurchases and increasing dividend as key priorities or a good chunk of that capital allocation, why that's the right strategy.
Sure. First of all, we think normalized cash flow throughout the cycle, $400 million-$500 million. We're really benefiting from, hey, we had an opportunity to reduce working capital, and we've done that. That said, we're at 83 days. We have a target to get to 70. There's a fair amount of opportunity. It's not going to take a quarter or two. It's a year and a half. This takes a lot of work to get there. When we look at our capital allocation, yes, we have a dividend that's important. It has a good yield. Yes, we invest in our business. The other 50% I didn't talk about was CapEx for distribution centers like Leeds. It makes us a better distributor. SaaS tools, like the pricing tool, CRM tools that make us better managers of our business. M&A. Bill mentioned Witekio and Softweb.
This is really important because they bring new capabilities. If you really think about capital allocation, part goes to shareholder, part makes us a better distributor because of what we're offering. When we look at buybacks, we look at it as really a return on investment. We look at our share price, what we believe our share price is worth. It's based on a price grid. As our share price goes down, we buy back more. As our share price goes up, we buy back less. We're at a low point now, so we're buying back more shares today than we were four or five weeks ago, and we have a little over $500 million left on our board authorization.
$4 million-$500 million of normalized free cash flow on a $3 billion market cap is pretty interesting.
It's pretty good.
We'll continue this discussion now.
We need to get the market cap up.
Yeah
In addition to the cash flow.
Let's work on that downstairs on the breakout. Thank you, Bill.
Thank you.