Thank you and welcome, everyone. I want to welcome you to our Investment Day. I think you're in for a real treat today. I'm Bill Amelio, the CEO, and I'm excited to be here with my leadership team. I'm going to share with you some important progress that we've made on our business, and more importantly, how we're reshaping Avnet for the future that's ahead of us. As a customer recently said to me, "Avnet makes Technology Solutions simple." The work at Avnet is all around us, it's in your home, it's in your cars, and it's in this room. For nearly 100 years, we've been the partner of choice, guiding customers through the greatest technology innovations of our time. Our humble beginnings in Radio Row in New York City, just a short 4 mi from here, is where Charles Avnet founded Avnet back in 1921.
Like radio and radio tubes back in the 1920s, technology continues to change the way each of us live, work, and play. And through each evolution, two things ring true. First, new and unique market opportunities are always being created. And secondly, Avnet has been guiding our business and our customers through all this change. You may think of us as a component and a supply chain service provider, but in less than two years, we've become a Technology Solutions powerhouse. New additions to our ecosystem have already generated $3 billion of revenue, with over 10% operating income associated with that revenue. Coupled with our progressive digital strategy and our aggressive transformation project, I'm confident, I'm confident that we'll deliver on our 4.5%-5% operating income over the next three years.
I want to share with you why we've been working so hard to transform our business model. It's based on three important realities. First, there's a massive market opportunity that presents itself to Avnet. Secondly, customers are really struggling with the complexity of bringing Technology Solutions to the market. And third, they're desperately needing, our customers, a partner to take them through that journey. I joined the Avnet board of directors back in 2014. The board understood that the market was changing rapidly, and our company wasn't changing fast enough. In 2016, the board asked me to become CEO, focusing on two primary things: stabilize and strengthen the core operations of Avnet, and secondly, dramatically reshape Avnet's strategy and reposition Avnet to be ahead of the market. You know, I have the experience to do that.
I worked my way up the ranks in operations, engineering, sales, marketing, finance, and I'm a three-time CEO. On my way to the C-suite, I learned that delivering results means a relentless focus on three things: strategy, execution, and talent management. We set out to create a strategy that is bold and inspiring, that drives both growth and shareholder value. Results require, however, a disciplined execution process. We instilled a business management system and processes that drive both accountability of results, as well as the ability to be able to drive those results successfully. And from a talent management point of view, all of us know we got to have the right people in the right jobs. Jim Collins once wisely said, "People are not your most important asset.
The right people are your most important asset." Well, we've made a number of leadership changes since some of you seen us back in 2015, and we had to do that because it was imperative for us to be able to change the trajectory of the company. You'll meet several of those leaders here today. Look, I'm excited and humbled to be part of this respected company's journey into this next chapter. Well, enough about me and my approach. Let's talk about Avnet and what you're going to hear today. Some of the key messages I want you to receive when you walk away today are, we've made tremendous progress in improving Avnet operations. Secondly, the wave of technology is creating a tremendous market opportunity for our company.
And third, we've assembled a unique ecosystem that has the right capabilities at the right time that customers want. Our path to growth and profitability is clear and achievable. As I said before, we will hit our 4.5%-5% operating income over the next three years. Our company has changed dramatically over the last 12-18 months. We began a critical process of transforming Avnet by selling our Technology Solutions business, acquiring Premier Farnell, Hackster.io, and Dragon Innovation. This has allowed us to create this new and unique and differentiated ecosystem, and we started a company-wide transformation. It touched everybody in the company. We did it to help improve our operations and, of course, to lower our costs.
We also stabilized our business operations and our performance, and we're improving our earnings and our cash flow, and we're regaining confidence of both our customers and our suppliers. Let me share with you a few proof points on how we know that our business is, in fact, improving. Our Americas ERP performance is back on track. Defects and incidents have declined significantly, and we no longer have issues supporting any of our customers or any of our suppliers. In January this past year, we completed a successful ERP implementation in one of the most difficult regions that we have, Europe, Middle East, and Africa. Our quoting cycle times have dropped by more than half, and they continue to improve. Our objective is to make quoting a distinctive competitive advantage for Avnet. Customers often, often tell us, "If you get quoting right,... you win.
It makes perfect sense to me, because you have to be able to quote efficiently and effectively if you want to book the order and then eventually build the order. We regularly measure how customers feel about us. We use a Net Promoter Score . This chart tracks the last four quarters of customer feedback. It's clear our customers now agree, we've improved our performance as their scores have rebounded. Our customers are back, and they're fully engaged with Avnet each and every day. As you'll recall, back in 2017, we reset our financial expectations for fiscal 2018. We provided lower guidance for the year based on some of our challenges. I'm happy to report that we've exceeded those targets, and in fact, we replaced the $1 billion of lost revenue and gross profit margin from lost suppliers and supplier program changes in one year.
We did this through two key actions. We brought on board, and we won 50 new supply lines between Avnet and Premier Farnell, replacing lost businesses with new product lines. Secondly, our transformation program has been a smashing success, and we've significantly contributed to improving the performance of the company. This chart illustrates how we beat consensus annual expectations since last April. Look, lowering expectations is never a good thing, but it's critical that we demonstrate to you now the importance of making and keeping commitments to our stakeholders. We intend to continue meeting or beating our financial commitments going forward. Our commitment, again, is to achieve 4.5%-5% operating margins, and we'll do it in the next three years.
We have a clear picture, you will have a clear picture by the end of today, how we plan to achieve this commitment. The progress we've made to date allows us to move from playing defense to playing offense. The remainder of my remarks today will be how we plan to play offense. Let's talk about the dramatic market forces at play and the big opportunities they have for Avnet. Most of you have seen some version of this chart historically. It's important to take stock in what's happening in the marketplace and the implications it has on Avnet's strategy, our customer strategy, and our supplier strategy. Over the past 40 years, computing has cycled between being centralized and being distributed. In the 50s, 60s, and 70s, large centralized computer mainframes were the thing of the day.
They numbered in the tens of thousands shipped, and I'm very familiar with this particular market as I started my career, I hate to say it, back in 1979. That seems ancient right now. In the 1980s, the advent of the PC brought in another wave of distributed computing, where individuals began to engage directly with the computer and markets exploded in the low billions of devices. The emergence of the internet allowed us to move into client-server deployments. As the CEO of Lenovo, I was right there in the trenches building the strategy to allow us to be part of that growth wave. Next came the cloud and mobility. This brought personal computing and life-changing technology to literally billions of users. This ushered in the era of more centralized computing via the cloud.
And who would have thought, just as we're starting to peak in the cloud, that all of a sudden, we're starting to see ourselves move back to the edge again with IoT? And this looks like the ultimate distributed computing model, literally deploying trillions, trillions of endpoint devices. Nearly everything today is connected, and it computes. With this transition, we no longer rely solely on the cloud to provide compute cycles. Emerging applications like autonomous driving necessitates computing, residing at the gateway, and in some cases, even the edge. It's critical that latency doesn't create unintended consequences. This wave is characterized by a full solution of compute, connectivity, security, and data management. This dynamic wave of full solutions provides Avnet with tremendous opportunity. It's, when I say tremendous opportunity, it's like no time before.
I think we all realize that electronics are becoming smaller, more powerful, less expensive, and more connected. By 2025, 50 billion devices with data devices, data will be available. Gartner and McKinsey both say they measure the opportunity and economic impact in the trillions, and that's with a T, trillions. IoT has the potential equivalent of adding 11% to the world economy. That's massive. And it's characterized by companies not even in the technology industry today. They recognize how IoT can be transformative to their business models. Why? Because data now has become the new gold rush. But there are some significant challenges that companies face trying to take advantage of this opportunity. They unfortunately get stuck. IoT, while it's an easy concept, is actually quite complicated and complex to deploy.
Cisco reported that nearly three-quarters of all IoT initiatives get stuck in what they call the proof of concept purgatory. Why, you might ask? Well, because of the complexity of trying to put all these technologies together. Cisco's study also showed that 60% of IoT initiatives are proving to be a lot more complex than first expected. Cisco's study also shows the following things that cause that problem. First, defining the business value right from the onset. Second, scoping the opportunity appropriately. Third, breaking down the internal silos or the invisible resistance, as I like to call it, because IoT spans multiple departments with multiple different agendas. And finally, difficulty in integrating all the pieces, hardware, software, and services. The significant takeaway of this study is the following: successful IoT projects require, on the average, between 10 and 12 partners to get it done.
Even with these challenges, though, customers are seeing the tremendous value IoT can bring to their businesses. Customers today are just scratching the surface of what IoT has to offer for them, and they've learned that how to accelerate future investments that will have the biggest possible payoff for them with respect to IoT. The majority of them are using project data to improve their operations. Two big takeaways demonstrate the tremendous opportunity for our company. First, customers know that a partnership model is critical for their success. Secondly, they have learned that partnering at every stage of the product life cycle is critical if they want to avoid being stuck. To position us for growth, we have three key strategies that we're focusing on. First, you've heard me talk about our unique ecosystem.
We put together, in my mind, in our company's mind, an unmatched end-to-end solution ecosystem. I will cover this in some detail in a moment to show you how we'll enable Avnet to grow our top line and expand our margins. Pete and his team will talk about the other two strategies, notably digitizing Avnet and showing how we're delivering best-in-class, omni-channel approach for our customers. Secondly, serving customers how and where they want to be served. Transformation, which is a big part of Avnet's strategy. This is a process of continuous improvement of processes and tools to support our new business model. It includes digitizing Avnet's internal process, like lead sharing, pricing, and sales pipeline management. Traditionally, Avnet's sweet spot has been in the area of production to services portions of the life cycle.
We've been known for our expertise in supply chain, demand creation, and logistics, which made up the bulk of our revenue and margins in fiscal 2018. While we'll continue to leverage our world-class supply chain, demand creation, and logistics services, we're investing heavily in higher growth, higher margin services and solutions capabilities. This will become a much larger portion of our revenue and margins moving forward. So let's talk about how we're going to do that. What I'm showing you here depicts our new business model. We can now help a customer go from idea to product and product to market. We have created a unique model that shows how to guide our customers all the way from the start of this life cycle to the end of the life cycle.
As I mentioned earlier, customers are increasingly needing partners to get their solutions to market. Avnet's ecosystem is specifically designed to reduce the complexities of technology, to lower their costs, and of course, improve their time to market. Earlier, I mentioned that customers need to have partners every step of the way, and they need to do that in order to deploy these complicated solutions. So let me walk you through Avnet's unique ecosystem, which effectively matches customers' needs all the way through the product life cycle. Starting on the left, when a customer has an idea, they can engage our community in Hackster.io and element14. They get product information, they get engineering support for hardware, software, and services, and they can even do research on technical specifications. Avnet communities are becoming essentially the search engine for engineers and makers.
Imagine having these experts all waiting to hear from you and waiting for a question. All you got to do is ask them a question, and you'll get a qualified answer. And this is with a base of 1 million engineers and makers, growing in size by over 50% per year. That's pretty powerful. As customers get their concept refined, it's time to move into design and prototype phases. Avnet design engineers, including Avnet, provide full design services, ensuring that the best components are sourced and the design is validated and tested. Premier Farnell, or Newark, as we call it here in the United States, provides small order quantity sourcing necessary for prototype builds and testing. Once the prototype is validated, it's off to manufacturing. This tends to be a major hurdle for most companies. How do I manufacture?
Is my product really designed right for manufacturability? This is where Avnet and Dragon Innovation come into focus. With tools to ensure optimal manufacturability, cost, and capital requirements, Avnet and Dragon Innovation can ensure the product is built with the best chances of success. Once the manufacturing begins, Avnet provides best-in-class supply chain, demand creation, and logistics services to scale your business globally. Not all customers want to engage the entire ecosystem. Avnet's model is flexible and provides customers end-to-end solutions and à la carte support. While I have introduced this ecosystem approach to you, I think it'd be really great for you to hear directly from Avnet leaders about why the ecosystem is so special. Roll the tape.
... Avnet's got a fantastic opportunity. The ecosystem is one of its kind. All the things we are executing right now will enable customers, large or small, to enter with their problems into the Avnet world and find the support and the solution they're looking for.
Avnet has an opportunity to become a brand and a well-known go-to place for startups and for engineers within the enterprise that are building cutting-edge technologies. If everybody knew that Avnet has all the services you need, from buying single components to tens of thousands of components, establishing full supply chain services, design for manufacturing, full-on design services by Avnet's AVID company, which does electronics design, to full-on manufacturing by Avnet's Embest manufacturing site in Shenzhen, to Avnet's relationship with Kickstarter, that helps you actually ship and launch products. Avnet has an answer for almost everything in the life cycle. If Avnet is able to communicate this to every person in our communities, we're gonna see explosive growth because this is the only place to go to. That's where you go to build products. It's Avnet.
Our customers of all sizes can walk up to us with an idea and say, "Hey, Scott, I want to build this thing. Can you help me?" Through Dragon and the other parts of Avnet, we can take them from that idea, build a prototype, help them pick a factory, manufacture it successfully, and eventually ship it straight to the customer. I think this is an incredibly powerful solution in that for the customer, there's huge value. They don't need to figure out how to answer all the unknown unknowns. It's a one-stop solution, and it will get them into the market more efficiently at a lower cost so that they can be more competitive.
Avnet now has a network of over 1 million hardware engineers, software engineers, developers and makers that really build the hardware world as we know it. There's nothing even close to this in the industry. Any one of our competitors doesn't have anything even remotely close to what we're trying to do here. Today, if you look at by generationally, look at millennials and younger developers, they really are attracted to open source. They're very hands-on developers. They wanna be able to replicate anything they want to learn. They're actually learning by doing. The ability for them to access over 12,000 projects, open source projects on Hackster across any type of environment. They have the entire diversity of over 190 platforms. You just don't have this anywhere else.
Between these two communities, you cover so much that you become the most attractive place to go to.
Dragon is an important part of the Avnet ecosystem because through our software and our solutions, we offer much greater gross profit than has been, seen before through distributors.
Well, thanks, Adam. As Adam said, Avnet has the solution. In addition to our own ecosystem, Avnet partners with some of the biggest, most successful brands in the industry. They provide applications, cloud connectivity, and other services to our customers. Partners complement our full solutions, and they help customers with their solutions. Partners like Intel, AT&T, Microsoft, are just a few that have chosen Avnet to partner with because of our unique ecosystem. And it's interesting to note, when Microsoft had a critical security solution to deploy for their IoT solutions, they chose Avnet as their partner. They saw the value in our ecosystem and the breadth of our capabilities in IoT. Microsoft selected Avnet to go to market with. So what does this mean for our business model? Our ecosystem provides us a way to engage customers well beyond just hardware.
We now have the opportunity to do services, software, application support, and design services, and this allows us to actually create IP, do work in the cloud, security, data and analytical tools, including data management, all of which offers higher margins and better growth prospects for us in the future. We can now realize multiple revenue streams from a single customer, including recurring revenue. This means we can generate greater value for all of our stakeholders, and we're confident we will succeed. Our new business model is uniquely able to solve customers' most difficult problems. Another important factor about the company is our objectivity. In this industry, it's easy for customers to engage a trusted partner. We build a horizontal business model that is designed for this new market opportunity. We provide cost-optimized, lead time optimized solutions for our customers.
We're not tied to any specific technology or platform. Instead, we are truly an unbiased helper that can give customized solutions for each and every one of our customers. We have the best of both worlds with Avnet's ecosystem, and we can leverage both a traditional broad line distributor and a high service catalog supplier. We can integrate hardware and software, we can design and manufacture full solutions, and we have the people and the partnerships to get it done. This changes everything. Our new model and capabilities have created one thing, the market is coming to Avnet. In short, we're becoming increasingly more valuable to each and every one of our customers, and the reasons are simple. Speed: we speed their time to market, we lower their cost, and we take out the complexity associated with difficult technical solutions.
In summary, Avnet has turned the corner and spoken all of our key operational issues that were affecting the business. Avnet's uniquely positioned to capitalize on high-margin edge-to-cloud applications.... The market is coming to us, no doubt, and Avnet's capability or capabilities are increasingly more valuable to our customers. And our path to meaningful growth and to get to that 4.5%-5% operating income is clear, and it's achievable. Let's look at today's agenda. We have a great day planned for you. Next, you'll hear from Pete Bartolotta, our Chief Transformation Officer. He'll introduce a few of his leaders to talk about Premier Farnell, Avnet Integrated, and Demand Creation. Then we'll give you a short break. Then we'll have Phil come up after the break and talk about Electronic Components business.
You'll hear directly then from a few customers and suppliers that Phil will moderate, and then Tom will round out the day with a detailed look at the numbers, which you'll all be waiting for. And then, before I transition to Pete, I want you to hear directly from Mick Ebeling, the CEO of Not Impossible Labs. They're one of our newest customers, and I want him to tell you directly why he chose Avnet.
Not Impossible Labs is a technology innovation R&D lab committed to making what we call technology for the sake of humanity. And what that means is, we look at the world for things that... social issues and things that we consider to be absurd, and we say: How can we use technology to solve those problems? And a project we're very excited about is a project that we're actually working on with Avnet, and it's called Music Not Impossible. And the origin of this was this obsession that I had with how the deaf would experience music, and they would stand in front of speakers and just receive the vibrations against their chest.
And it made me and my team start to think, "Wait a second, if they're just receiving vibrations through their skin, that they're not able to understand the beauty and the acuteness of music from the different instruments that play to make up a song." So we said, "Well, what if we hack around the broken bits, the eardrums, the part that's not working, and we figure out how to get to the part that actually does the hearing, which is the brain?" So we figured out how to replicate the act of the eardrum, receiving vibrations and sending the signal to the brain. We figured out how to do that with the skin, and we've created now a piece of wearable technology, something that is composed of 2 wristbands, 2 ankle bands, and a harness with multiple vibrating components to it.
What it does is it receives the signal of music in wirelessly, and then the different instruments are projected to different parts of the body: guitars, drums to your ankles, bass to the base of your spine, vocals to your rib cage. So now that signal, that music signal, is able to be conveyed back up to the brain so that a deaf person and a hearing person share a similar experience in terms of how music is, is felt. When we're looking at how we, as a company, take our prototype to scale and to market, we didn't know what we didn't know.
We had an idea, but the complexity of what it means to take a product to market, and the integration of things like hardware and software and data analytics and cloud and security, those are all factors that weaving those together in a really meaningful, seamless way, that's difficult. And in working with Avnet, they're a partner that reduces that complexity for us. And we wouldn't be where we are today, and we wouldn't be there at the speed that we are today without them. In the end, our job is to help people. And to do that, we needed a partner that could help us reduce the complexity of the ideas that we've created, to help us get to market as quickly and as powerfully as possible, and ultimately offer it at a price point that people could afford.
We wouldn't be where we are today had we not chosen Avnet as a partner.
Thanks, Mick. Great things ahead with Not Impossible Labs, for sure. Pete, take it away.
Thanks, Bill. Appreciate it. As Bill said, I'm the Chief Transformation Officer, and I, I get the opportunity to work with guys like Mick Ebeling. Think about that, technology for the sake of humanity. How great is that? We actually have 250 of these devices in production right now, and on September 21st, in Las Vegas, we'll have the first live deaf concert. So if anybody's interested in that and hearing more about it, just see me on the break, and I'll let you know about it. So I could stand up here and talk all day about transformation, but let me tell you a little bit about where I've been and, and where my team is, is gonna talk to you about today. So my background is, is mostly high tech. You can see the companies on the screen there.
Mostly, the things that I've done have been around technology, engineering, manufacturing, operations. Right now, I lead the transformation program, as well as our Premier Farnell and Avnet Integrated businesses, the digital team, our global logistics, and our design capabilities. Some of my team are here today, and I'll introduce them in a moment. So Bill touched on transformation, and again, I can talk about transformation for a long time. But to simplify it, I'm going to show you a few charts of what we're doing with our transformation program. It's an employee and business-led initiative. It turns ideas into projects and projects into reality. It has now become our continuous improvement process and part of the Avnet culture. So it starts with a very rigorous management process, as you can see on the top of the screen, and it starts with an idea.
That idea goes into some sort of validation. Is this a good idea? Can it save cost? Could it grow revenue? Could it produce additional margins for the company? We put a plan together. We put timelines and a business plan and Gantt charts and milestones. Once all those say, "Hey, this is a, this is a good project," it goes into a commit, and that's the part that our CFO likes the most, because once it gets into the commit process, it actually gets put into someone's budget, either from a cost reduction or a growth improvement initiative. Then we track the project rigorously throughout its life cycle until it's generating the desired goal.
You can see from the bottom of the chart, just some of the capability the tool has to be able to produce great reporting, great tracking, for us to be able to keep hundreds and hundreds of projects on schedule. The results have been, as Bill said, quite amazing. Through the process, we've turned 600 different ideas into 400 different initiatives. They saved over, just in this fiscal year, $120 million of cost takeout and have driven growth projects that yielded $20 million of additional margin. Quite impressive, and it shows the rigor that we've been able to deploy in the process and how, how transformation has become part of Avnet's DNA. Let me talk to you about the topics that my team will cover today.
It'll start with Kevin Yapp, talking about how we continue to accelerate our our lead in digital. The newly appointed Premier Farnell President, Chris Breslin, will talk about the importance of Premier Farnell in our ecosystem. And then President of Avnet Integrated, Scott MacDonald, is gonna talk about how we've transformed the Avnet Integrated business. And then I'll come back to talk about two very important topics, demand creation and the Internet of Things. So I'll turn it over to Kevin.
Thank you, Pete, and good morning, everybody. So over this section, I'm gonna talk about three key areas of Avnet's digitization. Firstly, I'm gonna talk about commerce and the customer-facing elements, and there we've got really good performance. Our web sales are on a run rate of $850 million, so that's an 18% growth year-over-year, so we're on a great trajectory. And it's also at very good margin, and I'll dive a little bit more into the margin on my next slide. The second piece I'm gonna talk about is how we're digitizing our internal processes to try and improve efficiency and reach.
Then finally, I'm gonna get into a bit more detail around the ecosystem that Bill talked about earlier, and how we're mining data and working with customers to take leads through from initial discovery right the way through to production. So I'll begin with commerce and the customer-facing elements, and as I said, this is growing very strongly at 18% year-over-year. The margin story is very powerful as well, though. So part of that is Premier Farnell. Premier Farnell are running at mid-thirties margins and, and more than half of their business is through digital channels, and Chris will talk about that in a little bit more detail in a few minutes. But even in core Avnet, our gross profit through the web is more than 25 points.
Some of that's about customer behavior, so you might have a very big customer, but their design team goes onto the website and purchases with credit cards. Some of it, however, is scalable, and we're reworking our whole contact strategy to accelerate that opportunity and get that margin. If we look at all of our digital channels, more than 50% of Avnet's transactions are tackled digitally, and that's important because of the efficiencies that comes along with it. On our websites, the way that we're growing the business is by listening really hard to customers, finding the pain points that they're wrestling with, and then standing up solutions that really delight them and help them overcome them. One of the good examples is our bill of materials tool, our BOM tool.
So a bill of materials is a shopping list in from a customer, and they have to load that onto our website, choose the right products, and then place the order. We had our BOM tool assessed versus the whole of the market by Forrester, and it was by far and away the number one tool out there. So by getting that functionality right, we can improve our web sales. Finally, I think probably one of Avnet's key strengths is our people. We're widely recognized for that. And with any transformation, people is probably the toughest piece to crack. So we've done two things. We've worked really hard to make sure that digital tools help our people reach more customers. And then we've got a program that we've called Digital Ambassadors.
That started off here in North America, where we've got a digital champion in every branch and in the field, and they're really helping all of our salespeople get to grips with the tools that we're standing up and really embrace them, and we're rolling that out around the world. This graphic shows the 4 areas that we've split our digital transformation into. The top right is what I've just covered, so customer facing and commerce. That's where everybody starts. It's high return on investment, and it's the logical place to start. But over the last 18 months, we've broadened our whole approach to digital transformation. The quadrants that you see up there, we've got a fully balanced approach, which includes our operations, it includes engaging and developing our people, and it includes the work into our ecosystem....
Across the lot, we've got over 50 initiatives running, which are deliberately harnessing the ingenuity of our people to take new cutting-edge technology and really pilot it and see what works. And we're rolling out pilots to global approaches only based on KPIs. So we make sure something works in a pilot before we move it on. And that's important so that we don't overstretch our resources and our people. So I'm going to give examples in those other three quadrants. If I start on the two quadrants of people and operations, those two share very similar goals. In both quadrants, we're trying to improve efficiency and reach, and also free up our salespeople so that they can do value-adding tasks that can really help with our customers. I've got four examples up on the slide. The first is Ask Avnet. You might have heard of Ask Avnet.
We've had a lot of press coverage. It's an artificial intelligence-based assistant that helps customers navigate around our ecosystem to find the products or the information that they want. But more recently, we've started to use it as the gateway for customer service and technical support. It can tackle the simple questions to free up our call center time, and it can also find out from the customer exactly what they do need, so that it can point them at the right people. The second example is price optimization tools. So we get a lot of quotations in from customers, and those tend to be long lists of products, but probably 80% of them are low-value products. They're not particularly interesting to the customers. It's the 20% that they're really bothered about.
So we're rolling out a tool that will use market analytics and internal analytics to populate that 80% that's less important, so as our people can partner with customers to get the right solution in the 20%. The next example is robotic process automation. Robotic process automation is where a software robot sits on your machine and watches the repetitive, boring, low-value-add tasks that somebody's doing and takes those and automates them to free up time. And in robotic process automation, we've been piloting in a couple of our geographies, and we've been looking at how we can use those tools to process supplier purchase orders. And again, that's gone very successfully, and we're in the process of rolling it out. And then the last example on this slide is HR Now.
So HR Now is a newly launched HR portal, which is reducing time to serve and improving turnaround times for employee HR. There's a neat bit here, though, because we've taken the smarts and the artificial intelligence that's behind Ask Avnet, and we've used that to create a chatbot that we can face internally. So as we've got this thing called Howie, not sure how we came up with the name, but we've got this thing called Howie that is an internal-facing chatbot for HR. So finally, our ecosystem and the work that we're doing to identify leads and really capitalize on them. I'm going to focus primarily on Premier Farnell and Avnet, but everything I say applies right across our ecosystem, particularly to our Hackster and element14 communities.
On Premier Farnell's website, Chris will elaborate on this in a few minutes, but on Premier Farnell's website, customers tend to buy small quantities of products to explore the technology or to build prototypes before they go into full production. So clearly, if we can spot that behavior early and talk to those customers early, we stand far more chance of winning their business when they do ultimately move into production. They effectively become highly valuable leads into the core business. That sounds nice and simple. What it's actually meant in reality is matching 2.1 million customer records in Premier Farnell with Avnet's own customer base in multiple language, multiple geographies, different character sets. So it's been a big piece of work, but it's unlocked some really, really powerful data. I'm going to give you one example.
So many of our suppliers, if they're launching a new semiconductor, will create these things called development kits. They put the semiconductor on a board, they surround with all of the other components that you need, and there's inputs and outputs, and that development kit can then be used by engineers to explore the technology, and then the engineer can decide whether or not that's the right semiconductor for their finished product. We set out to try and determine how many people that bought the development kit went on to buy the semiconductor, and we're able to predict that with a 93% certainty rate. The more impressive number is that what that really meant is we could take 10,000 sales of development kits and accurately predict 400 customers that were going to go on to buy those finished products.
So we've really been able to focus in what our salespeople are doing. It's really important, too, to understand that that hinges on the engagement of those customers with the Premier Farnell business. That engagement's really important. It's very different to if we bought magazine sites or customer mailing lists, because we've got that engagement inherent in the sites, and it's exactly the same in our two communities. It's a highly engaged audience that's ripe to talk to us. Finally, I want to talk a little bit about design registrations and the numbers that are at the bottom of the chart. A design registration is where one of our engineers has worked with a customer to solve a particular challenge with a particular supplier's technology. And then that supplier says, "Well done, Avnet," and rewards us with a design registration.
Think of it almost as a mini patent, and that brings with it margin support and support for the relationship with the customer, so they're highly valuable to us in our model. Where we've taken leads from Premier Farnell that merit a design registration, we're winning more than half of them, and that's an incredibly high strike rate. And it brings with us a whole new revenue stream, 'cause Premier Farnell's never been able to do anything with those leads previously. We've got a pipeline of around $10 million just from our European piloting of design registrations from Premier Farnell, and we're in the process of rolling that out at the moment. If we look at the full pipeline of leads between Premier Farnell and Avnet, even today, even as we're rolling out all of these different programs, it's already well over $50 million.
So it's an exciting piece of work. So with that, I'm gonna hand over to Chris Breslin, the President of Premier Farnell, to dive a little bit deeper into that.
Thank you, Kevin. Good morning, everyone. My name is Chris Breslin. I'm the new president of Premier Farnell, but I have been with the business for, in an executive position for the past four years. I actually joined Farnell about two and half years before the Avnet acquisition. I'll give you a little bit of a before and after flavor of how things are going. I want to take my time today to just talk about who Premier Farnell is, what we do, and how we fit in the overall Avnet ecosystem. If we take a look at the agenda, one, we play a critical part in the Avnet ecosystem, and we actually have two primary roles that we fulfill. The first of those roles is that we are the high service catalog distribution business unit of Avnet.
So we're a proper business, a proper P&L. And when I say high service, I'm talking about... Bill showed you the life cycle chart. And when I say high service, I'm talking about kind of the front end of that chart. It's all the products and services that a customer needs before their products reach mass production. All right? So that's a real simple overview of what that is. So as that business unit, you can see our numbers on the bottom. We're a $1.5 billion in revenue business. We're growing at 10% this year, and we will generate operating income and return on sales of 11%. Those numbers are radically different than before the acquisition. So, that's the first goal of our role in the ecosystem. We're a proper business, a proper P&L.
I like to say high service, high growth, high margin, high profitability. The second critical role we play in that ecosystem is kind of an enabler or a feeder role, and in that is how we take our leads. Kevin talked a little bit about this before. We take leads, and we generate them, and we pass them on through to our Avnet counterparts, whether they are at the engineering stage or at the supply chain stage. I'll touch a little bit about that when I go through the ecosystem in a little more detail. I'll also touch on the customer reach. We have about 2.1 million customers, so incredible reach of customers, and that gives our suppliers access to the mass market. We like to say we are your mass market at your fingertips. I'll talk a little bit about communities.
You heard a bunch about it from the videos, but I'll talk about how communities play an integral part in the way we go to market as a high-service distributor. And then finally, I get to share some results in terms of the investments that we've made in Premier Farnell, and give you some confidence as to why we're not satisfied with where we are with the 10% growth business and 11% operating return business, why we think we have some runway ahead of us to do even better. Okay, Bill showed this chart, so I'm just gonna add a little bit of meat around the bones in terms of high-service. We've kind of highlighted some places where Premier Farnell element14 plays.
I think the best way to walk through this or think about this is to think about what the customer needs and think about what the supplier needs as you go through this journey. So we talked a little bit earlier, the customer's really looking to take an idea and turn it into a viable business product. In order to do that, you need a lot of things. First thing you need is access to information, which you can get from the communities, but you also need access to a very broad range of product, right? Customers wanna try out, you know, what kind of processing speed. Do they need a real high-end 16-bit microcontroller? Can they get away with a 4- or 8-bit microcontroller? What kind of memory? How much memory? Power supplies, you know, what kind of power consumption they need.
All of those things, they wanna try a bunch of different versions, and they wanna hit the right cost-performance point as they lay them out and try their options on a board. So you need to have a really broad breadth of inventory to support that model, and that's what customers are looking for. The beautiful thing about that is they're not so concerned about price, right? The most important thing is speed of delivery. They want those products quickly. They wanna try them out. They wanna try out a bunch of different flavors, and then they wanna move on to get their design to market. Suppliers have a couple of other criteria at this stage. When suppliers measure distributors, you probably think the first thing they're asking about is sales and revenue growth, because that's what suppliers' primary concern is to drive their business.
Of course, they measure us on that in terms of market share, but the key criteria, the key performance indicators that suppliers use to measure high service distribution are, one, new product introduction, right? So if a supplier brings 1,000 new products to market in a year, they want a supply- they want a high service partner that's gonna buy and represent those products online, and they want you to buy the majority of them, not 50%, not 60%, right? So they want a high service partner that's gonna support their new product introductions, and these are all products that have no historic demands. The second thing they want is a partner to market and merchandise those products, right? They want to increase the chance of success of bringing those products to market.
So they want you to do everything you can do, and we're mostly an online business. They want you to do everything you can do to make their products easy to find and compelling to convert for the customer. And the third thing they want is access to a huge and ever-growing customer base, right? They already have their volume business supported from, you know, the volume distributors and their direct sales force. What they want from us is, they wanna make sure they capture the next big thing. So those are kind of the role we play, and there's a differentiation value that we bring to the market here that no one else has, right? We talked about this being a unique ecosystem. I've been in the electronics distribution industry for almost 30 years, and there's a few points that Bill mentioned before.
You know, we can provide all the information we want, but at some point in the design, a customer is gonna have a challenge, right? They're gonna need to debug a design. They're gonna wanna optimize their design. And if you're my competitors, that business now goes away because you're calling in a field application engineer from someone else. We're now bringing in our brothers and sisters from Avnet to do that work. And that creates a lot of stickiness, right? Because you've not just helped them with information, you've now provided solutions as you've made their problems go away. The other area that we add value is, the same type handoff as that product moves into production. That used to be business that for Premier Farnell would vanish off into the ether, right? It doesn't fit our inventory model, and it would just go away.
Now we can hand that off to Avnet. And that works really well for customers because they don't need to resource and find other sources of supply. And it works really well for our supplier partners because it reduces the chance of them getting designed out as that happens. So the way we support this is we have an inventory profile that's a mile wide and an inch deep. When we were first acquired, I had a conversation with Bill, and I asked him for a fairly sizable inventory investment, and they granted it and gave us some returns. But the thing about this space is, you're not just buying to support specific customer demands, right? You're betting on the future success of a product. So in many cases, you have to spend the money twice.
You buy the inventory, and then you have to tell the world that you bought it. So really compelling, really compelling space in the life cycle and a very important two roles that we play. If you look at the customers that we support, and this is everything from the education and maker space. So education, you're talking about teachers and students, everything right on through the most complicated design engineers, prototype and test engineers, maintenance. This is a wide diversity of customers, right? When you're dealing with millions of customers, you get a wide, very diverse base of customers, and they have very diverse needs. And if you think about it for a second, supporting these needs, it'll give you a little bit of insight into the guts of our business, right? We are a high transaction business.
We'll ship this year about 19 million lines of product on about 5 million orders at an average order value of $300, right? So this is a very, this is a cadence-driven business. This is, you know, this is not a one big sale, saves the day kind of business. So when you're doing that, we exist. The way we feel, the reason we exist is to support that we give to design, maintenance, and test engineers, makers, parents, teachers, and students, as they use technology to develop people, product, and businesses to make the world a better place. And we support this from the very smallest incubator startups right on through the largest, most complicated supplier customers in the world.
To support that kind of model, we're basically bringing together 500 million individual stock keeping units across 850 suppliers and about 1 million customers. That requires an incredibly powerful marketing engine, and that's what we have. We have a marketing engine that delivers 100 million customer touches a year. We use this slide with our supplier partners as kind of our shock and awe, because suppliers co-fund this, right? They use co-op marketing fund to invest in this. They value this greatly, and this marketing is everything, right? It's online marketing, it's Google ad campaigns, it's, you know, customer activation and reactivation campaigns, it's third-party publications, anything you can think of, online, offline, we invest a lot of money in marketing, and our suppliers value it, and it's really working. It's one of the fundamental changes from prior to the acquisition.
We're now generating over 35,000 new customers a month, which is really compelling. I talked about what suppliers want from us is that broad customer reach. And to me, the wow of this and what's really different from our competition, is that we go to market, we connect with our customers in any way they want, right? Whether they want to do business with us on our websites, we have 47 websites in 26 languages. Whether they want to interact with our inbound and outbound telesales organizations, whether they wanna have a sales call from our direct sales engineers, who we have in every region in the world, and also from our community. So we do business, unlike our competitors, is we're not just a website.
We do business in any way, and we interact with our customers however they wanna do business with us. I talked about communities for a second. You'll hear more about it. You'll see another video, I believe, on it, but communities for us are very powerful because, one, they add value to both our customers and our suppliers. And when you're a distributor, you're serving two masters, right? You're trying to bring those two together. So it adds value to both of those. And at Avnet, we host and own the two largest and fastest-growing communities in the industry, right? We have over a million like-minded, technically sophisticated people freely talking about and sharing how they've used our supplier products to solve complex design challenges for their customers. That's really powerful, because it doesn't even look like it's coming from us, right? It's very believable.
It resonates with people. I can't overstate the importance of how social design activities become. I started in the industry in 1988 at AT&T Bell Labs, and design work was basically a couple of guys sitting in their cube with data sheets and a big old catalog, flipping through, looking up at a product level. I need an 8-bit microcontroller with pulse width modulator, and you literally designed around this, we used to call it a gorilla chip, right? You designed about one specific product, and you tried to add everything else around it. That's not how it works anymore, right? With the advent of open source software, low-cost single board computers, low-cost development kits, cloud services, and how interconnected everything is, no engineer could possibly have that wealth of information around all the, all of that ecosystem that they need to bring to bear.
So the services and the knowledge and intelligence available from communities has almost become a necessity. Okay, I'm gonna get into some of the numbers. I won't spend a lot of time on this slide. I'm, I'm conscious of my time up here. Kevin talked a little bit about it, but I, I thought it was really powerful because, you know, 18 months ago, this was a concept, right? Could you literally take a customer and shepherd them through the design system, and in some cases, hand them off to a different salesperson, right? That's kind of a foreign act for a salesperson to do that. Could you do that? Would the customers want to do that? And how does that work? And as it turns out, we, we shared some of these numbers with one of our suppliers, ON Semi, a few weeks ago.
As we went through the points that Kevin made, that over 50%, it's actually 56% of the designs that we pass on, pass the supplier's rigorous process and get approved. That's almost two times the industry average. When I talked to some of the executives at ON Semi a few weeks ago, the question was, "Wow, so this actually works?" It was like a light bulb went off, and so it's not just a concept anymore. We have over 30,000 customers in common between Premier Farnell and Avnet, and we're using those technology triggers that Kevin talked about.
We also have a lot of customers that Premier Farnell does business with, that do not trade with Avnet, and we have a dedicated sales resource team within Premier Farnell that farms those leads, and they dig into it, and they actually reach out to the customer to make sure that the customer would appreciate and accept a visit from an Avnet person. And we have those conversations, we qualify those leads. And one of the nice surprises of this is that it's accelerating, right? You see the ramp up there. Most of this has been in Europe. As we bring it into Europe and North America, it'll continue to accelerate. So really fantastic opportunity ahead of us. And it's kind of become a part of our DNA. It's not like this is all happening with one supplier, right?
It's going across some of the largest presence and some of the most important and powerful suppliers in the industry. So, you know, the proof of concept has been proven. Okay, last two slides are about Premier Farnell now, not so much about the ecosystem, but clearly, the investment that we've made in the business as part of the Avnet family has been, has been game-changing for us. If you look at... We've invested, I talked about the investment we asked Bill to make when we were first acquired. We've invested over $100 million in inventory, right? Prior to becoming the president, I was in charge of inventory. Usually, when you grow your inventory and distribution by $100 million, you have to start looking for another job. But, you know, this was part of a strategic plan, right?
I know Tom's here scratching his head, $100 million. So, so we did, but the good news is our turn stayed the same, and our return on working capital actually accelerated greatly, right? So it was a bet that we needed to make. It was a starving business when it was taken over. We've invested. We've increased our new product introduction. I talked about how important that is to suppliers by over 50%, right? So this is... I was able to present to about 200 of our supplier partners a couple of weeks ago at EDS, and the title of my presentation was Feel the Difference. And the suppliers just sat there like, "Wow, this is like a completely different company than it was a year and a half ago." And, and it really is.
I was there prior to the acquisition. So again, lots of investment in inventory. It's performing. Success breeds success. We've onboarded over 22 new suppliers since the acquisition. That was not the case prior to the acquisition, right? We were not. People were not beating on our doors to trade with us. And it's an efficient business model, right? Half of our business, from a revenue standpoint, trades online, and over 70% of our business from a transactional standpoint, trades online. So it's a fairly efficient model. You have to invest, I talked about in the inventory and the marketing, you have to have a really powerful marketing engine, but you also have to have a compelling customer experience online. And we've invested $ millions to improve our web speed, to make sure that product is available, searchable, and easy to find.
So really strong. So now we're confident that we're kind of best in class in electronics distribution, and we set our sights a little bit further. We wanna be best in class of anyone that trades online. And our customer count is growing. This is kind of the bellwether. When we have supplier meetings, as I said, they don't beat us up on revenue as much as they do customer count, NPI, and marketing support. So our customer counts have hit record levels, up 8%, and new customers are up over 10%. And the reason I say, and I also think our future is brighter than our current situation is, we have other things that we have going on.
Two months ago, we broke ground on a new warehouse in the UK to support the growth of our business. When you, you know, invest as much as we're trying to invest in the business, you know, you, you kind of run out of warehouse space. I talked about our web platform that we're continuing to invest in, and this has been. It's been a rewarding engagement, right? So the employees, prior to the acquisition, you know, we had a tough couple of tough years, so it's really got the energy and the support of the team moving forward. So it's a great feel. So from an operational standpoint, clearly, the acquisition paid off well for Premier Farnell. So what about from a financial performance standpoint? I was with the company when we reported our results in the last...
We were a publicly traded company, by the way. Premier Farnell, prior to the acquisition, was founded in 1939, publicly traded on the London Stock Exchange. The last results that we announced, and at that time, in fiscal year 2016, the market was growing kind of single, mid-single digits, and we were down 4.4%... and we had an operating income return of 5.9%. Now as a business, we are—we will grow a little bit over 10% this year, an operating return of return on sales of over 11%. We've done this all while maintaining our margins into, in the, in the mid-30s. So we, we still—we haven't had to buy the business. We didn't buy our way into, into success. So really powerful, and the, and it's just been a great turnaround story for Premier Farnell.
I think the Avnet organization clearly invested in this. They believe the business plan we've put forward, and it, and it's paid off. The thing about high service distribution is it's a cadence business. It's a drumbeat business, right? I mean, once you get the machine going, it keeps going. It's not one big order, right? When you're doing $300 a shipment, you don't have one big customer that swings your business. So we've got the business model fixed now, and we did this all in the first year and a half without doing a lot of consolidation on the back end of our business, right? So there's some opportunities on cost side there as well. So a really exciting place we are. We're thrilled to be part of the organization. I'll be here for the Q&A, and I look forward to talking with you.
With that, I'd like to introduce my friend and colleague, the President of Avnet Integrated, Scott MacDonald. I was going to say Kevin. I can introduce you, right?
Thank you, Chris. Well, good afternoon, everyone. As Chris said, my name is Scott MacDonald, and I have responsibility for the global Avnet Integrated business, and I'm incredibly excited to be here and be introducing you to the Avnet Integrated business. Before I do that, I thought I'd take a minute and kind of give you an idea of the inception of the business. About a year and a half ago, Avnet made a strategic decision to divest our Technology Solutions or TS business. At that time, it gave us an opportunity to really evaluate our product portfolio. We made a decision to consolidate six businesses into one and create Avnet Integrated. Avnet Integrated is a solution provider focused on the OEM, ISV, and end user market versus selling products to a reseller.
Essentially, we want to create our value and deliver our value directly to our customer in a solution-oriented manner versus selling products to a third party like a reseller. So let me take you through the business and introduce you to Avnet Integrated. Avnet Integrated is a $1.7 billion growth business, and our charter is clear. It is to grow faster and more profitably than the traditional Avnet business. We are a solution provider that is focused on delivering engineered solutions and solving our customers' most complex business challenges. By leveraging our global design and manufacturing capabilities, it gives us the footprint and the ability to get those solutions into the market and essentially being a competitive advantage to our customers. Over the past year, we've had an intense focus on improving our performance and right-sizing our business model.
And our focused market approach and the ability to take solutions into those markets has greatly expanded the market opportunity that Avnet can go attack and win at. I'll take the opportunity now to walk you through each one of these three areas. So we've established a foundation focused on delivering a differentiated business to our marketing customers. So we need to step back and look at how do we get that value? How do we get those solutions and technology and capabilities into our customers' hands? We do that through our global business unit strategy. So we made a strategic business decision to stand up three global business units around data center, embedded, and display solutions. And this is our vehicle and where we house, and we get that technology and that value out to our customer.
In our data center business unit, we deliver system integration capabilities from server through rack, essentially helping our customers scale up through that technology chain. We also offer unique capabilities and flexible models to support our ISV customers. In fact, I was just at a customer this week, visiting one of our strategic ISV partners, and they were very clear that our ability to give them flexible solutions to get their software to market, and they didn't have to worry about hardware, was game changing for their business.
In our embedded business, our ability to deliver design and manufactured solutions, either building off of one of our many, many and great breadth of standard products and modifying that, or designing it from custom up, really focused on what our customers' challenges are and how we accelerate their time to market, reduce their development costs, and again, help them innovate and get those products in the market. We also have the availability to take those custom-developed, engineered boards and technology all the way up through embedded systems. From a display solutions perspective, we have the unique ability to deliver highly configurable solutions. Today, 60+ options going well over 100 over the next year, and really accelerate our time to market, reducing that design cycle down, down dramatically so our customers can get their products to market quickly and cost effectively and get ahead of the curve.
We do this by leveraging a best-in-class supplier and technology partners. Whether it's partnering with the best in the business, such as Microsoft, Intel, and Dell, we have the breadth and the partnerships those bring into our solutions and ensuring again that we're focused on our customers' biggest challenges. One of the things we hear consistently from our customers is that our global scale and scope, and through data center, embedded, or displays, our ability to deliver those solutions and that value globally to support our customers, is one of our biggest differentiators. Our customers have customers all over the world, and we have to be able to serve our customers' customers regardless of where they are, and our ability to do that is clearly a game changer for our customers.
We do that via our 8 global manufacturing system integration centers, and again, these are 8 Avnet-owned and operated centers, where we focus on the value that I talked about earlier. When you look at the 2 million units shipped a year and the 1.8 million boards to system, clearly, we have the scale and scope and the competency to help our customers get their products to market. As I stated earlier, we made a strategic decision to take these six businesses and put them into one. And over the last year, we've been on a journey, a strategic journey, to really position the business to accelerate and really see dynamic growth. We've consolidated our global sales and marketing structure. This is to ensure we have one voice to the customer and one go-to-market strategy that's being delivered.
We've also consolidated our warehouse and manufacturing footprint, really focused on maximizing our efficiencies and our capacity, while still allowing our customers to have the scale and scope that they need to be successful. We also introduced a structure and capabilities in Asia to really attack the dynamics and the market growth that we're seeing over in China today. We have had an intense focus on right-sizing our expense structure and ensuring that we're shifting all of our investments to our high-growth strategies. I'm very pleased to say today that we've been highly successful in that areas, and I'll talk about that a little more in our go forward. Like any journey, as we've moved from a products to a solutions business, it's required us to ensure we have the right people with the right skills and the right jobs.
We've had an intense focus on aligning our skill set to a solution-selling organization and aligning the organization's skill set so they could deliver our strategy of being a technology solution provider into the market, versus just providing products. We delivered an operating model, an expense structure, and an organization that now allows us to truly accelerate our growth as we move forward. I'll turn our attention. I'll turn my attention now to the go forward and talk about the foundation and how we build off of that and where we're going over the next year. So we are seeing some great results. When you look at our pipeline and over the last year, and you compare it to the first half of our last fiscal year versus the second half of the last fiscal year, we have seen 40%+ growth.
More exciting, we have seen our conversion rate, our win rate, improve to north of 50%. That is not only validation from the market that our winning strategy is yielding success, but it's also validation from our customers that the solution and the value that we are bringing to market, they are, they are seeing that value, and they understand the competitive advantage that we have in the market. We will continue to maintain a focus on expenses. We have to ensure, as we grow and we scale, that we keep our expense structure aligned to our business levels. We also have to be ensured that the investments we're making are getting us and yielding the right level of results.
And through the transformation process that Pete talked about, we have the rigor and case in place to make sure that the investments we're making are getting the right levels of return. We've also turned our sights on being stewards of working capital. Make no mistake about it, we've got to continue to improve on our working capital and performance. All the fundamentals that are in place today are going to allow us to deliver to the improved performance around AR/AP and inventory, and really driving that working capital performance and ensuring that we're generating the right level of cash for the organization. When we step back and look at our team, we have to continue to make sure we're setting the bar high.
Again, we talked about the journey and the transformation that we're on from a business perspective, that we're moving from a products company to a solutions company and an engineered solution company, and helping our customers drive up that technology stack. We have to make sure that we have the right talent in place, and we'll continue to do that. As I mentioned earlier, we've done a great job of developing our existing people, and we're going to continue to do that as we're moving forward. We've got to make sure they're equipped and well trained and well prepared to deliver our value in the solutions to the marketplace. We also continue to fill critical roles from outside the organization.
We have found it to be very powerful to bring in outside perspective and folks with manufacturing and engineering backgrounds to drive the changes that we're seeing in the company, and we'll continue to look at how we recruit in the best talent in the industry. You know, make no mistake about it, our global Avnet Integrated team of 1,800+ strong is, without a doubt, one of our greatest advantages and competitive weapons out in the market. I want to thank you for the time today. I'll be here as well during the cocktail hour and Q&A. I look forward to talking with you, and I'd like to turn it back over to Pete Bartolotta. Pete?
Thanks, Scott. I think you'll agree that we're making some very dramatic changes in our digital business and Premier Farnell and Avnet Integrated businesses. Now I'd like to talk a little bit about something else that's having some significant transformation, and that's demand creation. It's how we create demand for our supplier partners' technologies. First thing I want to talk about is: What is demand creation? People ask me that all the time. It's how we help our customers create a design, and when we do that design, we pull through supplier partner technologies or components.... We do work, and for that work, they reward us with additional gross margin. But it's harder now than it was in the past because of the complexity of products that we all use every day.
So we must create new digital tools to be able to help our field application engineers drive more demand creation margin dollars into each design, make them more productive, and keep them up on the ever-changing technologies. So if you look at the top of the chart, it's our demand creation process. It starts with a customer requirement, a product that they're going to build. We take one of our 1,000+ global field application engineers, and we help that customer with the design. Once it's complete, we register that design with our supplier partners. If the customer moves forward with that product, we get a design win, and the supplier gives us the additional margin. The more sockets that we can identify on that particular design, it increases our chance for revenue and more demand creation dollars. But as I said, technology is getting increasingly more complex.
Today, we see people doing email and answering phones on a watch. We see driverless cars go by, and if it—if technology never ceases to amaze you, I found something just a couple of days ago. It's a smart toaster. Here's how it works. You buy the toaster, you download an app to your phone. You can freehand a smiley face on the application and send it to your toaster. So when your toaster toasts your bread, that smiley face actually appears on your toast. That's really, really, that's really the case. That's not the most important thing. Think of, think of the, the advantages of your time that you can save.
You can write your kids a note before they go to school in the morning and never have to wake up, because when they make their toast, they'll be able to get their, "Hey, have a good day at school." So, you know, technology is just, it's never going to stop, and it's increasingly amazing the things that people can think of, and that's what demand creation, that's what we help customers bring to market. And as you can see, technology refresh cycles continue to happen faster and faster, and the cycle times that customers need to be able to get products to market is also increasing. And no one can keep up with all the technologies that are out there. There's hundreds of technologies and hundreds of suppliers supplying these technologies.
Today's field application engineers, I said we have over 1,000 of them globally. We have many generalists and several specialists, and we want to be able to make more of the generalists specialists to be able to, to take on the increasing complexity of designs. So what if we could digitize the minds of 1,000+ field application engineers with all their expertise on the technologies that they support and have created in the past, and create a digital tool, a digital library of designs for all FAEs to share, therefore, making more of the generalists specialists? Well, we've created that tool, and it's called AVAIL, Avnet's Visual and Interactive Library. It was created by a 20-year field application engineer that, over time, had many repetitive designs that customers asked him for and started to create a library of designs of his own.
But when he came across a design that he wasn't familiar with, he'd call one of his fellow FAEs and talk about the design challenge that he had with a customer. And that FAE would share a library of designs that they built for other customers, and he would add that to his library. So he said, "What happens if we can make a tool that could, that could have all of the libraries of every design that every FAE ever created and put it into one tool?" And that's what he did. It's an interactive tool that helps and assists FAEs to create those designs, and it keeps the FAEs up with the latest and greatest technologies, and it leads an FAE through some questions. You can see the diagram on the right-hand side of the chart, a simple Bluetooth module.
It's a communication device, but that communication device can have a lot of components around it, components that maybe I'm familiar with as an FAE designing into at one point in time in my career. But what happens if the customer says, "Hey, I want to put a humidity controller onto this Bluetooth module," and I've never done that before? I would have to go out of the customer's office, go talk to one of my fellow FAEs to be able to understand what questions should I ask to design that humidity controller into this Bluetooth device.
Well, with AVAIL, I don't have to do that because I can pull down the block diagram for humidity, and it leads me through all the questions that I would need to ask the customer to be able to make sure I have all the information to do that appropriate design. So for things that I've never done before and maybe are afraid to ask the customer additional questions because I don't know the answer, I can get additional demand creation content on this design without ever walking out of the customer's office. As well as all the interconnect possibilities. There's thousands and thousand interconnections that go on each of these circuit boards.
The tool automatically populates all of that interconnection points into the design without me having to understand all those different technologies... When the design is complete, I can print out a bill of material for the customer right there, and he can go on his way and start to decide whether or not that product is gonna be viable for him to make. When I get back to the office, I can upload this information directly into our demand registration tool that then goes back to our supplier partners, versus having to input all that information by hand. Let me show you some of the early results of using AVAIL. You can see from the chart some very impressive results. In our early stages of deployment, using AVAIL, you get 3.5 times more supplier-approved registrations for design.
You heard Chris talk about some suppliers are already starting to recognize that. 27% more design win dollars, a 30% increase in additional sockets won. And we deploy more technologies. We bring along more of our supplier partner components in each and every design that we do. And suppliers are embracing the tool. They're helping to fund the tool in gold, silver, and bronze levels, to be able to have their technologies highlighted in the AVAIL tool. So more to come in AVAIL. We're at the early stages of deployment, but we're seeing some incredible results. Let me talk about another really exciting topic, IoT. Some of you are thinking, "Well, I've heard about IoT for a while. Is this, is this, is this really reality or, or is it hype?" Sitting at this end of the pipeline, I will tell you it's not hype.
The opportunities that are in front of us today are increasing every day, and I'll show you how we're gonna be able to drive those IoT solutions into the marketplace. Bill talked about the significant opportunity, $4 trillion + within the next few years, and how complexity of an IoT solution becomes an opportunity for Avnet and our ecosystem. These complexities take multiple competencies to deploy an IoT solution. Competencies can change from solution to solution. It's really important for us to be able to leverage partners, and I'll show you how Avnet can deploy these solutions from edge to enterprise. Bill talked about roadblocks. Roadblocks in IoT solutions are one of the biggest reasons why IoT is not getting adopted as fast as it should be. When most people think about an IoT solution, they first jump into the technology, but it's not about technology anymore.
It was a few years ago, but technology has come a long way in the IoT space, in devices, in software, in the architecture. It's no longer the inhibitor. It's mostly around the business case. "Is what I'm trying to do a good solution for IoT? Is it gonna solve my problem? Is there a payback? Is there a business case? Do I have enough money and dedicated resources to deploy this?" The second is around finding an IoT solution provider like Avnet. None of us would think about building our own houses and being able to have all the contractors directly having a relationship with all the contractors. I mean, everyone would blame everything on each other, and that's what happens when a company tries to be able to do an IoT solution on their own and not partner with a solution provider like Avnet.
We are the ones that are able to create and deploy and support the solution for the lifetime of the project. Lastly is built to last. You want to make sure that the components and designs that you're using in the architecture are components that are gonna be around for the life of that solution. So you want to make sure that you have the right partner in place that knows that when they create devices, they're not gonna go out of production in the next six months to a year. So you've seen this chart in a couple of the presentations about our ecosystem, but you haven't seen it with the partners on the right-hand side. It incorporates our capabilities and our partners' capabilities around devices and hardware, software, application, cloud, analytics, and most of all, security.
Everything you need to design, build, and deploy an IoT solution. We talked about the importance of partners in this. Bill talked about 10 or more IoT partners are needed to deploy a solution. We work with a lot of different partners. Our strategy is not to own all the capability internally, because those capabilities change over time. Some of the partners we work with are small, some of the ones are big. You can see from the names behind me here, these are some of our big partners. We've chosen these partners because of their expertise in security or gateways or connectivity. But we know why we chose them. Let me show you a short video of why they chose us.
IoT solutions are still very complex to build. It requires tools and capabilities that are not easily found in the ecosystem. IoT also is a new area of investment. There are not a lot of trained technologists, developers, and makers that can build innovative solutions and scale them to deploy across the globe.
I think within IoT, we have all been very familiar with the risk.
... that comes with digital transformation of your business. First, there's complexity. Second is bringing together the ecosystem, and thirdly is scale. And I think an interesting opportunity that Avnet has in this market is to, number one, reduce the complexity. You have a one-stop shop for all of the ingredients in these solutions. You can bring together the ecosystem, and then provide the scale for reuse for IoT solutions.
Avnet is a strong partner of AT&T. They have strong relationships with developer communities, but also they stay with a innovator from inception all the way to scale. And that's important because as ideas come to fruition, they can help with the tools and capabilities they need in the early stage, but as they scale to millions and millions of devices, and globally, Avnet is there as a trusted partner.
More than 9 billion microcontroller units or MCU-powered devices are built each year. In the next few years, we expect that these devices will be connected to the internet. It's critical to have the highest levels of security. On April 16, Microsoft announced the preview of Azure Sphere, a new solution creating highly secured internet-connected microcontroller devices. We also announced that we'll be working with Avnet as a strategic partner and the first Azure Sphere distributor. We chose Avnet as our lead partner for Azure Sphere based on three things: Avnet's extensive experience on security solutions, Avnet's reach into silicon and MCU markets, and finally, because of Avnet's capability to identify the best solution to meet each customer's unique need.
Between Intel and Avnet, we're completely aligned on the opportunity that we see with IoT in the end user community to solve digital transformations problems like we've never been able to solve before. I'd like to thank Avnet for a long history of a fantastic collaboration. I'm excited about what we have in front of us in the future, about bringing together our market-ready solutions to solve those digital transformation problems.
... reiterate the message that we're trying to say about the ecosystem, and I think those three partners really said it well. It's really connecting with them. In January of this year, we launched our IoT Connect platform. It's designed to consult, develop, deploy IoT solutions to our customers. It's meant to guide customers no matter where they are in their journey. The platform includes all sorts of digital devices, applications that we create - applications that we created for one, but can deploy to many, real-time analytics and predictive tools, and most of all, as I said, security at every part of the solution. It brings together all of our and our partners' capabilities. Let me take you through a couple of recent IoT solution wins that we've had.
This first example was brought to us by an Avnet salesperson and a traditional customer that we were doing business with already. How we were doing business with them, they were building a device that you can see on the left-hand side of the chart. For that device, we supplied a few components, maybe in the lighting and the power supply area. But they wanted to take that retail device and be able to make it a smart device. So we helped them with other things. Scott's team helped them with a custom display. We built in cellular connectivity, software, cloud analytics, and services, and we built a recurring revenue stream for us to be able to get analytics from our servers to the customer's hands. You can see now what that customer is able to do with that device.
They can tell the location, demographics, and preferences of what's being pulled out of that machine. They can deliver targeted media messages to the display of what's selling and not selling. They could monitor the machine's profitability, and the machine can also tell them when it needs service or when it needs to be replenished. This is quite different than the Avnet of the past, and you can see the additional revenue opportunities and margin capability that we have. Here's another example. This is a smart healthcare example. Many of you have seen the device on the left-hand side in your doctor's office. It's measuring some vitals, and it takes time to be able to do that, and then somebody has to manually enter those vitals into the computer.
We helped the customer develop a module that sits on top of a Lenovo Moto phone that takes those same vitals with just your fingertips. Takes less than two minutes, and it automatically takes those vitals and puts them up into the cloud. This came through us in a non-traditional way, through our ecosystem, through our Avnet Design House. The customer came to us just for board design, and once they understood our additional capabilities, they gave us the full solution. We built everything from the board, to the product, to the software, to the application... to the analytics, and again, created a recurring revenue stream. Hopefully, you can see a little bit of what we're doing and the significant progress we're making around IoT. The pipeline is growing rapidly, but I'm showing here over $100 million is just our solutions, IoT solutions business.
It's not the over $700 million that we ship into the marketplace on IoT components. 30% gross margin, significantly different than our traditional business. And we're leaving ourselves opportunity to be able to get recurring revenue, which is very important to our business model in the future. So just a few takeaways before break, you can see that our transformation program is touching every piece of our digital business and driving significant results. We continue to drive a leading Digital 'Go Faster' strategy . Our Premier Farnell business is not only adding great growth and margin, but it's also an integral part of lead generation of our ecosystem. Avnet's Integrated business will add growth and margin to Avnet's P&L, and we're creating tools to make our FAEs become more productive as demand creation becomes more and more important to Avnet.
And then our partner-assisted IoT solutions are driving capabilities and margin, and will be a significant part of Avnet's future P&L. I want to take you to a short video before we go to break, and when we'll reconvene from break at 1:05.
Hackster, actually, it was a really fast-growing, independent startup, and we didn't necessarily want to sell the company. But when we were approached by Avnet, we realized that Avnet is one of the largest, if not the largest, component distribution company in the world. They have tentacles in almost everything that we do. Two of Avnet's nearest competitors also approached us with an acquisition offer, but we chose Avnet because of its size, its reach, and mainly because of its executive vision and culture, that we thought is a lot more aligned to what we're trying to do. And in fact, once we joined Avnet about a year and a half ago, Hackster grew four times faster than average.
We are now the largest of our kind in the industry, so it goes to show that it was the right decision to make.
But the thing that drew us to Avnet, or the things that drew us to Avnet were a fewfold. One, when I was at iRobot 15 years ago, we hired Avnet to help us manufacture the Roomba, and I saw firsthand what a capable, ethical team they were. So it was a company that really had the values that we shared at Dragon. So there's a good fit in that part, which is basically the foundational level. From a strategic standpoint, the thing that Avnet offered, and the VCs didn't, was a trusted partner that knew component distribution inside and out. So at Dragon, we're really good at helping companies take an electromechanical device and go prototype to production.
But being able to tie into Avnet's knowledge on what are the right components to pick, how do you make sure that they're going to be available, that they're not going to have supply shortages, all the way through, was something that was incredibly compelling, so that through these synergies, we thought there was a lot greater opportunity to be able to grow.
The Avnet and Premier Farnell businesses are very complementary. Our focus was on a very large number of small to medium customer, while Avnet was focused on a smaller number of very large customers. Avnet has enabled us to further invest in our business. Through the Avnet collaboration, we've managed to sign more new franchises to our business that enable our customers to find anything and everything they need from us. At the same time, we are now in a position to take the early stage designs and low volume production through to large volume production by working with Avnet.
... Okay. Okay, good afternoon.
Good afternoon.
Thank you. Okay, just jump right in. So I'm Phil Gallagher. I'm President and responsible for the global business for what we call electronic components. Internally, we call that. You hear it referenced quite a bit today, the core, and thrilled to be here. I'm responsible for the supplier, the customer, basically the global operations for the electronic components business worldwide. It's great to be back. I've been with... Well, I've been in the industry since 30+ years. When you get over 30, they just put a plus sign, you know? So 35 years in the industry, then you can start to do the calculations on how old I am. Been with Avnet most of that 35 years.
I took a little time off and was sharing with one of the analysts at break and coached some high school football, did some really neat things. Bill asked me to come back a little while ago, and it's been now 14 months I've been back with Avnet, and it's a great time at Avnet. We've had some challenges, as Bill talked about, but you know what? We're bouncing back and feeling really good about the future. What I'm gonna try to do today is I'll call it, you know, bundle up, if you will, tie out a lot of what you heard this morning around the ecosystem. Kinda maybe, maybe bring it to life a little bit more from a practicality standpoint, because there's certainly a lot in there, and then we'll go from there.
So key messages, market growth outlook. How are we performing in electronic components? Are we positioned for fiscal 19? It's right around the corner. Tom will get into a little bit more of that. Focus on the high-growth, high-profit markets. So where are we participating today? And where we're strong today, we feel we're very well aligned with where the growth markets are moving forward. Leveraging this ecosystem you've heard so much about, and really, the expanded playbook, the capabilities that Avnet has of bringing to the marketplace to go help drive our growth and profitability for the future. We're also gonna have a panelist come up when I'm done, that I think will bring some practicality to what we're talking about today.
We've got three of our top suppliers with us today and one of our top customers, and I think, again, they'll bring to life some of what we've discussed today as far as some of the value that we think we bring to the marketplace for them and for Avnet. This is a simple slide because I like to break things down and keep it simple. And this is basically the, I call it the three-legged stool, right? You got the customers or the suppliers, you got the customers, and you got the employees. You know, in our world, you know, I call the suppliers kind of upstream and the customers downstream. And fact is, and this hasn't changed, by the way. This is, you know, this is what we do, right?
Relationships, partnerships still truly matter, and you'll hear about that a little bit later from the panels. Do matter, big time. How we do business has certainly changed, you know, with the digital world and e-commerce and the supply chain complexity, the globalization. I could go, you know, on and on. But upstream and downstream, we need to have, you know, we call it, what's more important, you know, the heart or the brain? Well, frankly, it's a 51-49. I can make the case for either one. Of course, the customers, without the customers, we don't have a business, so of course, we've got to take care of our customers. But you know what? We got supplier disruption, and without the best suppliers in the world and great relations with the suppliers, we don't have a whole lot to service our customers with.
So we're constantly balancing upstream and downstream. I've got to tell you, myself, probably spend it, and you'll see a couple of slides, you know, not an inordinate amount of time, but a lot of time talking to our suppliers and being sure we're aligned moving forward, and I'll touch on that a little bit later. And then what really pulls it together, we're still in the people business. Yeah, we're in a high technology business, and we sell some of the most complex products today to some of the most complex, high-tech customers, but it's still done through people, and it's still done through relationships. People have a just like you, you have a choice who you want to do business with. And we, we believe customers, suppliers still do business with people that they like and they trust.
Again, how we get it done, a lot of that's changed, right, with automation and digital. But those three things, with focus on fundamentals, foundation, execution, we'll get our results. So what I'm gonna talk about in the first few slides is kind of position where we were, where we are, and where we're going. A lot's changed, as you heard from Bill and the balance of the team this morning. But I'll let you know where we were, where we are, and where we're going, and why you should have confidence in where we are and where we're going, moving forward. Electronic Components business, a balanced global portfolio. You can see $17.3 billion estimated close for the year, $4.4 billion in the Americas, $6 billion in Europe, $6.9 billion in Asia.
We've been around since 1921, so we've got some history. If you looked at this 20 years ago, you would have seen the Americas be closer to 70% of the business, versus where Asia is, and the balance would have been Asia and Europe. It just speaks to the positioning that we have in the marketplace of going anywhere our suppliers need and want us to go, and anywhere our customers need and want us to go. With what I got, 329 locations worldwide. Wide range of distribution capabilities. This is kind of a fun fact slide.
Over 11,000 employees, 12 distribution centers, seven programming centers, 16 third-party logistics facilities, two cable and connector facilities, 117 billion units shipped annually, 270 million units programmed annually, and 140+ countries served. Point of this is we have the revenues I talked about in the previous slide, and we've got the scale and scope. But this doesn't happen overnight. Okay, and we've got the robust global operations and service, by the way, both our customers and our suppliers worldwide, and we'll continue to invest in both. So who do we serve? Where does our business come from? It's really diverse. I think it's a really key point. Of the 17+ billion, 19% of our business is in what we call interconnect, passive, and electromechanical. Real key part of our business.
We don't talk about it a whole lot, but that's, let's call that $3-$3.5 billion at the Avnet Inc. level in IP&E. That arguably makes us the number one or two IP&E distributor in the world, and we, we will continue to drive growth in that space. Semiconductors, 78%. Customer base, 32% of our business is coming from EMS, contract manufacturers, electronic manufacturing services, which we have one here with us today, Celestica. That number really hasn't changed too dramatically in the last 15, 20 years. Some of you that have been around, that I've known for a long time, others I'll, I'll get to know, you know, some of you might remember, yeah, the EMS providers, Paul certainly would. You know, who, you know, is it gonna be EMS or it's gonna be distribution?
Are they colliding? You know, back in the 1990s, are they gonna buy us? We gonna buy them? I think now it's settled out that we've just got a great partnership with, with the top EMS, all the way down the tail to any contract manufacturer out there. And we continue to grow in that space and are very comfortable in that space. The balance of the business, original equipment manufacturing, 68%. So within the product, okay, how does it break out? You can see, you know, analog's still our largest portion of our commodity breakout. MPUs, processors, at 17%. Logic, 17%. Discrete, 8%. Passives, connectors, 11%, 7%. This is really a healthy portfolio, and we feel very comfortable we have the right suppliers to go drive the growth here, and I'll touch on that more in a second.
Similar to the vertical market breakout, you know, EMS, we keep EMS separate. We know that's not necessarily vertical, but we don't always know the end customers in the EMS, so we just keep that as a block of EMS, 32%. But you can see 28% comes from industrial and transportation. The two fastest-growing markets over the next three years, we're really well-positioned there. We would've been, other than in Munich, with our division, called EBV, 15 years ago or so, we weren't really playing much in transportation. And now it's one of our largest segments and the fastest-growing. Then you got communications, computer, Mil-Aero. Mil-Aero is doing real- we're doing really well. Mil-Aero, that's predominantly the Americas, but that's we're seeing tremendous growth there as well.
Point of this, in our 100,000+ customers, we don't have any one customer that takes really that much, in our top 10 even. We've got a nice, long, healthy tail of customers, with continued growth in emerging markets and emerging customers popping up, as I'll give some more examples, this afternoon. Broad range of product, diverse customer set. So we all know there's been some supplier changes in the last couple of years, driven mostly, predominantly by M&A. And we don't know what's going on in the supplier boardrooms, but there's been a lot of M&A and a lot more in the last two, three years than there had been in the past. So that causes the suppliers to make channel alignments, and some we get, some we don't. But what we look at all the time is the gaps and overlaps.
We're constantly evaluating our line card, being sure that we've got the PC board, everything on the board, that our customers want us to serve them with, covered from a technology standpoint. And here you can see in passives, with... And we use, by the way, Bishop, Gartner. We're doing an aggregated source of the top suppliers in each space. Passives, 10 of 10. Discrete, 9 of 10. Analog, 8 of 10. Micros, you can see right on down the line. Connectors, 6 of 10. This is, by the way, application-specific products, application-specific standard products. But connector, just to use that as an example, you know, 6 of 10. Well, in that six, we have just north of 80% of all the connector coverage from a TAM standpoint. So we feel comfortable. Hey, we've got the connector thing covered.
Will we add to that number? We never know based on certain technologies. But again, we always look at the gaps and overlaps, and we're very confident, very comfortable we've got the coverage we need to continue to grow within our customer base and then grow for our suppliers. So you heard a lot about transformation. So there's been a, it's been really going on, I guess, almost two years now. So let me just touch on what I know is on a lot of your minds. At the break, I talked to a few of you about. I'm just gonna start that in the Americas has been an issue. We know that. We've had a couple challenges in a couple different areas. We've been on defense. I've been back about 14 months. I'll tell you something, we're on offense now.
Absolutely on offense and making progress. And being on offense, I need to mention, if you haven't seen it, I announced a new quarterback for the Americas, okay? And I announced that yesterday. I'm not sure if you saw it. It's been about a 12-week search. We brought on a gentleman by the name of Tony Roybal. Tony Roybal's a 25-year industry veteran. He's with ON Semiconductor. He's a terrific. I'm thrilled to have him. He actually started with Avnet in the early 1990s. I knew Tony when he was in Woodland Hills in Los Angeles. He left us to go to Motorola Semiconductor. Then, of course, Motorola became ON, ON Semi, and he's been with them since. And Tony accepted, and he's gonna be joining Avnet, and I can't tell you how excited I am.
He's listening, I know, and he's got a lot of work to do, all right? So I'm, I'm ready to offload a few action items to him. But his, his energy is really high. I think you'll, when you get a chance to meet him, if you don't know him already, the feedback from, by the way, other suppliers, our employees, even some of our competitors, "Hey, you got a really good leader here." So I, I can't tell you how excited I am, and I think it's fair for me to, to mention, we don't typically talk supplier-specific, but I do wanna thank the ON Semi leadership team, Keith Jackson and Paul Rolls.
They're really extremely understanding, supportive, because ON Semi's a top line of ours, and we're always sensitive about leadership changes like that and coming from ON Semi to Avnet. So they were really supportive, and I just wanted to thank them for that. So anyway, you'll all get a chance to meet Tony. Hi, Tony. All right, so you can read as well as I can. This is gonna be our third consecutive quarter of growth. Haven't had that for a while. We actually grew in the Americas market share for the first time in about seven quarters last quarter in our basket of lines. Operating income starting to improve. Is it where it would needed to be? No, but on the right track. Tom would like to see that further accelerated, so will we, and that'll be Tony's biggest challenge.
Continue to drive efficiencies. That's just gonna be an ongoing thing. You heard about digital, okay, and how we go to market is gonna be different. Moving to low-cost countries for some of the back office. And that's not an Americas statement, that's a global statement. We've got over 1,000 employees working in low-cost countries today. It'll be part of Tom's presentation on some things we need to do more of there. We have over 700 in Guadalajara today. If you're ever down there, you're more than welcome to visit. 700 employees in Guadalajara. And I'll tell you, you go down there, energy's high, the talent's phenomenal. It's really going awesome. So we're gonna continue to expand that. Rebuilding customer confidence. Bill touched on it.
After we went live in the Americas, we do a Net Promoter Score , which is a customer confidence survey. We do it regularly. It went from here to here pretty much overnight. Really a challenge, and that's coming back. And we just put a couple examples of some customer examples where we got supplier of the year for the customers. Chris mentioned EDS. It's one of the biggest trade shows, at least in the Americas. It takes place in Vegas. I came on last year in May and went to EDS within two weeks of being on board at Avnet, back at Avnet. It was not the most joyous four days that I've had. It's speed dating, basically.
You're you know, 50-70 suppliers in a week, bang, bang, and then not to mention the cocktail hours and other things where you get a chance to get your ear bent. It wasn't really good. Okay, this year, whole different attitude towards Avnet. It was really great. Yeah, do we still have work to do? Of course, we do. We always do. We're never gonna... You're never there. But, boy, what a difference a year makes at EDS. So with that, just a comment, our suppliers are coming back as well, and thank them for their support. I just want to take an opportunity to thank our employees. It was tough. Okay, I wanna thank our customers for sticking with us, and I wanna thank our suppliers for sticking with us. That's our business. We're a services business.
They have choices, and they stayed with us. So while we were rebuilding the Americas, okay, we said, "Hey, Europe and Asia, you need to stay on track." And Europe and Asia have been rock solid for us. You can see the growth on the chart. We have strong leadership. Our demand creation is going really well in Asia Pac and Europe, as it is, by the way, in the Americas. Leverage is in a strong position. As I mentioned earlier, Munich is really where our transportation strategy started. We're expanding that worldwide. In Asia, just a fun fact, that we build our own ADAS reference designs in Asia for the automotive industry. We have our own ADAS car, okay, in Hong Kong. I think Bill's driven in it, and he came back. So the design's probably working. Actually getting some share gain as well.
So while we're, you know, continuing to rebuild the Americas, okay, and it's on the right track, we got a new leader, Asia and Europe will continue to perform, and that's really exciting. And I mentioned the suppliers, and I'm maybe overemphasizing this because of some of the issues and challenges. So since I've been back, I've visited over 150 different suppliers, and it's an ongoing. I met with four this week, not including the ones that are here today and that we'll have dinner with tonight. We've got to continuously stay aligned with our suppliers. You know, effectively, we're an extension of them, effectively. Okay? And we always need to. It doesn't mean we always agree. They will tell you that.
We have our debates, okay, and we have our challenges, you know, but banging heads doesn't work, okay? How do we adjust the models for where the suppliers want us to go? They're all different, and the models change. But if we partner with our suppliers, or when we partner with our suppliers, and say, "Hey, how do they wanna go to market? How do they wanna Avnet to align? Do you want more technical resources, less technical resources, emerging markets?" What? No problem. Then we come up with a fair ROI, and off we go, and then we measure our success. That's our partnership, okay, with the suppliers, and that's how we manage it. And I can tell you, suppliers, Pete talked about design services, continue to invest in our design capabilities, and you'll hear more about that. Is it changing? Yeah.
Is it getting more complex? Yes. Is there some low-touch value and high-touch value with FAEs? Yes, and I think some of the panel will further support that. We've added 16 suppliers to electronic components line card in the second half of fiscal 2018. Okay, some of these were to replace some technologies back to the gaps and overlaps, so we felt we needed to. Others were for some sensor-type product. It might be more niche, where, you know, we, we evaluate our line card. If a supplier doesn't have that technology, yet the customers need it, even though it's a niche, we, we may need to go at it. Could be antennas, sensors. And then, as Chris talked about, Premier Farnell added 22 new suppliers since the acquisition. So really excited about where we're at with our suppliers.
As we sit here today, we think our relationships with the suppliers are solid. We're driving market share gains, I just talked about, and believe we have momentum. Growth strategies. Just gonna talk about four. I'm gonna talk about the high-growth verticals that we're aligned or driving and aligned with the industry growths in those verticals. Gonna talk about the expanded share of wallet. I wanna talk a little bit about the new ecosystem, and I like to call it the what and the how, because you've heard a lot today. I'm gonna try and bring it back down to some of the just the practicality, how we go in the market with these. And then really sum it up with the complex customer solution to say how we're going from time, place, utility to solving customers' problems.
And our suppliers as well, but a lot of what we do, we're problem solvers. By the way, a customer's problems is our opportunity. Okay, whether it be a shortage on a part, designing a board, producing a board, or shipping a board, or a complete integrated system. No problem. Okay, that is our-- A lot of our-- Frankly, a lot of our innovation has come from customers saying, "Hey, we need this." Right? So this, you saw our portion. So I said, you know, again, we're-- there's EMS, keep that separate, just a reminder. So 28% of our business come from industrial and transportation. You see here, fastest-growing markets through 2020, based on estimates.
Again, we compiled the Avnet estimate, we compile all the industry, you know, gurus out there, if you will, and come up with an average estimate. But the, we're positioned well in both of those. And industrial with IoT, I was talking to and one of the analysts at break, you know, where do you see the market? You know, we're not gonna get into that. Well, I'm not right now, anyway. I'm sure we'll talk later. The industrial market's just expanding, and the tail is just getting longer. 'Cause what's happening, I'll give a few examples later, the application of the technology in the industrial space is expanding, and that is our sweet spot. Absolutely, our sweet spot. Transportation, we've been in. And, you know, years ago, it was automotive. It's not just automotive, okay?
With ADAS, the electric vehicle, battery, transportation's hot. You go back 15, 20 years ago, while we weren't playing as much, it was mostly the tier one guys. By the way, we're playing in the tier one guys today, too. But the tier two, tier three tail technologies support all the batteries and the grid and all, it's expanding. So again, right in our sweet spot. These guys will tell you that the Bay Area now, of course, it's Silicon Valley, it's known as power management. Battery, it's huge. Okay? We talk about transformation, right in our sweet spot. Again, then you got communications, computer, you know, mil aero, consumer. Roughly 7% of our business is in consumer. We weren't playing there years ago either, very little. Why are we playing there?
Because they need certain services that we can offer. Through our Avnet Velocity brand, which I'll talk about a little bit later, that's more fee-for-service. We go to financial modeling. But again, 7% of our biz - we weren't, we weren't playing there years ago. We're playing with, we're playing with some guys that you have on your wrist right now, and that we just weren't even there years ago. So again, back to the diversity, but the real message here is we're poised for growth in the industries that are growing the fastest. So expanding the share of wallet. This is really taking a lot of what you've heard earlier today. It's still - We are still the old Design Chain to Supply Chain , from inception to end product. That's still our, absolutely our foundation.
And by the way, these aren't—these are these digital tools, resources I'm gonna touch on. They're not ors, right? They're ands. So we still have... Well, I'll get to that in a second. Well, you got the digital tools, some of what Pete talked about. The AVAIL tool, fabulous tool, absolutely improving FAE productivity. Ask Avnet, okay, that Kevin talked about. Engineering on Demand , IoT Connect. So these are the digital tools that—when we say digital, by the way, a lot of times digital, you think, oh, just customers buying online. Well, we're gonna expand that. Have to expand that, and that is growing, as was discussed earlier. But how do we get our own team using digital more.
Our own inside sales team, getting their customers to, to learn more self-serve, so the inside sales team can go be that expert for the customer and go drive higher value. It's all about your lower value and higher, higher value, and the returns that comes with it. So from a resource base, we still have FAEs, account managers, inside sales, not going away, still there. Some of the roles might change. By the way, people say, "Well, inside sales," some people new come into the business. "What inside sales is?" Let me tell you something, our customers love our inside sales team. Every customer survey we do, they like their account manager. They're, "Okay, don't touch Susie. Don't touch Jim." The inside salesperson knows as much about the customer and the bill of materials and their needs, than the customers do. Again, they would attest to that.
Really keep it... But we got to get them selling the marketing more than some of the, some of the transactional stuff they get involved with today. And it's through robotics and some other areas, we can do that. And account managers, FAEs. FAEs aren't going away. How we use FAEs might change, right? So the designs are getting more complex. We got to be sure we're aligning the FAEs, these four- and six-legged sales calls, to the right opportunities, right? Higher value, high return. Lower touch, lower value, we can do it through some of the other digital means. So resources, Avnet or AVID, you know, design services. We're effectively becoming an OEM in some ODM, original design manufacturer. We have customers coming to us, some new customers, some existing customers say, "Hey, I need this board designed, and I need it manufactured.
And, oh, by the way, can you do the logistics for me as well?" It's happening. It's not like, hey, coming in the future. And by the way, that's pretty new. So a lot of this ecosystem we talk about is really in the last year to 18 months. So we know it's complex, but it's coming to life as we speak. Our IoT specialist, Pete, talked about supply chain services. I'll touch back on again, still a big part of our business, and you got Scott's business. So you got, you know, the Avnet Integrated. So some customers want to build boards, you know, solder still and do the whole thing, and others want to buy boards and software and racks and have it integrated for them. By the way, some customers do both.
The largest MRI company in the world, we sell a ton of components to, and it's probably one of Scott's largest, embedded customers as well. We do both. They want to build some boards, they want to buy some boards, some custom software, some off-the-shelf software. So integrated solution, we work really closely with. And then Dragon, I'll come back to again later with an example, from a manufacturing services standpoint. So design chain to supply chain, digital tools, and the resources we have, and I'll touch on it. Our account manager, our sales teams, almost become a more of a resource manager. They got to figure out who to bring, like, consultants, frankly. They got to figure out who to bring in for what opportunity. That, that is the consultative sell versus the transactional sell. And that's... I'll close out my last slide.
That's our migration path with our selling organization. So then you get to the customer audience. As I said earlier, we're upstream and downstream. A lot of the community today is a big value for our suppliers who are engaging in those communities. They have a new technology that's coming out, something they want to test in the marketplace. They can go into this community of 1 million + and get that tested out relatively economically. Our challenge and opportunity there is, as these communities build out, how do we begin to sift through all these opportunities, cast a big net, if you will, and then filter out the ones that can come into our ecosystem? Okay, so then we can take them from that design to manufacturing.
But, you know, to have 1 million community members, that's just phenomenal. You heard from some of the team on that. Here's our 100,000 customers plus that I talked about, and, you know, where we're vertically aligned with those customers and how we're continuing to grow. That's our core. Okay, that's awesome. But as Chris talked about, this is really neat. This Premier Farnell, and again, just been over a year, really, a year and a half, that we've had Premier Farnell, and we've really doubled down on the investments there. They know what they need to go do, and they're doing it. The exciting part for me, coming in, I like to, you know, to make it really clear, these are, you know, Avnet... You know, Premier Farnell is an engine into the marketplace. Okay?
Then there's Avnet, you know, the business that I'm responsible for. We're not going to integrate those in the front end. It's a different service model, different profit model, the whole thing. Back office, as we talked about, yeah, we can do more back office, we should, okay, to remove unnecessary costs. But the real opportunity, I like to use, like, the Olympic ring analogy, you know, kind of, or visual. We're separate in the market, but we're overlapping, and there's a shade in the middle that says there's leverage here. There's leverage of what Chris and Kevin talked about earlier, finding new customers early and through our CRMs, which we're going on, they're already on it, parts of our business is on it. But through CRM, flipping those leads, flipping those customers over to the core team, right?
And there's a lot of analytics with a company called Marketo we're using to sift through to find out which ones are more real than others. So they could, they could kill us with hundreds of thousands of leads. So we're, we're going through that filtering process. But that's a huge opportunity for us, and no one else, I'll say, no one else has low touch, high service model like Premier Farnell, tied to a broad line value-added distributor. No, no one has it today, and it's our opportunity to leverage it. And our teams, that's their mission. On the other side, flipping it the other way, we're in a lot of large customers. We have great relationships with some customers. Premier Farnell may not be playing, or Newark may not be playing in some of those customers.
Well, "Hey, Chris, get your team in, because those customers want to do more with fewer suppliers."... and their customer's doing design, and Premier Farnell can help them with NPI, then they can just flip it to us for the supply chain, we're ahead of the game, 'cause we got the early view of what's going on, versus possibly another house, and they go into a different distributor, they lose the connectivity. So we've seen tremendous opportunities both up and down in working with the Premier Farnell team. We're going to more and more suppliers jointly, because we're, we are one Avnet. So that's our share of wallet and the opportunity to see from an expansion standpoint. So you've seen this a couple of times today. Now you're gonna see it one more time.
So I just talked about the opportunity with Avnet and Premier Farnell. Okay, that's pretty, hopefully, that's pretty clear. What's neat here is our customers can come in anywhere they want into our service model. They want to come in here, that's fine. Okay, we can service them. We want to capture as early as we can, to capture as much of the design, and I'll call it the control of the board, okay, with our supplier registration design win programs. I already talked about AVID and some of the opportunities we've had there. Customer comes in here, and they want design for manufacturing. So it's, what's really neat is we're taking some customers into Dragon, and we're taking some customers into AVID, but they're working with customers we don't even know about. We're not touching everybody.
We'd love to, but we're not. So they're flipping. Dragon says, "Hey, got a customer," all of a sudden, they're flipping to our sales team. Let's get in there, and then we take them from, again, manufacturing to supply chain. And of course, Dragon and AVID are gonna work towards Avnet's line card as much as they possibly can, okay, to get the products that we service on the boards. So really exciting. And what's happening here, so then you have. We don't talk a whole lot externally about Avnet United and Avnet Velocity. They're more internal brands, and some of the customers and suppliers know what they are. But they're really subsets of the, you know, my business. Avnet United services all the large, complex, global, predominantly EMS, but also large global OEMs. They need a different service model.
They need a different cost model. We have different service and cost models in each region of the world, but there's a global champion that calls on Celestica, for example, or Jabil, all the other guys. So that's Avnet United. Avnet United, as a subset of my business, is probably about $2.5 billion per year, and it's managed by a person by the name of Lynn Torrel, and she also manages some of our global suppliers. Avnet Velocity, this is what's really helped enable us get into probably more of the consumer. Okay, it's again lower cost, as much financial modeling as it is for logistics services and fee-based as much as it is anything. And again, we're under NDA.
We can't mention some of the customers we're working with there, but again, a really unique model to market. And then, of course, you got the components. So from design all the way through production. And some additional examples of some of the new customers that are coming into the industrial space, the medical space, some driven by IoT, and I'm gonna show you a video here briefly. A couple of other examples. Agriculture. So we have an avocado what do you call it? Production facility? Avocado farmer and producer. Thank you. So big issue with produce is getting it from the crop pulled to the store shelf, and there's a tremendous amount of spoilage. And who's accountable in that, you know, based on the temperature sensing in and from truck to truck, to wherever it goes?
Well, we're working on an IoT solution, so they can now hold the transportation companies more accountable as to where this stuff was sitting by pallet, not by the truckload, by pallet, okay, as an opportunity. Another one we have is colostomy bags, right? Sensors. And they work with the manufacturer of colostomy bags, manufactures billions of colostomy bags. They don't have sensors on them today. So all of a sudden, it's an opportunity we would never have thought of before. There's a beer manufacturer. I'm calling that one personally. But it's a beer manufacturer in Germany that wants to better track their kegs and their pours and their usage, and we've got sensor opportunities there. So it's—they're not startups, but they're nontraditional. All right, so let me take you to a video, and it's gonna take in...
I'm gonna set you up here a little bit, from design, inception, an idea, through design services, from out of the core, and actually, when we're building—here he is here. When we're building the units that they'll show near the end, that's Scott MacDonald's business. So it's gonna hand off from the core, if you will, from design to manufacturing, and we're shipping that end product. So let me one more. This is the—this, as I said earlier, time and place, is not going away. Okay? Every day, time, place, utility, demand creation, not going away. Okay, still, still probably the biggest part of our business. All the things we just talked about in the video you're gonna see is, how do we get—help solve more complex solutions for our customers?
As we go up the value chain, and our sales people become more consultative selling, resource managers, how do we get up this value chain, and we're doing it, okay, where you get higher margin, higher stickiness with the customers and the suppliers. And that really sums up from selling components, which we're gonna continue to do. Big part of our business. FAEs aren't going away, account managers aren't going away, time, place, utility is not going away, inventory is not going away. But we need to continue to do this while we transform up the higher value. That's really a summary slide of what we just talked about, why we're investing in what we're investing in at Avnet, moving forward and positioning the future.
So with that, Edico Genome is a customer that we've done design chain through supply chain, and you'll see some of the Avnet Integrated as well.
Most people's genomes are about 99% the same. It's that 1% that makes you individual, and within that 1% are all of the markers for diseases and disorders that afflict all the people on the planet today. So if doctors can understand what those differences look like, they can diagnose these diseases with much more speed and accuracy, particularly in the case of newborn infants, every second counts. In the past, that analysis has taken anywhere from 1 day up to three days. Dragon can do it in about 20 minutes.
It's the customer's job to dream up the product, and it's our job to guide the best version of the product to the world as quickly, efficiently, and effectively as possible.
In the case of Dragon, streamlining the supply chain was pretty critical in their business. It allowed them to focus on the important part of their business, which is designing their IP, getting it to market, along with looking at the next generation and improving their technology.
From the minute Edico has an order, we take it from there. We do the integration on every single platform, and we know how critical our role is.
What Avnet did was they completely changed the way that we deployed our products into customers. We've been able to leverage their expertise and their scale in terms of integrating and delivering our product. Without them, it wouldn't have been possible to make sure that our products go out to customers, and they are able to use it immediately.
So for these extremely ill newborns that are presented with these unexplained symptoms, having this ultra-rapid genetic diagnosis can really be a life-saving tool for them. So it's not an understatement to say that the second somebody can start using our product, it can really make a difference.
We are not production and integration experts. That's where Avnet comes in. We just want to focus on developing IP while Avnet brings our product to the world.
Edico is already making a huge difference for newborn babies with the Dragon product, but the possibilities of its technology is really untapped.
All kinds of diseases have got some kind of a genetic basis, from cancer to Alzheimer's. Diagnosing newborns is just the beginning. Getting to go to work every day here at Edico, you know that, what you're doing is really going to help change the face of medicine in the future of the planet.
Our job is literally to help our customers change the world. That's what keeps us coming to work every day.
... It's just another example of how this whole ecosystem's operating. So let me just key takeaways. It's a strong market. Foreseeable future looks really strong, and Avnet's positioned well. I'm very excited to be. It's a good time to be at Avnet. We've got momentum coming out of 2018 into fiscal 2019, so momentum's building there, and we feel really good about that. We are poised for success in high-growth, high-profit markets. Industrial transportation, talked about that. Spent a lot of time on expanding the shared market, shared wallet. I think there's tremendous leverage we have between the different operating groups within Avnet. And you know what? Really, in summary, it's not a new playbook. It's really not. It's an expanded playbook to go create more opportunities in the market for Avnet to participate in. So thanks for your time. Appreciate it.
So, and I'll be here, well, throughout the day, all night, as long as anybody wants to hang out. So, okay, so, we're gonna... As I said, we're gonna bring, bring to life, some, some real live suppliers, we do have them out there, and, and customers, and I want to thank them for being here and participating in the Avnet Analyst Day. So I'd like to introduce Mike Barone, the Vice President, Americas Sales and Corporate Channel with Xilinx. Mike. I'd like to introduce Doctor, Johnny Boan. He didn't want to be called Doctor, but he is a doctor. Johnny Boan, Vice President, Global Distribution for KEMET. Ed Engler, Vice President of Americas Sales for Broadcom, and Paul Blom, Senior Vice President and Chief Procurement Officer for Celestica. Okay, thanks, guys.
So I want to just open up, and first, thank you for being here. Very much appreciate it. And maybe just take a few minutes, Paul, we'll start with you. Okay, and just your role, company, maybe how long you've been engaged with Avnet, and-
Okay.
Take a few minutes, and we'll go down the line.
Thanks, Phil. Paul Blom, and, as you can see, Chief Procurement Officer. I've got responsibility for the global supply chain at Celestica. Like Phil, I've got 30+ years, and we'll kind of leave it at that. And began within the industry as part of IBM. We then created Celestica out of the Toronto location from IBM and grew it to locations throughout Asia, North America, and Europe. Our business, we're in the EMS segment. It's about manufacturing and end-to-end solutions for many of the leading brands around the world. As you hear the Celestica strategy, you know, we're executing a strategy of revenue diversification and profitable growth, and underpinning that are two growth themes I'd share with you that really tie to our Avnet relationship.
One is growth of our JDM business, where we design,
... communication, the server and storage products. It's a large part of the enterprise and ISP segment. And as part of that, we get a lot of partnership and leverage from working with Avnet out of our design center in Shanghai and our plants in China and around the world. The other one that's really key for us, we call it the ATS or advanced technology segment, and it's where we have our aerospace and defense business, our industrial energy, semiconductor capital equipment businesses, and we focus growth in that area. It's more complex, it's higher reliability, and we see greater growth potential and greater margin potential. It's an area that is a great opportunity for us to keep growing with Avnet.
It's an area where we get a lot of the value from the different parts within Avnet, all the way from, you know, the FAEs at design and new product stage, all the way through the full life cycle and into end-of-life. So it's a great opportunity for us to execute our strategy. And maybe just to comment, you know, we've been Celestica here for more than 20 years, and Avnet's been a top ten partner for all 20 of the 20 years. So appreciate and thanks for the opportunity to join you today.
Thanks, Paul. Appreciate that. And, we'll come back to you on the design stuff probably a little bit later. Ed?
Welcome. Ed Engler, I'm the VP of North America Sales for Broadcom. Been part of the Avago Broadcom family for the last two and half years, when Avago acquired Broadcom, and that's when I moved into the role, running the Americas. Our relationship with Avnet goes back four decades, right? Back to the HP Agilent days.
Yep.
I think we're at a point now that we've never been, as far as the strength of the relationship, as we've kind of gone down to one, tier one distributor in the Americas, and we picked Avnet for that. We picked Avnet because of everything that you've seen here earlier today, right? We need to get to these customers earlier. We need to track them all the way through to production worldwide. Avnet's been a great partner, and we know the market's going to continue to adapt, and we need to adapt with a partner like Avnet, so.
Thanks, Ed, and I remember those HP Hewlett-Packard LEDs. That's where it all started.
We're still selling them.
Johnny?
Good afternoon. I'm Johnny Boan from KEMET Electronics. I'm also a 30+ year veteran of the industry, all of which has been at KEMET, by the way. We make passive components, and, we've been a partner with Avnet, I understand, for close to 50 years. So thank you for letting us participate today.
Thanks, Johnny. Mike?
My name is Mike Barone. I'm with Xilinx, responsible for the Americas sales as well as the corporate channel. Xilinx is the inventor of the FPGA. Over the course of the last several years, we've been kind of reinventing and going through our own transformation, as a lot of companies are doing. Avnet is right there with us as we're going through that transformation. We'll have an opportunity to talk about that a little bit as we kind of go forward and, hopefully in the panel discussions. Xilinx has been partnered with Avnet for 32 years, actually, 1986, which was just two years after Xilinx started, so almost from the very beginning of the corporation.
I remember that one, too.
Yeah, you were there for that one, too, huh?
Remember that one, too.
Yeah.
And now one of our top suppliers, well, I mean, just a great story. So, hey, let's jump right in. We got a lot of questions, by the way, internally, and we challenge ourselves, and we get a lot from the analysts, on, and we talked about it today, but using a distributor, you know, for demand creation or an Avnet. So, like to just open that up is, what do you see the value for demand creation from an Avnet or distribution? And, Ed, I'm going to start with you on this one.
Okay. So I'd say over 95% of Broadcom's products are sole source. And so what does that mean? That basically means that if we don't get into engineering early, we never see that come to production, right? So we have a very focused sales force, a direct sales force at Broadcom, but we basically need all the feet on the street that Avnet has to offer. We need their FAEs, we need biz dev, and I think Pete touched on it earlier, we need these FAEs and these biz dev people to be very focused and up to speed on the latest Broadcom technology. Avnet's done a great job of aligning with Broadcom on those resources.
We get all the feet on the street, we get them into the engineering community early, and that's how we don't miss out on the next great startup or the next great project or the next great segment. So I think demand creation is a key element of what Avnet brings to the table with Broadcom, and we're just looking to take it to the next level as, like we said, this economy continues to evolve and these products continue to evolve.
Great. Thanks, Ed. Johnny, from a KEMET standpoint, demand creation.
Very, very similar to Ed's. The earlier we get involved in the design cycle, the better chance that we're going to have to win that spot on the board. And what Avnet brings to us is the multiplier effects. It gives us a lot more feet on the ground, the FAEs, the sales guys that you mentioned, even the inside customer service folks, all those people provide us a lot of opportunities to get our parts designed in.
Mike, Xilinx, can you give an update on demand gen?
Yeah, absolutely. Since the very beginning, the nature of our products require a lot of engineering support. Not only do we need to be talking to the engineering community very early on in the design, even implementing their ideas in our technology requires support. Avnet has provided that all along the way. As we go through our transformation, we increase the levels of integration within our components. We've now introduced a SoC as part of our approach, or as part of our FPGA family. And in the future, we're going to be integrating more and more technologies. We need different disciplines of technical expertise. Avnet has been able to adapt their resources to support our needs. You know, both here in the Americas, but also worldwide as well, right?
So that's. I didn't mention that in the opening, and it's worth mentioning is that Avnet is our only global distribution partner, and they support us in every region around the globe, not just from logistics, but also from a demand creation standpoint.
Thanks, Mike. And the acronym SoC is system on a chip, right? So there's more complexity going onto the chip.
Yeah, exactly. It's a processor along with the programmable logic fabric, which is the traditional FPGA fabric.
So a couple of those cases, you know, and Ed, yourself as well, is where you do need that deep dive FAE. There might be some low-touch initial application support. They might be gotten centrally over to, but you need that deep dive, where that balance comes in, I think, right?
Yeah, and, and we-- you guys talked on it, and I think it was in Pete's discussion. The industry's evolving. These general FAEs were great at uncovering opportunities early.
Right.
You look in the 1990s, now we need specialists, right? These are very complex solutions. You need specialists, and Avnet has some great specialists on board, where the FAE, the engineering community, knows to go to them, right, first.
Right.
That's what we need. We need to be the first call that an engineer makes, and when that happens, we eventually will see that through to production. But if we miss that first touch point, we lose.
So interesting, so you talk about demand creation, and, you know, Paul jumped into a little bit of that in his introduction, that, you know, EMS provider perception are just all, all supply chain, all manufacturing, and but you guys have demand creation needs as well, that, that we work with you on distribution, right?
Yeah, absolutely. You know, I'd go back to the curve that you saw earlier. I think you've seen it a few times today. The first two pieces of the curve are, you know, research and concept, and then eventually into design. And in our language, we use terms like technology roadmaps through the FAEs and through the Avnet team, there's a lot of work that goes on between Avnet and our design teams and the and the key component suppliers as we look at, you know, how to bring the next, you know, great product to market.
If I use, for example, you know, bringing the next 400 gig switch to market, you know, we're tied in with the FAEs, we're tied in with the manufacturers, and we don't necessarily think of it immediately as demand creation, although that's what it is, as you look at it from the supplier side.
We look at it as, how do we enable the right design, and how do we augment or support the work done by our design team so that they're pulling in the right technologies, pulling in the right, call it cost curves for the future as we make sure that we're bringing to market something that's not just competitive today, but, you know, several quarters out, is a margin generator for Celestica and is also a, an opportunity for us to help our customers with the technology challenges they have. So it turns into demand creation, but for us, it's really about that technology roadmap and how that gets communicated into our design teams.
Great. Thanks, Paul. So on demand creation, just, Mike, I'll start with you. Just the role distributors play, even outside of that, you know, for you on a—from on a global basis as well, with the leverage points, the value to your business, and the reasons you drive through the channel.
Well, I mean, in a nutshell, it's scale, right? So and it, it, it manifests itself both in, you know, the fulfillment side of the business, as well as the demand creation side of the business. Avnet, as you saw from the, you know, the slide a little while, I mean, that Phil presented, is everywhere, and it has, it has a critical mass in all markets around the world. We can't afford to do that all by ourselves. Like Avnet, we have a long tail of customers. Our, our technology is appealing to their, a lot of small customers as well, and we can't touch every one of them ourselves. And so the initiatives that Avnet has taken on historically and also the ones that are more recent, are gonna help us be able to reach that long tail of customers.
It's really important to us.
Johnny, anything you want to add to that from a KEMET standpoint, the different technology and the designs from Broadcom, right?
Different technology, but very similar strategy. I mean, the long tail is actually a great analogy. It allows the distribution channel, in particular, Avnet, with your technical expertise, allows us to touch lots and lots of customers. I mentioned earlier, the multiplier effect, and that's what I meant by it. And we can touch X number of customers, and Avnet can touch a lot more than that.
Ed?
Yeah, so we have a couple thousand customers in the U.S. across 20 Broadcom divisions and over 90 product lines. At best, my direct team can cover 30 customers, right? We focus on 30. So how do we cover the rest of these customers with that limited sales force? We use Avnet, right? And again, we have to get in early. So you have to get into these thousands of customers early, and then you've got to track down through production, where they're gonna procure all this material, which can be all over the world. And that's why we need a global partner with demand creation capability.
So, Paul, switching back over to the customer side, you know, you guys have expanded from, you know, Canada, you know, I mean, you talked about your origin, and the globalization of Celestica has been pretty phenomenal as well. What are the advantages of using a distributor to support your supply chain objectives today, and what do you see around the corner as the complexity increases?
Maybe if I can do a little bit of what you did earlier, you know, where we're coming from, where we are, where we're going.
Sure.
So, you know, where we came from originally, we had a lot of manufacturing activity in North America, we had a lot going on in Europe, and we were growing in Asia, and for that, I'm going back, you know, a decade and a half to two decades. One of the key things for us is the ability to leverage our global footprint, move work throughout the world, and be supported in every geography, and that's something that, you know, Avnet does a great job of. So it helps us be able to configure and reconfigure supply chains rapidly, and be able to meet needs of our customers, you know, around the world. So, you know, we get a seamless service globally, whether that's through digital presence or through people working with people.
I mean, both are, you know, important to us, and it allows us to do that. If I look a little bit farther out, we're starting to have more dialogue in terms of for the challenges that exist on working capital and on flexibility, on speed in our CCS or enterprise-type business, looking at more options to work with Avnet Velocity. So kind of shifting from, you know, the concentration that's on the supply, component supply side, to leveraging Velocity, and we've been engaged over the last couple of months in some workshops there, and we see that as a nice, you know, innovative opportunity. And then on the integrated side, I think, you know, JDM is presenting some interesting opportunities.
So I see us starting to get into even deeper engagements, and I think the innovative spirit that sits on both sides is really a key part for us of making that work.
Well, what kind of report cards do you have for your distributors and, you know, TCO, the total cost of ownership?
We actually have a metric-
Pretty transparent, right?
Yeah, we have a pretty transparent, metrics-driven system on total cost of ownership. You know, the basics of, you know, quality, delivery, cost. We score innovation highly. Flexibility is absolutely key to us. And then, you know, we have some of the softer side to it. Probably worth mentioning, our Supplier of the Year for aerospace and defense business or segment last year was Avnet. And it's really an area where you might think, you know, there's so many planes built per day or per week, and so it should be pretty easy to figure out that supply chain.
But with all the things in the service, parts, networks, things called aircraft on ground, which, by the way, isn't a good thing, you know, being able to work with Avnet to rapidly resolve those problems and go after that sort of thing, that's really what positioned Avnet as our Supplier of the Year, so-
Thank you.
Thanks for that.
Thank you. Ed, you touched on it a little bit earlier. Broadcom went through a pretty extensive analysis of the channels and the partners and the criteria you were looking at in the selection process. Can you kind of expand on that as the... and then what you're still measuring today? So it's not a gimme, right? To maintain where, where-
It's definitely not a gimme.
What's that?
It's definitely not a gimme.
No, it's definitely not. No. We know Hock.
So, yeah. So, again, Broadcom's made several acquisitions over the past few years. Throughout that time, we've also done a consolidation of our distribution network. In the Americas, that led to a decision to pick Avnet as the lead tier one distributor for us, and then moving forward, with all future acquisitions, try to move, the new acquisitions into that model, right? So, we don't know what's to come, so we had to pick a partner that had a vision for what might come and how they were going to handle it, and that it aligned with our vision for the future. And we need to adapt together, and that's what we're doing right now.
So, we've been on this model for, I'd say, a year and a half to two years, and I think, like I said, we're clicking on all cylinders right now, and we're looking to extend this partnership longer. I see a bright future for both of us together.
Thanks, Ed. I think, you know, we talked a lot about digital today and where it is and where it's going. Each of you have your own digital strategies. How important is that? How critical is that, and where do you see that moving in the future? Johnny, you want to start with that one?
Sure, I'll start with that one.
The chemist pretty compliment the chemist, very progressive, in the digital side of things.
Well, thank you. You know, it goes all the way to either that design engineer or the guy entering the orders at your customer service desk. We're trying to improve our digital tools. The thought is that you never know when that engineer is going to be working. He's not necessarily working eight to five or nine to six. He may be working at two o'clock on a Sunday morning in his basement, and you need to have the tools available so that he or she can go in and understand your product offerings and be it the technical side or the mechanical side, or be it the price or be it the availability.
One way to do that is through the digital tools, and we work very closely with Avnet to continue expanding our depth and breadth of digital tools.
Mike, anything from a Xilinx standpoint in the digital world?
Yeah. I mean, I can't emphasize how important, you know, the digital piece is. You know, when we all started in this industry, in sales a long time ago, engineers had to call the salespeople because that's where they got all their information. Today, it doesn't happen like that at all. They can make most of their decisions without ever talking to a salesperson. So we, as a supplier, and all of us are saying the same thing, we want to talk to the engineers early on, right? But if they can self-service through digital, digital means, they can make decisions without us, you know, making sure that we're putting our best foot forward, right? So having that digital presence, investing in that, Avnet making the investments that they've made recently, affords us an opportunity to reach a lot more customers.
We also are starting to use the word, users, not just customers, right? Because some of these people are, just using our technology, but they haven't formed companies yet, right? And if they can start capturing their ideas in our technology, then as they become companies, they can jump on the train and ride the curve that Avnet, you know, envisions here kind of going forward. So digital is the launching point for all of that, and we're going to see more and more of that as we go forward.
Generates about users, does that kind of bring it to life again, for the analyst? When you go back in that chart, we talk about the element14, we talk about Hackster. That's a million+ community. They're just users out there playing with the technology that eventually, not just hope, should lead to further opportunities for our suppliers engaging there. So that's it. And in that user community, I think we, not sure we mentioned... Chris, did a little bit. Yeah, some are kids in college, some are hobbyists. The bulk of them are design engineers.... Absolutely doing something. Some of them use their personal addresses, so it gets tough sometimes to track them back, okay? But they're at Amazon or GE. They're large OEMs or indoor suppliers that we're servicing today.
So it's that user community that we're looking to try to continue to capture. That's actually a great word. Paul, digital from a Celestica standpoint, I mean,
Yeah, I think I come in from two perspectives.
Yeah.
One is the business execution and the customer side, and then the other is on the supply side. So we've invested heavily over the years in the, you know, demand demand planning and advanced planning systems so that we can perform demand simulation, you know, deal with forecasts that come in, that that that are, you know, challenging and really get some intelligent judgment on those, and then be able to commit and show flexibility with customers. So a lot of digital activity there, and it's really about taking information that sits in different systems and rapidly be able to use it to make decisions. If I then go over to the supply side, it really has two key components. One is analytics, and then the other is connectivity.
So on the analytics side, very much like the work being done by Avnet, we've got incredible analytics capabilities we've invested in to understand the opportunity on the procurement side, where we need to react differently or proactively go after things differently. And part of that digital activity is enabled by, you know, information flows and data that comes in from Avnet, whether that's allowing us to quote more rapidly or execute procurement more rapidly.
The other one is the B2B connectivity, and just being able to spend time with Avnet, as we're about to go through a next wave of investment on B2B connectivity, and find out from Avnet who are the best out there, what are the best practices, what should we avoid, in terms of things in our deployment of the next wave? Being able to have a partner like Avnet is key to us, you know, as we plan the investments and go and deploy them.
Yeah, before we go to Ed and John on the digitals, just, you know, from an EMS standpoint, from your standpoint, I'll put you on the spot here a little bit. 'Cause we talked about the complexity of supply chain and the demand chain, and of course, it's global and the amount of customers. What kind of forecast accuracy or predictability, if you care to share-
Mm-hmm
... do you have inside a 30, 60, the accuracy? I have my numbers, you know, but because we talk to analysts all the time and say: "Oh, you don't have scheduled orders?" Yeah, but the shock absorber effect is pretty amazing, and you guys all see it as well. But from a... If you want to share, what... I think people will be surprised at how-
Yeah, there's-
-poor-
There's kind of layman's terms, and then I'll dive into a bit. So I'd, I'd start off with, "not good.
Even with all these tools, right?
Yeah, and, and, you know, it actually underpins some of the needs of the tools. And, and, you know, I'd comment in a few ways. One is, in the short term, there are crazy things going on in forecasting because of some pretty severe market constraints. So, you know, for those of you tracking, you know, MLCCs and chip resistors and memory, you know, we've, we've, we've had to go through some, some challenging constraints. And, and Johnny, from KEMET here, I was kind of trying to work on dinner and getting some extra MLCCs from him.
It was an absolute shakedown at dinner last night trying to get parts.
It was. It's in the DNA. You know, but part, part of, you know, part of, you know, driving, you know, the forecast, you know, in the short term, we got to, we got to discount that a little bit and really design, you know, processes and systems for the long term. So in the short term, you know, you'll see that there's a certain level of double, double ordering. There's inventory growth with the EMSs and, and throughout the supply chain. And, and we've seen that in different cycles, and we're used to it. We know how to, how to work with that. To me, the bigger challenge in the area where, having digital tools and analytics is more important is, if you remember that chart, I think it was 68%, 32% between OEMs and-
That's right
... and EMSs, that's a bit of a mirror image of how much of aerospace and defense, industrial, and some of these other markets in what we call the advanced technology, diversified market space, is, you know, ripe to move into EMS over time. And those customers are far less sophisticated in their, you know, S&OP or SIOP processes. They're less seasoned in how they give forecasting to their EMS partners. And so it becomes more incumbent on the EMS to have the tools, the experience, and the talent to deal with that. So I think, you know, one is we can complain about the forecast.
The other is we can work collaboratively with our customers to make sure that, you know, we don't kill ourselves on working capital, but at the same time, we deliver the, you know, the service levels. I'll give you a really simple example from our advanced planning systems. You know, with one of the aerospace customers, they give us a refresh forecast. They order 450 different assemblies from us, and right away, we can spot, "Here, here's the 10 worst where we think you're over-planning. That's gonna be an inventory issue. And here's the 10 where we think you're under-planning, and that's gonna be a shortage and an expedite." We actually use that to cycle back on the forecast before we load it.
Our customers, over time, we try to go upstream and understand where it all comes from, but just the fact that we're able to improve the interface is why, you know, some of these customers are bringing more work to us. How does that tie to what we do with Avnet? When we take that forecast and explode it back to the suppliers through the replenishment programs, through the stocking programs, and through the internal logistics of Avnet, they're able to damp some of that noise out so that the manufacturers, whether it's a KEMET or someone else—you know, their impact a bit less by all the crazy stuff that's going on, on the forecasting side as it's inbound to us.
So we spend quite a bit of time working on that and looking at, you know, where are the opportunities. It's not unusual for me to be in meetings with suppliers, where they name a customer that we deal with and say, "Hey, what's happening there?" And it allows us to kind of iterate on that and make it better.
No, correct. I think there's often an assumption that we get these forecasts are perfect, and, and, and frankly, they're inside of 30 days-
Yeah, in 30, in 30+ years, I've yet to see one.
Yeah, yeah, right. It's an oxymoron. Ed, on digital, with Broadcom, much going on in digital and the expectations going forward?
Well, I think everyone touched on it. You know, the way engineers start new projects and pick solutions has been changing, and it's been changing rapidly. And if you don't have a digital presence, you're gonna miss out. We leverage the digital presence that Avnet has in place, because, again, our goal is to go wide with our customer base, but to use Avnet to do that. And so I think the reality is that with the ever-changing world of the engineering community, digital presence is absolutely critical.
Great. Can any of you cite a specific example, okay, where you had a big challenge or a big opportunity that a distributor or an Avnet had to help you or bail you out, or-
Like, like last night, between these two?
What's that?
Like last night between these two?
Yeah, exactly. Yeah, well, you know exactly. Any examples you want to just cite that might-
Yeah, I think if I, if I pick a few new product launches on the-
Right
... industrial side of our business, it's not unusual for us to be launching, and particularly if something is going from in-house manufactured by the OEM to an EMS outsource, it's not unusual for us to be bringing a product line into Celestica, start the ramp, and then, you know, it's a call from the customer in terms of, you know, upside or downside flexibility, and we've had a number of times where that's happened, a number of times where we're, you know, chasing the upside. You know, Avnet's helped us enormously, both in terms of supply, but also in terms of dealing with the number of suppliers that, you know, we have to, you know, expedite with and maybe do some rapid AVL expansion with in order to enable the upside.
So, you know, we've had a few of those. The ones that sit in my head right now are, were on the industrial side of the segment more because they pull in my team and myself. But the ability that Avnet has to respond there has been, been great. And I think the trust that exists between our teams is, is a huge part of that. So, you know, we talk a little bit about, you know, digitization and systems and that sort of thing, but, you know, having the ability to connect with Lynn Torrel and, and her team and so on, for us, means a lot. And we know that, you know, when, when you say you're gonna do something to help enable that, that you get it done.
Thanks, Paul. Any other examples or anything? Go ahead. Yeah, go.
Yeah, go ahead.
Sure.
Talk a little bit on the fulfillment side. You know, I know Paul's been talking a little bit about the system integrations. Of course, from a supplier standpoint, we also have extensive system integrations, you know, through Avnet as well. And, a lot of business processes are built up in and around all of that. As our business processes change, we need to—that they basically drive changes back into the Avnet organization. Having Avnet being our primary distributor worldwide, those changes get—we get a lot of leverage associated with those things. We can get, basically, critical mass, you know, from our company and from Avnet's company to implement these changes and implement them very, very quickly.
This is kind of the inner workings of how our business runs at the end of the day, but if they don't go well, then we both suffer over time. But we appreciate that cooperation. We've worked our way through the different revenue recognition rules.
Yeah
... for example, which is a kind of a real current topic, that-
Yeah
... we're still working on, you know?
Yeah.
But we're making our way through that.
We'll always be working on that.
Yeah, I think so, probably.
Ed, you were gonna jump in on something there?
Yeah, it's just as, as certain markets run hot and lead times go out, customers, to your point, Phil, have a terrible time forecasting, several months out. They'd like shorter lead times. They'd like the ability to have upside demand within weeks. And so that's when that situation arises, which arises often, we'll hand walk those customers over to Avnet. We'll do a three-way meeting, and we'll figure out how we can, you know, give them what they need by using Avnet's logistics excellence, right? And then still allow Broadcom to focus on, you know, designing the leading-edge semiconductors, which is our specialty, right? So I think there's several examples. There's a few going on right now with major storage and enterprise customers-
Right
... that we're working on.
Yeah, I'm aware of those. Johnny, anything, example?
No, I'm good with that. I think the guys have put-
Okay.
three very good examples out.
All right
... and I don't think I can top that.
Okay, so as we close out the session, just go through each any final comments from you know, Paul? Or Mike, we'll start with you, just as we wrap up today, and then I'll make some closing comments.
Well, our relationship with Avnet has been a long one. It's a very solid relationship. There's a lot of value that Avnet brings to the party for us. We need to be able to reach wide into the marketplace. We service a lot of customers in a lot of different markets, and Avnet is there. They're there for us. They get us into new customers. Actually, one example that I wanted to touch on, 'cause you were mentioning transportation in your presentation, is that from our standpoint, we're seeing a lot of small startup companies kind of in the kind of like building off of the ADAS and the, and the autonomous driving kind of wave, kind of going forward.
LiDAR is an example of, there's a lot of activity with small companies in this area. Avnet is talking to all of these for us. We are participating. We have a good technology match, you know, for those applications.
Actually, having from the demand gen, right on through.
Absolutely. Absolutely.
Right.
So, that's an example of what we're looking for. There's other markets.
...the regions of the world. There's, you know, it's a very comprehensive and extensive relationship that has stood the test of time.
Yeah.
Right? And, you know, it's terrific.
Thanks, Mike. Johnny, any last comments at all?
Yes, sir. I wanna go back to my opening comments, if I could, where I talked about the multiplier effect. Whether we're talking about engineers in the design phase, I love your term user, if you're talking about the user in his garage on a Saturday night, or you're talking about the buyer at a big, at a big customer. What Avnet brings to us is the multiplier effect. So we can touch all of these people 24 hours a day, seven days a week, independent of the geography in which they reside.
Ed?
Yeah, well, I just, first of all, thank you for having me here. I was a little uncomfortable coming when I realized I think I'm the only person in the room that doesn't have 30+ years of experience.
That's a good thing, Ed. That's okay.
I think that's it. I don't know what I've been doing with my time. No, I think, you know, just quickly, you know, we placed our bet, right? We placed our bet on Avnet. I think our partnership today is strong. I think it'll evolve and it'll look different three years from now, and I think that means there's just a lot of opportunity with both companies, right? And that's exciting.
Thanks, Ed. Paul, any closing comments?
Yeah, maybe just to go back to the first comment. You know, we're executing a strategy of revenue diversification, and it might sound simple, but there's so much focus in the diversified markets and in industrial energy and so on. And the percent of our business that we will do with Avnet there is higher than in a lot of the other areas. So as we grow that, we'll spend more time, you know, having challenges, working together to grow it and that sort of thing. And, you know, I feel good about that because I think that we've built a solid relationship, and we've got great teams working together.
So for me, it's about how do, how do we just keep that momentum going, and how do we make sure that we execute on the growth plans, both for Celestica. I guess I shouldn't say both, for Celestica, for Avnet, and for the, for the suppliers. So and, and thanks for the opportunity to join in today.
Thank you, Paul. So let me just wrap up. First, I wanna thank the panel for Paul, Ed, Johnny, Mike, for coming in. We really appreciate it. We could have, we'd love to have all of our suppliers and customers up here, but the stage is just a little small. But this is a great representation of passives, actives, a complex EMS provider that's doing design and not just supply chain. And we thought it was very representative of what we're doing in the marketplace. And I'm just gonna close out, but, you know, the first slide I put up there, you know, it's upstream with our suppliers and, and, and downstream with our customers, and we got to navigate both constantly. It's really a complex, ever-changing global environment that we're competing in. And it comes down to trust.
You know how many times you hear trust and relationship up here? That doesn't mean he and I, and he and I, we have major debates. We have issues, and we've got problems, but it's over 40+ years of relationships and trust that you work through those issues, okay? Because at the end of the day, we are partnered together in the marketplace, and we just felt that bringing some testimonials of some of the things we talked about would be great. So again, thank you very much for coming. They're gonna be around for the balance of the day. So you wanna test them when they're not on the mic, you know, ask the same questions, that's fine.
Okay, but they will be here through the balance of the day and the ringing of the bell and, and cocktail hour. So thanks again. I believe we're doing an audible. What are we gonna do? Are we doing-
Yes.
Right? Yeah, so we're gonna do an audible, a quick 10-minute break, and then I wanna introduce you later. You will get to see our new CFO go through how all this comes together to get to our long-range planning target, okay? And that's, I know, a lot of you have been waiting for. So a 10-minute break, and then we'll come right back. Right. Thanks, guys. Thanks so much. I know it's hard. Thanks so much.
Ladies and gentlemen, the show will resume in 2 minutes. Please take your seats, and again, a friendly reminder to silence your cell phones. Thank you!
I think we're ready to get started, everyone. You can take your seats. Everybody, if you could please take your seats, we'll get on to the financial section and then end with a Q&A. Okay, welcome back, everyone. Well, I think we all learned a lot about Avnet this afternoon, and it's a lot of information. I'm gonna close the next 20 minutes. We're gonna take off everything you heard, and we're gonna turn it into our financial model. And our objective is so you know what we're planning to do over the next three years, you know the steps, and you understand our model, and you understand the sensitivities. And if you want to make different assumptions, hopefully I'll give you enough information so that you can do that and just see where we're going.
So what we're gonna take you through, you're gonna see a lot of reference to our targets. Our target is a 3-year plan, so that means 2019, 2020, 2021. The target means 2021. So you heard a lot today, but our financial story is really very straightforward. There's three areas here. One is growing our higher margin business. Now, you heard from Chris, Premier Farnell, 10% growth, sees that continuing, and guess what? He's got an 11% operating income, and we think we can get that higher. I love listening to Kevin about our digital strategy. We have an 18% year-over-year growth, and guess what? The gross margins there are 25%. Scott, I love when you say your goal is to grow faster than Avnet and be the most profitable. This is the type of spirit we have going on here.
So when we talk about growing higher margin businesses, all of our businesses are gonna grow. Fortunately, these are the highest growth, and they have the best margin opportunities. The second thing you heard a lot about was optimizing our cost and operating income. We'll talk a little bit more about Americas, but I think you heard Phil talk about Guadalajara, low-cost geographies. I'm gonna talk to you about some back-office integration we can do, and Pete gave you a very good overview of transformation. I'm gonna talk a little bit more about transformation as well. The third piece of our financial story is being good stewards of capital. Very important. So what does that mean? The first thing is that we have the right amount of capital deployed in our business.
I think today, we feel that maybe it's a little high, that things like working capital, we can take that down a bit, and we'll show you how we're going to do that. But then next is how are we going to allocate our cash flows going forward? Meaning, how much will be reinvested in the business? How much will be used for inorganic growth? … and how much will we return to our shareholders? We'll talk about the vehicles that we're going to do that. Okay, before we get into the three-year plan, I think it's really important for everybody to understand what's happened over the last 24 months, because we're what we're talking about is not starting today, and these are the initiatives. No, this has been going on for two years.
You know, Bill started talking about supplier losses and revenues going down by $1 billion and the associated profitability. So on this chart, we look at the starting point of Q4 2016 compared to our latest quarter. And like Bill said, you can see the revenue; it has come back. Just as important, our profitability has come back. So in Q4 2016, we had an EPS of $0.59. This last quarter was $1.02. That's close to a $50 million difference in a quarter, okay? So we're at a run rate of pretty much a $200 million improvement in 24 months. So when you listen to Pete describe transformation, this is what we're talking about. Lastly, Bill talked a lot about operating income, 4.5%-5%.
I think he, I think you can tell the, the discipline and the drive that we are going to get there. A year and a half, two years ago, 3.3%. This latest quarter, 3.7%. So we're well. We got some traction going here. You know, Phil, I think you can tell he's a real, sports, sports person, so I'll use a baseball. If you look at our operating income, we're in the third inning. We got a lot, we got a lot we're gonna do, and you got, we got a lot more that you're gonna see in the coming quarters. All right, I wanted to talk a little bit more about Premier Farnell. Because to Avnet, this has been a really good acquisition, okay? Avnet paid $1.1 billion for Premier Farnell.
As you heard from Chris, it's growing quite rapidly, and operating income got up to 11%. This is something we see that we can continue to grow. But let's just take, where is it at today, and as the CFO, where is it at financially? Well, we're at about a $1.5 billion + run rate, which is a quarterly number. We got operating income about 11%, so over $150 million, and we paid $1.1 billion. So you can see the traction we have today, it's actually above our weighted average cost of capital, but more important, you can see the returns to come. So when we talk about being good stewards of capital, this is not a new thought. This is a good example of effective capital deployment. All right, going forward, let's build the model.
Everything you're about to see for revenue, we use an assumption of 5% CAGR. So I'm going to show you sensitivities, and the purpose is, you're gonna see how at a 0 growth model, we can still get to 4.5%, okay? We'll give you sensitivities at different growth rates. But what you need to know is what you're about to see is assumed a 5% CAGR. And why 5%? Well, we have the higher margin businesses growing at 7, 8, 9, 10%+, and we have our core business, we're gonna assume 3%-5%, right? And this is what Phil talked about, core business, you can see the CAGRs and where we play. Let's talk about what we mean when we say growing our higher margin businesses. At a very high level, this is where we're at today.
The bulk of our revenues are supply chain and fulfillment. In supply chain and fulfillment, we have an operating income of 2%-4%. When we do demand creation, which you heard a lot about today, we get a margin uplift. When we do manufacturing, which is what Scott talked about, we're taking hardware, adding software, doing testing, doing more value added, so we get additional margin uplifts. And then when we get to Premier Farnell, we're at over 11% today. You notice we added IoT solutions. In IoT, there's two things we do. Solutions means when we're supplying hardware, software, helping with connectivity, using our partners, security, we're providing a solution. That's what IoT solutions is. I know a lot of you are focused on revenues from IoT.
There's another 700 million electronic components going into IoT, but it's through all of these other channels we have. So our intent is, over three years, supply chain and fulfillment, it is gonna grow. It's a great business. This is our core. But these are gonna grow faster. And you'll notice that the operating margins for each one of these boxes goes up a bit. That's because of the operating expense movements I'm gonna talk about in a minute, okay? We're gonna streamline our expense structure, and that's gonna help with our operating margin. So by going from 35% of our business being higher margin to 40%, which is our plan, very simply, that's how we get our operating income from 3.5% to 4.5%-5%.
All right, so let's, let's—we're gonna walk down through the income statement. So gross margins.... One thing I think is really important for everybody to know, when you look at our operating income today, yeah, it does lag. It does lag our peers. But what you may not realize is that when you look at our gross margins, it's actually above our peers. And it's above our peers by about 100 basis points. So you probably think, well, why is that? Well, the reason is the different pieces of business, the mix that we currently have today. Think about when Bill joined. First thing Bill did was he looked at that product life cycle and said, "Hey, Avnet, two years ago, was focused on high volume production, right?
We're doing high volume, low margin business." Bill acquired, with the team, Premier Farnell, Hackster, Dragon, where we played in the beginning part of the product life cycle. I thought Chris said it very well. When you're dealing with the beginning part and the engineers, what is valued there? It's breadth, and they want the parts tomorrow, and that's valued. So when you look at our business today, it is unique. It is a different model, but we have in the front end of that product life cycle, gross margins of 35%, and we have in fulfillment, more 11%-12%. So on a blended basis, we do have a higher gross margin. Why do I say that to you?
Well, it's really important to know that we have, we have the basic strategic blocks in place, and a lot about what we're talking about here is putting in the cost structure and the finance structure to earn higher returns, okay? So for a three-year plan, today, we have a gross margin of 13.4%. We know Premier Farnell is growing faster than the company as a whole, as is Avnet Integrated. You heard a lot about demand creation. We get a margin uplift there. Digital, Kevin said it very well, year- over- year, 18%-25% gross margin. IoT, a terrific opportunity. Americas. Why is Americas here? Because of what Phil said. You know, the supplier loss has really affected Americas. The revenue hit resulted in inventory issues they've been dealing with, in, as well as the ERP problem.
They've been dealing with things like expediting costs and other things to work through. What you need to know about Americas is their profitability is back. Operating income's been up for two quarters in a row. They're about a third of the way to where they were originally, and for this plan, we're counting them, on them to get at least two-thirds, okay? So this is how we maintain gross margins, and then you'll notice there's a big negative 100. What is that? That's a contingency, right? We're gonna have headwinds. It gives me a lot of comfort as the CFO to know that, you know, we can hit our plan that you're about to see, and I can take 100 basis points and say, "You know what? That's the contingency for the unknown.
I can put it in my back pocket, and I know I have room in this model." Okay, everybody follow that? All right, operating expenses. It's a really important chart. If you think about it, if our gross margins are above the industry, then where's the delta is in operating expenses. So in operating expenses, there's four actions that we're focused on to improve our cost structure. First thing is transformation. This is what Pete talked about. The greatest thing about Avnet today and what's happened in the last two years, there's a continuous improvement process. There's a process where people bring up new ways of doing things. It goes into the transformation office, it's tracked, it's followed through completion, and we get bottom-line results. Next three years, $85 million. $30 million of this is identified for fiscal year 2019, and we have the specific projects.
We know in outer years, we're investing in our distribution centers, we're gonna get efficiency improvements for the remainder. Optimized cost structure. Very simply, that's right sizing. We know there's certain areas where we have more right sizing to do, and we're going to address that. Third area is low-cost geographies. Phil talked about Guadalajara, Serbia, India. These are areas we can do more, put more activity there, and have a cost savings. Lastly is back-office integrations. If you think about it, Avnet, like a lot of companies, has grown through acquisition, and therefore, we have a lot of different administrative offices. Premier Farnell is a perfect example. They were purchased in what? November of 2016. It was a very light touch integration. Why? We wanted to make sure that magic formula continued, and I think you can see from the charts it has.
But now there's an opportunity. We're gonna go back, we're gonna look at the back office, we're gonna do integrations. Here's what's really important to know. This is how we get our 4.5% with a high degree of certainty. To go from a 3.5% operating margin to a 4.5% is 100 basis points. We're $18.8 billion of revenue. That means to get to 4.5%, we need to find $188 million, okay? Here's $245 million. So in a no-growth environment, this drops to the bottom line, and that's an additional path for us to get to a 4.5%+ operating margin. Now, I told you earlier, we're going to grow 5% a year.
Well, there's going to be some volume-related expenses in that scenario, right? This is higher freight costs, distribution center costs. And really, the beauty of this is, hey, we want to continue to invest in Kevin's digital and what Pete described with IoT. So this is a reallocation of assets. That's what's $105 million. That's mostly people, but think about it, it's $105 million. That's a significant investment in these areas to continue to grow. So in the 5% plan, our expenses stay about the same, they actually go up. But here's what's really important about operating expenses. What we're focused on is OE to GP. What are our operating expenses to gross profit? Today, it's 75%, which means for every dollar generated of gross profit, we spend 75 cents in operating expenses.
If you look at Avnet historically, we operated at 65%. If you look at our peers, our peers generally operate in the mid-60s. So in a no-growth environment, we get the savings. We don't spend that. The ratio is 65%. In our 5% growth scenario, we save this, but it's really allocated to, reallocated to volume, reallocated to investment, okay? Key, key point. Americas, I'm not going to talk a lot about Americas. I think Phil did a really, really good job on that. This team is working very hard. They've made a lot of progress. They have traction. There's more to go, but it's totally in the right direction. You pull all of this together, how do we go from a 3.5% operating margin to a 4.5%-5%? Everything we just talked about.
Get Americas to continue to move back to where they were, optimize our OpEx, grow Premier Farnell, and Avnet Integrated faster than the rest of our businesses, focus on IoT, continue to get demand creation, which you heard from our suppliers is so, so important. And if you go back to that gross margin chart, hey, we did take the 100 basis points, set it aside as a contingency, but we let 20 basis points flow through. Here's our risk adjustment, target OI. When you go to the end of our chart, you're going to see some, some pretty significant improvement numbers. So you may say, "Well, why is, why is Avnet coming out with these numbers? This is really, these are very significant improvements." Well, the reason is, because when we look at this, we have multiple ways to get, to get there.
What we just showed you is we know that we had a risk adjustment in this plan of 100 basis points. Further, we know that in a no-growth environment, a lot of those OpEx actions will come to the bottom line. Okay, here's the sensitivity. A lot of you asked questions about cycles. This is not addressing cycles, okay? Our demand, very, very good. I think if you ask the suppliers or the customers, we don't see any change in demand, but we want you to be able to understand what is the sensitivity to different growth levels. So in a nutshell, our management plan, our three-year plan, is 4.8% out of 5% CAGR. If there's no growth, we're at the low end of our target. If we're at negative growth, we're still above 4%. That's the income statement.
Let's talk about being good stewards of capital. You know, one of the things we did is we looked at our net working capital days versus our history and versus our peers. Versus our history, Avnet historically operated with working capital in about the mid-60-day range. Our peers are actually below 60 days, and this is looking at 10 other electronic distributors. Why is that important to us? Because that says with similar customers, similar suppliers, using market-based terms, this is achievable. I have the pleasure of working with Phil on this. Phil and I are heading up the team, and what you need to know about working capital is there's no silver bullet here. There's no two or three items that are magically going to get it from 100 days to 70 days.
But what you do need to know is, when we look at the plan, there's a plan to get there. It's things like more centralized management of inventory, making sure the regions can see the inventory in the other regions, making sure Americas can see what EMEA and Asia have. Scott, he's a manufacturer. Scott brings up vendor-managed inventory. More thoughtful margin working capital models. You know, something Paul mentioned was, and Phil, was Velocity, Avnet Velocity. We're not going to go into it because it's a very unique model, but what it's basically doing is saying, if you work with your suppliers, your customers, and Avnet, we have a way. Velocity stands for working capital Velocity, okay? This is not going to be a smooth reduction. Why? It's a formula, right, working capital days. Hard, hard to predict what is it going to be in one day.
But what you need to know there's a plan in place, and we consider this a bankable plan. Could it get below? Yes. Could it get there faster? Yes, but this is something that we spend a lot of time on. All right, so if you have higher margins, lower working capital, you're gonna generate pretty good cash flow. Therefore, good stewards of capital is, here's our capital allocation plan. When we look at our business to satisfy what we are laying in front of you, we need to continue to invest in systems, digital, web orders, CRMs, pricing systems, ERP. We need to continue to invest in our distribution centers, right? Volume, it's all about service. That's gonna be about 20% of our capital allocation plan. Inorganic growth, another 20%.
If you think about the product life cycle, now we have Premier Farnell, we have Hackster, we have our core fulfillment supply chain business. There are other pieces that would fit nicely. What you need to know is the core strategic pieces are in place, so what we're talking about is more tuck-in acquisitions to bring more value to our supply chain. That's what the 20%. It's earmarked for 20%. There's nothing immediate on the table, but we have some ideas what we're gonna do. Then we look at our distributions to shareholders. Well, today we have a dividend. We're growing at 5%-7%, and we're gonna continue to grow at 5%-7%. So therefore, when you look at our cash flow, we're gonna be putting it toward buyback. Now, you know, these ratios change over time, but here's why.
What you should know as investors is our buyback is value-based share repurchase, meaning every quarter we talk to the board about our plan, what we think our valuation is as a company. We look at discounted cash flows, we look at the share price. Today, it's a very attractive, high-return opportunity. So going forward, 60% to shareholders, 20% reinvested internally, 20% earmarked for M&A. Let me just pull this all together. This is our financial model going forward. Gross profit, maintain it at 13%-14%. We know we're gonna get uplift on gross profit by growing our higher-margin businesses faster. But again, if we de-risk it, we can take 100 basis points out of this. We're gonna improve our OE to GP ratio to where it's been, 65%.
Those two together get us the operating margin of 4.5%-5%. Tax, we haven't really talked to you about tax, but I think you all know that tax rates around the world, including the U.S., are coming down. The rules are getting a little bit tighter, but we have a way to get our tax rate over three years, below 20%. Net working capital, we just talked to you about. Thank you for all the banks that came today. We really appreciate that. We also have our credit rating agencies. Everybody should know that. We are focused on cash flow. I hope that comes through loud and clear. We are focused on keeping investment grade, investment rating leverage of 2.5 or less. And lastly, this is an important number for you: free cash flows to net income.
This would be excluding the inflows of working capital. So the way to think of this is, our net income less about $150 million per year of CapEx. Okay? All right. So what does this all mean in terms of earnings per share? This side of the chart is our business plan. This is our three-year business plan for EPS, adjusted EPS. It's improving our mix, growing Premier Farnell, Avnet Integrated, Digital, and IoT faster than the rest of the business. It's doing those four steps we talked about with optimizing operating expense, continuing Americas on their path to recovery, and they're doing a terrific job, lowering our tax expense to 20% or less. And here's the benefit from volume. If you're conservative, you want to take out volume, take out the $0.67, okay? This is our three-year plan.
So we see a path go from $3.53- $6 through our business plan. But then we also want to be good stewards of capital. We're gonna generate, and we're focused on generating cash. Our cash allocation is buying back shares and selective M&A, more tuck-in M&A. By adding capital allocation, we can add another $1-$1.50. So it's a really exciting plan. We can get EPS accretion of about 25% per year going forward, and it goes back to the very straightforward plan: grow our higher-margin businesses, control our expenses, be good stewards of capital. And I think one thing I would like you to think about is most of this, for the great majority of these, it's within our control, and we have multiple paths to do it, and we can do it in a no-growth environment.
So, with that, before we start Q&A, Bill is gonna come up, and Bill is the fellow that makes all of this happen, and—
Thanks, Tom.
Do some concluding remarks.
Well, I hope you were really excited about that. I sure am. I want to thank, by the way, our suppliers that were here, Mike and Johnny and Ed and-- and Paul. Paul, thank you very much for the time that you spent with us. That was fantastic. I think it's great to hear the story right from our suppliers and our customers about what we do to help them. In closing, I'd like to just make a couple of remarks. First, I think you've seen now that Avnet's clearly turned the corner, and we're back to playing offense. We are uniquely positioned to capitalize on some high-margin opportunities that are created by our unique ecosystem. The market is coming our way, and it's clear that Avnet's capabilities are highly valued by our customers.
And finally, our path, I believe, is very clear: to grow this company and to get to that 4.5%-5% operating margin. Now, we have approximately 20 minutes or so for some questions. But look, we're available later to have some questions on one-on-one time. You always have an opportunity to call into the office, and we'll take calls and make sure we answer every one of your questions. You can email us, you can have phone calls, but we will answer any questions you have. With that, let's open up to some questions, and I'll play quarterback. Yes, sir. Adam.
All right, thanks, Bill.
Nice, nice beard. I like it.
Adam Tindle, Raymond James. I guess first one for Bill. Bill talked about, basically lead sharing between the, the different segments, dragging customers to others, and, and how you can enter at any point in the machine. How do you-- how do the incentives work between these different points in the chains, and how are you incenting cross-selling between the business?
Well, let's let Chris answer it from the Premier Farnell side, and Phil answer it from the core side. Chris, we got our mics over here?
Jamie?
Jamie, the mics.
So, it was actually not built into the compensation scheme for Premier Farnell. When you look at the model we have, the leads that we pass would leave our ecosystem anyway, so that lead... We do the work. We've hired the dedicated sales team to pass that along, and the benefit actually goes to the person at Avnet. When they sell it, it hits their commission sales plan. The Avnet-- the Premier Farnell person does not get anything for sending it along. It's business we were going to lose anyway.
But it's essentially people we hire dedicated to do that assignment, so they're compensated. Their compensation is based entirely on passing those leads over to Avnet.
Yes, it's a good question, and we'll continue to look at it. Again, it's early days, right? So we're still working on the model. The benefit, all right, to the Avnet team, you know, and Premier Farnell, they flip it over a lead to the Avnet team. Well, let's say, since we have Xilinx here, it's a Xilinx lead. It's an early, a customer early design. Our team gets that design registration, working with the Xilinx, you know, with our FAE team, if it needs that kind of support. All of a sudden, you got the design registration design win. That, in and of itself, is a commission effectively for the salesperson. On the other side of it, you know, Avnet bringing in Premier Farnell to our core customers, okay? Do the sales team get paid in that? No.
But the more we can have a presence at a customer, and all of a sudden, you're bringing in Premier Farnell, it's a natural benefit to the account management team, that the more Avnet's doing, the less there is for other guys, okay? And they also then get the early production NPI, look at early in the game and can take it to production. So there's natural incentives in the program to motivate the teams to work together.
It's all about a sticky relationship, and the more touchpoints we have with the customer, the more opportunity we have to keep them. One more, Adam, go ahead.
One quick follow-up for Tom. The over 75% of net income goal for free cash flow is greater than the 55%-65% historical level. What secular shifts are enabling that? Is it more consignment model? And we typically see a trade-off between working capital and margins. You know, can you talk about how you can drive both of those at the same time?
You know, that's a really good question. You know, I think you have to look at the last two or three years with working capital. You know, our working capital increased. It increased in terms of days of working capital, and why is that? Well, a lot of it on purpose and for very good reasons, right? We had a system hiccup, and therefore, we wanted to make sure we had inventory available to satisfy customers. We just implemented ERP in EMEA, and, you know, really good news, it went just about flawless. In fact, the one complaint we had was about a gross margin report, and we thought, this is victory, right? If after we implement a new system and you get one complaint about a margin report. But here's what we did. We added inventory to that.
If you go through that list, you know, it's things like managing inventory differently, managing supply chain differently. In receivables, you know, what happens? You all, we all go online, and we order parts or order many, many different things. How do we pay for it? We pay for it by credit card or some sort of e-commerce, right? That's gonna naturally help those. When we look at things like payables, you know, right now, we have different payable terms, practices in every region, and we actually found and decided on the best one, and we're gonna implement that globally. That said, somebody asked me a question once, and they said: "Hey, does that mean you're going to your customers and changing terms and going away from market?" No, no, of course not.
No, we have to stay, we have to stay within market. The other thing, though, you heard from Phil, and I really am glad that Paul from Celestica talked about Velocity, right? You know where Velocity came from? Velocity is working capital Velocity. And this is how you work with suppliers and customers to have very lean working capital models, which benefits everybody.
Lou?
Thank you. Appreciate it. Lou Miscioscia, Pivotal Research Group. Should we expect, I guess, a linear ramp of this as you go out? I know you said it's a three-year-
Put it closer to Lou, so he can hear.
Sure. I was trying to ask about, how this should roll out, especially since obviously fiscal 19 is right in front of us. I know that you did talk on the earnings call and said that, that, you know, some people thought that we're hoping for better guidance, obviously, for the June quarter. So how do we think about it, I guess, in, this calendar year than going into the next couple of years?
The good news is you should think of it as fairly linear, okay? It may be a little uptake in later years. You know, we did an investor perception study, and many of you said, "Hey, I don't really understand how you get to 4.5%-5%." Here's something that's really good. It's gonna be fairly linear, and when you look at that operating expense, you're gonna see a third of it in 2019, and you're gonna see most of that in the first six months. So hopefully, that'll show you some traction, and you'll see the progress being made.
Okay, and then just squeak in one more. How about the tax rate for next year? Could you help us out with that one for fiscal 2019? The tax rate.
Oh, tax rate, plan on it going from 23% down to less than 20% over three years, so 21%, 22%.
We're comparing best practices with a lot of different companies, and we're making sure that we are gonna hit the lowest possible marks. This is a challenge for the entire team to keep flowing after tax.
So please, nobody tell Bill a company that has a tax rate below 19%, because every time he hears that in one of our conference calls, I get a new goal. I think my goal now is 14%, so
Well, look, think about it this way. Over the course of the last 20+ years, we've been optimizing tax to, to the way it's been working. So therefore, we had a lot of debt in the United States. We had a lot of profit offshore. That's all switched on us now, so we're quickly adapting to the changes. Shawn?
Hi, Shawn Harrison, Longbow Research. I know you said there's no silver bullet to working capital, but you're guiding for a 10-day improvement in fiscal 2019, which is, I think, what, $500 million of incremental cash flow. What would be the big buckets in fiscal 2019 that would take down that cash cycle number, and is that achievable at a mid- to high-single-digit top-line growth?
The bulk of it is in inventory, and if you go back a couple years and you see the increase, it's inventory. So about two-thirds of the improvement in inventory, with the remainder being pretty equally split between receivables and sales.
And then as a follow-up, I know the European ERP implementation went flawlessly, but can you give us the update, maybe the timeline for ERP in Americas? And I know Premier Farnell had a lot of IT systems as well as maybe over the next two to three years, how that rolls on, because it's obviously still probably a risk, you know, for most investors, given, you know, the last upgrade, regardless of what's happened in Europe.
Well, let me disabuse you of that idea. It's not a risk any longer, Shawn. We have stabilized the systems much quicker than we expected, and in fact, the American system is hitting on all cylinders now. We got still some problems that we have workarounds on. So the strategy right now is the following: we've just done the EMEA system. Now, next is Integrated Solutions , which will give us a global footprint and also put a SAP new instance in the Americas. From that, we will land and expand on that, so we de-risk our core operations when we go to the next SAP instance. But as we've now demonstrated, look, we got the recipe. We know how to do this, and I don't wanna talk a lot about SAP anymore. You can imagine, I wanted to make sure that got behind us quickly.
It's now behind us. We are rocking and rolling, so that's, I think, a non-issue any longer. It's not affecting any of our customers or suppliers.
But there's still—you're still running an incremental $5 million or so a quarter of incremental cost associated with that. When does that-
No, no, we—
Is that-
... A lot of that's already been worked off, because we, we moved a lot of that cost into Guadalajara, low-cost jurisdiction, and they got more efficient and effective. Now, there might be $2 million there, but that's one of the reasons why we're not talking about the SAP thing anymore, because we said: Look, on operating expenses, here's how we're gonna take down our operating expenses over time. And some of that will be efficiencies that we get out of our systems, but in general, you know, hold us accountable for making sure we make those operating income num- operating expense numbers. We're gonna show you that every quarter and demonstrate we're making progress against those.
Is there a final timeline, though, of switchover in the Americas to the new instances exiting fiscal 2020?
No, we'll keep you briefed on what our strategy will be. First one to look at is Integrated Solutions . That's on deck next, and then we'll talk through what the next one is, because we want to do this in a slow, methodical way, especially since we've got ourselves under great control today. Thanks, Shawn. In the back?
Hi, Adrienne Colby, Deutsche Bank.
I'm sorry, I can't hear.
Adrienne Colby, Deutsche Bank. With regards to your Integrated Solutions business, can you talk a bit more about your expectations for manufacturing? How much of that 10% growth rate that you're talking about is related to manufacturing? And does this cause any dynamics with your EMS customer base?
The answer to the second question is no, because we actually fit in a different space than our EMS customers do. We do a high complexity, high level of part numbers, a very complicated business that we do with our manufacturers. Now, the first part of the question was, is the manufacturing gonna change what for us? I didn't quite get that.
Growth expectation.
Oh, growth expectation. It's we're growing at about 10% now. We expect to at least hold that or do a little bit better. But I think more importantly, let's ask Scott what his profit target is, because I want him to go on record in here and let me know exactly what we're gonna do. Scott?
Thank you. Nothing like being put on the spot, right?
Of course.
Yes, but yeah, I mean, we're gonna continue, as I stated, I mean, you know, Bill touched on the growth rates. We're gonna continue to grow at double-digit % year-over-year. And from a operating margin perspective, you know, we're gonna continue to grow at a faster rate than our traditional business. So as you know, you saw the chart that Tom had up there. You have us in the high single-digit % area. I think that's what you could anticipate as we move forward.
I'd also make one more comment. What else Scott showed you was the pipeline was accelerating in the back half of the year. Scott has done a lot of heavy lifting to get the solution selling model in place, get everybody aligned and organized in the company to do this, and we're now starting to see and to reap the benefits of that work. Thanks, Scott. Jim?
Thank you. It's Jim Suva here from Citigroup.
... Some of us who's been in the industry a long time, like some of your management, also realizes it was about three years ago when financial guidance was given almost identical to this. And, you know, the cursing words are, "This time it's different." So can you help us understand why it's different this time? Like, will there be an ERP system integration with Premier Farnell or another acquisition? Or it's just ironic that the goals set today were identical to three years ago, to some extent.
Give you a couple important comments. First, let's talk about the fact that we lost $1 billion in suppliers and the corresponding profit with that. Within one year, we made up the $1 billion of revenue, and we made up the corresponding gross margin and, and a bit more. So that's one proof point. Second one is we picked up Premier Farnell, and if I recall, Jim, you, you were critical about Premier Farnell on one of the calls and said, "Bill, why are you doing that? Doesn't seem like that's gonna fit in, and it's a declining business, so how are you guys gonna really turn that around?" Proof point two, we got Premier Farnell back on track, even better than we even expected it to be, and we think we got a lot more runway associated with Premier Farnell.
Now, let's take a look at our Integrated Solutions business. As Scott told you, that was all over the map. We had it in 6 different places. It wasn't organized appropriately. Now it's a single focused organization getting it done. Third thing I'd point to is our business management system. When I took the chair, there wasn't a business management system at corporate. There were 27 different P&Ls that I like to say they behaved as, as loosely affiliated warring tribes. Now we have a single dedicated Avnet Management System . On a daily basis, I can pull up on my phone, and I can show you what was shipped yesterday, what the revenue was, what was it against last year. I can go by customer, by supplier, and now every week, I look at every supplier and say, "Are we making the commitment to our supplier?
If not, why not, and what are we doing about it?" Every month, we have a monthly operations review with all the P&L owners, and some of them sit in this room will tell you, that may not be such a pleasant experience if we're not doing what we said we're gonna do. But guess what? These guys are coming through. That's what makes us different, Jim.
Steve.
Steve Fox with Cross Research. So, thanks for all the great information. I guess the one thing that I was wondering about as I'm listening to the presentations is the competitive environment. So maybe you could talk about where you think you're differentiated versus Arrow, and then maybe more importantly, how do you defend some of these higher margins from, maybe it's not EMS players, but other engineering and design firms? What keeps these margins at these levels, keeps the competition out long term? Thanks.
Okay, first, let's talk about the comparison between us and our nearest competitor. Look, several years ago, we were identical twins, no doubt. If you looked at our strategies, you could say they're almost the same. Today, we're significantly different. We shed our Technology Solutions business, which was about 30% of who we were. We picked up Premier Farnell, totally different model. We, we built out that ecosystem, which is a different strategy than our nearest competitor. And I, I pointed to a very important proof point. You heard the Microsoft, Rodney Clark, talk about why he chose Avnet. Because that unique ecosystem really makes a difference to what they're trying to do and a lot of other big partners are trying to do.
So look, this is an interesting bet because now you've got differentiation between the two major competitors, and we'll see as each quarter goes on, how we do. Now remember, one important fact: we had a major unforced error, and we had a $1 billion move from us to the other guy. That's gonna run out, and all of a sudden, we'll have some clean compares when we hit the September quarter. So keep watching us. The second part of the question on design services, I think Pete articulated extremely well the AVAIL tool. Nobody has that kind of system today. On top of that, I will tell you this, I showed you quoting and said we dropped quoting down to three days. That we're not done with that yet. That will become a distinctive competitive advantage for this company and something that no other distributor has.
So I'm pretty, as you can see, excited about our opportunities. Thank you.
Hi, thanks. Param Singh from Bank of America Merrill Lynch. So appreciate all the financial detail here. You know, the biggest piece of your operating margin improvement is coming from, you know, cost optimization, but you've been working at it for, you know, a couple of years now. So what are you guys doing different? I see the dollar amounts, but what are you doing different now, especially with transformation and moving a little to lower-cost geographies that you weren't doing before already? I have a follow-up.
Sure. Thanks for that question. As Pete described, our transformation project isn't a one and done. We essentially are constantly getting new ideas and refining that and getting better. And if you think about it, some of the initiatives that we talked about are only at the infancy stage. You look at Avail, it's only 20% roughly done. If you look at what we're doing with robotic process automation, we're just scratching the surface. If you look at what we're doing with respect to our pricing tool, we just implemented the first instance of that over in Silica, over in Europe. So we're at the beginning stages of a lot of these initiatives that we talked about, and more yet to come. Additionally, we talked about low-cost jurisdictions. We have roughly 1,000 folks across the world in Bangalore, in Guadalajara, and in Serbia.
That number is gonna go up dramatically. And on top of that, we have an opportunity between Premier Farnell and Avnet today, where we did a light touch model to start with. We wanted to make sure that we didn't disturb the magic of that model. Now, we understand that business extremely well. We know we can consolidate back office when we talk about HR, finance, and Global Information Systems . So we have a lot of room to go. That's some of the key points on that waterfall chart.
Yeah. So one more on the margin side . You know, when I look at the pieces here, and you segregated the IoT demand creation piece,
... You've taken out the cost piece, but Americas is again, you know, going up, and you point back to the same initiative. So why is Americas going up by 40-60 basis points? Once you take out the cost of optimization, you take out the demand creation mix, what else is left there?
Is your question, how are we gonna do the Americas—South America?
Yeah, just wanna make sure it's not getting double counted in some way.
No, there's no double counting. We make sure there's no double counting. In the Americas, remember, we went into a pretty deep hole for a while, and we're starting to recover back. And we're seeing customer expansion, and we're seeing new opportunities with higher margin growth. And as Tom said, we're not assuming we're getting back to exactly where we were before, even though our internal plans would suggest that we will get there. We gave that a bit of a haircut to make sure we have some conservatism in what we're doing. And on top of that, we put 100 basis points in our pocket in case something happens, for a rainy day. Hey, Matt, it was great being on stage with you the other day. So is this gonna be an easy question or a hard question?
It'll be easy, no problem. Thanks, Matt Sheerin from Stifel. Just on the demand creation business, because I know that's part of the operating margin expansion, and I understand that some of that is coming by converting the Premier Farnell, the demand, the design engineering to volume, and that makes sense. Yet, we're in an environment where your, your once largest supplier, TI, has gone to a direct model with demand creation. There's concerns about this consolidating market, where other big suppliers may end up doing the same thing. So is your assumption that this, this, you know, playing field is not going to change, or there are opportunities to gain share, or is there sort of a contingency if one or two of your suppliers go the other route?
Well, one of the reasons we had some of our premier suppliers up here today was specifically to be able to answer that question. I hope you heard from them that, hey, they're all in on demand creation. There's no doubt about that. And if you talk to, to suppliers in general, which you do, I know you do, and I know you all do, you'll hear from them that they value distribution and they value our demand creation opportunities. Today, we're sitting at about 25% demand creation. We absolutely believe that we can grow that. There's some key initiatives in place to do that. You heard about our AVAIL, but there's other plans that we have to be able to get more of that demand creation dollar.
Okay. And Tom, in terms of the working capital, opportunities to reduce that in inventory, at the same time, you talked about growing the Premier Farnell business significantly faster than the core business, and the inventory and capital requirements are typically very high there, right? And maybe talk about the difference in working capital, cash cycle days in that business versus the Avnet core business, and where are those savings gonna come from?
Yeah. So Matt is 100% correct. When we look at Premier Farnell, what Chris said, the reason there's value is you have breadth, and you're gonna get it tomorrow, okay? If you look at Premier Farnell working capital, it's over 100 days. So when we talk about 70, that's really saying that the core business is gonna get into the, the mid- to high 60-day range. So there are, they're different models. They're both-- When you think about it, they both have different ways of getting to the same target, which is what we measure every day, return on working capital. So if we know we get certain returns on working capital, we're gonna have very good returns on capital.
Thanks, Tom. We got time for one more question.
Thanks for squeezing me in. Joe Quatrochi from Wells Fargo. Just had a quick question. You talk about, you know, a million different community members. What are you guys doing in terms of tracking those, like, revenue per member, and how do you think about the cost to acquire those members?
Cost to acquire is almost zero. They essentially join into the group. So and what I maybe didn't mention is that it's growing at a rate of 50% per year. So there is absolutely value for them to be there because they're talking to each other. And as it gets bigger, in fact, there's almost like a snowball effect. I mean, there more people wanna continue to get in because they wanna get part of the action. And as we described, when you think about the communities for just a second, customers love it because it's an opportunity for them to improve their research and to get a quicker answer. Suppliers love it because they may have a new use case that they didn't even think about with one of their new products.
So they launch a new product into the community, and they do a contest. They say, for $10,000, who can come up with the best idea? And the ideas they get are just remarkable. So thanks for that question. And look, I wanna say thanks to everybody for your attendance and your participation and your attention. We will be reconvening again on the floor for a cocktail reception. The Avnet management team will have to go ring the bell, so we have to exit in a different way. Please excuse us for a few moments, but we'll join you soon. Thank you very much.
Thank you very much.