Avnet, Inc. (NYSE:AVT) Q1 2020 Earnings Conference Call - Final Transcript

Oct 24, 2019 • 04:30 pm ET


Avnet, Inc. (NYSE:AVT) Q1 2020 Earnings Conference Call - Final Transcript


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William J. Amelio

Asia that we saw makes us optimistic that we may have turned the corner in that geography. Meanwhile, EMEA remains under pressure. For the first quarter, by vertical, we saw a mid-to-long-term opportunities in retail and healthcare, with positive trends in defense and aerospace.

We still see some softness in industrial and automotive markets. These last two verticals were further impacted by the more recent slowing in EMEA. As for how the macroeconomics will play out, we now believe that the current correction will continue into 2020. The market environment is challenging but we are well positioned to take on these challenges. Our teams are well prepared and ready to capitalize on opportunities and use our competitive advantage across geographies and verticals so we remain bullish on Avnet's long-term growth prospects.

Before we get into more specifics on the quarter, I want to address the changes to our relationship with Texas Instruments. In 2016, TI began a strategic shift to sell more directly to customers, phasing out demand creation. Earlier this month, we announced our distribution agreement with them would be ending. We're working collaboratively with TI to arrive at mutually agreeable terms related to this transition.

Their decision was not a result of any performance issues. In fact, they have been an Avnet supplier for more than 40 years, and we are proud of the strong results we've delivered for them.

This transition with TI is an example of our ever-changing industry and competitive landscape. As a 98-year old company, Avnet's supplier line card is continually evolving. Our line card today looks much different than it did 10, 20 or 30 years ago.

We've been through some major changes like this in the past and we have always recovered from them and this is no different. As we transform into a technology solutions company, we are expanding into new areas that are less vulnerable to these types of changes.

For example, through our strategic efforts in the Internet of Things, Avnet Integrated and Farnell, we're diversifying our business to maximize higher margin opportunities. Our work to replace the TI revenue is already underway as we emphasize driving increased sales from existing suppliers through our highly differentiated value proposition. We will also seek out new suppliers who will find our comprehensive ecosystem very compelling.

Now, moving into the five areas of focus on our core strategy; first, we remain focused on amplifying our Electronic Components distribution business worldwide; second, we are creating the ability to scale higher margin segments; third, we're aggressively expanding our digital capabilities; and fourth, we're continually finding new ways to leverage our ecosystem for growth; and finally, fifth, we were driving continuous improvement throughout the business which is fundamental to our success.

Let me give you an update on the specific achievements in each of these five areas during the September quarter. Turning to the Electronic Component business; Electronic Components delivered sales of $4.3 billion, which was down approximately 1% quarter-over-quarter and operating margins for the