Vince Keenan - VP, IR Rick Hamada - CEO Kevin Moriarty - CFO Gerry Fay - President, Electronics Marketing Patrick Zammit - President, Technology Solution.

Brian Alexander - Raymond James Steven Fox - Cross Research William Stein - SunTrust Robinson Humphrey Jim Suva - Citigroup Shawn Harrison - Longbow Research Matt Sheerin - Stifel Amitabh Passi - UBS Ananda Baruah - Brean Capital Louis Miscioscia - CLSA Sherri Scribner - Deutsche Bank Mark Delaney - Goldman Sachs.

I would like to now turn the floor over to Vince Keenan, Avnet's Vice President of Investor Relations. Thank you. Please begin..

Good afternoon, and welcome to Avnet's Second Quarter Fiscal Year 2015 Business and Financial update.

As we provide the highlights for our second quarter fiscal year 2015, please note that in the accompanying remarks we have excluded certain items including intangible assets, amortization expense, restructuring integration, and other items, and certain discrete income tax adjustments for all periods covered in our non-GAAP results.

When we refer to the impact of foreign currency we mean the impact change in foreign currency exchange rate when translating Avnet's non-U.S. dollar based financial statement in the U.S. dollars.

In addition, when addressing working capital, return on capital employed and return on working capital the definitions are included in the non-GAAP section of our press release. Before we get started with the presentation form Avnet management, I would like to review Avnet's Safe Harbor statement.

This call contains certain forward-looking statements which are statements addressing future financial and operating results of Avnet. There are several factors that could cause actual results to differ materially from those described in the forward-looking statements.

More detailed information about these and other factors is set forth in Avnet's filings with the Securities and Exchange Commission. In just a few moments, Rick Hamada, Avnet's CEO, will provide Avnet's second quarter fiscal year 2015 highlights.

Following Rick, our Chief Financial Officer, Kevin Moriarty will review some additional financial highlights and provide third quarter fiscal year 2015 guidance. At the conclusion of Kevin's remarks, a Q&A will follow.

Also here today to take any questions you may have related to Avnet's business operations are Gerry Fay, President of Electronics Marketing and Patrick Zammit President of Technology Solution. With that, let me introduce you Mr. Rick Hamada to discuss Avnet's second quarter fiscal 2015 business highlights..

to innovate, create and deliver value that accelerates the success of our customers and suppliers from our unique position in the technology supply chain. Now I would like to turn the commentary over to Kevin Moriarty to provide more color on the financial performance of our operating groups.

Kevin?.

Thank you, Rick, and hello, everyone. In the December quarter, EM delivered a seventh consecutive quarter of year-over-year organic growth led by our Asia region which grew 17.1% on the strength of the very discrete and select high volume supply chain engagements.

EM EMEA continued a multi-quarter trend of high single digit growth as revenue increased 7.1% year-over-year in constant currency. As a result, EM revenue grew 9.7% year-over-year in constant currency to $4.4 billion with Asia being the first regional group at Avnet to achieve $2 billion of quarterly revenue.

Gross profit margin declined both sequentially and year-over-year due to the margin profile of the previously highlighted volume engagement as well as the associated geographic mix shift as Asia grew to represent 45.7% of total EM revenue as compared to 41.7% in year ago quarter.

The year-over-year increase in revenue and the impact of cost reductions in prior quarter combine to drive operating income up 11.5% year-over-year and operating income margin increased 19 basis points to 4.3% with all three regions contributing to the improvement.

Working capital declined 4.5% sequentially, primarily due to a 10.2% decline in inventory and working capital velocity improved both sequentially and year-over-year.

The increase in operating income and working capital velocity combined to drive return on working capital up 125 basis points from the year ago quarter and economic profit nearly doubled with our Asia region accounting for more than 40% of the increase.

Turning to TS, better than expected growth in our EMEA and Americas region led to above-seasonal growth as revenue grew 29.4% sequentially in constant currency as compared to a normal seasonal range of plus 20% to plus 26%. Our EMEA region grew 34.5% sequentially in constant currency while Americas and Asia regions grew 29.2% and 13.7% respectively.

Revenue of $3.12 billion declined 4.6% year-over-year and was down 2% in constant currency driven by 13.4% decline in our Asian region related primarily to our continuing components business. Gross profit margin declined in the year ago quarter as the decline in our Americas region was partially offset by increases in EMEA and Asia.

The above-seasonal growth in our western region and continued expense efficiency resulted in strong leverage as operating income grew over three times the rate of revenue sequentially and operating income margin increased 124 basis points to 3.8% with all three regions contributing to the improvement.

Operating income of $117.6 million declined 2% from the strong December quarter in fiscal 2014. However, operating income margin was up 9 basis points year-over-year as increases in EMEA and Asia regions were approximately offset by a decline in our Americas region. Now turning to cash flow from operations.

The team did an effective job managing our balance sheet as enterprise working capital declined $125 million sequentially even as revenue grew $712 million. During the quarter, we returned $113 million of cash to shareholders through our dividend and disciplined share repurchase program.

In addition, our board of directors approved another $250 million for use in our stock repurchase program which bring the accumulative total approved to $1 billion.

With the $109 million we have repurchased in first two quarters of fiscal 2015, we have repurchased a cumulative total of $643 million at an average price of approximately $31 per share and have $357 million remaining as of the end of our December quarter.

With over a $900 million of cash in our balance sheet and $2.3 billion of available liquidity we are well-positioned to continue to drive further improvement in our financial performance while maintaining our disciplined approach to capital allocation. Now turning to our outlook.

As we closed out our December quarter our book-to-bill ratio at EM was at parity and through the first three weeks of our third fiscal quarter our book-to-bill was slightly below parity, which is consistent with normal seasonal pattern. While we continue to deal with an uneven growth environment across our end markets the strengthening of the U.S.

dollar is negatively impacting both our growth rate and financial metrics. Since the second quarter of fiscal 2015, the average euro to dollar exchange rate has flown close to 6%, which is having a glowing impact on our guidance given approximately 30% of our revenue and an even higher percent of operating income is derived in the EMEA region.

For the third quarter fiscal 2015, the translation impact of the strengthening U.S. dollar is having a negative sequential impact of approximately $150 million on our top-line and $0.04 to $0.06 on our EPS depending on geographic and product mix.

After adjusting for currency, our revenue guidance for the March quarter is at the low end of our normal seasonal range due to a greater than seasonal decline at EM driven by an expected decline in our select high volume supply engagements in Asia that enhanced our December quarter growth.

At TS, our March quarter guidance is at the high-end of the normal seasonality due to the impact of our Q2 fiscal cutoff as our March quarter includes the last three days of calendar 2014. Now turning to the guidance for our third quarter.

We expect EM sales to be in the range of $4.15 billion to $4.45 billion and sales for TS to be between $2.45 billion and $2.75 billion. Therefore, Avnet's consolidated sales are expected to be between $6.6 billion and $7.2 billion. And based upon that revenue forecast we expect adjusted EPS to be in the range of a $1.4 to a $1.14 per share.

This guidance does not include any potential restructuring and integration charges or the amortization of intangibles. The guidance assumes 138.5 million average diluted shares outstanding and an effective tax rate in the range of 27% to 31%. In addition, the above guidance assumes that the average U.S.

dollar to euro currency exchange rate for the third quarter of fiscal 2015 is $1.18 to the euro. This compares with an average exchange rate of $1.37 to the euro in the third quarter of fiscal 2014 and a $1.25 to the euro in the second quarter of fiscal 2015. Now, before we move on to Q&A, I am going to turn the call back over to Rick..

Thank you, Kevin. I would now like to offer some brief comments on one of our region key leadership moves. In September, we announced our plans for our leadership transition of TS with the goal of completing our profits by the end of a calendar year.

On January 5, we were pleased to announce the promotion of Patrick Zammit our formal president for EM & EMEA into the TS global leadership world.

I would like to welcome Patrick to his first of that what I’m sure will be many earnings calls and although we'll not put him on the spot today regarding the December quarter for TS, I had to ask Patrick to prepare a few comments to introduce himself and share some of his early thoughts and observations..

Thank you, Rick. And let me begin by saying how excited I am about this opportunity. I’ve always enjoyed working in the world of technology distribution and now give the chance to get closer to the system and platform of our changing how we consume technology as a natural extension of the market I've been involved in at EM.

When I look at TS, I see a well-positioned team of very talented individual who are focused on creating value in the emerging era of surplus on technology. While I’m still learning I’m convinced our strong competitive position and deep partner relationship on a strong foundation to build on.

I plan to spend a lot of time in our internal and external stack orders before we singed the strategic plan to continue our journey in the evolving IT landscape. I look forward to meeting many of you in the future ensuring more of these plans at our upcoming and Analyst Day in June. Thank you again, Rick..

Thank you, Patrick, and welcome once again. Operator, with that, ready to open-up the lines for Q&A..

[Operator Instructions]. Thank you our first question comes from the line of Brian Alexander with Raymond James. Please proceed with your question..

Yes, maybe just a follow-up on Patrick’s promotion and, congratulations, Patrick.

Rick, I’ll feel the question how should we thinking about his approach to the business relative to his predecessor and specifically given his background in Europe this is to be more confident that the margin challenges you’ve experienced there over the last few years can be addressed sooner such that you can get to a longer term margin targets more quickly just any color on how you think is approach to the business might be different..

Yes, Brian, a couple of comments to start. First of all, Patrick certainly brings a more global perspective to our Avnet Executive Board, our internal team, the leadership team as a starting point.

And what I would tell you is that as you are aware we’ve had a number of actions in place already and they’re in motions to be able to improve the results of TS EMEA. So [technical difficulty] as we’ve hopefully seen in this quarter’s results now there is momentum building at TS EMEA that we are trying to accelerate on..

Okay. And then maybe just a follow-up on the regional outlook in EM.

Is basically the entire Delta versus normal seasonality at the consolidated level is that all due to Asia due to the reduction in high volume performance business are you expecting to see below seasonal trends in the Western regions? I’m specifically curios if you have seen any degradation in the trend in Europe given that you guys have done really well there over the last several quarters..

Hi Brian its Grey great questions. The seasonal decline in the [[indiscernible] in our [indiscernible] business and that’s the reason why our work is below normal seasonality.

In total our other regions are developing their seasonal range so I feel comfortable with that and our EMEA business continues to operate very well and continues to gain share in that marketplace. So I feel very comfortable where we see a permanent media perspective..

Thank you. Our next question comes from the line of Steven Fox with Cross Research. Please proceed with your question..

Thanks, good afternoon. Just first of all a following up on that.

Before we looking out say over more than the next quarter and given how some of the high volume Asia business seem to recurring now, can you maybe talk about your confidence that this is now more of a typical seasonal pattern for the EM group to see elevated revenue growth in Asia during like the fourth quarter and maybe in the middle of the year? And I had a follow-up after that..

Steve, its Gerry. Yes, I would expect to see a similar seasonality in this business in 2015; the growth is hard to predict because it's based on how the products associated with this tick up, but from the seasonality perspective I would agree with you. I think that this is something that we will continue to see.

Well, remember a few guys said that will be predicated on this business continuing to be accretive to our overall return..

And Steven, I would just interject here that its part of our preparations for June Analyst Day; we will actually be revisiting what we consider to be "normal seasonality" for both business as part of our communications at that time..

And just to clarify those comments, is there any way to sort of isolate it now so we can understand how much that has grown say over the last of couple of years or maybe that’s something for the Analyst Day?.

Yes, I mean we conductively and certainly talk about our business mix at our Analyst Day, but again I think if you look at our core business in Asia with and without this business in there and from a seasonality perspective we’re comfortable that our core business is continuing to perform and continuing to grow at normal seasonality rate in Asia..

Great, and then just as a follow-up on the TS side of the business, given some of the seasonal patterns you've seen year end, can you step back and maybe talk big picture about the opportunities to grow TS in the new calendar year in terms of what you're seeing from that current standing and where maybe things where you feel more confident or less confident? Thank you very much..

Yes, Steven, as you know, we try to refrain from being long term forecasters here.

What I would tell you, I think we've seen many of the same opinions that you have from those that do make a business out of this business of forecasting that it appears that have a low single digit outlook for growth in IT spend, what I tell you is that our activity levels, conversations with the boys, the current activity levels are all very consistent with the guidance we gave for TS this quarter which you got the higher end and normally down 16 to 20 and by the way, part of that was also influenced by the fact that we did start our fiscal Q3 with three very important calendar days of December at the beginning of our fiscal period so.

Again, I'm not trying to give projection on IT spend for 2015 but from what I'm seeing it appears of the experts are circling around a low, low may be just slight low into mid single digit type of IT spend environment..

Our next question comes from the line of William Stein with SunTrust Robinson Humphrey. Please proceed with your question..

Thanks for taking my question. Actually a few quick ones, first, can you remind us what the operating margin goals are in each segment and your view on timing both maybe the time you expect to achieve them on a quarterly basis and whether you think you'd hit them for the full year 2015 whether it's more of a '16 event? And then I've a follow up..

Yes, so well, it's Rick. Let me start and then have Kevin or Gerry jump in. So for our business, our stated LLPT [indiscernible] margin are 3.4 to 3.9 at TS and 5.0 to 5.5 at EM.

More specifically and anticipating the questions today, we have been talking since the early part of our fiscal year that we felt the return up to 5% for EM in the second half of our year was part of our plan based on what I would call normal seasonal pattern throughout the fiscal year.

And what wasn’t factored in at that time was the impact of currency changing from -- in our first quarter as we were laying out these plans we were at dollar to euro exchange rate of somewhere north of $1.30 and now it appears we're headed to on today's rate the $1.14 and below. So that interesting part of it.

I think Kevin had earlier stated that just on a sequential basis from $1.25 to $1.18 it's costing us $0.05 to $0.07 of EPS. And so with that impact to our operating incomes all of a sudden getting back to 5, the impact of the currency takes 10 of 15 basis points out of that journey.

Just on a sequential basis it's even a bigger gap if you go back to what we were thinking again back with the euro north of $1.30. So all that said the goals are intact we're very pleased with the progress of both businesses and very much in-line with seasonality patterns from a geographic shift and both by region.

With the wildcard for us that came into the equation this fiscal year thus far has been the strengthening of the dollar..

Do you think you hit that in fiscal, in the next fiscal full year if currency stops moving? Is that the expectation there?.

Well by stop moving it we hit $1.15 we can do the calculations for you. It's certainly tougher than at $1.30. What I would tell you is keep in mind with EM's normal seasonal patterns. We are always -- we are generally going to experience peak margins for EM in the March and June quarters of any fiscal year.

So it will hop back to 5 in the second half of '15 no matter what currency -- even if they improve a little bit and we will be looking to the second half of '16 to that one because that 5 to 5.5 is a range we want to maintain through cycles and through fiscal years, but the Asian mix is always peaking more in the September, December quarters and the western mix is peaking in March and June.

Therefore, we will always experience on a sequential basis the margin expansion for EM on an inter year basis in the March and June quarters..

Just a brief follow up if I can.

Is it fair to see the supply chain engagements that you have in Asia that sound like now more permanent and maybe even growing part of your business similar to the way you're going to have to revisit your assumptions on normal seasonality in EM? I would think that this would also have an effect your margin targets in EM as well.

Fair to say that pulls the margin target down as well?.

It is fair to say that the more we engage on these very select high volume engagements, yes, that does put pressure on Asia as well as EM global margin profile. Well, whatever we think as a structural addition to that business, will be clearly communicating this part of our analyst day..

Thank you. Our next question comes from the line of Jim Suva with Citigroup. Please proceed with your question..

Thank you and congratulations to you and your team at Avnet. A lot of the questions have been asked so if you could switch the topic a little bit to mergers and acquisitions and use of cash, M&A has been a very strong part of Avnet's history and heritage of consolidation reducing cost and growing [indiscernible].

But may tracker is off but seems like that that’s kind of little bit of [indiscernible] focus reach on this, so how should we think about are we changing the chapter on M&A or is it just, just going on you have the focus internally and absorbing the M&As in the recent years and restructuring, or how should we think that M&A going forward so your just [indiscernible] too topical right now?.

Hi, Jim, it's Kevin. M&A continues to remain a core tenet of our profitable growth strategy and remain in active engagement and dialog with our regional presidents. We have an active pipeline to continue to monitor and review it. So it still remains a core aspect of what we're trying to do to profitability grow the business..

Okay.

But it seems like the cadence has dramatically decelerated or do you disagree with my conclusions on that?.

No, Jim. It's very clear, the fact that we don’t produce on this quarter's report than the first one in a while there are differences between reported and ex-M&A has been the same number.

So we're with you on that; certainly has been a lull, but that lull should not be taken as any lack of continued interest in our part to leverage intelligent capital allocation in pursuit of acquisitions that need our multiple goals of cultural fit, strategic fit and expectations for the appropriate financial returns..

Thank you. Our next question comes from the line of Shawn Harrison with Longbow Research. Please proceed with your question..

I wanted to go back to the point made about the 10 to 15 basis point headwind from FX.

Was that solely at EM that you're speaking to, and does that imply that EM margins will be down year-over-year, EBIT margins?.

Shawn, we're thinking flattish year-on-year even despite that headwind and that certainly was strictly on sequential basis for EM..

Okay. That’s really helpful.

And then second, inventory came down this quarter just maybe you're thinking how the inventory will move around the rest of the year may be at a range for free cash flow or operating cash flow that you expect now for the year?.

Gerry?.

Yes, I have the inventory, Shawn. I see inventory still lean in the supply chain and we continue to manage our inventory for this market reality. I don’t expect inventory to be flat to slightly down exiting Q3 from where we exited Q2..

And Shawn, it's Kevin.

On the cash flow from operations obviously we're very pleased with the team's performance in the second quarter and the trailing 12 month now above $600 million, and actually we can obviously change relatively quickly depending on how we progress with the organic growth and investment and the linearity of the two quarters and so I'm still holding to around the $400 million number for our full fiscal year for '15..

I'm sorry; you were saying?.

No, no, I'm good..

Okay. Got you; thanks again. Congrats on the results guys..

Thank you. Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question..

Yes, thanks, and hello everyone. Just a question I think you've probably answered this on the currency details, but regarding gross margin, it looks like just sort of backing in and put a number, it looks like gross margin is going to down about 50 basis points or so year-over-year.

Is that the combination of the mix shift geographic mix shift in FX? Or is there something going on, because I know last year your biggest semiconductor supplier TI took more demand creation business directly, and I'm wondering if that’s had any negative impact on your business?.

This is Gerry. What I would say is the later is not effective for us on the gross margin decline at this point. So I do think to your earlier point those two factors the mix shift -- are the biggest issues that impact our gross margin at this point..

Matt, it's Kevin. Obviously, the currency impact the point Rick brought out is obviously having a year-on-year impact on the gross profit line as well. So the geographic mix shift as well as the currency driving us in that direction..

Okay, great.

And then there just looking at -- in tech solutions, it sounds like you're looking at typical seasonality, and I know you're doing a lot more in terms of the cloud in services side, are you seeing not having a bigger impact in terms of helping resellers or is the cloud not a big issue yet?.

No, Matt, well what I would confirm for you that it’s a topic everybody is interested in and in many cases we're creating value creation opportunities for our partners as well as ourselves to help customers deal with the options, the choices, the trade offs, the features, the benefits, the economics.

There is a lot going on in this area and whether its private cloud its very much like our traditional datacenter business where its hybrid which is traditional plus new option or it’s a more aggregation around access to infrastructure and service platform as a service or whether it's just straight consulting in the form of cloud consulting services or some of our cloud tool sets, it is becoming a very popular part of just about every conversation going on today.

As Patrick mentioned, as the customers deal with this emerging era of what I believe IDC coined the term moving to the cloud platform..

Okay. Shouldn't that have a positive impact on your gross margin as you get more involved in services in helping new sellers help their end customer? I know you mentioned that gross margin was down, I think in North America last quarter.

Would you expect margins to improve?.

We certainly expect margin to improve as we continue to grow our Avnet delivered service as part of the equation, yes..

Okay. Thanks a lot..

Thank you. Our next question comes from line of Sherri Scribner with Deutsche Bank. Please proceed with your question. I am sorry. Our next question comes from line of Amitabh Passi with UBS Research. Please proceed with your question..

Hi. Thank you. Rick, my first question was for you. You spoke about strengthen TS demand in Americas in the December quarter. But when I look at year-over-year trends they still look relatively challenged.

And I just wanted to get your sort of broader perspective in terms of what you think is happening, particularly when we look at these trends in a year-over-year basis?.

Yes. So a couple of factors there go, Amitabh. First of all, we are doing some disciplined revenue selection in the computing components space if we talk about previously, which does impact both businesses. For TS EMEA as an example in our core enterprise IT business it was a positive growth year-on-year.

Also comparing year-on-year, our fiscal calendar comes into play again because the cutoff this year even though we've got it very right and we were very concerned and try to -- and spend a lot of time with all of new trend in telegraph that is three day cutoff, we weren't sure how much impact it is going to have.

We got it pretty much right on what we thought the share of the fall into Q2 and Q3, well that was good. But keep in mind when we're looking year-on-year for us the fact that the year before didn’t miss three days and we did in this year that also makes it really tougher to compare.

So one way we have looked at is six months to six months and we're going to do the same thing here after the third quarter, to try to take a look at nine months to nine months on how the overall business is tracking.

But there are some anomalies associated with the very unique calendar we have this year that somewhat contribute to some of those comparisons..

Okay. Thank you. But I had a question just around OpEx; it declined $9 million sequentially despite pretty nice performance of the top-line.

Just wanted to get a sense of how we should be thinking about OpEx for the rest of the fiscal year?.

Sure. Amitabh, hi, it's Kevin. What I would -- however, I'd highlight sequentially there is lot of factors that would go into it in terms of the currency impact but what I would suggest for the next quarters a range of around $555 million to $565 million for our Q3.

We traditionally don't go out longer than that and a lot of that will get tied up into our organic growth profile and investments required. But directionally, we would expect even that same magnitude as we go through the less than a year but again I’ll update everyone on the -- our third quarter call..

And then, finally just on buybacks, I think you have $370 million, should we still think -- should we assume the playbook is interesting around book value or can we expect a more consistent pattern over the next three quarters?.

We’re going to continue to follow our disciplined approach in terms of how we have historically looked at it. When we think it’s a compelling buy or cleanest form of M&A but we continue to update the each quarter; every month or so we look at it with our board in terms of when we would get in from that buyback perspective.

So we’re going to continue and sustain that disciplined approach..

Amitabh, it's Rick; I would just chime. I hate to make definitive statement but I would tell you, you could always think -- you can always assume we're interested at net value. Kevin and I look at it not only in multiple book value, we look at forward projection, internal projections on PE.

We do look at BCF and we kind of triangulate based on multiple valuation models for us to be able to maintain our standing schedule of participation on a buyback perspective. It's still very much value based; we do adjust it from time-to-time when the widows are open and we look at it from multiple perspective.

So it’s not just about being within 10% of book value; that’s not the only way to benchmark..

Okay. Thank you, guys..

Operator:.

Hi thanks guys for taking the question. Just going back to your announcement of bringing Patrick over to TS and congratulations Patrick from us as well.

Rick, in your initial comments, your earlier comments about Patrick’s international experience being advantageous to the senior management team, is that also to say that the experience he has with the numerous initiatives on the margin side in Europe can be helpful in moving towards the TS margin goals broadly speaking or I’m reading too much into that?.

No, I’m going to try to take to somewhere in between, Ananda. So Patrick is a - has a very solid track record of performance in a very competitive and tough marketplace, and I think we’ve spoken many times in the past around EM EMEA business having the highest gross and operating margins anywhere across the Avnet global portfolio.

So am I expecting Patrick to try to recreate those types of margins? No. Am I making expecting he will accelerate our progress to a sustainable model where the appropriate level of returns and profitability are part of the long term outlook for our computer business in the EMEA? Absolutely.

So I’m thinking somewhere between those two goal post you laid out..

Okay, that’s helpful. I appreciate it.

And can you go through just sort of rank order where the drivers were of the TS operating margin this quarter is the strength there?.

Yes, I think on regional basis we talked about --.

Yes, I would suggest that if you look at the sequential change right our fiscal Q2 traditionally when you have the sequential left from the collective [indiscernible] calendar closed obviously drove the bulk of a sequential improvement. In addition as I commented on each of these regions contributed to the Op margins and expansion within TS..

So still from your perspective nothing unusual to normal seasonality?.

No, I think we would comment upon we're pleased with the performance in the TS Europe business as well as Asia and certainly continued progress over the last couple of quarters on extending the pp margin that we would call that out..

In our outlook for Q3, our outlook for Q3 would leave you the conclude will then continued strength for TS at the global level in the March quarter..

And I guess - just last one for me with regards to the Avnet system business the one that $1.5 billion run rate what -- how is that during the quarter collectively? Is there anything that stood out as may be sort of particularly strong and accelerating? And can you just give us sort of a view of what you are thinking is for that business as we go through 2015?.

Sure, it’s Gerry, I’ll take that one. Part of this I think it goes back to our MSC acquisition. So we’ve now had MSC for the full year.

We believe the embedded state holds great global potential as customers continue to work to improve their time to market to capture IOC opportunities, and we believe that the solution going well lead to increased margin and increase our ability to attract software and services sale.

As you know, this is a long sales cycle for this business but we continue to optimistic about the opportunities as we continue to grow. So we’re seeing nice growth in that business today and we’re going to go through this in detail at our Analyst Day in June..

Thank you. Our next question comes from the line of Louis Miscioscia with CLSA. Please proceed with your question..

Okay, great. Thank you. The components business keeps on being a bit of a drag in the TS side.

I'm just wondering what you are thinking about that I guess if you look out 12 month? Is it -- can we get to the point where you [indiscernible] starts to grind further flatten out maybe grow over the bid or do you look it to be just a material decline obviously 8% to 10% of total revenue for that group is still reasonable and material?.

Yes, Louis, it's Rick.

The run rate of this business is now approximately $1 billion a year and we certainly -- some of that weakness is driven by some of the key suppliers in that business particularly in Asia, but we’re also disengaging from unprofitable business that doesn’t meet our long term goals and adjusting our expenses by the way accordingly with that.

At the point that we settle in the way sort of a turning point or we think its leveled out, we will be very explicit about that; again I'm going to give you an update in the Analyst Day overall.

I don’t think we have much further to go because as we go back to the transcripts of the last few quarters you know we’ve got a lot of scrutiny to this business about what is sustainable and what it not from a perspective of reaching our goal. I don’t know if we're 100% done right now but I don’t think we’re going to drop another 50% from here.

So somewhere between that we settle in, find the right mix and volume and then try to bake it up from there based on the specific strategies for that segment of the market..

Okay, great. And then as we think about modeling things out on a sequential basis obviously you've had the September quarter now to December and March quarter, there are a couple of days shifting around.

I guess once we get past the March quarter does things get pretty much back to a normal type of calendar year quarter or sort of do we still have days in 2015 and at the fiscal '16 that might be shifting around, I don’t think give us any color on that?.

I’ll tell you what, Louis, bring in your notepad to the June Analyst Day as well.

It actually the short version is we’re going to have a 53 week year in fiscal ’16 based on the way our calendar and, by the way, it happens six or seven years at Avnet based on the way we’ve constructed our fiscal which means we’re going to start the year with a 14-week quarter.

We’ll lay it all out for you and what kind of impact we think that has on the compared with numbers for fiscal 2016 when we look in June..

Thank you. Our next question comes from Sherri Scribner from Deutsche Bank. Please proceed with your question..

Hi, thanks, a lot of questions have been asked already, but I just wanted to get a little more detail on our TS business in terms of the strength you saw this quarter in which areas, I know that you mentioned networking security services in storage but wanted to see where you are seeing the strength?.

I want to add to that, if you break down in those categories servers was not a alien goal, so though ISF continues to be the proprietary for us there. The category what we would call converge solution continued to be a hot area for us; we think that’s a key building block of today’s datacenter as well.

And then we did mention storage already but the resilience there just continues to be pretty..

And networking and securities as well..

Yes..

And then just to clarify for the March quarter, if you exclude the three extra days are you seeing normal seasonality in the business, is that what the guidance applies?.

Yes. We are. I think normally it's down 15 to 20. And our guidance is pretty much near down 16, if I'm right.

Yes?.

Yeah..

Right.

So excluding those three it's pretty much normal seasonality?.

Correct. And again, we all go look at the six and nine month trend year-on-year once we get a chance to do that..

Thank you. Our next question comes from line of Mark Delaney with Goldman Sachs. Please proceed with your question..

Thanks. Good afternoon. Thanks very much for taking the questions..

Hi Mark..

Hi, Mark..

Yes. I was hopping if you can just talk on the margin to begin with. Gross margin on a consolidated basis 11.1%, I mean in my model that that's the lowest level in 15 years.

And it seems to me like a lot of a pressure in gross margins was also in the EM segment on a year-over-year basis, I think maybe down 50, 60 basis points gross margins in the end year-over-year. And even the comparable period last year would had a high mixes to these consumer outlined with your programs last December too.

So I bring it up to just try to get a sense for what's causing this longer-term pressure on gross margin even within the segments such as within EM and what you could do on a gross margin perspective that can maybe help you to get this to those operating margin targets that you talked about within the EM segment?.

Mark, its Gerry here. I'll take that one.

So if you look, as I talked about earlier when I got asked about seasonality in this high volume select business, seasonality remains pretty constant; the spikes during the seasons have changed and this is a biggest spike we have had in that business as a percentage of the overall business in Asia in particular.

So if you think about our business being skewed to Asia in the first half of the year and then we put this on top of that, that's the primary reason why our gross margins have reduced. And I would also point out that our Asia teams have brought in 40% of our economic profit in the quarter.

So we still see that business as providing the right return profile. To your point, as that business -- as Asia becomes a bigger, bigger part of our business overtime it will be more difficult for us to achieve our long-term profit goals in 5 to 5.5.

But as we sit here today, if you take out the FX effect to 10 to 15 basis points for next quarter, we would be under [indiscernible] to be able to get back to 5% in the back half this fiscal year. So I think that [indiscernible] perspective, if you look at that high volume sale of business we have that's what's driving that gross margin reduction..

Okay. I appreciate the thoughts there.

And just -- with respect to those high volume consumer programs, in the March quarter is there any revenue that you're still shipping in front of these programs or you still think about impacting quarter-on-quarter into June or is that completely out of the model in March?.

No, we always do some of it throughout the year. So I would think of it as our March quarter looks similar in that business to our first fiscal year quarter. It's the December quarter where we get the good spike..

Okay, and then just lastly from me on FX and on the euro exchange.

I'm a little confused, I know you guys assumed $1.18 euro to dollar and guidance and quantified and EPS impact you’re kind of today I think you also mentioned euro that $1.14 today and so it seems like maybe already it's an incremental impact to EPS next quarter beyond concluding in the guidance, you just help me understand what's factored in maybe how much more downside there would be to EPS in the March quarter if we just can spot rates for euro versus the $1.18 that’s taken?.

Yes, so Mark, first of all, a week ago was $1.18 and it’s a matter of -- you got to pick a spot to put a stake in the ground and build your plants around it. So trying to catch up all in that sometime a little bit of a challenge. The way to think about the impact for us, very rough translation.

So we got $1.18 baked into the guidance that we gave, every $0.02, remember now this is for the quarter not just what's happening today but every $0.02 impact in the quarter would probably cost us about $0.01 of EPS okay on what would happen for the March quarter..

Thank you. [Operator Instructions]. Our next question comes from the line of William Stein with SunTrust Robinson Humphrey. Please proceed with your question..

Thanks for taking follow up, actually two quick ones.

First, talking a lot about FX, I wonder if you have any need as to whether the new or perhaps oil is having any impact either positive on broader end markets and negative in any of your energy or industrial focused customers? And then the other one was about end markets, in the end trends within the components business, you tend to talk about this from a geographic perspective, but if we could get any view on comm infrastructure, industrial, military any other details by end market would be very helpful? Thank you..

Hi, Will, it's Gerry. I'll start with the end markets for components, so if you look at the end markets by region, so Asia for us, green technologies have been strong and we have seen a pickup in four LPE which has been positive for us and also BOE applications for ISC.

The European market, the auto and industrial levers have still be fairly strong and holding steady.

And if you look at North America, it's been fairly stable mainly on industrial, auto and medical markets we actually need a little bit pick up in particular military programs but that remains fairly steady we don’t see a lot of growth sequentially there..

Thanks for that, any view on oil, positive or negative?.

Hey,Will, it's Rick. We've been asking ourselves the same question and looking across our businesses. We can’t find any material impact across the portfolio and we're hopeful that hopefully on the macro basis consumers spend picks up and helps the economy grow but I guess we're all going to wait and see how that plays out..

So not seeing anything; no seeing anything material in either direction at this point, that you can detect?.

No, we haven't. I think on the currency question too, you sometimes have the question around, hey, is the currency thing impacting CapEx in Europe and slow down -- and we can’t point any direct hits on that particular theory on that either..

Thank you. Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question..

Yes, just a couple of follow-ups.

Just one on the supply chain engagement business, could you give us an idea how diversified or broad your customer base and supplier base it there? Obviously there is probably a couple of big smartphone or other consumer kind of programs that you sell into, but could you give us an idea particularly if we get into next year and we don’t see a big new product line or product launch year-over-year comps are going to be pretty tough there?.

Yes, what I would tell you, Matt, is that it’s a very small numbers of customers and very small numbers of suppliers that we deal within the space. It's very select, it's very manageable and we continue to look at it from returns profile perspective, to continue to ash our questions if it continues to make sense and at this point it does..

Okay. That’s helpful, and then just question regarding book to bill. I know you said it was below one in the quarter to-date.

Could you give us book to bill by region so far?.

We're at parity across our businesses, we are below parity in EMEA, which is typical for [indiscernible] at this point for us. So we don’t see any changes in cancelations or push out so we feel pretty comfortable with where we sit today in the quarter..

Okay, thanks..

Thank you. Our next question comes from the line of Louis Miscioscia with CLSA. Please proceed with your question..

Hey, Rick, you might as well refresh of or cancelation of HP [indiscernible] maybe didn’t help you all, but now with the server expiration coming in July on the 14th, wonder if any of your VARs are starting to talk about something that should come in to start to help TS may from an upgrade cycle or most of the VAR sales, NIM sales as not as much upgrades?.

Hey Lou, this is Rick. We're hearing more about it from some of our customers and some of our key suppliers on the opportunity.

I think the issue is if there is lot of choices for what you're going to do with those workloads, you may move out of the Microsoft environment into Linux, for example, you may move into a larger piece of equipment that has a partition available, you may move the application into the cloud so.

We can’t draw any particular conclusions today around an expectation just from that issue, but obviously it does drive a certain amount of decision making in many datacenters and we'll keep you posted if we have more specific information.

t should play out earlier by the way than I think what we saw with HP because obviously people are not going to wait till June stop making these decisions; it ought to show up I think earlier in this calendar year rather than later as a, obviously move in and fork lifting a server application, real different proposition than upgrading or not a personal computer..

And on the [indiscernible] you mentioned maybe there might be even before, do you get the sense that is leaning one way or the other?.

No, I don’t at this point, Lou. But we'll be talking to our partners about that as we talk to them about where we're going to try to help them grow in the March and June quarters..

Thank you. Our next question comes from the line of Brian Alexander with Raymond James. Please proceed with your question..

I had to continue the streak of follow ups. Just on the gross margins in TS, I noticed they were down in the Americas for the second straight quarter, I don’t think anybody asked about that.

So is that product mix, is that change in vendor incentives or is that something else, and is that a trend we should be aware of or more of an anomaly? And then I just have one quick one after that..

Yes, it's product mix to an extent, Brian.

It's also, its reflective of the incentive stack for Q2, but we don’t think it’s a longer term trend but just sometimes we hit eight cylinders out of eight, sometimes we hit six out of eight and you try to keep things aligned as close as possible to the way the suppliers want us to be able to help develop the channels for them.

So it was noticeable, it was part of the equation. The team has been improving and we don’t think it’s a major secular trend at this point..

Okay. And then there has been some discussion that one of your largest vendors in TS is possibly going to be selling directly to their largest solution providers including some of your customers.

So I'm just curious if that’s concerned at all that you have at this time, is that factored into your March outlook and if so what kind of headwind is that?.

Yes, so everything we know is factored in the March outlook, Brian. And I would just put the perspective on it but. We're in constant dialog with all of our partners on the channel plants and strategies.

We remain very committed to our VARs to our partnership with our top suppliers and we’ll work with them to execute their programs and provide value on the partnership and we'll provide the reach and coverage in the parts of the market they deem important for their channel to cover.

So, it is really I guess I would say normal course of business for us, but at the time that any changes are made that have some definitive specifically identifiable impact would be very open and transparent about that -- this time everything we know is baked into the third quarter guidance and we're not expecting any major impacts from some of those concerns or conversations taking place at this time..

Is that because it hasn’t necessarily rolled out in the March quarter and therefore it might impact June or is basically, is it has it already occurred and the full effect that is reflected in your guidance?.

No, I would say that its, these types of decision are under consideration being evaluated, conversations taking place around the channel on the impacts and what types of decisions need to be made around supporting their longer term strategy. I would say its work in process and we'll keep you posted..

Thank you. That is all the time we have for question. I'd now like to turn the floor to management for closing remarks..

Thank you for participating in our earnings call today. Our second quarter fiscal 2015 earnings press release and related CFO commentary can be accessed in downloadable PDF format on our website under the quarterly results section. Thank you..

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation..