Vincent Keenan - VP and Director, IR Rick Hamada - CEO Kevin Moriarty - SVP, CFO, Controller and Assistant Secretary Gerry Fay - SVP, and President, Avnet Electronics Marketing, Global Patrick Zammit - President, Technology Solutions, Global.

Shawn Harris - Longbow Research Brian Alexander - Raymond James Steven Fox - Cross Research Sherri Scribner - Deutsche Bank Lou Miscioscia - CLSA Matthew Sheerin - Stifel Nicolaus Jim Suva - Citigroup Mark Delaney - Goldman Sachs Ananda Baruah - Brean Capital.

Please stand-by our presentation will now begin. I'd now like to turn the conference over to Vince Keenan, Avnet's Vice President of Investor Relations..

Good afternoon, and welcome to Avnet's First Quarter of Fiscal Year 2016 Business and Financial Update.

As we provide the highlights for our first quarter of fiscal year 2016, please note that in the accompanying remarks we have excluded certain items including intangible asset amortization expense, restructuring, integration, and other items, and certain discrete income tax adjustments from all periods covered in our non-GAAP results.

When we refer to constant currency or the impact of foreign currency, we mean the impact due to the change in foreign currency exchange rates when translating Avnet's non-U.S.-dollar-based financial statements into U.S. dollars.

When we refer to organic sales, we have adjusted the current period to excluding the estimated impact of the extra week of sales as our first quarter included 14 weeks compared to historical quarters which contain 13 weeks.

In addition, when addressing return on capital employed, return on working capital and working capital velocity, the definitions are included in the non-GAAP section of our Press Release. Before we get started with the presentation from 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 the 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 first quarter of fiscal year 2016 highlights.

Following Rick, our Chief Financial Officer, Kevin Moriarty, will review some additional financial highlights and provide second quarter of fiscal 2016 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 Solutions. With that, let me introduce Mr. Rick Hamada to discuss Avnet's first quarter of fiscal 2016 business highlights..

Thank you, Vince, and hello, everyone. Thank you all for taking the time to be with us today and for your interest in Avnet. Our team delivered a strong performance in our September quarter as revenue came in at the high-end of expectations at both operating groups driven by strength in our EMEA region.

Both EM and TS EMEA grew revenue over 15% year-over-year in constant currency and even when you adjust for the estimated impact of our extra week, our combined EMEA region’s organic growth was over 11% in constant currency.

Driven by the strong growth in EMEA revenue grew 8.4% year-over-year in constant currency to $7 billion which equated to a 1.9% reported increase. Our Americas region grew revenue 4.8% year-over-year but declined 3.5% organically after adjusting for the estimated impact of our extra week.

In our Asia region revenue declined 1.7% year-over-year and 8.4% organically primarily due to a decline in our TS Computing Components business and a slower rate of growth in our high volume supply chain engagements at EM.

Gross profit margin decreased 20 basis points sequentially primarily due to a decline in our EMEA region, where both operating groups were coming off a relatively strong June quarter.

On a year-over-year basis, gross profit margin declined 27 basis points, primarily due to a decline at EM and impart due to a higher mix of high volume supply chain engagements.

Operating expenses declined 3.6% year-over-year due to the impact of changes in foreign currency exchange rates and from expense efficiencies including our Avnet Advantage program both that were partially offset by the impact of the extra week in our first quarter of fiscal 2016.

In the September quarter, we realized approximately $7 million in savings from our Avnet Advantage program and we still expect to achieve an annualized run rate of $15 million in savings as we exit fiscal 2016.

This combination of revenue growth and continued expense discipline helped to grow our operating income nearly four times faster than revenue as adjusted operating income of $240 million increased 7.5% from the year ago quarter. Adjusted earnings per share of $1.12 increase $0.10 from the year ago quarter.

And if you exclude the negative impact from changes in foreign and currency exchange rates adjusted earnings per share would have increased 19% year-over-year to $1.21. Finally, our return on working capital increased 100 basis points to 21% as we held our velocity consistent with our year ago quarter.

As you can see in this quarter's results our year-over-year organic growth rate moderated after two straight fiscal years of mid single-digit growth, while some of the slowdown is related to slower growth in our select high volume supply chain engagements at EM Asia, we continue to navigate a global marketplace characterized by mixed regional indicators and the challenges of a stronger U.S.

dollar. We are however encouraged by the fact that our December guidance substantially reflects normal seasonality after excluding the estimated impact of the extra week in our September quarter.

Despite slowing growth we remain committed to further expanding margins and returns while continuing to invest in our growth initiatives and executing on our ongoing disciplined approach to expense management.

Now I would like to turn the commentary over to Kevin Moriarty to provide more color on our financial performance, Kevin?.

Thank you, Rick and hello everyone. EM started fiscal 2016 on a strong note as our revenue and operating income in the EMEA region grew double-digits year-over-year in constant currency, which helped to drive operating income margin up 13 basis points year-over-year to 4.8% at the EM global level.

Revenue increased 2.2% year-over-year to 4.5 billion and was up 8.7% in constant currency. If you exclude our estimated $300 million impact of the extra week, organic revenue grew 1.8% year-over-year in constant currency driven by an approximately 14% organic growth in our EMEA region.

In the Americas and Asia regions revenue increased 4.2% and 1.2% year-over-year and declined 2.5% and 5.6% organically.

On a sequential basis, revenue grew 3.6% while organic revenue declined 3.4% in constant currency which is below our range of down 2% to up 2%, primarily due to a sequential decline in our high volume supply chain engagement in Asia.

Gross profit margin decreased year-over-year primarily due to a higher mix of these engagements in Asia and a decline in our EMEA region. Strong leverage in EM EMEA and disciplined expense management combined to grow year-over-year operating income more than twice as fast as revenue to $213 million.

Operating income margin of 4.8% was flat with the June quarter and up 13 basis points year-over-year. If you exclude the select high volume supply chain engagements in Asia EM's operating margin would have been at the low-end of our target range 4% to 5%.

In the September quarter EM's working capital was flat with the year ago quarter and increased 6.3% in constant currency to support the top-line growth.

On a sequential basis working capital increased 5.2% in constant currency, driven by a 13% increase in inventory to support expected growth in our high volume supply chain engagement in the December quarter.

While return on working capital was flat with the year ago quarter due to the inventory build in Asia, EM's economic profit increased 7.3% year-over-year driven by an over 200 basis point improvement in return on working capital in our EMEA region.

Now turning to TS, the September highlights are similar to EM, as strong growth and leverage TS EMEA contributed to a fourth consecutive quarter of year-over-year margin expansion and an over 500 basis point increase in return on working capital from the year ago quarter.

TS EMEA grew revenues 16.1% in constant currency year-over-year and organic revenue increased 6.4% in constant currency driven by growth in our central and eastern regions.

At the global level, TS grew revenue 1.3% year-over-year or 7.8% in constant currency, while organic sales declined 1.4% in constant currency after adjusting for the estimated $225 million impact of our extra week of sale. TS Americas grew revenue 5.3% year-over-year and organic revenue declined 4.3%.

At TS Asia, revenue and organic revenue declined 16.3% and 22.7% respectively due to a decline in our Computing Components business and the strengthening of the U.S. dollar against local currencies.

We believe that our Computing Components revenue is stabilizing with an operating income margin that is consistent with the year-ago quarter as a result of our deliberate focus on higher gross profit margin engagements.

At the TS global level, gross profit margin declined modestly year-over-year as declines in the Western regions were partially offset by an improvement in our Asia region.

In addition to a third quarter of organic growth in our core Datacenter Solutions business, TS EMEA delivered strong leverage as operating income more than doubled year-over-year and operating income margins set a record for September quarter.

This performance combined with another quarter of operating income growth in the Americas region drove TS's operating income margin up 45 basis points year-over-year to 3%. Working capital decreased 9.7% year-over-year or 3.6% in constant currency and working capital velocity increased both sequentially and year-over-year.

Now turning to cash flow from operations. In our September quarter, we used $34 million of cash for operations. The team did an effective job of managing working capital as working capital velocity was consistent with the year-ago quarter.

Excluding the impact of changes in foreign currency exchange rates, working capital increased 3.7% from the year-ago quarter to support growth at EM. Working capital increased 4.8% sequentially in constant currency primarily due to an increase in inventory at EM ASIA to support expected growth in our high volume supply chain engagements.

As we continue to navigate in an environment of mixed signals across regions our cash flow generation remains strong as our trailing 12 months cash flow generated from operations was over $590 million.

In this slow growth environment our trailing 12 months cash flow from operations have grown to an average of over $525 million for the past four quarters.

Our continued focus on operating expense efficiencies including our Avnet Advantage program, contributed nicely to our leverage this quarter as our adjusted operating expense to gross profit ratio declined 225 basis points from the year-ago quarter to 69.6%.

Also our commitment to returning cash to shareholders remains in line with our capital allocation priorities as our Board of Directors increased our cash dividend for the second consecutive year and expanded our share repurchase program by $250 million to an aggregate of $1.25 billion in the September quarter.

During the quarter, we paid a cash dividend of $0.17 per share or $22.6 million and we repurchased 3.5 million shares representing an investment of $145 million. Entering the second fiscal quarter we still have $407 million remaining in our existing authorization.

With improving profitability and strong cash generation, we’re well positioned to invest in our growth strategies while maintaining our discipline in how and when we return capital to shareholders. Now turning to our outlook.

Looking forward to Avnet’s second quarter fiscal 2016, we expect EM sales to be in the range of $4.1 billion to $4.4 billion and TS sales to be in the rage of $2.8 billion to $3.1 billion. Therefore, Avnet’s consolidated sales are expected to be in the range of 6.9 billion to 7.5 billion.

If you exclude the estimated impact of our extra week of revenue from our September quarter the midpoint of our guidance would be within the seasonal range at EM and at the high-end of the seasonality range at TS. Based on this revenue forecast, we expect adjusted EPS to be in the range of $1.20 to $1.30 per share.

This guidance does not include any potential restructuring and integration charges or the amortization of intangibles. The guidance assumes the 135 million average diluted shares outstanding and an effective tax rate in the range of 27% to 31%. In addition, the above guidance assumes an average U.S.

dollar to euro currency exchange rate of $1.12 to the euro. This compares with an average exchange rate of $1.25 to the euro in the second quarter of fiscal 2016. With that let's open up the lines for Q&A.

Operator?.

Thank you. Ladies and gentlemen, we’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Shawn Harris from Longbow Research..

I guess I just wanted to delve into your views on seasonality considering I guess what you PR reported yesterday and some of the volatility and kind of cautiousness versus kind of what you are seeing in your order book here in October and even just kind of expectations of budget flushes on the ITE side, so any elaboration on just general component demand and then also the your expectation of a budget flush, which looks to be pretty strong this year?.

So Gerry and Patrick one of you give your point of view..

So Shawn, I think as you know we reported that we finished Q1 below parity from a book to bill perspective at that point 95 and we are back on the parity at this point.

When we will look at the backlog our backlog seems strong I think Kevin did the nice job of laying-out what it will be from a seasonality perspective, our seasonality this quarter and Q2 is doing a plus 3 and we will be well within that range based on the backlog we have in place today..

Patrick, the budget flush..

Yes, on the TS we see EMEA, market conditions remaining solid that’s, one of the best reasons. And then look at the pipeline and the view of the pipeline we are having at this stage that explains the guidance in the quarter, so we feel pretty confident across the board on the guidance at this stage..

I guess with the pipeline being strong, can you still divide that between software services, traditional hardware maybe what you are seeing in some of the better and almost better than seasonal trends?.

So we see of course the hub technologies I would say continue to drive the demand so we have a solid pipeline for example on converged infrastructures and software and that is the main drivers..

Okay.

And may be as a follow-up the $7 million highlighted from Avnet Advantage this quarter, was that an annualized number is the annualized number close to 30 million so you have 20 million of incremental savings to achieve through the end of the fiscal year?.

It's the latter Shawn, so annualized would be 28 million, so 7 million realized in our fiscal first quarter annualized would be closer than the 30 number and now we saw 20 million more when they left..

And how does that sort of in line over the three quarters?.

I would estimate our additional savings this quarter, our current quarter in the $3 million to $5 million range and I’ll just continue to update everyone as we work through our fiscal year..

Thank you. Our next question comes from Brian Alexander from Raymond James..

Why do you suppose Europe is so strong in both segments when the micro picture over there doesn’t really support this magnitude of acceleration, is it related to currency at all, just given the moment on the euro and currencies and I was struck by the fact that revenue was up double-digits in Europe in both EM and TS, yet gross margin were actually down in both segments, so if you could just talk about that? Thanks..

Yes Brian, let me make some comment and then I will ask Gerry and Patrick to weigh in as well. So for EMEA the way I think about our performance in EMEA is certainly does seem to be a bit of a point off the curve but as you know we have had have this conversation going for a number of quarters.

From my perspective, first of all we have got an element of excellent execution going at both businesses, our components team has established a very nice market positioning a leadership role that they continue to sustain and then you add the element for us that obviously for our computer business in EMEA it's been more of a recovery story but as they have recovered I think the momentum has built for them as well.

So I guess from a high level for EMEA I want to start with giving the EMEA teams on both sides credit for some real good execution and for those that are long-term Avnet watchers, the recovery particularly in the computer business in EMEA is just really good to see the sustained momentum there, so Gerry comment more on EM?.

Yes so I think we did a nice job rolling out, we are still seeing strength in industrial and automotive for us less so in coms and mill area you mentioned the margins if you look at the -- one of the challenge we have had as the dollar has strengthened, suppliers have created price increases for us in the marketplace as you recall we talked about doing some pre-buying in Q4 to try to offset some of that which we did but if we look at it we still had headwinds from supplier price increases that we have contracts with customers for a year so of the timing of getting those price increases to the customers it is going to take us some time and that had a little bit of adverse affect on our margins this quarter.

But we do that stabilizing sense exchange rates have stabilized and we see margin expansion going forward..

And then for TS, Patrick?.

Okay go ahead..

Yes, on the TS side the one thing is Europe came out of the crisis most later than in the U.S.

and we believe the investment cycle has been delayed so what we see companies have delayed investments because of cash flow issues and uncertainty about the future, outlooks are improving in Europe and so the investment cycle especially for IT is accelerating so that’s one thing.

On the margin the reason for the slight decline in margin is a pure mix issue in fact we had significant growth in Sothern Europe and Eastern Europe and the margins are slightly lower than in the West and in the South..

So, Gerry, when you roll those price increases through to your customers, do you expect demand to suffer at that point as maybe the customers are anticipating that and perhaps scheduling more orders today than they otherwise would?.

No, I don't think so. I think we had a very strong summer quarter and I think that demand that we see is going to continue and we don't see any moderation due to the price change, I think that it happens over the long period of time, that customers become accustomed to that and we pass that through overtime.

So, no, I don't see any demand changes into the price increases. So, I don't see them buying early or staging later..

Thank you. Our next question comes from Steven Fox from Cross Research..

First question just on inventory that you're staging for the fourth calendar quarter, it's going into a region that has obviously been under economic pressure. Can you just talk about the risk of actually realizing that business in the quarter and sort of give us a sense of what it's related to? And then I had a follow-up..

Steve, I assume you're talking about the EM side, so I'll answer the question..

EM side, yes, high margin yes thanks..

Yes, so the bulk of the inventory is in regional specific support of our high volume fulfillment engagement.

I think given what we expect in demand this quarter I think we have our inventory at appropriate level, I think if you take that out of the mix, we feel the balance of the inventory that we have is appropriate to support the core business demand that we see at this point..

And then in terms of just the TS business looking at this year sort of seasonality say compared to the prior couple of years.

Is there anything you would point out I understand your mix is changing but is there anything else you'd point out that is different in terms of what you're seeing in terms of customer order patterns and maybe a year or two ago at this time of the year?.

No, the simple answer is no..

Right, and keeping in mind Patrick wasn't in charge of those business two years ago Steve I would echo that and in fact if you look at our normal seasonality range of plus 26 to 30 sequentially, TS in the December quarter as even in the past couple of years has exceeded more of a high-end of that and remember now based on the sort of the leap year that we just experienced for Avnet in Q1, we want to catch in full calendar year close as part of our plan..

And then just very quick question just relative to the guidance you just provided kind of what -- can you give us a little bit more specificity around the cash flows for the current quarter [Multiple Speakers]?.

Sure, I would raise our cash generation in the upcoming quarter approximately of 100 million to 150 million, rough range and Steve I think as you know the cash flow from operations can move within the short period of time due to the working capital requirements for the business.

The way we're thinking of it, we want it, we're going to target say within the 400 million to 500 million cash flow from operation at a trailing 12 month metric..

Thank you. Our next question comes from Lou Miscioscia from CLSA..

Lou you are there or you are on mute? Lou do you have us on mute or did we lose you? All right..

We'll go to the next question. Our next question comes from Sherri Scribner from Deutsche Bank..

You guys have done a great job in TS Europe improving the results there impressive results I know that we've been paying attention to that segment for a while, is there more work for you to do in that segment, you mentioned the marks dropped a bit on mix, there's not really a lot that you could do about mix from quarter-to-quarter, but is there any additional restructuring or additional actions that you need or do you think you're at pretty good levels now in TS Europe?.

No, we’re on the continuous improvement journey, so that means that we need to continuously improve our operational efficiency but at the moment of course the focus is two-fold, it's continuing to accelerate on the top-line and optimizing margin levels by changing the mix and the second thing is continuing to work on operational efficiency and we are also making very nice progress there so you should expect some more improvements coming in the next quarter..

Yes, sure, this is Rick, I would just add a couple of comments, so first of all, I think to use an American kind of vernacular term, I say the heavy lifting is over but there's still work to do absolutely, but the team has moved to more of an external focus from internal and some of the hard work that was done including the ERP conversion that we talked about last year is behind us now and then you get into second and third gear.

So, that heavy lifting is done.

Second we're still investing in our TS EMEA business as you saw this quarter with our announcement of the Orchestra acquisition and though hopefully that's another indicator of how we feel about the prospects for that business overall and very pleased to see as you pointed out the sustained momentum now that we've built there but the year-on-year compares with the TS EMEA will get tougher soon though..

And do you think that the revenue growth that you're seeing there is share gains or do you think it's your mix of business being in higher growth segment?.

So, we haven't got yet the market data and to give an exact answer on that, I would say at this moment it's one the market is favorable, second, I think with some partners we have gained some share..

And then Kevin I was just hoping you could give us a little bit guidance for SG&A with extra week I assume the SG&A was up more significantly this quarter? I assume it will come down somewhat descent amount in the second quarter but maybe you could give us some magnitude for SG&A?.

I would range the operating expense in the $530 million to $540 million range for our upcoming second quarter..

Our next question comes from Lou Miscioscia from CLSA..

I guess if we look at the TS side, maybe you could make some comments I think that when you obviously back out the quarter the Americas just really isn’t growing that much could you give us that number again and maybe why it's been so tepid and then do you expect that much of a pick up as we go into the December quarter? And then I have a follow-up..

So Patrick for TS and the Americas in particular..

In TS and Americas so if I understood the question properly is correcting for the extra week correct, that was your question?.

Yes..

In fact so again it's mix related, and if you look at our core Datacenter Solution business we had a slight decline again more related to product mix issue we continue to work on I would say so we've all strategic priorities and that’s where we put the focus and when we see business which is not meeting all our return criterias we’re becoming selective.

But if you look at the Computer Component business here we saw double-digit decline which is due to the PC market conditions and again a solid execution on selecting the business okay.

So on one hand the top-line is declining on the other hand margins and then operating margins continue to improve for that business as we continue to improve all our metrics. So that’s for the Americas. And then for next quarter we expect to be in line with normal seasonality okay.

So at the moment based on the pipeline we have, we feel comfortable with the guidance we've provided..

And let me just remind you that a lot of very big tech companies E&C, VMware, IBM and then obviously even Arrow yet they sort of thought about declining demand going into the December quarter and then the U.S. I guess not too much EMEA as per all the comments from before.

Did you get impression that you are sort of not seeing that and any thought if so that would be the case why?.

So let me jump in little bit on this. We've anticipate a theme during the call with some of the questions around this element of let's say bullish guidance on our part overall.

And first of all we want to acknowledge no matter how you're handicapped for this leap year that we just had we do think that growth has slowed, we have built that into our assessments and just like every quarter at this time when we’re on the call the outlook we’re providing is our best assessment of all of our data points, everything of our dash boards our leading indicators and our coincident indicators including what’s happening with our key suppliers et cetera.

So I guess what I'm trying to do is just reassure you that we factor in all those data points including some announcement this morning from some of our suppliers that into the outlook that we provided but what we are providing you is the best information we have from what we’re looking at today and certainly not trying to create controversy but just trying to be open and transparent as part of our overall themes in addressing these questions..

Maybe just switching just a little bit of a different maybe explanation, obviously we understand the extra week, but I'm just wondering given the extra week with an October 3rd close and your competitor closed on the 26th, not only the extra week you think that that the timing of the extra week was very helpful I guess in that because they talked about in their EM business or components business that book-to-bill even though they missed their number is now back above 12 and that’s what you said.

So I am just probably just trying to understand the linearity around that?.

Yes Lou I think if you check the transcript from the August call you'll see my commentary and I'll repeat here.

The way we planned for and I’d say I don’t believe we experienced the leap year impact for us it's much more linear at EM and it's certainly was much more queue to TS because those last few calendar days of the quarter are certainly heavily weighted days from a daily revenue point of view vis-à-vis the quarterly overall average.

So I do understand that point that you're making there but I do think it's two different tales of impact regarding the relative impact for components versus computers and once again factored all of those known factors into the type of outlook we’re providing today..

Our next question comes from Matt Sheerin from Stifel..

Just regarding the supply chain volume business that you talked about being up in the December quarter you also talked about that being weak in September so we have got a function of the expected revenue in September that just got pushed out or was that just timed for the end of the year and I know you have been in that business now for going on three years and it sounds like it's working from a return standpoint but are you seeing growth in that business and are you able to squeeze cost at all so it’s helping your operating margins?.

Great question Matt, Gerry. We have always said that that business was opportunistic for us so at some point where it wasn't accretive anymore to our results, we would need to get out of it so it continues to be accretive. The December quarter has historically and will again this year will be the high watermark for that business.

Due to the introduction of some new products in this model our June quarter was unseasonably high so when you look at the September quarter the demand moderated back down to historic level so it may have the given the appearance that the business was off again the December quarter is a big quarter for us and we are projecting that strength in this December quarter will happen again also so for us it's historically been a business that December was a higher watermark and it went down from there this year, those results were a little bit different but we believe we will back to normal seasonality in that business in the December quarter..

Okay.

And then on the well actually just related Gerry to EM, you are obviously seeing that lots of consolidation from a lot Europe buyers and I know in the last couple of years you basically said that you don’t see that as been issue perhaps but now we are seeing obviously the acceleration so what does that mean for Avnet over the next couple of years?.

Yes Matt it is a really good question but it's a hard one to answer because it's different by supplier because the activities that they go under are generally say three forms, classic consolidation where they are just trying to grow, the need for scale and then customer market diversification so really depending on the type of acquisitions that happen the impacts are different.

Generally we have been positively impacted by this trend because as the consolidation occurs the suppliers generally look to the biggest partners who can service them on a global basis and we usually if anything pick up more business than lose in those transactions but again everyone is different so you can't really predict how it is going to come out.

The top 25 of those suppliers are about 65% of our overall business, so even that consolidates the 20, I don’t see an overall negative impact to us, I think the trends are actually more favorable for us as a large distributor than they are for some of the other smaller distributors..

[Operator Instructions] Our next question comes from Jim Suva from Citi..

On that guidance I believe I heard some commentary about the TS seasonality that your guidance is going to be better than seasonality maybe my knowledge is a bit old or maybe you can refresh me of what it is but I have historically thought that TS sales like the last month and specifically the last few weeks are extremely important to hit in the quarterly numbers for the TS business, so my question is, is a; is that still true about the linearity within the quarter and b; if it is why -- what type of confidential end markets or GOs from TS or orders or something gives you a reason to really go much higher if it is back end loaded?.

Hi Jim it's Rick, so let me kind of try to clarify I think a little a bit of what I heard you say, first of all we have said that again a handicapping for this leap year impact that we had, we believe that the TS guidance reflects the upper-end of normal seasonality of plus 26 to plus 30.

The other comment I had made historically is that for the past two fiscal years at least and those are the data points in front me right now, the sequential impact of TS has actually exceeded the high-end of that but at the same time I think there were also weaker September quarters as a base point for the last two fiscal years.

So that’s kind of what we are thinking overall but our statement for this quarter was the way we have normalized for our leap year, we think the December guidance at TS represents the upper-end overall.

Regarding the quarterly linearity we can absolutely confirm that for a normal 13 week quarter at 4, 4 or 5 weeks, 50% in that first day week is 50% in the last five weeks with over 50% of those five weeks happening in the last two weeks that’s still the type of intra quarter linearity that we expect at TS..

Great, and then my follow-up question is on the SG&A I believe you have mentioned 530 million to 540 million outlook is that the number then that we should just basically each quarter be reducing by 3 million to 5 million given your savings program and your initiatives there or are there any other factors that we need to be considering that could impact that for kind of the longer term?.

Hi Jim it's Kevin.

I think I’ll continue to update everybody as we are on to each quarter because as an example coming out of our current -- you have the impact of our equity comp plan that sequentially increased from our -- in this fiscal year to this quarter, roughly neighbored a $10 million, so clearly we can continue to update because depending on volumes and the variable cost impact that will be an ongoing thing but you can bank on that incremental 3 to 5..

Well incremental in the sense so Kevin, you have baked that into that expectation of 530 to 540..

Yes..

That's what you've put into that expectation?.

Yes..

Yes..

Yes, I was referring to kind of beyond the December quarter, are there any other things we need to be aware of whether it be management grants of bonuses or annual wage increases or out burning or closing any type of initiatives or things like that?.

There will be a slight mere increase that will take place on January 1st for the majority of the organization, then those that were built into the fiscal year budgets and plans and of course in January as we're talking about Q3guidance we'll be able to set your expectations around SG&A at that time..

Great, thank you very much and congratulations to you and your team..

Thanks Jim, by the way you noticed we did an acquisition Jim..

Thank you. Our next comes from Mark Delaney from Goldman Sachs..

Just on the acquisition topic, just a quick housekeeping one the TS guidance assumed the benefit from the Orchestra acquisition.

So, how much revenue and EPS impact you've taken into December?.

Mark it is Kevin it's relatively small annualized, we kind of indicated it is around $90 million to $100 million and then think about the process on that, so as you think about that we're likely going to close that within the next couple of weeks, so we'll get a small uptick from a revenue standpoint and limited impact from EPS for this quarter..

I was hoping to talk more on the EM segment outlook and a two part question, first if you could clarify the book-to-bill commentary about what you're seeing in October was there some sort of above seasonal pickup in the bookings or as part of the getting back to parity comment related to just billings down and so the ratio about back to one and then part two of the question is maybe if you could just elaborate on what you're seeing in terms of inventory levels more holistically in the EM market, it is a clear estimate your competitors -- NXP this morning was talking about the 25% increase in inventory dollars in the distribution channel and I'm wondering if you're seeing any excess inventory than your competitors and if so how that may impact sales margins?.

So, Mark, what I would say first looking at the book-to-bill, so yes, we were below parity as the quarter end and in this month we're back to parity. So, I would say I think your consensus are generally correct, the billings came down so, the bookings have come back in line but I won’t say it continues to strengthen as the month goes down.

So, that feels good. Back to the inventory perspective I think if you take out our select high volume supply chain engagement, I think our inventory is in pretty good shape.

We have lots of detailed conversations with our suppliers about our inventory I won’t specifically talk about any particular supplier and what we're doing from an inventory perspective but when I look at my demand and I look at my inventory outside of the what we've built for the high volume supply chain engagement.

I feel pretty good where we are our from an inventory perspective right now. So, I don't foresee unless something changes dramatically in the market and inventory growth for us this quarter outside to support the demand that we have today..

And interestingly the inventory of your competitors do you have a view there? I understand, you guys talking about your inventory, it's really a question why do you think there are other distributors that are maybe carrying too much?.

I wouldn't speculate on what other distributors think about our inventory..

And if I could just ask one last one, just kind of a quick follow-up, did the comment about planned increases for some of the EM business in the EMEA region, could you just give us a sense for what percentage of the revenue there you expect to be increasing prices on the kind of the magnitude of price increases that you're hoping to be able to pass through?.

I mean if you think about it, it's generally related to suppliers who either moving from a euro to a dollar perspective. So, it's from a magnitude perspective it's going to go out over, probably a 9 to 12 month period. I think you'll see a very small impact to our overall results because of it.

So, I want to be fully transparent about what's happening from a margin perspective but it's not a huge impact for our business today..

Mark, what we don't know I think when we faced this literally 20% plus euro dollar disconnect, how long was it going to last and then at what pace will the suppliers try to introduce incremental price increases to eventually respond to it or would it eventually revert back and et cetera, those were kind of the variables you don't understand and we commented I think a couple of calls ago that we were trying to get ahead of some of these price increases with some smart inventory investment and so that's a little bit of a matching game going on there that's part of our overall mix but as Gerry said, net and net, not a major impact issue..

I mean there're all kinds of variables that play into that what suppliers decide to do from a timing perspective, if we see anymore strengthening or weakening so, it's hard to predict what's going to happen from here on out..

Thank you. Our next question comes from Ananda Baruah from Brean Capital..

Just two if I could, the first is can you remind us and give a sense of that all of the $50 million run rate saving to the bottom-line and if so over what period of time we should expect that? And then I have a follow-up..

The 50 million annualized we'd expect to be entering our next fiscal year with that as part of the reduction of our cost base..

And is that all 50 passed down to the bottom line?.

Yes..

And just on the TS side I would love to be able to get any of your context that you think is useful around hybrid cloud adoption really how do you see your customers really engaging in hybrid cloud today what do you see as -- so you can we say you can talk about what do you see as sort of the headwinds I guess or maybe there the processes that they're working through and as really overall what your guys temperature on what the hybrid cloud opportunity kind of looks like over the I don’t know intermediate term, that would be really useful? Thanks..

The first thing I would say is that our productivities went really well that quarter so we had a significant growth in our cloud activities. But hybrid cloud offers now to customers is the opportunity to optimize basically their data center and create more flexibility at the lower cost.

And so in fact so our strategy is that here we are exposing our process to the new opportunities and I would say that the traction is there, I mean we see a lot of traction a lot of interest.

The thing is it's I would say the CIOs need to get also used to that new technology and it's true that decision making process is taking sometime, because this is something which is relatively disruptive, but we see enormous interest and our venders are coming up to the market with very interesting technologies and this is part of our key strategy so we’re pushing it hard in the market.

And I would say that I'm pretty happy with the result so far..

That’s really helpful. Yes sorry go ahead..

No I would just add a little bit more color commentary because there is the issue of the go to market with TS but there is also Avnet the IT customers well I just reinforce hi look we’re believers in the cloud we’re adapting and taking advantage of it also as Avnet the IT customer and just anecdotally from the conversations with the bars I think I would sure that the hybrid is still becoming the preferred environment there's less what I would call full fork lifting of existing production apps into the cloud.

But if there is an opportunity for an update or conversion or a consolidation of apps these are giving entry points for more for example SaaS offerings to be considered and implemented.

Within our four walls of nearly rough numbers 300 production apps within Avnet's portfolio today some 10% and growing are actually what I would call in the cloud app support at this point..

That is all real useful context guys so I guess just one last question on that if it's possible to actually answer this question in a useful way.

When CIOs begin to work through some of those dynamics and move in closer to adoption when that adoption really starts to happen I guess in a much more normalized way do you envision the growth rate of your cloud business actually accelerating and really just maybe if you can give the industry dynamic that you guys think to manifest.

Do you think the industry growth rate of cloud adoption can actually accelerate at that point or is it will be more situation of, we just continue to get for a long period of time adoption at current rates of hybrid cloud architecture and I will just leave it there? Thanks..

Yes Ananda as much as I would love to provide a forecast on that for you it is way out of my pay grade, so I'll leave that to the forecasters and the specialists that are tracking that.

But we like a lot of our customers are looking at data from some of those specialists looking at the rates of cloud adoption looking at the percentage of workloads moving into the cloud and are there patterns in the types of workloads or the type of applications that are -- have a higher share in the cloud so to speak.

But for view from us to try to forecast this, but we are incorporating the trends into our strategic planning and the plans and investments we’re making at TS today to be relevant in that future at whatever pace it actually materializes..

Just would like to add one more thing. In fact private cloud is -- we believe that private cloud will continue to be extremely relevant and probably will still represent more than half of the total cloud opportunity. And private cloud in fact is driving as we speak some nice demand especially for converge and hyper-converge infrastructures.

So what we see is this move to the hybrid cloud environment is not only opening opportunities for public cloud but also private cloud for the latest technologies and also for services..

Thank you. And at this time we've no further questions. I'll turn the call back over to Vince Keenan for closing comments..

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