Our presentation will now begin. I would now like to turn the floor over to Ina McGuinness. You may now proceed. Thank you..

Thank you, operator. Earlier this afternoon, Avnet released financial results for the Fiscal Second Quarter of 2019. The release is available on the Investor Relations section of the company's website.

A copy of the slide presentation that will accompany today's remarks can be found via the link in the earnings release as well as on the IR section of Avnet's website.

Lastly, some of the information containing the news release and on this conference call contain forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict.

These forward-looking statements are not the guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cost or contribute to such differences are described in detail in Avnet's most recent Form 10-K and 10-Q and subsequent filings with the SEC.

These forward-looking statements speak only as of the date of this presentation and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of its release.

Today's call will be led by Bill Amelio, Avnet's CEO; and Tom Liguori, Avnet's CFO; and also Phil Gallagher, Global President, Electronic Components is here today to participate in the Q&A section. And with that, let me turn the call over to Bill Amelio.

Bill?.

a multimillion dollar deal with a breakthrough smart health company. Avnet provided the hardware designed through Avid and the customer then decided to take advantage of Avnet for supply chain and component supply to get their solution to market.

We closed several multimillion dollar cryptocurrency solutions opportunities that leverage our ecosystem from design to manufacturing. And I'm happy to report we recently began accepting cryptocurrency payments which is a valuable service for certain customer types.

We also made a critically important acquisition that will greatly enhance our ecosystem and IoT capability by purchasing Softweb Solutions. Softweb has a proven track record bringing IoT solutions to market and possesses world-class AI, data advisory and digital development services. This is a major addition to our ecosystem.

Softweb now brings the software, AI, cloud and analytics expertise necessary to offer complete end-to-end solutions to our customers. I also want to make a point about Avnet's strategic relationship with Microsoft.

Avnet is an important partner for Microsoft's premier business, Microsoft Azure and was elected the first Azure Sphere distribution partner. As a result of this partnership Microsoft is now leveraging Avnet's ecosystem and IoT capability to help its Azure customers get their IoT solutions to market faster.

We have received significant Tier 1 customer orders and engagements directly from Microsoft and a great example of this is Starbucks. Using the Avnet Azure Starter Kit platform, we've partnered with Microsoft to design and Azure-based solution that brings predictive capability and cloud connectivity to Starbucks coffee machines.

We have begun shipments of this solution and will ramp up volumes over the next several months. This is just one of many opportunities we're working with Microsoft to bring secure IoT solutions to market leveraging our unique ecosystem.

The last of our five strategies is focusing on driving performance and operational excellence and continuous improvement. Our results this quarter fully demonstrate the earnings leverage we are realizing through our transformation to cost optimization efforts.

An example from this quarter is how we successfully migrated certain sales operations and customer service functions to low-cost regions here in the Americas and in other areas of the world. We have managed to reduce administrative and support costs, while simultaneously improving our customer satisfaction scores and relationships.

We remain on-track to deliver to our committed target of $245 million in our overall savings over the next three years and Tom will talk more about that in a moment. In summary, Avnet is executing well and has come a long way from a year ago.

We are optimistic and confident about the things we can control and have contingency plans in place with things that are outside our control. Our ecosystem is truly unique and the value we offer is creating real benefits for our suppliers and our customers. Our IoT strategy is accelerating with strong growth in our customer pipeline.

Many of the solutions we are working with our customers to bring to market will make a real difference in the world and drive continued growth and profitability as well. With that, let me turn the call over to Tom for some additional commentary around our financials.

Tom?.

Thank you, Bill. Good afternoon everyone. We are pleased to report strong results this quarter with year-over-year sales growth and a streamlined cost structure. Both of these contributed to adjusted EPS for the quarter of $1.04, a 33% improvement year-over-year and above the midpoint of our guidance range.

Our financials for the second quarter reflect a number of year-over-year improvements. Sales increased 12% to $5.05 billion. Adjusted diluted earnings per share increased 33% to $1.04. America’s acceleration continued with sales growth and year-over-year margin expansion. Selling, general and administrative expenses declined by $12 million.

Our diluted share count is 10 million shares lower, an 8.5% reduction from last year. And our quarterly dividend payment of $0.20 in the second quarter was 11% higher than the prior year quarter. In total, we returned approximately $200 million to shareholders in buybacks and dividends, as we remain confident in our long-term prospects.

Let's turn to our business performance starting with Premier Farnell on slide 14. In the quarter, Premier Farnell sales grew 2.8% year-over-year with operating income increasing 19%. Sales growth in constant currency was 5.2%.

Operating margins expanded to 10.8% from 9.3% in the prior year quarter and consistent with Premier Farnell's first quarter margins. Turning to Electronic Components. The Electronic Components segment delivered year-over-year sales growth of 12.4% to $4.7 billion with an operating income margin of 3.4% up from 3.1% a year ago.

Americas posted sales growth of 7.5% year-over-year, 2.3% sequentially and continue to expand operating margins on a year-over-year basis. Our EMEA region continued to perform well delivering 10.8% sales growth year-over-year or 14.5% in constant currency and led all regions in operating margin performance.

Asia delivered $2.1 billion of sales this quarter, a 15.2% increase year-over-year. While we continue to post strong sales growth in Asia this quarter, we are seeing a slowing in the book-to-bill ratio which ended at 0.8:1 in the second quarter. Moving down the income statement.

Gross margin of 12.5% was flat sequentially, so down 85 basis points year-over-year due to the higher mix of Asia revenue. We continued to demonstrate our ability to optimize our cost structure by reducing selling, general and administrative expense by $12 million compared to the prior year quarter.

We implemented several actions to further optimize cost as part of our long-term plan of $245 million of cost reductions from streamlining and automating processes, integrating back offices and moving to lower-cost regions. Building on Bill's earlier comments, this quarter we've realigned parts of our IT distribution and business operations.

These actions resulted in a $62 million integration and restructuring charge which included non cash impairment and severance cost.

With our ERP systems now stable and enabling Americas sales growth and margin expansion, we refocused our resources to more strategic applications such as CRM, pricing and digital capabilities, all of which we expect to further facilitate margin expansion.

As a result, we impaired select IT assets that are being replaced or which we no longer plan to utilize. In distribution, we are realigning our warehouses for greater efficiency and lower cost as well as to prepare for various Brexit scenarios. Globally, we continue to manage our labor cost and headcount, as we optimize structure and process.

Altogether, we expect these steps will deliver quarterly savings of $10 million or more once fully implemented. Adjusted operating income totaled $178.8 million, up 27.5% year-over-year. Adjusted operating income margins increased 44 basis points year-over-year, so a decline of five basis points sequentially to 3.5%. Our adjusted tax rate was 21%.

We had unfavorable currency loss, which decreased our adjusted EPS by $0.02. Turning to the balance sheet and cash flow statement. This quarter net working capital days rose sequentially by three days to 86 days.

While working capital will fluctuate up or down in any given quarter, we continued to make progress with our inventory payables and receivables management. We expect to lower our days working capital to the low 80-day range by the end of our fiscal year. Our long-term target remains below 70 days.

Cash provided by operations in the quarter was $72 million. While we had strong earnings, we made tax payments of $56 million for gains associated with the sale of our TS business, which impacted cash flow. We returned $197 million to shareholders in the form of a $0.20 per share dividend and share repurchases totaling $175 million.

We also acquired Softweb. Combined these increased our net debt position by $282 million in the second quarter. Our gross debt leverage increased sequentially to 2.4 still a conservative level. As most of you know, we've provided quarterly scorecard to track our progress to plan for achieving at $7 in earnings per share.

Looking at slide 17, which we call our scorecard you can see our progress. This quarter as a percentage of our total sales, our mix from higher margin businesses decreased due to the fast growth in Asia. Hence you see a yellow on our progress report. We continue to see opportunity to grow higher margin sales.

The most recent example would be our acquisition of Softweb and its ability to accelerate our IoT offerings. We saw a slight uptick in working capital days, although, we think this move to yellow will be short-lived. All other metrics are green with every operating and capital metric showing improvement.

Looking forward, we see a sequential decline in sales due to slowing in Asia. All other regions are expected to be flat to up sequentially. Even with lower sales we expect a sequential and year-over-year growth in adjusted EPS as a result of our cost optimization programs and lower share count.

In the March quarter, we expect sales to be in the range of $4.5 billion to $4.9 billion. We expect adjusted EPS to be in the range of $1.03 to $1.13. At midpoint, guidance represents year-over-year adjusted EPS growth of 6% and a 2% decline in sales.

Overall, we are pleased with our second quarter results, we expect continued progress and growing adjusted EPS in spite of an uncertain macro environment. With that, let's open the line for Q&A.

Operator?.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session [Operator Instructions] Our first question comes from the line Adam Tindle with Raymond James. Please proceed with your question..

Okay. Thanks and good evening. I just wanted to start on the Americas region. I know accelerating Americas was a key component to the Analyst Day bridge to the 4.5% to 5% operating margin and the $7 EPS target.

You've seen a couple of quarters of revenue growth turnaround in the region, but I'm hoping that you can comment a little bit more on margins in the region.

Just how far are we below historical levels at this point? What inning are we in? And talk about the steps that you're taking, what still needs to be done to get that to optimal levels? So magnitude, timing, and logistics of Americas profitability?.

Thanks, Adam. It’s Bill. I'll give you some of that data, some of course is a little bit more than I want to give at this time, and to give you what inning it is, I think that's a good way to characterize where we are. I'd say we're in the third inning. As I said, we're now actually seeing a lot of momentum in the Americas.

We're surprising on the upside and we will continue to see positive signs in front of us as we think about the system and issues we talked about in the past, they're all behind us now. We've put in place many improvements and enhancements, and we're now essentially leading the way with the Americas.

And with respect to how far we are off the historic levels, we’re not where we want to be and we've got work still to do to get to historic levels. But we're clearly way above where we were just a couple of years ago, so we made great improvement. There's still more opportunity to go in the future..

Okay. And maybe just a follow-up I wanted to ask maybe one for Tom on the March-quarter guidance. I think you're implying that revenue declined 7% sequentially at the midpoint but flattish operating profit dollar sequentially.

So I'm just hoping that you can walk through the assumptions underlying this because you typically see some negative operating leverage with a quick change in revenue growth like this, but I know there are some cost initiatives.

So just some of the buckets that gave you confidence that you can keep profit dollars flattish while revenue declined sequentially?.

Sure. I'd say the first is mix. We'll have a more profitable mix. Most of the revenue decline is Asia plus it's Chinese New Year. So this is one in America and EMEA kicking fairly strong, Adam, so we’ll have a higher gross profit. With respect to the OpEx, we talked about some of the initiatives that are in place.

Over time, that will be a $10 million improvement in OpEx per quarter. And I expect $3 million or $4 million of that to pop up in this coming quarter. Going down the income statement, interest expense and other -- income expense, expect those to stay about flat.

And I believe in the press release we talked about lowering the share count slightly to about 110 million shares. So I think if you go through that you’ll come up with midpoint of our guidance, about $1.08..

Okay. Just to clarify on the cost cut, the $245 million in cost cuts.

I am sorry if I missed it, but how much have you achieved thus far?.

So, in this coming quarter, expect $3 million plus improvement in the operating expense line..

Okay.

But of the $245 million that you outlined at the end?.

I'm sorry Adam, put that a third off the way identified, so a little over $80 million..

Got it. Okay. Thank you very much..

Thank you..

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

Hi, afternoon everybody..

Hi, Shawn..

Hi. If I may on just looking at it more on a year-over-year basis.

Outside of Asia, are you expecting any year-over-year declines either in the Americas or EMEA? And was the book-to-bill above parity in the Americas and EMEA for the December-quarter?.

I'll start and I will have Phil give some -- as we exited in December, we were at [indiscernible] above in the western regions. And we're as we said in the press release; it’s 0.8 in Asia, and we're still seeing positive momentum in both the western regions. .

And so the expectations, they will be flat to up year-over-year in the March-quarter in terms of revenues?.

That's correct..

And then as a follow-up I guess within Asia, are you -- I'm guessing you're seeing an increase in order cancellations and things of that nature.

But is -- are you getting any visibility in terms of when it might bottom out? I know it's a tough time of the year to figure out that out with Chinese year, but what are the metrics that have turned negative for you in Asia?.

Well, you hit the one that’s the big one, which is cancellations definitely has been more erratic than it was previously, and we're looking at backlog orders, lead times, every measure that you can imagine to make sure we're able to call that.

And as I talked about in my remarks, we think we call it rightful at where the guidance is, and we think [indiscernible] been anything a little conservative, so think we got these contained..

Okay. And then last if I may.

Tom with the goal for cash cycle days to exit the year, do you have a target for free cash flow in the back half of the fiscal year in terms of dollars or anything that you can share?.

Okay. So this quarter -- that's a good question. This quarter cash from ops is about $70 million and we expect in the third quarter to be $150 million plus..

Okay. Perfect. Thank you so much..

Thank you..

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

Hi. Good afternoon. I was wondering if you could dig in a little bit more on the Premier Farnell performance. You mentioned some slowing on certain compute products.

What was that related to? And how do you see that rectifying? And then, from the operating profit leverage you're getting like where do you think we are just specifically with Premier Farnell on getting more leverage over the next few quarters? And what kind of growth profile do you think it has now for let say next few quarters as well? Thanks..

Sure. So, as you know Premier Farnell is one of our high-margin businesses. We've seen growth at 7% with 50% conversion rates.

So that's converse and yeah it's slow this quarter so we pointed to single-board computing and that was due to some webs that are out there and we see that there will be improvements with respect to that product road map and that we should see our growth bounce back again. So we're pretty certain that we're going to see that come back again.

Additionally, we've been working diligently on the cost position in Premier Farnell continue to make improvements there. And we've still got a ways to go there from the standpoint of us continuing to add more margin percentage points up on the board for Premier Farnell..

Yes, Steve. This is Phil. Well I'm just jumping in. We've been maniacally focused in the last couple of years on the operational side okay and the stabilization side of Premier Farnell. And that's really where we've been driving it. And we see it as a high growth as Bill pointed out.

But we're really pleased frankly at the point of our operating margin growth as compared to the revenue growth okay. That allows us to invest and double down in Premier Farnell which is what we plan to do. We've got other investments to get to that growth where we need to see it..

That's helpful. And then just as a quick follow-up. I understand that you're hopeful that Asia has sort of bottomed.

But if we go under that scenario I guess, when I look at what you just talked about with Premier Farnell and some of the other digital properties, are you saying that your mix now is helping margins for the next few quarters? Or is there still some seasonal swings we have to think about? Thanks..

Let me correct one thing. We didn't say that Asia bottomed out. We simply said that in our assumptions on how we put our guidance together that we think we’re taking into account where we think it's going to be in the quarter.

So I think just -- and the other question is what?.

Yes. Just sort of the....

Yes. The mix will be definitely more heavily weighted in the West than the East in this coming quarter, so that's why we get a margin uplift associated with that..

But beyond that Bill, do you have any sort of thoughts on trend line with mix?.

Well I think we'll follow the same seasonal pattern we've previously seen. So I think we'll continue to see robust growth in Asia. I mean Asia has been the top-growing every region..

Well as you pointed out too Steve, although we saw the book-to-bill start to slide through the quarter in December, we still shipped over $2 billion in Asia which is a near-record. So that was the highlight. But obviously the book-to-bill started to deteriorate..

Understood. Thank you..

Our next question comes from the line of Param Singh with Merrill Lynch. Please proceed with your question..

Great, thank you for taking my questions. So firstly on going back to the Premier business here, I understand you're going to get some leverage here. But the operating margin you had a couple of quarters ago was 11.8%. And what really gets you to kind of like a 15% margin that you've been targeting or thinking about? And then I have a follow-up..

If you recall, we put together our $245 million road map. One of them was back-office integration and a portion of that is what we're going to be doing between our core Avnet business and Premier Farnell with areas such as legal, HR, finance and global information systems et cetera. So we have room to make some more moves there.

We also have a pretty solid strategy with low-cost jurisdictions. We're able to grow and use a low-cost area versus growing in a high-cost area. So those few things will essentially continue to improve our operating expense line..

And then how come -- like it was down in the last couple of quarters, any reason why for that?.

What was down again Param?.

The operating margin in Premier Farnell last couple of quarters..

No. Well I just think you've seen quarter-to-quarter mix of that. I mean we clearly got a path to get much higher. We just haven't told you exactly how high it's going to get but we've got definitely a few points ahead of us..

Okay. And then as my follow-up, what are you seeing in terms of demand between your IP&E and then your regular semis business? Because it definitely looks like IP&E is helping revenues and margin at this point.

And is there any difference in demand because some of the bigger OEMs on the semi side are looking at much weaker trends?.

Yes. I'll touch on -- let me touch on that Param. This is Phil, thanks. It's -- well let's call it a mixed bag. I mean our IP&E business to your point is absolutely growing at a nice clip, okay. We got a great focus on that. We got a separate division in Europe with Abacus that's really killing it.

We've got a real focus in Asia and the Americas as well, so we're seeing nice double-digit teens kind of growth year-on-year in the IP&E. You really get into the lead times and then that's really the leading indicator. And the lead times are really all over the map.

Everyone is assuming the lead times and all capture are coming in due to some announcements to some large consumer companies. And frankly, we're just not seeing that yet. So some of the capacitors, they might be stabilizing, but they're stabilizing it, but I want to get the sheet at 38 weeks, 42 weeks, 30-plus weeks.

So it's not like all those products is getting freed up and all indications are particularly in passes and some caps and resistors. The lead times are going to stay up there for a little while. It can always change. Even discretes, discretes actual lead times you go back several quarters we're in the 10 to 16 weeks so that's 24, 25 weeks now okay.

So, again it's a mixed bag. Obviously, memory, we know what's going on with memory. So our mix today is still about 23-plus present IP&E balance semiconductors in total..

Thank you so much for all the color guys..

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

Yes. Thanks. Just following up on the guidance by region. If you sort of do the math on sort of flattish to slightly up year-over-year growth in both North America and Europe, it looks like Asia is going to be down 20% to 25% sequentially. I guess, the question there is – I understand the booking is weak the macro.

But do you think there's going to be an inventory overhang? Because obviously there's probably a lot of inventory from your customers and their own demand is weak.

So I think Bill you talked earlier about you're really not knowing whether Asia is going to bottom this quarter or not, what's your thoughts there? And will we start to see pricing pressure because of some of that inventory issue?.

Well, we're managing working capital very diligently. Even though, went up a couple of days this quarter. We expect that to come back down again. So we are in fact all over this subject and I'm not concerned with us having a glut of inventory over in Asia. We will get it moved..

Yeah, Matt, I'll add to that. So we indicated Asia and when we look at the – what we really track first is the cancellations and adjustments in backlog. And what we saw in Asia came to fruition as we saw in our book-to-bill come down, okay. And we continue to manage that. In the West, and again we look at cancellation rates maniacally.

We are not seeing major adjustments in number of days or dollars of cancellations or adjustments from our customers. As we do to Bill's point, we move on that immediately and our suppliers work with us on that as well..

Yeah. No.

I guess the question also was so as customers particularly Asia seeing more inventory, don't you think they're going to go through a correction that might hurt you again going into the June quarter?.

Well, we don't have insights to all of our customers Matt. What we track is the MRP. Again, 50% of our business is coming in from an MRP and some kind of scheduled forecast sharing. So, we will see in that okay and again, right now not seeing that in any real fashion, let alone a dramatic one. But I'm sure there's some excess inventory out there.

I'm sure there is..

Yeah. Okay. Fair enough. And then as you look to the June quarter and I appreciate that you haven't given any guidance there, but you are looking at continuing to improve operating margins. But if you look at some of the seasonal, if you're just seasonal in revenue in the June quarter, you'll still probably be down year-over-year.

So the question is will you still be able to grow your operating margin year-over-year with some of the initiatives that you've been doing? Or is that going to be tougher?.

First of all, I think you'll continue to see improved mix. You'll definitely see it in March. The expectation you'd see it in June as well Matt and both of those help with our consolidated gross profit percentage and with the operating margin. So we think internally the upper 3% range operating margins for the second half of the year.

And what's also helping that is we went through the IT and distribution changes we're making and those will layer in over quarters. But in March, we'll be down $3 million plus or so probably a similar amount in June. So right now we don't know where – right, to Bill's point Asia will land.

But trajectory, so this -- our operating margin percentage should be increasing through the second half of the year..

Okay great. All right. Thank you..

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

Good afternoon. Thanks very much for taking my question. The first question is on the European region and certainly heard comments about overall book-to-bill being positive in Europe. I was hoping you could dig in a little bit more into the European region.

I think some of the semiconductor and connector companies have started to see a slowdown in Europe in auto and in industrial and I think even FedEx have seen some weaker European trends.

So any more color on what you guys are seeing in Europe would be helpful, so we can kind of think about what Avnet is seeing relative to some of the other parts of the supply chain there?.

Yes Mark. This is Phil. Let me tackle that one. I just spoke with the Regional President’s this morning as a matter of fact. So yes, the book-to-bill okay as it came from Q2 in Europe was just around 1:1 just over 1 -- well not 1.1, 1.01:1 okay. So we still see it positive in Europe across the board.

Now is it where it was book-to-bill ratios from a year ago okay 1.25? No. So we're definitely seeing a bit of a correction in Europe. So I don't think we're not -- we're not, not saying that. However with that in mind, we're still seeing consistent performance from our team in Europe. Germany, we're reading the same headlines as you are.

For us, we're seeing that still strong. Yes, automotive in total, units might be down but electronic contents going up. And that's on a relative basis a newer segment for distribution for Avnet. So we're still seeing nice growth out of the transportation market. The industrials are still steady, okay.

Again, as we see it today for us the forecast we put out for the March quarter for the West including Europe. So we're just giving you what we're seeing today..

That's helpful Phil. My second question is on the topic of tariffs. And I know it's a tough issue to understand exactly all the ramifications you're maybe having on distributors semiconductors.

But any color you guys can give us about how customers may be responding? Do you think any of your customers maybe pulled orders into the end of 2018 to try to get ahead of potential tariff increases? And I know Avnet was flat passing on some of the higher cost to the extent certain suppliers were raising their prices to you.

Any update on your ability to be effective with those price increases?.

I'll make some comments about that.

We had an extensive plan in place that's mitigating profitably gets you associated with tariffs and essentially what we were able to accomplish is ship direct from Hong Kong or ship through a warehouse that was put in Guadalajara, so customers that were outside the United States that we had previously shipped in the United States and out of the United States to regions like Canada, Latin America and South America.

So that's helped us out. We've also worked with suppliers to resource out of China into other second-source areas.

If they have one it will be in Malaysia, Philippines or Thailand and Vietnam to able to -- and so, it's going to the United States move them in those particular facilities versus coming directly out of China and then use China for other regions in the world.

We additionally worked with suppliers on Importer of Record because they're the Importer of Record the tariffs that we pass on to the customer would be less. So as you see, it's a pretty complicated arrangement that we've put in place. We have plenty of people working on it. At this juncture, we've been doing extremely well.

We're being able to pass that on and we have not seen any indications that we're going to have any issues collecting because we made it very clear that that's not a tariff that we were going to absorb inside the company..

Yes. That's helpful, Bill. My last one is on the Softweb Solutions acquisition. I think it was immediately accretive. Trying to understand what the EPS impact is for next quarter. And I think it's $0.05 to $0.10 by fiscal 2021 of accretion.

What sort of linearity should we be thinking about as that ramps up to higher levels of earnings contribution? Thanks very much..

Hi, Mark. This is Tom. I would say, it's somewhat linear, but really the financial benefit of Softweb is really done to accelerate our IoT capabilities. So whether there's a financial benefit listed in the press release of $0.05 to $0.10 that's from the company we acquired itself.

The benefit to us at Avnet is that it accelerates the other projects that some of which Bill mentioned earlier in the script to get those revenues faster, because we believe those IoT revenues are higher operating margins what we see as high teens 20% operating margins.

So that's really the financial benefit to us at Softweb, and why we made the acquisition..

So, building on that as Tom suggested so now not only are we participating in the price revenue and margin, we're also participating in the gateway, the network, the cloud, the analytics, the applications. And we're setting up a platform with Softweb that will allow us to be able to handle even third-party applications and content providers.

So we think we're setting up something that really is puts us in a great position to get recurring revenue at higher margins..

Thank you..

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

Great. Thanks for taking my questions, guys. There's been some discussion in some of the earlier questions comparing sort of your outlook to some of the semi companies. And I just want to make sure I understand one thing about the timing.

I think last quarter, you more or less sounded all clear with regard to demand trends, while semis were already seeing weakening demand signs. And I think there was a question as to whether you might see things one quarter later.

Is it fair to say now in retrospect that's essentially what happened? And with regard to when it stabilizes we should sort of look to the semis just to give us an indication as to when that happens for them that happens probably a quarter later for you.

Is that a fair way to think about sort of how the cycle is going to influence your business? Or is there something about that that's unfair?.

Well, what I would correctly say, I believe if I would look at the transcript that we actually said Asia was softening last quarter. We didn't give any indication of what it meant book-to-bill, but we said, we were definitely starting to see trends. And our book-to-bills were coming down from deflated levels that Phil had mentioned previously.

So I think that's the only difference in dialogue that you just gave us..

Okay. That's a good clarification. A couple of others if I can.

Bill in the past you've talked about trying to finesse the transition of customers from the Premier Farnell platform, where your company enjoys a richer margin level and the sort of core Avnet where it's not as rich and trying to make that less of a sort of step function decline in margins as volumes ramp.

Any progress on that? Or is that a much more further out in the future sort of operating feature that you'll introduce?.

No. We've seen tens of thousands of leads pass between Premier Farnell and deploying core back to Premier Farnell.

So in fact what we were surprised about was how many more actually got passed from the core back to Premier Farnell because they were what I'd say difficult businesses for us to manage because they were small customers, but they wanted to be part of the Avnet family.

And they were actually moved into Premier Farnell which could help service them much better -- and in fact we got higher margins for it as well. So, yes, we're absolutely seeing this as part of the process that makes this whole ecosystem come alive..

One other if I can.

Can you remind us of the targets you set at the Analyst Day and your relative confidence in those now we're a couple of quarters after that? How you feel about achieving those now?.

Well we had a scorecard up that Tom showed in his presentation. So that's what's -- I can point you to that and I'd say we're really confident that we're going get those all green. Right now we have a couple that are in yellow, but we're going to get them green. And we're going to keep working hard to make that happen..

Okay. Thanks, guys. Appreciate it..

Our next question comes from the line of Joe Quatrochi with Wells Fargo. Please proceed with your question..

Yes. Thanks for taking the question. I wanted to kind of double-click on the weakness you're seeing in Asia. I know last quarter you talked about weakness in China. I was wondering is it still mainly China or has that spread to other countries within? I know your business in Taiwan is actually quite large as well..

Yes. I would say, it's mostly China, but it's definitely spread across more countries in Asia. But China is definitely the most affected..

Okay. And then as a follow-up.

How do we think about Tom, your OpEx structure from a variable versus fixed kind of standpoint? So rather, if we were to see the market kind of continue to slow down, how do we think about your ability to accelerate some of those cost-down efforts that you're implementing?.

It's one of the benefits of our model. We have a plan on the $245 million. And if revenue softens we would accelerate..

If you remember, if you go to that chart that has the $245 million on it, you'd see one of the bars there that's the growth bar. Essentially that's the variable cost that we would take out if we weren't growing. But we're still going to focus and take out the costs associated with those other four buckets of cost takeout..

Okay. Thank you..

Our final question comes from the line of Jim Suva with Citi. Please proceed with your question..

Hi. This is Tim Yong calling on behalf of Jim Suva. Thanks for taking the question. Maybe a follow-up question on the channel inventory. Your December quarter inventories came down on a quarter-over-quarter basis. But in the past two years, your December inventories normally are sequentially up.

So, do you feel comfortable with your current inventory level? Or do you think that right now like maybe going forward you need to work down inventory?.

Well, our strategy is this. Go 70 days over the long haul. So clearly, we got to go work on each element of working capital, whether it's accounts receivable, accounts payable and of course inventory. So yes..

Okay. And then a quick follow-up on the seasonality. So, March quarter, your guidance is a bit lower than the normal seasonality. Do you think that the June quarter will be back to the normal seasonality? Or you don't have a visibility right now? Thanks..

Well, March quarter is heavily influenced by the book-to-bill in Asia. So as a fair question I think if you took Asia out you're probably tracking well due to seasonality..

Ladies and gentlemen, this concludes today's question-and-answer session as well as today's call. We thank you for your participation. You may now disconnect your lines at this time. Have a wonderful day..