I would now like to turn the floor over to Joe Burke, Investor Relations at Avnet, please go ahead..

Thank you, operator. Earlier this afternoon, Avnet released financial results for the fiscal fourth 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 contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict.

Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10-Q and 10-K 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 statement or supply new information regarding the circumstances after the date of this presentation.

Today's call will be led by Bill Amelio, Avnet's Chief Executive Officer; and Tom Liguori, Avnet's Chief Financial Officer. Also, Phil Gallagher, Global President, Electronic Components joins us to participate in the Q&A session. With that, let me turn the call over to Bill Amelio.

Bill?.

Thank you Joe and thanks everyone for joining us for our fourth quarter and fiscal year 2019 earnings call. I'm pleased to report that in our fiscal fourth quarter we delivered sales of $4.7 billion. This was the midpoint of the target guidance range we provided to investors in April.

We closed our fiscal year with sales growth of 3% despite the deceleration we saw in the second half of our fiscal 2019. Since April, companies across the industry have seen signs of slowing due to macroeconomic headwinds and tariffs. Avnet was no exception.

We remained agile as market conditions worsened and we acted quickly to accelerate cost reduction programs that were already part of our long-term plan. By taking these swift actions, we met our commitments to keep SG&A expenses on a downward trend.

Year-over-year spending was down meaningfully and we remained very disciplined in our spending and our investment priorities. Pricing and margin pressures certainly were greater than anticipated. This was due to multiple factors. These include the shortening of the lead times and reduced average selling prices or ASPs.

This occurred at Farnell, which happens when supply rebounds and demand moves back to broadline distributors. The pricing pressure is felt broadly across the catalog space and is expected in a down market. Based on our suppliers and our outside analysts checks, Farnell’s decline was equal to or less than the market.

Assuming working conditions improve, we see a clear path achieving Farnell’s long range goals of 15% operating margin. Now I'll talk about that more in a few minute. Let me first finish reviewing some of the key metrics. Avnet's adjusted operating income margin for the fourth fiscal quarter was 3.3%.

This was down from 3.6% a year ago, and down from 3.8% in the March 2019 quarter. We delivered another quarter of strong positive cash flow from operations of $335 million. This was on heals of solid positive operating cash flow of $269 million we recorded in the March quarter.

Overall, our performance this quarter reinforce that regardless of market fluctuations, our ecosystem strategies and the plan we presented at our 2018 Investor Day remains the right course for the company.

We're building on our core expertise in electronic components distribution, supply chain and logistics in ways that allow us to expand into new market opportunities for solutions where the higher margins reside.

Over the long-term, this plan will enable us to return value to our shareholders and capitalize on several important trends, including IoT, artificial intelligence and 5G. Now, I'll provide updates on our core elements of our strategy.

They encompass amplifying our electronic components distribution business, scaling higher margin segments, expanding digital capabilities, leveraging our ecosystem for growth and driving continuous improvement. Let me start with the results of Electronic Components business.

For the fourth quarter, our Electronic Components business had sales of $4.3 billion. What’s notable here is that this business unit held operating income margins fairly steady at 3.3% despite a 7.1% sales decline from a year ago.

Over the course of this past year, the Avnet Integrated business which is reflected in the Electronic Components financials improved its mix of customers. We expect that when Avnet Integrated completes the transformation activity, we will see margin gains as well.

As you may know the primary focus is on embedded core solutions, displays and data center solution. When you look at our pipeline of embedded solutions, the margins are higher than in our Electronic Components business. This progress that we will build upon in fiscal '20 and beyond.

Now, let me breakdown our fourth quarter for Electronic Components performance by region. The Americas continued to gain momentum and was a bright spot for the quarter. The Americas Electronic Components business grew its sales sequentially, year-over-year they achieved nearly 10% growth in demand creation design win dollars.

They also continued to gain market share. The quarter also saw another significant increase in Americas’ Net Promoter Score, clearly indicating customer satisfaction remains on the rise. Despite challenging market conditions, the Americas exited Q4 with a book-to-bill ratio above parity. Turning to EMEA.

Europe in particular we saw market factors take their toll and our EMEA book-to-bill remains below parity. For the year, EMEA’s IP&E segment saw fashioned growth in semiconductors and finished ahead of target.

We believe IP&E remains an underpenetrated high margin opportunity and we're looking to grow but even at a more accelerated space than last year, recognizing that ASP pricing pressures is still a factor. This past quarter, our EMEA team recognized for delivering strong growth for our suppliers in Q4 and received more than 20 awards as a result.

In Asia, revenue was up sequentially but down from a year ago. Inventory correction was started in Asia and work its way across other geographies persists. Book-to-bill in the region ended the quarter below parity. Our Farnell business was hard hit by market decline.

In addition demand shifted from the high service catalog business back to volume players as their inventory stabilized. Fourth quarter sales in Farnell was $343.5 million down 6.5% sequentially and down 12% from a year ago.

Discussions with outside analysts and our suppliers confirm that revenue and pricing pressure was still broadly across the catalog space. Pricing pressure across the board also translated into lower margin. Farnell saw a decline in sales of higher margin products in IP&E, especially passives.

We expect the pricing pressure to persist through the end of the calendar year and into 2020. At the end of the fourth quarter Farnell sales benefited from the launch of new Raspberry Pi 4 Model B computer. This is the most powerful Raspberry Pi model ever made.

Farnell continues to be the largest licensed distributor of Raspberry Pi single board computing.

Our exclusive customization agreement allows us to develop the Avnet SmartEdge industrial IoT gateway, interestingly secure industrial gateway of Pi and it has applications in vehicle monitoring, building automation, predictive maintenance and Smart Factory.

The successful launch enforces Farnell’s position as the market leader in Raspberry Pi and is a testament to the strong partnership between Farnell and the Raspberry Pi foundation. During the quarter, Farnell added a 159,000 SKUs to its website while also adding three new supply lines including Renesas.

E-commerce global order penetration also rose for the 11th consecutive month. Today, e-commerce represents [70%] of all Farnell orders. Our new warehouse [indeed] is expected to come online in December. This will enable us to reduce costs, dramatically increase our SKU count and improve service.

And as the market turns around, we will be able to capture market share as it rises due in part to the increasing SKU count. Our optimization programs will deliver margin improvement. We remain extremely pleased with the opportunity Farnell has created for us in the catalog space and we believe Farnell is well positioned and will continue to grow.

Next I’ll take the few minutes to talk about our digital transformation. Expanding and deploying our digital capability this year was critical to driving growth, customer satisfaction and of course efficiency. For example, we released 53 Robotic Process Automation projects in fiscal 2019.

We’re now in the process of launching our artificial intelligence [Audio Gap] and sales force in the Americas and in Asia Pacific will come online later this summer. At the same time, Marketo, our marketing automation tool has already generated thousands of leads and millions of dollars in revenue and is still in its early stages.

Combining these tools gives us a 350 degree view of our customers worldwide and has led us to 20,000 leads being shared between Farnell and our Electronic Components business in the fourth quarter alone.

We also continue to see a better penetration into the demand creation category versus the fulfilment category, with the implementation of our AVAIL tool. Now, let’s turn to how we are leveraging our ecosystem to stand opportunities with both existing and new types of customers.

As the larger technology trends around data-driven economy takes hold, Avnet is well positioned to add value as an end-to-end solutions provider. In IoT we have unique ability to help customers unit their device, gateway, network, cloud analytics, insights in a seamless way.

This is creating opportunities for us to help customers to achieve their business objectives and create new business model. Opportunities are expanding within our existing customer base too, as we focus on connecting the unconnected.

Here we are helping customers add new connected technologies to their existing equipment in such areas as industrial and manufacturing setting. We closed the year with approximately [$7 million] of sales in IoT. This includes end-to-end solutions that encompass device software, gateways, security and cloud application.

It does not include device or component sales. Our three-year IoT pipeline has now reached $630 million dollars. And a market with a TAM that exceeds $150 billion today and it is growing, this demonstrates the significant potential of scaling this high margin business.

Our strategic partnership with Microsoft is an important part of our IoT strategy to continue to deliver customer opportunities. We're seeing strong pickup since we started delivering tens of thousands of units of our Azure Sphere starter kit in July. Azure Sphere kit supports rapid prototyping of highly secured end-to-end IoT solutions.

And finally, I'll provide an update on our continuous drive to operational excellence. We are continuing to mine the data we now are able to collect given our increased level of transparency insight into each customer. This improves our visibility and lays the foundation for driving excellence across Avnet operations.

Looking at Avnet's performance by vertical for the fourth fiscal quarter. We saw new and emerging opportunities in retail, healthcare, specifically in medical devices. Figures continue to be positive for defense and aerospace. Industrial and automotive are among the verticals that were hardest hit when the market slowdown began.

And we first saw it in Asia. These verticals were further impacted by slowing that we’ve seen more recently in Europe. As for how macroeconomics will play out, as I indicated, we believe the correction will persist through the end of calendar year 2019 and potentially into 2020.

Some of the key indicators that we're watching to gauge whether the market has turned the corner includes how quickly excess inventory gets worked through the channel, any pickup in demand in Europe and in China, and momentum in automotive and the industrial vertical.

Regardless of what the market does, we’re focused on areas that are within our control. We've already made plans to put in place to navigate through the challenges ahead of us and we'll continue to be agile and respond to any new ones that arise.

There is significant opportunity ahead for Avnet and we are committed to our long-term strategies to deliver a great customer experience, improved execution and deliver our long-term growth target. This includes our long-term target to achieve 4.5% to 5% operating income margin.

With that, I'll let Tom give you more details on the financial benefits of the actions that we're taking and how the contingency plans we have put in place pay off significantly when the market recovers.

Tom?.

Asia, which first saw the macro decline in the March quarter, showed signs of stabilizing as revenues were up sequentially by 7% to $1.8 billion, but still 8.5% lower than the prior year period. EMEA revenues of $1.6 billion were down sequentially 5.9% as expected in our guidance and 7.9% lower than a year ago.

Americas with revenues of $1.27 billion was down 2.4% sequentially and 5.4% year-over-year. For the Americas EC business managed to expand operating margin with an increasing gross margin and good leverage and expenses compared to the prior year. We ended the quarter with a book-to-bill of 0.92.

By region, Americas was above parity at 1.01, EMEA was 0.82 and Asia finished the quarter at 0.92. Turning to the balance sheet and cash flow statement on Slide 16. Cash provided by operations in the quarter was $335 million, bringing our total for the last six months to $604 million.

We returned $138 million to stockholders in Q4, comprised of $117 million in buybacks and $21 million in dividends. We recorded a goodwill impairment totalling $137 million which was related to the Electronic Components operating group and was driven by the declining macroeconomic environment and outlook.

The impairment is related to acquisitions prior to 2013. During Q4, we reduced revolving debt by $354 million and ended the quarter with $1.2 billion of net debt and a net debt leverage ratio of 1.4. Our solid capital structure positions us well to continue our capital allocation strategy of buyback, dividend, M&A and other strategic investments.

Now let me take a few minutes to discuss our management focus for the coming months in light of the macro slowdown. First Farnell. On the near-term we're seeing market pressures and anticipate operating margins below 10%. We continue to believe our goal of 15% operating margins is achievable.

On the cost side, our teams are integrating Farnell back office function as well as transitioning to lower cost geographies with a roadmap to achieve an additional $20 million plus of annual savings. This quarter Farnell was moving approximately hundred roles to our [India-based] shared service operations as well as streamlining headcount.

Our new Farnell EMEA distribution center is scheduled to ramp operations in the second half of fiscal year '20. This will enable us to continue expanding the number of SKUs offered, while also reducing operating costs by close to $20 million per year. The capital investment for this distribution center is largely complete.

We anticipate another $100 million of inventory investment in Farnell over the next 18 to 24 months for SKU expansion. This is in addition to 159,000 SKUs Bill mentioned being added in Q4. For comparison, for fiscal year '19 we added $60 million of inventory in Farnell which is included in our financials and cash flows.

While these cost efforts were underway it's important to know that we are continuing our investments and pricing according through targeted marketing spend and e-commerce improvement. To fully achieve the 15% operating margin target we also need market demand and pricing across the catalog industry to stabilize.

For the broader Avnet, we remain focused on three key aspects of our financial strategy, optimizing cost, generating cash flows for buyback and minimizing taxes. On Slide 18 you can see our progress to our three-year goals. Optimizing cost has been a key part of our three year strategy to grow operating margins and EPS.

We shared with you many times our OpEx roadmap for savings of $245 million. We've made good progress. In fiscal year '19 we reduced our operating expenses by $117 million compared to fiscal year '18.

It's important to know these are net bottom-line savings, taking into account the additional expenses for investments we made in engineering design tools, ecosystem expansion, IoT staffing, staff based pricing and CRM tools and more. Our approach to managing cost is that we are disciplined in reducing OpEx.

We will reinvest part of the savings back into the company for growth and we'll ensure a portion of the saving is dropped to the bottom-line. Our Q4 operating expenses were $460 million representing annual run rate of 1.8 billion which was favorable to our three year target.

Due to the macro slowdown we are pulling forward $50 million of cost reduction actions that were included in the $245 million plan. We anticipate these will be implemented in Q1 with savings realized in Q2 and Q3. Next cash flows. We reduced working capital by close to $400 million in the last six months and generated over $600 million of cash flow.

We put our cash to work with opportunistic buyback. As a result, our diluted share count is now 106 million shares a 10% year-over-year reduction. We have a path to get below 100 million shares in the coming quarters. Taxes, our tax rate in fiscal year '18 was 23%.

And at Investor Day we explained our goal to reduce our tax rate below 20% over three years by realigning our business operations. We ended this fiscal year at 20.5% well on our way to achieving the goal.

While we anticipate some level of fluctuation in our quarterly tax rate, we remain confident in being able to achieve a tax rate in the high teens over two to three years. Turning to Q1 fiscal year ‘20 on Slide 19.

Our guidance reflects a four quarter of expected continued headwind compared with our last quarter where softness was apparent later in the quarter. Our conservative approach to macroeconomic factors leads to guide revenues in the range of $4.4 billion to $4.7 billion and adjusted EPS in the range of $0.60 to $0.70.

While we continue monitor all geographies, our guidance today reflects a sequential decline in Americas and EMEA, Asia stable and continued revenue in ASP pressure across all businesses. In summary, we continue to manage the factors that are within our control, cost, working capital, cash flow and buyback.

We believe the actions we are taking today will make us financially stronger when the demand environment improves.

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]. Please limit yourself to one question and one follow up. Thank you. Our first question comes from Param Singh with Bank of America Merrill Lynch. Please state your question. .

Hi. Thank you for taking my question. So, just wanted to first dive into your guidance and how -- your EPS guide in particular. It would just imply that on a sequentially flat revenue guide you’d probably have to see a significant dip in electronics marketing margin and possibly even Premier.

Maybe you could help me bridge the gap? And then I have a follow up..

Sure, Param I’ll take your question, I’ll pass it on to Tom.

So what we saw in the back half of the quarter was a falloff in the catalog space and as you know lead times are coming in significantly and then there is a migration as I pointed out in my remarks from the catalog space, the broadline guys, which affects our margin because the mix can change between Farnell and the core.

Core held up pretty well with respect to margin. So, in the next quarter guidance which you’ll see is a full quarter of Farnell at a different place than we saw at the end of this quarter. And that’s explains the majority of why the guide is down the way it did.

Tom?.

Hi, Param. Demand softened throughout the quarter and pricing softened throughout the quarter. Pricing, it was somewhat across the board but mostly notably in passive. So, what you see from Q4 to Q1 is Q1 has the full effect of what we saw. .

So, I’m sorry, for my follow up just to get a breakdown. If I were to assume that EM margins are down only marginally year-over-year that would imply a significant falloff up in Premier Farnell margin, probably even lower to when you acquired them, unless my math is off. And then I also wanted to have a follow up after that..

Yes, so Farnell is in the 7% to 10% range, but still higher than when we acquired them but most likely down sequentially from our fourth quarter. .

And most importantly we see this as a temporary thing as the market rebounds again. We've positioned ourselves extremely well to able to play heavily upside. And we also did channel checks with what's happening with all the catalog suppliers. This is not a phenomena that's Farnell-only. This is essentially across the entire catalog space.

Each of the catalog players also significantly declined quarter-over-quarter with this particular slowdown that we're seeing. As the market rebounds back which is looking like something towards the end of the year or into next year, we'll see this respond well.

And as you know we're putting in our new warehouse and we will have lots more SKUs as I mentioned us bringing on board a lot this quarter but we plan to bring on even more by the end of the year, just in time but when the market rebounds. .

Got it, so as my follow up, I mean you had previously alluded to getting towards the 4% margin by the end of the year so you can keep on your trajectory for 4.5%, 5%.

Do you think that 4% margin even exiting fiscal '20 is possible? And if so, what would be the moving pieces to get those back, what would be the core improvement particularly in Americas, maybe EMEA volume, Premier really should help you bridge that if you still think that's possible?.

So Param, this is all about the work we’re doing today position us for when the demand picks up and that's why we're focused on OpEx, working capital, cash, buyback. I don't want to put out a timeframe because we clearly would need markets to stabilize and pick up to where they were to hit the 4%.

But when we think of this as far as whether we’re executing to our plan, really what we're missing is, we're missing the top-line growth and we're missing the mix because Farnell is bearing the brunt of a lot of this downturn.

The good news is when you do your models, take our metric, take what we're talking about and I think you'll see where we plan to land..

Thank you. Our next question comes from Shawn Harrison with Longbow Research. Please state your question..

Wanted to not surprisingly follow up on Farnell. The 15% EBIT margin target, is that required to get back to a similar scenario that was out there in '16 through 2018 because pricing and lead times don't get that far out of whack very often in semis and passives.

And so, wondering what type of environment you really need to be in to hit that 15% operating margin?.

Shawn, if you recall, last earnings call I laid out the investment plan that we have within Farnell. We still are very bullish on getting to the 15%. I think in the near term we will be back to 12% to 13% first and more or like three to five years to get us to 15%.

What we’re investing in is more SKUs, that was one of the areas that -- if you looked at our growth gap versus the other competitors was because we didn't have the same SKU coverage that they did. So that's going to be fixed as we move into next year.

We're also investing in some improvements in pricing and quoting tools, our web speed, our infrastructure which was one of the things that we pointed to when we acquired the company that we had a sort of changing our systems that were relatively old.

And finally we’ve started really solid piece of work on marketing so pay per click and how we do SEO more efficiently and more effectively in order for us to be able to get more traffic on the site, more conversion at higher margin..

Okay. And there is a follow up, you pulled forward $50 million of savings.

Tom, if you could talk about just what were the savings realized last fiscal year? And are you -- or what is the total target of savings that you’re forecasting for this fiscal year?.

So, we’re still on the $245 million plan and $50 million is part of that $245 million. So, we’re planning -- I think we said, which should be in the high $100 million by the end of this year. We have a line of sight to $210 million out of $245 million. We have a number of projects to pull into $245 million.

To help everybody with the model, we expect that this quarter will be flat to slightly up perhaps. You’ll see the $50 million reduction in the December quarter and all of it being in our financials by the March quarter..

And how much did you receive this past fiscal year in savings, sorry?.

We were down $117 million net of [investment]. .

Our next question comes from Adam Tindle with Raymond James. Please state your question..

Good afternoon, this is Madison on for Adam. Thanks for taking my question. So I think you mentioned on the call, you expect some of this pricing pressures to persist throughout calendar year ‘19 and into 2020.

So should we think about similar levels of negative operating leverage during these quarters or are there some accelerated offsets where negative leverage should begin to be more muted?.

Well, the $50 million of cost reduction will definitely improve our OpEx and GP ratio going forward. .

I’ll go over to cash flow which has actually been fairly robust over the last several quarters. I know you have generally thought about cash flow as converting greater than 75% in net income.

Is this something we should continue to see on a forward basis? And as we think about fiscal year 2020, what are the puts and takes to cash flow that you are thinking about?.

Yes. I think you should continue to see more of what we’re doing. We’ve explained before our buybacks are based on our pricing grid. So the lower the share price, the more we buy back. The higher the share price, the less we buy back. So it will fluctuate a bit every quarter.

We still have plenty of opportunities for the working capital reduction, so that will contribute to the cash flows going forward on top of our operating income -- net income..

Our next question comes from Matt Sheerin with Stifel. Please state your question..

Yes. Thank you. Just following up on the questions around the margins and how they may play out over the next few quarters. It looks like sort of backing into your -- the gross margin number, it looks like it’s going to be in the low 12s or lower.

And so it sounds like it’s -- the ASP and pricing impact you’re seeing is clearly affecting your both businesses.

I guess the question is, as you look forward for the next couple of quarters particularly given that December should be a down quarter at least in your higher margin the regions, why should we not expect margins to be depressed here, gross margin at least for the next few quarters?.

We would agree with your assumption. I think what we were trying to say Matt that we expect the softness to continue at least through December. It's hard to predict when it will recover. You're correct, the gross margin percentage will most likely decline in the current quarter due to pricing.

Again, so therefore, in the meantime focus on put into place our metrics that will land is in a good place once the recovery begins. But -- so, clearly our margins will be at this or lower level for next quarter or so. .

Exactly the reason that we pulled in some of the OpEx improvement, we're going to continue to look for opportunities to do more. .

Okay.

And then I mean, just on that in the OpEx and as we roll through FY '20 on an absolute dollars basis do you expect operating -- sorry, OpEx or SG&A to be down significantly, like in the $50 million to $80 million range?.

Yes..

Okay. And just lastly. Just on the -- your commentary about the more stable demand in Asia. That sounds encouraging. But you're also guiding I think kind of stable in Asia that’s typically up sequentially.

So are you seeing sort of the tail end of inventory correction and would you expect the December quarter to be up sequentially at this point?.

So let me get Phil take that one..

Hi, Matt. How are you doing? Yes, as far as Asia goes, we see stabilizing -- we're not stabilized, there’s still so many variables playing there. Seasonally we're actually up in Asia. I'd say a bit this quarter, which is good news.

Tough to call December quarter yet, but we're pretty optimistic about it, then stabilizing plus a bit of a bump in the December quarter, which is really tough to call with everything going on.

But just talking to our team there the other day it’s stabilizing at a lower number, as you know, again December which is our last quarter, so still down substantially, but doesn't appear to be continuing to fall. And I think -- and we starting to see the book-to-bill stabilize there as well.

Including Japan, by the way, we're back to 1 to 1 book-to-bill in Japan..

Our next question comes from Tim Yang with Citi. Please state your question..

It seems like you are one to two quarters lagging versus component vendors in terms of seeing the end demand weakness.

So my question is, based on your experience, if the end demand recovers maybe next year, would it still be a lagging indicator to see that recovery compared to the vendors? And if so, are you using any tools to monitor or increase your visibility you’re seeing in end demand? And then I have follow-up. .

Yes. Let me talk about the visibility end demand. One of the things that’s great about having a catalog company with us is we got a lot of data that we can look at and whether it's actual lead times versus stated lead times, whether it's gross margin, ASP declines, book-to-bills, you name it, we have a lot of indicators that we're looking at.

We're hopeful we'll be able to sort this out and be able to give better headlights on when this starts to turn back around again. And we don't think there's going to be much of a lag between us and our suppliers. We think we'll come right back again. And I think it will jump forwards, what's happening with the China tariff and Brexit.

Those two are major overhangs on the entire market and hopefully we'll get some certainty sooner than later.

Got it. Thanks. That’s very helpful. You mentioned softness in industrial and automotive. Can you talk about other segments particularly in communication as some of your component vendors recognition for demand softness in that space as well? Thanks..

Our exposure to communication is a lot less and I will give you another vertical that’s doing well. Aero is still doing well. It’s very healthy and continuing to be robust and we have seen pressure in the industrial and automotive as you pointed out. But hopefully as we turn back around we’ll see more robust growth there.

And I pointed to IoT as a real bright spot for us. We’ve seen pipeline increase dramatically there, that $630 million three-year pipeline we expect that, that will -- half of that will convert over the next three to five years. So that’s a really encouraging sign for our solutions piece of our business which is a much higher margin opportunity for us.

That’s more or likely 15% operating income business..

Yes. If I can jump on that and defense/aero clearly a strength for us and a strength in the market and a strength for Avnet which is great. And then tying to Bill’s last comment and with IoT sort of new solution processing, quite a amount of opportunity to medical too.

So medicals is one that particular comes to IoT that’s when we see some nice opportunity, there’s some new customers emerging in that space. .

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

Hi, guys this is Joe dialing in for Will. Thanks for taking my question. You’ve done a good job of explaining like what’s going on at Farnell.

I’m just wondering if in the process of doing that you’re channel checks with the catalog guys, if you’ve put any reason why customers are shifting to the more broad-based players?.

Yes, sure. This is a common phenomena we probably should have described it in earlier calls. But when lead times are extended what happens is our supplier will shift more the allocated supply into the catalog guys because it’s a higher margin opportunity for them and of course higher margin opportunity for the catalog guys.

Then you saw most catalog to be -- actually put all the catalog companies together you’d see that outweigh or grew the broad line at the same time.

When lead times start to collapse, what happens is supply becomes more available and then becomes -- is back into the broad line guys, and customers will naturally shift on something that cost them more to something that cost them less and that’s the phenomena that you see..

Thank you. There are no further questions. I would now like to turn the call back over to Bill Amelio for closing remarks. .

In summary I’d like to make the points that we are controlling those areas of the business where we can make an impact regardless of the macroeconomic situation. We firmly believe that successful execution of the strategies that we put in place will add significant value to all of our stakeholders including our investors.

We look forward to reporting to you on our progress in the coming weeks or months ahead and I want everyone to have a great day. Thank you..

Thank you. This concludes today’s conference. All parties may disconnect. Have a great day..