Avnet Inc

NASDAQ:AVT

Earnings Call Transcript 2021-Q1

[Operator]

Welcome to the Avnet First Quarter Fiscal Year 2021 Earnings Conference Call.

I would now like to turn the floor over to your host, Joe Burke, Vice President, Treasurer and Investor Relations for Avnet.

[Joe Burke, Vice President, Treasurer and Investor Relations]

Thank you, operator. Earlier this afternoon, Avnet released financial results for the first fiscal quarter of 2021. 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 contain forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict, in particular, the scope and duration of the COVID-19 outbreak and its impact on global economic systems and our operations, employees, customers and supply chain. Such 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 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 statements or supply new information regarding the circumstances after the date of this presentation.

Today's call will be led by Phil Gallagher, Avnet's Interim CEO; and Tom Liguori, Avnet's CFO.

With that, let me turn the call over to Phil Gallagher. Phil?

[Phil Gallagher, Interim Chief Executive Officer]

Thank you, Joe and thank you everyone for joining us for our first quarter of fiscal year 2021 earnings conference call. Before we begin, I would like to start by thanking our employees for their continued hard work and dedication throughout the pandemic. During these uncertain times, our priority has remained ensuring the health and safety of all our employees while keeping our business running as smoothly as possible. I'm personally proud of the persistence and effectiveness they've shown.

Now, turning to the quarter highlights on Slide 4. The recent months have continued to be a time of transition, both for the global economy responding to the COVID-19 pandemic and here at Avnet as we've taken actions internally to reinvigorate the business investment vision for the future. We've sharpened our focus on our primary components distribution operations, while taking steps to accelerate the profitable growth of Farnell. An enhanced focus on these priorities gives us the benefit of both supplier partners and end customers as well the Quarter reflects the initial results.

Our renewed emphasis on execution, as well as improving market conditions, combined to drive revenue and adjusted diluted earnings per share significantly above our prior guidance. In the quarter, revenues were 4.7 billion, up both sequentially and year-over-year and our adjusted diluted earnings per share was $0.36.

Our business out of Asia region benefited from industry tailwinds across a variety of verticals, most notably, auto. We're pleased to see an improvement in demand in industrial and are further encouraged by the positive sentiment we're hearing from electronic manufacturing services customers, as they look out into early 2021. While we're encouraged by our operational improvements and financial results, uncertainty still remains regarding the pandemic and how it will impact the global economy broadly, the supply chain specifically in the coming quarters.

Looking at our core electronic components business on Slide 5, revenues were up both sequentially and year-over-year in the quarter to 4.4 billion and we posted sequential growth across all three geographic regions. As referenced earlier, we saw particularly strong growth results in Asia, our largest segment, which was up 22% sequentially on a constant currency basis. Note, this was aided by the extra week in the quarter. We exited the quarter with a positive book-to-bill.

The Asia region well above parity, the Americas above parity and the EMEA region a bit below parity, but further expectations with an encouraging trajectory coming out of September. Really exciting is our design activity. It is at an all-time high for Avnet, with design registrations at their highest levels since fiscal year 2018 and most importantly, we're seeing design wins and key vertical markets increasing year-over-year. Additionally, we're seeing an increase in lead times for certain components as the quarter progressed. Specifically, we're seeing this increase for 5G related products, automotive specific products and certain popular products in the 32-bit microcontrollers area.

Let me note that our backlog, which we continue to manage very tightly was strong and we're very pleased with our inventory levels. Our teams are working with our customers to manage forecasts and mitigate supply chain risk. They're watching the working capital just as we are, but their number one focus is continuity of supply. This is exactly the value that Avnet brings to the table. The very core of what we do is to act as an extension of our customer's business to ensure they have a healthy supply chain. We're proud of the work we're doing in this regard during these challenging times.

Turning to Farnell on Slide 6, you'll see sales were up sequentially, they grew 13.3% on a constant currency basis. We continue to execute on our commitment to our Farnell segment. We added 28,000 SKUs to the 80,000 we already invested in over the past 12 months, making progress on our plan to add up to 250,000 SKUs through fiscal year 2022. We completed the rollout of our pricing optimization tool as part of our effort to improve the online user experience for our Farnell customers. And in similar vein, we made significant improvements to our ecommerce functionality.

Progress continues despite COVID related challenges, and we continue to see great value in Farnell's opportunity to strengthen Avnet's digital footprint. Ultimately, this technology will allow us to better serve our customers and enhance the products we provided them globally. At this point, I want to address a question I've frequently been asked in the past few months. What are my strategic priorities for the company?

On Slide 7, you'll see both our near-term priorities and the action we've taken since our last earnings call. Throughout the quarter the teamwork to define the organization's guiding principles and strategic priority. We recommitted to focusing on our primary components distribution operations while continuing to strategically invest in Farnell. As I noted earlier, the combination of Avnet's core competency in components distribution and Farnell's digital capabilities globally allow us to serve our customers and supplier partners efficiently and generates greater operating margin.

Our highest priorities are to improve revenue growth and increase market share in our key target markets. We've made changes to our operations and processes to improve our profitability and return on capital metrics while maintaining our global footprint to provide scale and operational support around the world. We're moving to a flatter organization with more regional authority, which will allow us to be more responsive to our customers and suppliers. We cannot deliver revenue growth or capture digital share unless our relationships with our external partners remains a key priority.

One way we do this is by making the world's largest communities of engineers, assets [ph] and Element14 allowing customers to gain access to the latest insights and learn about our supplier partners leading technology offerings. Our working IoT and Avnet Integrated are in the service of bringing the best possible solutions to our customers. And we were pleased to have the opportunity earlier this month to host our Global Supplier VIP Summit, where we recommitted to sustaining win-win relationships with our longtime supplier partners.

And because nothing gets done on paper, we've also worked to communicate our strategies and set up companywide goals and expectations we can all get behind. Building upon our strong culture is the foundation of our next chapter. I'm personally so proud of the culture we've built one that values people that thrive in high performance environments, and that fosters employee engagement, invest in retention and committed to diversity. As part of our commitment to one vision, one mission and action as one team, we recognize the importance of engaging our stakeholders and communities and our shared goal of creating sustained long-term value.

Additionally, work is underway to ensure we're leveraging and extending our initiatives with regard to ESG including disclosing our strong track record, more to come on this in future quarters. Before Tom digs further into the numbers, let me summarize. We've recommitted to laser focus on execution and core components distribution. We are investing in Farnell's digital capabilities, and leveraging IoT and Avnet Integrated to deliver greater value to both customers and suppliers. In parallel, we are aligning our structure to be more responsive to our customers and suppliers needs and as an underpinning to our strategies building upon our culture to ensure we are positioned for success in the long-term.

Now with that, let me turn the call over to Tom to report on the financials for the quarter. Tom?

[Tom Liguori, Chief Financial Officer]

Thank you, Phil. Good afternoon, everyone and thank you for attending today's call. As Phil stated our priority this quarter was to implement actions to sharpen our focus on our primary distribution operations, specifically, to drive market share and revenue growth, improve our profitability through increased operating efficiency and earn a return on capital greater than our cost of capital. We made progress in each area.

Revenues grew to 4.7 billion, a sequential growth of 13.5%. The revenues were held by the extra week Adjusted to a 13-week quarter, revenues would have been 4.4 billion or sequential increase of 6%. Revenues grew sequentially in all of our businesses, particularly in Asia. We controlled our operating expenses as our top line grew, with our OpEx as a percent of revenues declining from 10.4% to 9.6%. And we continue to improve working capital, reducing working capital days to below 80 days, the lowest level since 2016.

Turning to Slide 10, you'll see these actions benefited our results this quarter. Revenues of 4.7 billion and adjusted EPS of $0.036, were both well above our guidance range. Cash flow from operations totaled 122 million, the eighth consecutive quarter of positive cash flow, demonstrating our team's execution in managing cash and working capital as we proceed through the economic cycle. We use the cash to reduce our debt to 1.36 billion and returned 21 million to shareholders with our dividend.

Looking at the income statement, gross margin of 10.9% was down 49 basis points from last quarter due to the mix of higher Asia revenues as well as lower EMEA gross margins. Adjusted operating expenses of 451 million were up by 19 million sequentially, primarily due to the extra week. Adjusted to a 13-week quarter, operating expenses were approximately 431 million, a slight decrease sequentially to our substantially higher revenues.

Interest expense of 22.3 million continued to decline and it's now 11 million, or 34% lower than a year ago due to lower debt. Foreign currency expense was 6.9 million this quarter, an unfavorable swing from the prior quarter as the euro and pound appreciated against the dollar. And our adjusted tax rate was 7% as a result of our favorable geographic mix of income and the US CARES Act.

On Slide 11, we highlight results from our two business segments and our three geographic regions. Electronic components revenue of 4.4 billion increased 13.3% versus the prior quarter. On a normalized 13-week basis, revenues were 4.1 billion a 6% sequential increase. All regions contributed to the growth. As previously highlighted, we were especially encouraged by our performance in Asia this quarter. The electronic components operating margins were 1.9%, a 41 basis point improvement from last quarter as the higher sales volume more than offset the decline in gross margin.

Farnell revenues for the quarter totaled 341 million, up 16.7% sequentially, and approximately 9% on an equivalent week basis. The segment had an operating margin of 3.5% in the quarter as anticipated in our guidance. We expect Farnell operating margins to slowly improve over the next several quarters as revenues recover and as SKUs improve e commerce capabilities and control costs. Our TI revenues this quarter were 241 million. We expect to complete the TI transition by December 31. Excluding TI and adjusting for the extra week, total Avnet revenues were flat year-over-year and up 9% sequentially.

Turning to cash, liquidity and the balance sheet on Slide 12, our liquidity position remains strong. We ended the quarter with cash and equivalents of 483 million and with 1.5 billion of available lines of credit. Our gross debt leverage was 3.4 and net debt leverage was 2.2. Our net book value per share was $38 and our tangible book value per share was $30.

While we are pleased with the progress made in the quarter, we recognize we have work to do on our profit margins and returns on capital. Our teams are focused on getting these to where they need to be. Going forward, expect to see a continued focus on execution quarter-by-quarter to grow market share and revenue as Phil discussed, coupled with discipline management of cost and working capital.

Let me spend a few minutes on the status of our operating expense and working capital initiatives. Let's begin with operating expense. We announced a plan last quarter to reduce annual operating expenses by 75 million or 19 million per quarter. These savings are expected to be fully realized in our December quarter financials. Although we are experiencing some foreign currency headwinds, in the December quarter, we anticipate OpEx of approximately 425 million. The 75 million reduction is on top of the 245 million OpEx reduction plan we announced that our Investor Day two years ago.

Today we have achieved 204 million of the reduction. We have 41 million to go. There are four projects underway that contribute the majority of savings, outsourcing various finance activities, migrating more work to our lower cost service centers, continuing to streamline our information systems cost and completing our leads distribution center. All of these are well underway, and the savings are expected to be realized by the end of calendar year 2021.

On the working capital side, we continue to work toward our plan of reducing working capital to the mid 70-day range. When we started this initiative, our days working capital were in the mid 90s. We've made steady progress and are pleased that this quarter, we dropped below 80 days. As each day is worth about $50 million, these efforts have generated significant cash flows, enabling us to reduce our debt this quarter to 1.36 billion, the lowest level since 2010 and to buyback 20% of our shares over the last few years. While we expect to invest cash in inventory as the economy and revenues recover, we remain focused on our net working capital days target.

Turning to Slide 14, I'll conclude with some comments about our expectations for next quarter. For our fiscal Q2, we are guiding revenue in the range of 4.0 to 4.4 billion and adjusted EPS in the range of $0.33 to $0.43. Compared to our first quarter, we are guiding the midpoint of revenues down due to TI rolling off. TI revenues included in our guidance are 40 million to 60 million. Excluding TI and adjusted for the extra week, Q2 revenues are forecast to be flat at midpoint. Let me reiterate we expect to complete the TI transition by the end of December. In spite of the lower revenues, we are guiding higher EPS as our cost reductions are expected to improve profitability.

In summary, we will continue to take actions in line with our priorities. We are aligning our operations and processes to improve the top line trends and gain market share in key areas. We are also committed to enhancing profitability and our return on capital metric. These actions uphold our ability to generate cash and keep our balance sheet healthy and intact.

With that, let us open the line for Q&A. Operator?

[Operator]

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

[Adam Tindle, Raymond James]

Okay, thanks and good afternoon and nice to see an upturn here continue. Phil, I just wanted to start, in the press release you touched on fiscal '21 goals, improve top line growth, generate greater operating margin and adequate ROIC. I want to ask about the first two there. On improving top line growth, just to clarify, are you implying that for fiscal '21 that that you'll see year-over-year revenue growth? Are you saying that the declines will be less than the down 10% or so from last year and maybe just the drivers to that assumption?

[Phil Gallagher, Interim Chief Executive Officer]

Yeah Adam, thanks. If you net out TI into that - as we see it today, okay, is yes, okay. So when you net out TI, so the answer is yes. The things we're doing to drive that the second part of your question is really won't talk too much about in the script we're really looking to streamline the organization, we're driving the structure to align with the strategy. We have market share goals very clearly outlined. We are putting a lot of the businesses if you will at the forefront, in other words, as we streamline the structure, we're putting a lot more of the RNA if you will authority into the regions. So have the global obviously leveraged and scale that we bring from an Avnet standpoint, but really kind of push the businesses close to regions we possibly can. And as I talked a lot about really critically aligning with our suppliers, okay and partner with our suppliers we have over 400 just a couple about a week or so ago on our supplier VIP event. So work into always been aligned, but even stronger alignment with our supplier partners, and making sure to upstream with them we're driving down to our customers the services today that they're looking for, so simplification, back to basics. We're proud to be a technology enabled distributor that's what we are in the center technology and we see the real opportunity.

[Adam Tindle, Raymond James]

Okay, maybe just as a follow up from the second goal of generating greater operating margin, as we kind of look at the moving parts, Farnell would seem to be a big opportunity for you. But near term, if you look at numbers, in the quarter revenue grew by 50 million sequentially in the September quarter and operating margin was flat. So I guess why isn't incremental revenue coming with better margin near term? And what changes that trajectory to get to that goal of generating greater operating margin for the company in fiscal '21?

[Tom Liguori, Chief Financial Officer]

Hi, Adam, it's Tom. As we go forward, revenue will help obviously, right, that's operating leverage. We did SKUs, we need to continue adding SKUs. We need the Farnell lead distribution center to get up and running really at 100%. There's been - hit some headwinds with COVID. And really the pandemic and as that comes online, we'll start to see uplifted margins. We tried to be clear in the script, this is going to be a slow improvement quarter-by-quarter. We do - at this time you'll feel that we have leveled off in Farnell and we do expect to see some uplift in the December quarter. And this is going to be quarter-by-quarter execution to get the operating margins back up.

[Phil Gallagher, Interim Chief Executive Officer]

Yeah, I'll just double top of that. We're actually continuing to double down on Farnell to Tom's point that a few unexpected headwinds there. But we do have a trajectory to get to the operating margin. And we'll be resetting those with you over the next several quarters.

[Adam Tindle, Raymond James]

Makes sense, thank you so much for the detail.

[Phil Gallagher, Interim Chief Executive Officer]

Thanks Adam.

[Tom Liguori, Chief Financial Officer]

Thanks Adam.

[Operator]

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

[Matt Sheerin, Stifel]

Yes, thanks for taking the questions. Just Tom regarding your outlook on SG&A, I think you said around 430 million. So backing into your net income, your EPS guide, it looks like gross margin is going to be up fairly significantly, at least 100 basis points or so. Is that related more toward mix in terms of weakens? Or does it also reflect the TI going away?

[Tom Liguori, Chief Financial Officer]

You answered the question, Matt. It is both of those. This quarter, we had strong revenues. We also had - TI still healthier than expected and both of those will help them. As they transition in the December quarter, they'll improve margins. The OpEx guide was 425 million for December, 4-2-5.

[Matt Sheerin, Stifel]

425, okay, great and then it's still going to be up a bunch here. And then just on that 425 guide, you said you were at I think at $430 million run rate, apples-to-apples in the September quarter and you're looking for I think 19 million a quarter in savings from this latest cost cutting. Is that - you're basically looking at sort of a $5 million savings. And is that because you're not going to realize that until you sort of exit the quarter or there's so many incremental expenses that factor in as well.

[Tom Liguori, Chief Financial Officer]

It's actually exchange rate. Our exchange rate assumption accounts for about a $10 million increase. So Matt, you're right. I think last quarter we talked about once the cost reductions are in place and they're in place today. So they're fully in place for the quarter. We'd be at 415 million, 4-1-5 5 million, with the stronger euro, weakening dollar that's increasing our OpEx by about 10 million. That makes sense.

[Matt Sheerin, Stifel]

Okay, great and just lastly, Phil, if I can just ask a question just regarding your supplier relationships. I know there's been a lot of moving parts in the last couple of years or so. And in the latest news is the Xilinx pending acquisition by AMD. I know you've got a very strong relationship there with Xilinx as well as AMD. So any update on thoughts about consolidation or other things that are going on that may be either beneficial or negative for Avnet?

[Phil Gallagher, Interim Chief Executive Officer]

Yeah, thanks, Matt. Appreciate that. Yeah. Well, this - hot off the press there were some rumblings a few weeks ago. And our relation with AMD is outstanding, our relationship with Xilinx is terrific through the organization, so we feel there's very minimal risk here at this point. I'm actually think there's tremendous opportunity for us as these two companies to start building out the data centers, the technology solutions they're looking to do to combine the best of both. So we think we're really well positioned here. As you said, we've been with Xilinx for a long time. We're very self-sufficient with that major investment in the technical communities around the world Xilinx and don't see any - at this point in time any negatives, of course it's been two days or not even right, but we feel pretty positive about it.

[Matt Sheerin, Stifel]

Okay, thanks.

[Phil Gallagher, Interim Chief Executive Officer]

Thank you, Matt.

[Tom Liguori, Chief Financial Officer]

Thanks Matt.

[Operator]

Thank you. Our next question comes from Ruplu Bhattacharya from Bank of America. Please proceed with your question.

[Ruplu Bhattacharya, Bank of America]

Hi, thanks for taking my questions. Maybe Tom, can you talk about your capital allocation priorities both in terms of what your plans are for the dividend and share buybacks and any thoughts on M&A? Is this the right time? Are you looking at targets? And what are you looking at?

[Tom Liguori, Chief Financial Officer]

Yeah, in the near term we're really focused on cash liquidity and we do intend to support the dividend. That's the priority for us. The buybacks are on pause, they continue to be on pause until we see some certainty really with COVID-19 since that is an ever changing. I think the last part of that was M&A. We're not active in M&A. I think we've always said that near term, there would be smaller tuck-ins, probably more distribution, having customers or suppliers we don't have our product line we don't have, but nothing active. We're focused in the near term on cash liquidity.

[Ruplu Bhattacharya, Bank of America]

Got it and then maybe just for my follow up, a couple of quarters ago, you took the charge for goodwill and intangible asset impairment, I mean, can you address any concerns that investors might have on any further impairment that might be required? I mean, in your opinion, do you see any further impairments coming up? Or even in terms of write down or receivables, can you just talk to us about your thoughts on that?

[Tom Liguori, Chief Financial Officer]

Sure. Well, first of all, on receivables, our working capital of performance this quarter was really because of good collections. We actually added 200 million to inventory, we added SKUs, so collections are very positive. I know, globally, people are concerned about has government support for smaller businesses dry up, that could be an issue. To date we haven't seen any, I'm not trying to predict, but we haven't seen any. As far as goodwill and intangibles, yes, I know everybody's focused on Farnell. We're quite comfortable with Farnell. We see the value in Farnell. We see the path to recovery in Farnell. As Phil said, we're investing in Farnell. Farnell has a lot of leeway before we would be impairing intangible. So I can never predict the future forever. But we feel very confident on it. I just want to be very clear. We continue to see high value in Farnell. We're the only people that do both high volume distribution into the manufacturing side of the business, as well as do the upfront design chain, the engineering side of the business, the different value propositions. Farnell value proposition is, you can buy anything and you can get it on your desk in 48 hours, that continues and really our margin issues. Right now, it's the internal things that we need correcting and we'll get them on track. So that's a very good question. Thank you for letting us address that.

[Ruplu Bhattacharya, Bank of America]

All right, thanks. Thanks for all the details.

[Operator]

Thank you. Our next question comes from Tim Yang with Citibank. Please proceed with your question.

[Tim Yang, Citibank]

Hi, thanks for taking my question. Your September quarter operating margins for both component and Farnell were lower on year-over-year basis because sales are actually higher on your real business. Can you just talk about how much of that decline is from the mix and how much of that is from incremental cost with COVID?

[Tom Liguori, Chief Financial Officer]

Yeah, I would say it's a little of both Tim and the way we view this is when you look at gross margins on the electronic components side, historically during macro pullbacks, you do see some degradation in gross margin, and then you do see it come back as the economy recovers. And that's the way we see electronic components and of course our Asia mix to that as well. On the Farnell side that mix, that things that we have more under our control is less I would say at this stage market related. As I said to Ruplu's question, we have a faster confident we're going to get back.

[Tim Yang, Citibank]

Got it, can you maybe just quantify how much of the COVID cost [indiscernible] expenses that you said last quarter?

[Tom Liguori, Chief Financial Officer]

Well we're not breaking them at anymore, but I would say it's in the upper single to $10 million range roughly. But we're not breaking them out because we're not really sure that they're non-recurring anymore, right. We may be - have these, but the good news is, we're managing them, we're dealing with it, and we continue to hear our OpEx targets including them.

[Tim Yang, Citibank]

Got you, can you give us an update on the TI replacement progress? I think several months ago you mentioned that you are roughly 20% to 30% down. So given the vendor consolidation it would still be great if you can just provide some color on that one. Thank you.

[Phil Gallagher, Interim Chief Executive Officer]

Yeah, Tim, this is Phil. I'll take that one. So as Tom pointed out, we're in our last quarter effectively with TI, which is great. And we've been working and tracking, as we've talked in the past of three buckets really. We're tracking the cross pin-for-pin, which is a relatively small number, frankly with TI. And then we've got full demand creation for will or designing out the TI socket, you catch that in the next generation. So that tends to be a bit of a longer pole and in turn takes a little bit longer. That's actually one of our biggest pipelines right now those we're excited about that from a registration and design win standpoint with many of the other suppliers that are probably listening to this call as an exciting opportunity for them. And then we got share ship, customers are not enjoying being told where to go or where they have to go for business. So there's opportunity inside the customers to grow with other lines, okay. Otherwise, by the way, in semiconductors and passes, connectors, electromechanical so we have a - we're tracking it at the global level, regional level, by country, city, individual and we've got to path and what we said from day one, roughly two years from that period of time is about 12 to 18 months in that period left to go to fulfill that gap being tracked daily.

[Tim Yang, Citibank]

Great, thanks for the color.

[Tom Liguori, Chief Financial Officer]

Thanks, Tim.

[Phil Gallagher, Interim Chief Executive Officer]

Thank you.

[Operator]

Thank you. [Operator Instructions] Our next question comes from Shawn Harrison with Loop Capital. Please proceed with your question.

[Shawn Harrison, Loop Capital]

Hi, everybody, good afternoon and congratulations on some improvement in results. I had a few questions. Phil, the design registration comment in the slides stood out to me, just was at the highest number since fiscal '18. Maybe if you could kind of just drill down on that. Why do you think it's so high? Where are you seeing that activity? And correct me if I'm wrong, but usually it's probably what about 18 months from when those really accelerate before you start to see some revenue from that?

[Phil Gallagher, Interim Chief Executive Officer]

Yeah, thanks, Shawn. Well, on a revenue from a design there's registrations and there's design wins and the revenue. So depending on the technology with the low-end control, where it can be a lot quicker versus an FPGA, for example. Yeah, you're right, 12 to 18 months typically is to revenue. And I'll tell you, it's really exciting, we had all the regional technical managers on the phone today, we have a monthly review with them with our regional presidents and our teams. And the activity is just extremely high. I think what's happening is there's that much more accessibility, I think the idea of the silver lining in this is that much more accessibility to our customers and the engineers at the customers and so much more can be done digitally. And I think it speaks to a lot of what we've done with putting digital design online. We talked a lot about our avail tool, which our suppliers have embraced.

There's a lot more self-service assistance with the FAEs and then of course that centralized tech support, so we've and some of the cost-effective geographies of these up over several years. Our goal is to deep dive technical support as well. So I know on the surface that again if you look at it how's that happening, but I think it's the accessibility. You do a technical seminar today for a customer, your lunch [indiscernible] call them years ago and they still call them that actually, they might get 10 or 20 engineers from the customer. Now you're getting 50 to 100. They're all available and that much more accessible. So it's exciting of knowing. We're seeing Shawn in all regions. Again we measure that. Supporting our suppliers, supporting them as they supporting us and we compensate our people on it. So yeah, it's a pleasant surprise and what else is holding on is the design win revenue, okay. So it's not just the registrations, but the design win revenue. If you have a little bit more stickiness, if you will, than the balance of the business, this is also positive.

[Shawn Harrison, Loop Capital]

It's great, two part of your inventory, kind of looking at it through different sides. Maybe you talk about how you think your customers are in terms of their inventory levels right now, given the dimensions of lead times of moving out. And I just wanted to clarify I think in the slide it said, you had added 80,000 SKUs in Farnell already, another 28,000 this quarter. So that's 110,000 new SKUs and you want to get to 250 at some point in time. Is that right? And kind of what's the dollar amount of inventory, you have to put in place to essentially more than double the SKU count at Farnell?

[Tom Liguori, Chief Financial Officer]

The dollar amount was originally about100 million. So we're about halfway there.

[Phil Gallagher, Interim Chief Executive Officer]

And that SKU count is - the expansion of the SKUs gets to 250,000 expanding SKUs, our total SKUs are shown to be a lot higher than that, okay. That's just the expansion portion of it. Hope that I answered that question. On the inventory overall, we're feeling very confident with our position in inventories. We continue to drive working capital, there's a lot of parts of working capital AP, AR inventory. So obviously, we watch all three of them. As I pointed out in the script, we're working diligently with our customers. 50% of our business today is coming in or more on an MRP forecast sharing of sorts. So just having even tighter cadences with our customers to be sure we got them covered. We're not seeing any major gaps. I think the inventory levels out there are in check. I think they're okay. We're confident with ours. And of course, we tracked that closer back with our suppliers.

So we're feeling good about that and also the pipeline. So yeah, I did mention it in the script, just to kind of put it out there. It's a mixed bag on lead times, Shawn. So it's kind of tough to start anything dramatic, by any stretch of imagination, but it doesn't take much with some of the constraints out there and some of the, I'll call to the back end with testing some packaging, the software suppliers talked about that if there is a pickup there could be some issues, but right now, it's kind of a mixed bag. High End controller seems to be the one that's going out the most while they're tied to 5G, the rest of them yet, they might be going out like two weeks, four weeks, something in that range. But I just throw it out there and say, we're watching it closely and our customers are watching that close, because that's part of the job we have to do for them, okay and distribution is you know, it's our job to see the picture with as few of the pixels filled in. Right, so we're trying to constantly connect those dots.

[Tom Liguori, Chief Financial Officer]

Shawn, any other follow up?

[Shawn Harrison, Loop Capital]

I'm good Tom, thank you very much.

[Phil Gallagher, Interim Chief Executive Officer]

Thanks, Shawn.

[Tom Liguori, Chief Financial Officer]

Thank you, Shawn.

[Operator]

Thank you. Our next question comes from William Stein with Truist Securities. Please proceed with your question.

[William Stein, Truist Securities]

Great, thanks for taking my questions. First, I just want to maybe follow up on the last question and make sure I heard you right. So I think the question was about customer inventory levels. I think the reason people want to understand that is in this sort of tons of dislocations and questionable sort of supply conditions and we see these big recoveries. Everyone wonders is someone squirreling away lots of inventory. Do you have visibility into your customer - into your, what is a very broad customer set? Do you have visibility into their inventories? Are they building safety stock relative - let's say any more than they typically do?

[Phil Gallagher, Interim Chief Executive Officer]

Hey Will, how are you doing? Do we have a macro view and every customer out there and visibility into their inventory? No, the answer is no. Do we meet with them regularly in our account management teams, our supply chain teams, meeting with them on a regular basis? Obviously, yes and we get the forecast. So we can see the adjustments in our forecast up or down. So to your point on squirreling away we pick up very quickly if we see an increase in demand from a customer to choosing hypothetically 100 pieces a month also ordering 1000 or 2000 of a part that might be starting to play. We catch that and we have the analytics to go back and reconfirm that with the customers. But I would just say in general and I'm talking to a lot of the customers and all household names that you would know and they're feeling pretty good. I don't feel they're building up a lot of inventory. I think they've worked through the pandemic in that March, April timeframe, where we all had some of that concerns, is worked off. And then what we watch is also our cancellation rate. So we can see push outs, pull ins, things along those lines, and our cancellation rates are right in that 20%, 25% range, which includes push outs and pull ins, which is about right. I mean, that we're that shock absorber for the industry, right. So that's part of the role that we play. But we're not saying anything that would incite or cause us to think that there's a building up of inventory out there.

[William Stein, Truist Securities]

Okay, that helps. One other topic relates to premier and how it integrates with the rest of Avnet, your predecessor used to talk about this concept where there were premier customers, and that business at low volumes, translated to quite high margins for you. And then as the customers graduated to buying bigger volumes, they might transition to Avnet where there was a very significant step function, lower ASP, and therefore, obviously, lower margin. And there was this concept of making it more of a sliding scale transition. Is that still part of the strategy with premier? Is it done? Is it going in different directions? Any sort of update that would be helpful, thank you.

[Phil Gallagher, Interim Chief Executive Officer]

No, that's great. And we're - and this is still work in process, but we're excited about the opportunity we have there. So basically, where you got the - Farnell's got million plus customer slash contacts. And they got visibility into the new product introductions, MRO, all kinds of different information. And what we're really doing is taking that information as appropriate. And if it's a sales leader or startup phone, we're kicking that through Marketo into CRM, which we're both companies Farnell and the core, if you will, or on a CRM in generating sales, lead management out of that and doing prospecting. So that's a big piece of it. The other big - and that's exciting by the way, and there's some going back the other way, as well, as we add product lines. As we mentioned, last quarter, we have micron as an example on the Farnell. Well, they didn't have access to micron before globally, they do now because of greater Avnet relationship which is great.

The other one that we're seeing with really good opportunities is in doing selling. We've got - again, Farnell has a really broad line card and we've got some major OEMs and EMS customers we're doing business in and we leverage that relationship to bring Farnell in for a lot of the baby lines, we don't have, our help with engineering services, new products introduction and the MRO stuff, okay. So we'll actually have programs put together where the two teams are working collectively, okay to further penetrate greater Avnet, if you will, including Farnell, in some of these larger OEMs and EMF providers. So that's really what we're doing. We haven't - I know what you're talking about this graduation and - no, look, that's grey than black and white, okay, how that happens when those customers that grow up and when do they shift over to the core, if you will, that's not as much of a science as it might be an art. The other two are definitely science in black and white, and we're managing that.

[William Stein, Truist Securities]

Great, thank you.

[Phil Gallagher, Interim Chief Executive Officer]

Thank you.

[Operator]

Thank you. [Operator Instructions] Our next question comes from Gausia Chowdhury of Longbow Research. Please proceed with a question.

[Gausia Chowdhury, Longbow Research]

Hi, good afternoon. Looking at the book-to-bill and order spend by region since October, can you just talk about how they compare to typical seasonality? You mentioned Europe was slow one exiting the quarter has that improved at all? And then just wondering if there's any additional COVID related shutdowns or restrictions that have impacted at all?

[Phil Gallagher, Interim Chief Executive Officer]

Yeah, so I'll take that that Tom. So yeah, when we talked about in the script in the book-to-bills improving through July, August, September quarter in all regions. Europe was not at parity for the September quarter, but as noted they were a good trajectory coming out of the September quarter. As we sit in October, globally we're sitting in a positive book-to-bill, so including Europe. As far as the COVID related shutdowns or adjustments, all of our - we've been proud of this, proud of the teams, the front liners, for sure, all of our logistics centers are up and running, we've not had one day where they've been shut down at all. So that's a positive that still continues. As everyone knows, we're seeing upticks in cases and we are seeing that in Europe and right now we're managing through that. We don't have any planned shutdowns necessarily. We are being very careful how we bring our employees back to work, okay. Let me check that they're working back to the office, okay. And we're making it very optional at this point in time in Europe, have actually reduced the percentages of people we will allow in a building and in the Americas, we're look over the next couple of weeks to possibly start making that optional as well, but primarily it's the safety of employees and it'll be it'll be their choice 100%. And outside of that we've not seen any other real negative effects yet to the increase in the COVID.

[Gausia Chowdhury, Longbow Research]

Okay, thanks. And then with regard to the 70-day working capital target, what kind of timeline to be considered for that? And then can you rank the levers that you've pulled to get there? Is it primarily accounts receivable or if you could just break that out that will be helpful? Thank you.

[Tom Liguori, Chief Financial Officer]

Sure, that would be the end of calendar year 2021. And it's really, it's a discipline process. There's no one item that's going to get us there, it is the mix of continued focus on receivables, payables and inventory. We have a very disciplined process here. Every week, we're getting forecasts from our businesses on their working capital. We meet as a management team every week on it. Every other week, we're meeting with the business president. So I say that because we don't have a rank order of things that have to happen. It's we know where we have gaps that we can improve and it's an execution - it's been an execution story for 18 months, it's going be an execution story for the next four or five quarters. Thanks for the question.

[Gausia Chowdhury, Longbow Research]

Thank you.

[Operator]

Thank you. There are no further questions at this time. I will now turn it back to Phil Gallagher for any closing remark.

[Phil Gallagher, Interim Chief Executive Officer]

Great, thanks. Thank you very much. And thanks again for all the participants. Let me just end my comments by acknowledging that we're excited about an upcoming milestone in Avnet's history. In calendar year 2021, we will be celebrating Avnet's 100-year anniversary, again, really excited about that, you'll be hearing a lot more about it. But as Avnet approaches 100-year mark, I couldn't be proud of all that we've achieved, again, business we've had, certainly some ups and downs and ups and down cycles. But over the years, we've stayed close to our customers and suppliers and remain nimble with our execution. And our longevity demonstrates our ability to maintain technological innovation and financial discipline. So once again, I want to thank our employees for their continued hard work and dedication throughout the pandemic and all prior phases of Avnet's journey. I'm still grateful to be surrounded by some of the most talented people in the industry and excited for what the future holds for Avnet. So with that again, I want to thank you all for attending today's earnings call. Look forward to speaking to you again in January with our fiscal second quarter earnings report. Stay safe and be well. Thank you.

[Operator]

Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.