[Management View]
Avnet reported Q1 FY2026 sales of $5.9 billion, up 5% YoY and sequentially, exceeding the high end of guidance. Adjusted EPS was $0.84, also at the high end of guidance. Key growth drivers included Asia, with a 10% YoY increase, and Farnell, with a 50% YoY increase in sales.

[Outlook]
Management provided guidance for Q2 FY2026, expecting sales between $5.85 billion and $6.15 billion, and EPS between $0.90 and $1.00. They anticipate continued sales momentum in Asia and the Americas, with European revenue expected to remain flat.

[Financial Performance]
Sales increased 5% YoY and sequentially, driven by strong performance in Asia and Farnell. Gross margin was 10.4%, down 42 basis points YoY and 15 basis points sequentially. SG&A expenses were $464 million, up $26 million YoY and $13 million sequentially.

[Q&A Highlights]
Question 1: Congrats on the good quarter and outlook. Can you bring us up to speed on your exposure to the data center and AI application category?
Answer: Our exposure to hyperscalers is relatively small, about 7% of our Asia business. We see opportunities in storage, connectivity, power cooling, and connectors. The downstream opportunities in MCU and MPU areas are significant, especially in predictive maintenance, smart wearables, smart agriculture, and smart security.

Question 2: Inventory days were flattish, driving cash flows negative. Should we expect higher inventory days to persist longer term?
Answer: We use average inventory for calculations. We expect inventory days to gradually decline, aiming to get them into the eighties by next quarter. The quality of inventory is good, and we continue to make investments to support growth.

Question 3: How do we think about the demand profile for EMEA in the December quarter relative to seasonality?
Answer: We expect modest growth in EMEA for the December quarter. Europe's bookings have been positive for a couple of quarters, and backlog is building, indicating some recovery.

Question 4: How should we think about incremental margins for the business now that it has returned to year-over-year growth?
Answer: The guidance implies flat gross margin year-over-year. We expect seasonal mix shifts to positively impact gross margin and operating margin, especially in the West.

Question 5: Can you provide more color on suppliers seeing potential for price increases?
Answer: Certain technologies, especially interconnect and power products for data centers and hyperscalers, are seeing modest lead time increases and potential price inflation. Memory products are also experiencing lead time issues and price increases.

Question 6: How should we think about core business margins over the next couple of quarters?
Answer: We expect improvement in gross margin with seasonal mix shifts. Asia will continue to be a significant part of our business, and we aim to drive operating margin to 4% over time.

Question 7: Can Farnell margins continue to grow despite flat revenue in Europe?
Answer: Farnell's gross margin is impacted more by product mix than regional mix. We expect continued improvement in gross margin as the mix of onboard components increases.

Question 8: What are demand creation revenues and IPNE as a percent of revenue, and can they drive margin upside?
Answer: IPNE represents 15-20% of our total components business, and demand creation revenue is 28-33%, with 300-400 bps incremental margin. However, demand creation requires investments in technical support.

Question 9: Was the favorable trend in the transport business across all geographies?
Answer: Transport business was up in Asia and The Americas sequentially, but down year-on-year in The Americas and negative in Europe.

Question 10: Is there any change in linearity with bookings in the data center business?
Answer: Most bookings in the data center business are chain arrangements, showing up as turns in the quarter. This does not inflate long-term bookings.

[Sentiment Analysis]
Analysts were positive about Avnet's performance and outlook, with questions focusing on growth drivers, inventory management, and margin improvement. Management's tone was optimistic, highlighting strong demand and strategic investments.

[Quarterly Comparison]
| Metric | Q1 FY2026 | Q4 FY2025 | Q1 FY2025 |
|-------------------------|-----------|-----------|-----------|
| Sales | $5.9B | $5.6B | $5.6B |
| Adjusted EPS | $0.84 | $0.80 | $0.80 |
| Gross Margin | 10.4% | 10.55% | 10.82% |
| SG&A Expenses | $464M | $451M | $438M |
| Inventory Days | 92 | 95 | 102 |
| Book-to-Bill Ratio | >1.0 | >1.0 | >1.0 |

[Risks and Concerns]
Risks include geopolitical uncertainties, market volatility, and potential price increases in certain technologies. Management is focused on maintaining strong supplier relationships and optimizing inventory levels.

[Final Takeaway]
Avnet's Q1 FY2026 performance was driven by strong growth in Asia and Farnell, with positive signs of recovery in The Americas. Management's guidance for Q2 FY2026 indicates continued momentum, with strategic investments in inventory and supply chain services. While challenges remain, Avnet's diverse customer base and strong supplier relationships position it well for future growth.