AVT
#<UNK>, this is <UNK>.
Our inventory was down 5.6% sequentially, so I think we're adjusting our inventory based on the market realities that present themselves.
Inventory was up 10% year over year, and that was really due to much less velocity.
As you said, we saw the velocity in the high-volume fulfillment engagements slow, particularly in December.
That created a different dynamic for us.
If you look at what drove the year-over-year difference, it was that, because, remember, last December quarter we had a high watermark in our high-volume fulfillment engagement and the velocity was quite high.
So, that's the main difference, if you look at our inventory on a year-over-year basis.
The balance of the inventory we have we believe is appropriate to support core demand.
And I would expect inventory to be flat to slightly down sequentially.
<UNK>, let me start with the difference between maybe what we're seeing in the market and the suppliers.
Again, if you remember a couple of quarters ago, a lot of our suppliers had negative outlooks and we had a more positive outlook.
And at that time, a lot of that was related to weakness in coms in automotive.
And now, if you look at what a lot of the suppliers who have been a little more bullish this quarter are talking about, they're talking about improved coms and improved automotive.
Those aren't big markets for us.
I think when it comes to core industrial, I think that's the big difference between why we're not as bullish as some of the suppliers who have come out this quarter are.
When it comes back to inventory, again, like I said, I think inventory ---+ we took inventory down 5.6% sequentially, and I think it's in line with where we see the business.
And we do believe that inventory will be flat to slightly down this quarter.
I think our inventory, as a lot of the suppliers have said, they're starting to see distributor inventory come back in line.
And if you take out our high-volume fulfillment business, that really from a velocity perspective came down this quarter.
I think that's the big difference when you look year over year.
As you say, we've had an ongoing process for ERP systems, so we've rolled them out in multiple businesses around the world up until now.
We are rolling out the ERP in our Americas business here.
Our plan is to roll that out, to kick that off in April.
So, we're on track at this point.
We don't perceive any issues with that.
We don't believe it will have any major impact on our business at this point.
And we look forward to getting on that new system to give us some efficiencies that we don't have based on our current outlook.
<UNK>.
Yes, <UNK>, this is <UNK>.
I would just reinforce, we have very robust change management plans in place.
Over the last three to four years, we successfully pulled this off with our computer business in the Americas, followed by our computer business in Europe, and now moving to the components business in the Americas.
We take nothing for granted, but it's been two years of planning and preparation.
User acceptance testing actually going on right now, and we're keeping a very close eye on it.
We do understand the potential impacts and got a top-notch team with some experience here that we have a high degree of confidence in.
So, all systems go and we'll keep you posted.
Thanks, <UNK>.
Actually, our gross margins year over year were up in the Americas and were up in our core Asia business if you take out the high-volume fulfillment engagement.
Year-over-year gross margins were down in our EMEA business.
And, again, we had talked about over sequential quarters of price increases that suppliers put on us that we're passing through to customers over time because we have contracts with them.
Sequentially, our gross margins in EMEA actually went up.
We see the improvement in those gross margins, and we'll continue on that march of improving gross margins in Europe over the balance of the fiscal year.
There are two ---+ in general, we are now very careful what type of deals we go after.
We are really carefully looking at what's the return, so what's the margin, and what's the return on working capital.
So, we are really paying attention to it.
The main business unit which has been impacted by that approach has been the component business.
The component business sales dramatically dropped.
The main reason ---+ you have some market conditions but you have also the selection from business which was not profitable.
So, yes, there is, I would say, at the moment we are paying a lot of attention to profitability to build a very sound base for future growth.
When it comes to storage, storage is roughly half of our hardware business.
Now, the split between legacy technology and new technology, I would say it's something around 75%/25%, 25% for the new generation, 75% for the old one.
I can tell you that in that space there is no reason to be selective.
You have market conditions and we want to play fully in that space.
It's really more a volume issue.
It is not linked to a strategy to be more selective.
The quarter end, that surprise was, as far as we are concerned, more market-related and timing-related because, in fact, we built backlog which is going to bill in the next quarter, but nothing linked to a strategy to the select business here.
There are some other areas of our core data center business where we have been deselecting.
Six months ago we did a strategic review of our portfolio.
And, yes, indeed, we decided to deselect some business.
Nothing material for sure that contributed to the profitability.
So, our component business, absolutely.
Our core data center business, we are selective, but in storage in particular, we play completely, we are full in.
Roughly 50%.
It was just under 50% for December quarter, <UNK>.
And I would just add, sorry, just add one thing ---+ the trend is very clear.
Hardware is going to become less and less of our total business.
And especially as the market is moving to cloud and hybrid cloud, it's very clear that software and services is going to continue to gain weight in our total sales, which will help us again in terms of margins and profitability.
Thank you for participating in our earnings call today.
Our second-quarter FY16 earnings press release and related CFO commentary can be accessed in downloadable PDF format at our website under the quarterly results section.
Thank you.
