Vince Keenan - VP and Director of IR Roy Vallee - Chairman and CEO Ray Sadowski - CFO Rick Hamada - COO and SVP John Paget - President, Technology Solutions Operating Group

Jim Suva - Citigroup Matt Sheerin - Thomas Weisel Partners Brian Alexander - Raymond James Thomas Dinges - JPMorgan Steven Fox - Merrill Lynch Bernie Mahon - Morgan Stanley Kevin Sarsany - Next Generation Research Carter Shoop - Deutsche Bank Harry Blount - Lehman Brothers

I would now like to turn the floor over to Vince Keenan, Avnet's Vice President and Director of Investor Relations.

Good afternoon and welcome to Avnet's Third Quarter Fiscal 2007 Corporate Update. If you are listening by telephone today and have not accessed the slides that accompany this presentation, please go to our website, www.ir.avnet.com and click on the icon announcing today's event. In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles or GAAP, the company also discloses non-GAAP results of operations that exclude certain items. Reconciliations of the company's analysis of results to GAAP can be found on the Form 8-K filed with the SEC today and several of the slides in this presentation and on Avnet's Investor Relations website. Concurrent with the acquisition of Access Distribution and reflecting recent industry trends, the company has reviewed its method of recording revenue related to the sales of supplier service contracts and determined that such sales will now be classified on a net revenue basis rather than on a gross basis. While the change will reduce Technology Solutions sales and cost of sales, it will have no impact on operating income, net income, cash flow or the balance sheet, thereby positively impacting margins. As we provide the highlights for our third quarter fiscal year 2007, please note that we have excluded certain items from the prior period in the accompanying slides in order to facilitate comparison with current periods. These items include restructuring, integration, and other charges resulting primarily from the Access and Memec acquisitions and the gain on the sale of businesses. Additionally, in the pro forma results, prior periods are adjusted to include Access Distribution, exclude divested businesses and reflect the revenue change from gross to net with sale of supplier service contracts. Before we get started with the presentation from Avnet management, I would like to review Avnet's Safe Harbor statement. This presentation contains certain forward-looking statements, which are statements addressing future financial and operating results of Avnet. Listed on this slide are several factors that could cause actual results to differ materially from those described in the forward-looking statements. More detailed information about these and other factors are set forth in Avnet's filings with the Securities and Exchange Commission. In just a few moments, Roy Vallee, Avnet's Chairman and CEO, will provide Avnet's third fiscal year 2007 highlights. Following Roy, Ray Sadowski, Chief Financial Officer of Avnet, will review the company's financial performance during the quarter. At the conclusion of Ray's remarks, Roy will wrap up with additional comments and fourth quarter guidance, after which a Q&A will follow. Also here today to take any questions you may have related to Avnet's business operations is Rick Hamada, Avnet's Chief Operating Officer; and our new President of Technology Solutions, John Paget. Harley Feldberg, President of Electronics Marketing, will not be joining us today due to a death in his family. With that, let me introduce Mr. Roy Vallee to discuss Avnet's third quarter fiscal year 2007 business highlights.

Thank you, Vince, and hello everyone. Thank you all for taking the time to be with us and for your interest in Avnet. The third quarter of fiscal 2007 was a quarter of excellent operational execution, despite a sluggish sales environment. While total revenue was slightly below expectations, both operating groups delivered solid earnings improvements, which resulted in record third quarter net income and earnings per share. At Electronics Marketing, our highly diversified revenue base, spanning a wide range of products at end markets, once again allowed us to weather slower sales at large contract manufacturers and achieved significant sequential and year-over-year improvement in both gross profit and operating income margins. At Technology Solutions, severe weakness in our microprocessor business drove revenue below the low end of our expectations. Despite this unexpected weakness on the topline, the addition of Access Distribution and continued expense efficiencies increased TS's income margin, excluding the beneficial impact of the change to net revenue, resulting in TS's 15th consecutive quarter of year-over-year improvement in operating income dollars and margin. The strong earnings performance at both operating groups combined to drive Avnet's operating income margin up 43 basis points sequentially to 4.6%, with roughly half of the improvement resulting from the change related to the sales of supplier service contracts. With EM at 5.8% and TS at 4.2% or 3.7 excluding the effect of the change to net revenue, the March quarter is the first time that operating income margin at both operating groups and the Enterprise level have been within the range of our long-term goals. While on the subject of long-term goals, we also made significant progress on another important goal, return on capital employed. Maintaining a double-digit ROCE is vital to shareholder value creation at Avnet. In the third quarter of fiscal 2007,…

Thank you, Roy. Hello, everyone. Let's begin with an overview of our operating results for the third quarter fiscal 2007. This slide shows a year-over-year comparison with a dollar and percent change in the highlighted columns on the right. Please note that we have included a reconciliation to GAAP net income at the bottom of the slide to account for the restructuring and other charges in the prior year third quarter. As already has been mentioned the March 2007 quarter has been adjusted to reflect the change in the method of recording revenue related to the sales of supplier services contracts, while the March 2006 quarter remains as reported. In connection with our acquisition of Access Distribution, we review the method of recording sales of supplier service contracts and determine that based upon recent changes by Access and others in the industry such sales will now be classified on a net revenue basis rather than on a gross basis. Although this change reduces reported sales and cost of sales it has no impact on gross profit operating income or net income dollars but does have a positive impact on margins. In addition, the change has no impact on the balance sheet or statement of cash flows. In the March quarter reported sales of $3.9 billion were 8% higher than in the year ago quarter. Revenue would have been $4.09 billion in the current quarter had sales of supplier service contracts been recorded on a gross basis. Gross profit of $534.8 million was up $61.4 million, as compared with the third quarter fiscal 2006. Our gross profit margin improved 60 basis points year-over-year to 13.7% in the third quarter fiscal 2007. Year-over-year gross margin was impacted by a number of factors, including business mix and the impact of the change related…

Thank you, Ray. Looking forward to Avnet's fourth quarter of fiscal 2007 we expect sales at EM to be in the range of $2.42 billion to $2.52 billion and sales for TS to be in the range of $1.68 billion to $1.78 billion. Therefore, Avnet's consolidated sales should be in the range of $4.1 billion to $4.3 billion for fourth quarter of fiscal year 2007 and earnings should be in the range of $0.73 to $0.77 per share including approximately $0.02 per share relating to the expensing of stock-based compensation. The above EPS guidance does not include the amortization of intangibles and additional integration charges related to the acquisition of Access, as these amounts have not yet been determined. So with that, let's open up the lines for Q&A. Operator?

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions) Our first question is from Jim Suva with Citigroup. Please state your question.

Great. Thank you very much and congratulations. Can you talk a little bit about, now that April, is pretty much behind us for the most part some of the demand trends that you see as they've been progressing. I know you mentioned about MPUs, how it's looking like to be stronger and any commentary about how this quarter is likely to progress from a linearity perspective?

Well, Jim, this is Roy. How are you? So of course, we would have taken into account what we know about April, which for us closes tomorrow based on our 4-4-5 calendar. So that is baked into our forecast at this point. That includes commentary about the microprocessors, etcetera. In terms of linearity, we're going to experience a little bit different linearity this year than we have in the past, driven predominantly by that Sun fiscal year end. We have yet to go through one of these, but according to our friends at Access, there's a lot of activity at the very end of the quarter similar to what we typically experience say, with IBM at the end of the December quarter. So there will be I guess a big swing for us in June and even more specifically even down to the last week of June. With that, let me just ask Rick or John if they'd like to add anything.

No. Good morning Jim, it's Rick. I would just reinforce speaking from early on the EM side, again very normal seasonality outlook for the component business and John, any comment?

I would say that's the same but certainly echo the Sun or the Access impact will be significant in that last couple of weeks more.

Great. Thank you and my one quick follow-up question is, now that you're basically standing on all your goals and by the way congratulations on all that. Do you reach a point where you want to deliver on those for a couple of quarters in a row or do you want to come back and revisit those and potentially bring it higher or how should we look at that?

So Jim, we will update our target ranges, of course at our annual Analyst Day, most likely in December, in New York City. And I would tell you that of course mix of business does have an impact on where the operating margins go both within the groups and at the Enterprise level. But the way we run the business, it would be our expectations that over time those margins should continue to move north even if they are moving north at a slower pace than they have in the past.

Great. Thank you and congratulations once again.

Thank you.

The next question is from Matt Sheerin with Thomas Weisel Partners. Please state your question.

Yes thanks. Hi, Roy. So, question on the computing business and in your guidance looks like June is going to be up a lot because of the Sun business. So would that imply that we're going to see sort of a seesaw effect where September, which is normally up low to mid-single digits for you, would that be down and than December up and then March down again? Just help us with the seasonality there?

I think what you're going to see Matt, is normal seasonality in everything with except, as you're used to seeing from an Avnet standpoint, with the addition of Sun into the marketplace. In to our marketplace you'll start to see a little bit different pattern certainly with the high June. And they also have a relatively high December from a normal seasonality standpoint.

And Matt, just from my perspective, normal seasonality of course is hard to peg, but I would say that typically, when you say up low single-digits, were you talking about TS in specific?

That's right, sequentially.

Yes. So typically, that is true and that's led predominantly by the microprocessor business. The Enterprise computing business is typically all I'd say more or less flat in those quarters. And so, yes you're right. The spike that we get into the June quarter, we do have to give that back in the September quarter and then it turns out that the Sun business also has a pretty strong December quarter just not quite as high of an amplitude as the June quarter.

Okay. Great. That's helpful. And then on the gross margin for the March quarter, which was obviously very strong, even not counting the change in revenue recognition. Could you tell us how much of that was related to AMD, if you had seen AMD before the processor business come in line with your expectations, what would have the impact have been?

That's probably the one number we didn't calculate.

Would you say like 10 to 20 basis points give or take?

I would say based on its relative size Matt, I doubt if it could be more than 10. It's probably going to be less than 10 basis points at the enterprise level.

Okay. And then looking ahead obviously with that you talked about seasonality in the electronics business, so that would imply you're up flattish or maybe little down a little bit. Asia snapping back and then North America kind of flattish. Does that make sense flattish up a little bit?

Yes Matt, it's Rick. It's actually I think Europe is flattening out a little bit and America is strengthening a bit with Asia leading the strength there.

Okay. And then, so the gross margin how would that shake out, than?

It's most likely going to be down for EM for the June quarter.

Okay.

On a sequential basis.

Okay. And just one last quick question if I can throw it in the inventory in the March quarter, you said it was flat for EM quarter-to-quarter?

Yes, that's correct.

It was actually flat quarter-to-quarter in reported dollars. If you back out the currency impact I think inventory was down roughly $40 million.

What's your position Roy, on inventory overall here given the way the cycle is playing out?

I continue to believe Matt, that the global inventory correction cycle, which started pretty much in the summer quarter has now played out and we feel like our inventories are in very good shape. And I think our expectation for inventories would be that the current level of turns would be not significantly changed on a quarter-on-quarter basis. So inventory should move pretty much in concert with revenues.

Okay. Thanks a lot.

You're welcome.

The next question is from Brian Alexander with Raymond James. Please state your question.

Thanks a lot. Good afternoon. Just, Roy I am struggling a little bit to understand how you're going to keep expanding operating margins in EM over the next several quarters in light of the gross margin tailwind that you've been getting due to customer mix etcetera, and the potential for Asia to grow as a percentage of the mix going forward. So it seems like there's some potential headwinds at the operating margin line. So I guess are you implying that there's that much leverage so that much operating leverage in the large customer base to offset those headwinds? Or just maybe it will help us understand how much growth you have to see for that statement to hold true, that operating margins in EM are going to continue to expand on a year-over-year basis.

So, the answer is yes. Brian, when we -- when you look at the operating margins that are being produced by EM today, they obviously include all of the fixed overhead in the EM business. When our sales to these large EMS companies rise, the contribution margin or the variable margin is going to be a significant portion of the gross margin on those sales. And since we're talking about 5.8% operating and a double digit gross margin, even in those accounts, we are comfortable that as our sales return or rise in those accounts, we should be able to continue to expand the operating margin. Now, on a longer-term basis, as Asia becomes a bigger and bigger portion of the total that works in the other direction, of course, and as you know, we're managing each of the regions to our return on capital targets, so although the gross margin may come down, you should still see strong returns and strong cash flow.

Okay, just a follow-up to that. Roughly how much lower are the margins in the large customer base relative to your small- and medium-size customer base?

Roughly, sort of two-thirds of the gross margin.

Okay. And then, my final question -- by the way, welcome, John to the call.

Thank you very much, Brian.

For TS, you're guiding up close to 20% sequentially, and I understand your comments about microprocessors and also Access benefiting from Sun's fiscal year-end. I'm just trying to kind of parse these out, before TS has grown at most 5% sequentially. You've also got an acquisition, I think in Asia-Pacific, which allowed a couple points of growth. Maybe, just help us understand what the Access contribution will be to the TS growth in the June quarter versus how much sequential growth you're expecting in the legacy business?

Well certainly, Brian, with the close at the year-end Sun business, the majority of all of our growth will come from Access in that quarter. The rest of it will be relatively in the same sequence that you've seen it in the past.

What was Access in the March quarter, in terms of total revenue?

Brian, this is Roy. Let me jump in on that one and maybe, clarify something and then, also attempt to answer your question. So, I think most of you know that Access was about 80% Sun Microsystems, and we are very committed to maintaining that Sun vertical business unit, if you will. That business unit will be based in Colorado. However, there are the other 20% of the Access business, over the next couple of quarters, will get commingled with the other business development emerging activities that are already in place at Technology Solutions. And so, speaking about Access on a quarter by quarter by quarter basis, will become irrelevant over the next couple of quarters. Now, all that said, the performance that we had on the March quarter was below our expectations and I would say from a revenue point of view, sort of in the middle single digit range, below our expectations.

What were your expectations?

Well, remember we talked about a $2 billion run rate and roughly $0.5 billion of sales.

And that was all gross revenue.

And that's in the gross revenue format. Thanks, Rick.

Thanks a lot, guys.

You're welcome. By the way, Brian, the -- while the revenues were, I would describe as slightly below our expectations, the profits generated were actually above our expectations, and that's part of what lifted the Tech Solutions' overall performance.

Did it add roughly $0.03 or $0.04 to EPS in the quarter?

That's real close. I would say in the $0.04 range.

Okay. Thanks a lot, guys.

You're welcome.

The next question is from Thomas Dinges with JPMorgan. Please state your question.

Hi. Good morning, guys. Roy, I wanted to just go back to the one area you were talking about with some of the weakness that you saw in Asia and you characterized a lot of it as related to the EMS companies and obviously, we've seen some of the results from a number of those guys and you do have some major supply chain engagements with some of your large semi suppliers there. But could you talk about what the health of the rest of the business there looked like, meaning, are you still seeing pretty strong growth over there or was there something else going on over there that's been impacting that business a little bit? And then, I've got a quick follow-up question after that.

Yeah. It's a very good question, Tom. Let me throw a few comments and I'll ask Rick, if he'd like to add. If I look at our business in America, the weakness at the large EMS customers is a disproportionate share of the weakness. In other words, the remainder of the, let's call it SMB component customers, are actually reasonably healthy. When you go to Asia, the performance of our business outside of those large EMS customers is very similar to our performance inside of those large EMS customers. So, I think what that speaks to is some other kind of slowdown in the overall component purchasing in Asia. It could speak to consumer demand. It could speak to ASPs on certain consumer devices, but our exposure to the non-EMS customers has also been weak in Asia. We did see strength coming out of Chinese New Year. We are expecting sequential growth. However, when you reflect back to year-on-year, we'll actually need some sequential growth just to get to a flat year-on-year revenue number for Asia-Pac. Rick, you want to add anything?

No, Roy. You got it covered. Book-to-bill was roughly 1 to 1 in the region, which was the strongest performance of the last three quarters.

Okay, great. And then, a lot of discussion, obviously about Access and the relationship with Sun, but obviously, you've had a longstanding relationship with one of the other very large hardware vendors, who had talked a bit about some weakness at the end of -- at their particular quarter. And then, you've got another vendor in there that has obviously been a share gainer over the past couple of quarters based on the data that's available. Can you talk about what the other parts of the business were like in this particular quarter? And as you're looking forward, you're expecting the big bounce obviously with Sun from the seasonality standpoint, but what else are you seeing out there either from a pricing or an overall volume standpoint? Just any color there would be great.

Well, Tom, okay, I'll lead again and then ask John if he'd like to tag in. I think the simple answer is, we were slightly disappointed with our revenues at TS, even excluding the microprocessor situation. I say, slightly because what we saw was sequential declines in the range of normal seasonality. But year-on-year gains that were below the sort of mid to high single digit number that we would expect coming out of that market. So, we did in fact see some of that same weakness that you heard from the other major hardware suppliers. As we look at our forecast for the current quarter, there is some rebounding I guess, if you would call it. Matt used the term snapback. I don't think I'd use snapback as the term, but we are expecting some better revenue results in the current quarter as compared to what we got in the March quarter. John?

And I would add to that as we move more deeply into solutions distribution and the emerging businesses, we're seeing those take a greater -- have a greater impact on our revenue growth as well.

Okay. Thank you.

You're welcome.

Your next question is from Steven Fox with Merrill Lynch. Please state your question.

Hi, good afternoon. Could you talk a little bit more about inventories on the Electronics Marketing side? You said the turns were above 6 times, I wasn't clear if that was an improvement or decline from the prior quarter or a year ago?

So, I'll just give you the data and then again, Rick, if you want to add anything, but sequentially, Brian, that was an improvement of 35 basis points or so. Compared to a year ago, it's down slightly, down about 25 basis points.

Okay. And then, looking at the components business, I know you've -- we've spent a lot of time talking about mix, but if we forgot about mix for a second and just sort of looked at the regions apples to apples, from the current margin levels you're at, where is the most potential to improve margins and roughly by how much?

Are we talking gross or operating?

Operating is fine.

So, I think this question was touched on earlier, and again, I'll flip it to Rick, if he'd like to add, but in both America and in EMEA now, we are performing to our hurdle rate of 30% ROWC or greater. And so, while we would expect continuous improvement in the margin driven by operating leverage, we're now shifting our focus a bit in those regions to growth and investing in increasing the top line, now that we're getting our hurdle rate on the returns. In Asia, however, we are still below our hurdle rate, its both a very competitive market, but also a very exciting growth market. And so we're constantly trying to balance between getting to our hurdle rates within a reasonable timeframe, but at the same time investing appropriately to participate in the growth opportunity in the region. So, if you look out over the next few quarters, operating margin expansion should occur in Asia more so than Europe and America, but we would expect Europe and America to drift a little bit north from here just based on operating leverage.

So, the fastest growing region has most leverage coming up?

I believe that's correct.

Okay, great. Thank you very much.

The next question is from Bernie Mahon with Morgan Stanley. Please state your question.

Hey, good morning.

Hi, Bernie.

Question for you, on the guidance for EM, I guess I'm a little confused, because you're guiding for normal seasonality. But then, Roy, you just talked about how Asia-Pacific weaker than normal and in North America, you still have the large EMS guys working inventory down. Is that all made up for because Europe is so strong, or how do you kind of reconcile that to normal seasonality in the June quarter or EM?

Sure. Bernie, it's, Rick, good afternoon. Just to add some color on the overall book-to-bills, on the large EMS customer segment for us, it was a positive book-to-bill and more positive than the regions in aggregate. As I referred to earlier for Asia, roughly one-to-one now, that was best book-to-bill performance fiscal year-to-date. So, that positive book-to-bill in that customer segment, as well as the region probably give us that outlook.

And, Bernie, so let me just repeat, what we think would be normal seasonality for Avnet's business in the June quarter. Europe would be actually down slightly. America would typically be up slightly, and then Asia would typically be up sort of low to mid single digits on a sequential basis, and the book-to-bill that, Rick, just talked about coming through the March quarter, as well as the information we've gotten on April to date, would indicate that that's roughly what's in store.

Okay. That's helpful. And then, Ray, maybe just on the gross margins for the June quarter, for the overall business, historically, it's kind of flattish to up some, but now you have Access in the model. Plus you have the new way you recognize revenue for the service contracts. What should we expect kind of on a sequential basis? I mean, would it be down 30 or 40 basis points or not quite that much?

And you're at the gross margin level?

Yeah, for the overall company.

If you're going gross margin, so sequentially there is no impact, sequentially of the change in services revenue, since we've done it the June and March quarter. So you really, year-over-year, it's a different story. But sequentially you're comparing apples-to-apples. And so, therefore, the margin will be driven by the mix of business and based upon the strength in the Sun quarter relative to the total business we would expect margins to go down. The number you gave is, I think, a little bit on the high side, but you're probably, I would say, in the 50, 60 basis point range potentially, again, depending up on mix overall.

Okay, that's helpful. Thanks a lot.

Hey, Bernie, if it helps, take a look at our prior December quarters, and kind of what you've seen in terms of gross margins, and operating margins. And then just keep in mind we've got two things going on in the June quarter, we've got the TS revenue growing as a percent of the total driven by the Sun year-end. And then we also have the Asia region growing faster than Europe and America in the EM business, so all of those will put pressure on the gross margin line. But of course all that's baked into the earnings forecast that we've provided.

Okay. Yeah, that's very helpful. Thanks, Roy.

You're welcome.

The next question is from Kevin Sarsany with Next Generation Research. Please state your question.

Hi, guys.

Hi, Kevin.

On Technology Solutions, I don't know if you mentioned it. What was the health excluding the AMD business for your kind of legacy VARs?

Yeah, Kevin, we did talk about that. It was, okay, not what we would have liked. Positive year-over-year growth, but in the lower single digits instead of the higher single digits. So it was a little weaker than we would have liked.

And is there any reason, I mean...

Yeah, corporations aren't spending on CapEx, like we'd like them to.

Okay, all right. And looking at the next quarter, it looks like you're guiding the 20% sequential increase. And I'm just wondering, what would you kind of frame what the potential margin impact historically in your December quarter, you grow sequentially 20% to 30% in margins sequentially are up 80 to 100 basis points? Could you kind of frame that?

Well, I think very similar to the last question, it's going to be a similar effect for us, not quite as strong, typically in the December quarter, TS grows in aggregate 25, 30%. We're talking about 20. So it's going to be just very, very similar, Kevin, but not quite as strong as the December change.

Okay. You also have microprocessors coming back. So that will mute it a little bit.

I think they're going to be more or less flat, better than a typical seasonal down, but more or less flat sequential.

Microprocessor?

In the June quarter?

Okay.

Yeah.

And just looking at EM and it looks like you're troughing, but margins are expanding sequentially, which is unusual, obviously, you've done a lot of work internally. But is there anything you could point to in the industry, more rational ASPs being steady that has allowed you to do this that also, in future downturns will kind of provide this nice backdrop, and I guess obviously on the reverse when things do grow, you may not see that big help?

Okay. So again, I'll take a crack and ask, Rick, if he wants to chime in. As you maybe would imagine, I'm going to tell you, that the majority of what we've been able to do in this cycle compared to prior cycles, I would attribute to the work of our team as opposed to structural changes in the industry. As, you know, we've been on this value based management campaign. We've been very focused on issues like making sure we're generating the right kind of revenue streams. We call it profitable growth, and then also making sure we apply a range of operational excellence initiatives to drive productivity and efficiency into our business. And I really think that what's happening in our numbers, is those activities permeating throughout the organization, and if you maybe pardon the euphemism, but getting 11,700 employees all growing in the same direction or pulling on the rope in the same direction. Now, with all that said, I do think there are some structural changes, as we talked at the analysts meeting in December. And the one I'll point to in specific is that with more semiconductors being fabricated by foundries there is less fixed asset, owned by the semiconductor companies that creates a lesser incentive to lower price when business falls. So their utilization rates of their own factories are higher than the utilization rates of the foundries and that creates, it eliminates a motive to drop ASP, obviously, with higher ASPs, we've got a better financial model, and more of an opportunity to apply the operating leverage that we built into the company.

Okay. Thank you.

You're welcome.

The next question is from Carter Shoop with Deutsche Bank. Please state your question.

Hey, guys, great quarter.

Thanks, Carter.

Wanted to talk a little bit about Europe, obviously, EM had a great quarter there. Based on your sequential growth rates and your two largest competitors there looks like you guys took some shares. So congratulations there. My question focuses around the sustainability of the strength we've seen in Europe, particularly on the component side. We've seen that growth really outstrip the other regions quite dramatically, and obviously outstrip the global European GDP over there. How sustainable do you think this growth is, and what gives you confidence in that?

Hey, Carter, it's Rick. Good afternoon. First of all, Europe has been the strongest the last two out of the three quarters, it still looks positive book-to-bill through the March quarter. And they also have the least exposure to the large EMS business that we've talked about in a couple different points here today. So, we feel good about the overall environment out there, we still have opportunity to grow particularly in our IP&E business and all that factors into an optimistic outlook for that particular region for us on the EM side.

Okay. I guess fair enough. And then with Access, can you remind us again what the margin structure is going to look like there and how much that margin structure fluctuates on a seasonal basis?

Well, Carter, I think what we said is the gross margins are a little bit lower than our TS overall gross margins. The operating income margins had been running within the range of our TS operating income margins. And then, of course, what's happening is we're moving up the TS margins, but in conjunction with that, we have the synergy cost savings, which will impact effectively the margins coming out of Access. So, long story short at the operating level, Access is sort of consistent with the overall margin model of TS. Okay? And the seasonality.

Slowing of margins.

I don't know.

It's not only on margins it has to do with mix.

Yeah. So you may see a slightly higher June and December, slightly lower March and September, but the operating margins are relatively stable.

Okay, great. Thanks a lot.

You're welcome.

Thank you. The next question is from Harry Blount with Lehman Brothers. Please state your question.

Hi, guys. Just one question if I might and this focuses on the microprocessor business. Is the ROCE numbers on the lower level of activity here still within targets? Or maybe asking the question a different way, I think you guys made a decision a while back to exit the majority of one supplier's business because it didn't meet minimum hurdles. Is that still the case with the AMD business at this point?

We're still meeting the hurdles, Harry, this is Rick. We're still there and not looking forward to having a more dramatic decision necessary in that space.

Okay. So, nothing short-term that we need to really focus on here, but it's something that it sounds like we need to keep an eye on?

Yeah. We certainly will be.

But the message Harry, is revenues were very disappointing, but the profitability on those revenues was okay.

Got it. Great. Thanks.

Nice job on CNBC this morning.

There are no further comments in queue. I'd like to turn the call back to management for closing comments.

As we conclude today's quarterly Analyst Call, we will now scroll through the slide mentioned at the beginning of our webcast that contains the non-GAAP to GAAP reconciliation of results presented during our presentation, along with a further description of certain charges that are excluded from our non-GAAP results. This entire presentation, including the GAAP financial reconciliation's, can be accessed in downloadable PDF format at our website. We would like to thank you for your participation in our quarterly update today. If you have any questions or feedback regarding the material presented today, please contact the Avnet Investor Relations Department by phone or e-mail. Thank you.

Thanks, everybody.

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