Avnet Inc (AVT) Q4 2021 Earnings Call Transcript

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Avnet Inc (AVT 1.54%)
Q4 2021 Earnings Call
Aug 11, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Avnet Fourth Quarter Fiscal Year 2021 Earnings Call.

I would now like to turn the floor over to Joe Burke, Vice President of Treasury and Investor Relations for Avnet. Joe, you may begin.

Joe Burke -- Vice President of Treasury and Investor Relations

Thank you, operator. Earlier this afternoon, Avnet released financial results for the fourth 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 risk, uncertainties and assumptions that are difficult to predict. 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 CEO; and Tom Liguori, Avnet's CFO.

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

Phil Gallagher -- Chief Executive Officer

Thank you, Joe and thank you, everyone for joining our fourth quarter and fiscal year 2021 earnings conference call. I hope everyone is safe, healthy and has taken some time to enjoy the summer. I'd like to start today by reflecting on the past year. Just over a year ago today, I was named Interim CEO of Avnet. And during my first earnings call, I shared with you my immediate priority will be to lay the ground work to focus on our strengths to truly reinvigorate our business. Despite ongoing supply disruptions and the global pandemic restrictions, our team did just that and delivered some incredible results. I'm extremely proud to be leading this team during this challenging period. We have made important improvements to our go-to-market strategy, focused spending on the right things and as a result, we were able to post record sales for both operating groups in the fourth quarter and make notable margin and revenue progress over the year. I'm truly excited for the continued journey that lies ahead.

Now, let me highlight some of this past year's accomplishments before diving into the fourth quarter performance. In the past year, we continue to strengthen our foundation based on decades long relationships with our industry-leading semiconductor and IP&E supplier partners. We supported our customers and suppliers by utilizing our capabilities and expertise to help decreased risk in their supply chains.

We made significant investments in our sales and engineering personnel, enabling differentiated design solutions for our customers, resulting in demand creation numbers at record levels for fiscal year 2021. We also continue to invest in the digitization of our business across both Avnet and Farnell, allowing for support across the entire customer product life cycle. That in turn attributed to margin growth, moving us toward our 3% and 10% operating margin targets for electronic components and Farnell businesses, respectively. Tom will get into that in more detail later.

We grew market share operating income dollars and improved our return on working capital. And finally, we began the celebration of our 100th year anniversary reflecting on the critical role we've played in electronic supply chain for multiple decades. Now, all this could not have been done without our dedication of our team across the globe. Throughout this fiscal year, our whole team continue to prove that Avnet's role at the center of the global technology supply chain is more vital than ever for our customers and suppliers and that expertise and relationships truly matter. While I'm pleased with what we've accomplished to date and excited for what's ahead, we are still operating in a dynamic market. We will continue to experience a supply driven market place as extended lead times persisted throughout the quarter driving very high book-to-bill ratios in every region. As such, tightly managing our backlog and working closely with customers to gain extended visibility continues to be a priority as we manage our own supply chains.

Further, component costs for certain technologies have increased on average of 10% to 15% this past year with some even higher. As always, Avnet is trying to mitigate any customer impact where possible and we worked closely with our customers where we've had to pass some of these costs along.

Now turning to the fourth quarter results on slide 5. We achieved fourth quarter sales of $5.2 billion, up sequentially and year-over-year on a constant currency basis. Excluding TI, sales grew 31.7% year-over-year. Electronic components and Farnell, both achieved record sales in the quarter and delivered strong operating margins. We expect continued progress at the operating margin line given the strength of the market, solid execution across all regions as well as the durable improvements we've made to our business.

Looking at the electronic components business on slide 6. The depth of our relationships with our suppliers and customers is driving excellent results across all regions and positioning us for continued progress in fiscal year 2022. Strong performance in EMEA and Asia and continued operating improvements in the Americas, all contributed to better than expected results in the quarter. In terms of vertical segments, the industrial, automotive, communications, computing segments continue to be major drivers.

Global demand creation also continues to be a key, competitive advantage supporting our long-term growth and profitability in electronic components. With demand creation accounting for roughly 30% of electronic components revenue, we will continue to invest in digital and design tools, field application engineers and relationships to drive strong engagements as we enter fiscal year 2022. We will also continue to enhance our current business offerings while driving demand for our suppliers with broad-based solutions, software capabilities and value-added services across vertical markets including IoT solutions, allowing our customers to differentiate their solutions and address their current needs.

Now turning to Farnell on slide 7. Farnell continues to be an important contributor and saw record sales this past quarter. Revenues were up year-over-year and sequentially in the quarter at $441 million and operating margin increased sequentially to 8.3%, progressing toward our target of 10%. Our investment in Farnell's digital capabilities continue to pay off, with nearly 51% of revenues attributed to e-commerce sales. We also added 20,530 SKUs this past quarter, progressing on our plans to add an additional 250,000 SKUs throughout the fiscal year 2022. The combination of Farnell's high-service model and electronic components business capabilities enable us to uniquely service customers from new product introduction to mass production. As we continue to enhance our digital capabilities in fiscal year 2022, we expect Farnell's value proposition to continue to increase.

Now with that, I'll turn it over to Tom to dive a bit deeper into our fourth quarter and fiscal year results.

Tom Liguori -- Chief Financial Officer

Thank you, Phil. Good afternoon, everyone and thank you for attending today's call. As Phil stated, we are very pleased with the results we posted in the fourth quarter and the progress we've made over the last year. While there is still work ahead, I am excited to share some highlights.

Turning to slide 9. In the fourth quarter, we grew our top line by 25.7% year-over-year. Our revenues for the fourth quarter were $5.2 billion and adjusted EPS was $1.12. Both our revenues and adjusted EPS exceeded our guidance range and grew from $4.2 billion and $0.64 in the prior year's quarter. As Phil mentioned, strong revenues were primarily driven by exceptional quarter performances in EMEA, Asia and Farnell and continued operating improvement in the Americas.

Turning to slide 10. For the fiscal year, we achieved sales of $19.5 billion, representing a 10.8% increase from the prior year. Throughout the year, our teams improved execution and efficiency, expanding operating margins for four consecutive quarters and bringing us to our 3% target for electronic components and closer to 10% for Farnell. We controlled operating expenses, improving the ratio of opex to gross profit dollars from 91% a year ago to 76.5% this quarter. Our asset and finance teams consistently managed working capital, reducing working capital days to 70 by year end. And we grew earnings per share to $1.12 in the fourth quarter.

Moving to the fourth quarter income statement on slide 11. Gross margin of 12.3% was up sequentially, evidence that we are effectively managing our pricing in the supply constrained market. Every electronic components region and Farnell saw notable improvements in their gross margin sequentially, an encouraging trend as we continue to work toward enhancing margins.

Opex as a percentage of gross profit continues to improve, reaching 76.5% from 80.6% last quarter. Adjusted operating expenses of $493 million were up 7.7% sequentially due to increased costs associated with our sales growth. On the non-operating front, interest expense was up slightly due to higher debt through the quarter for working capital, reaching $23.3 million. We recorded foreign currency transaction losses of $2.1 million, which represent the costs associated with our foreign currency hedging activities. We booked a 13.5% adjusted tax rate in the fourth quarter to get us to a 15% adjusted annual tax rate, which was an improvement from our expectation of 16% last quarter.

On slide 12, we highlight results across our two business segments. Looking at the electronic component segment, we achieved revenues of $4.8 billion, increasing 23.7% versus the prior year and 5.9% sequentially. For the electronic component segment, operating margins were 3.1%, a 47 basis point improvement from last quarter and 157 basis point improvement year-over-year. As noted earlier, our electronic component group's performance this quarter was driven by strong sales in EMEA and Asia, and supported by higher sales and continued operating improvement in the Americas. Farnell achieved a record sales quarter with revenues totaling $441 million, up sequentially and year-over-year. The strong market demand has benefited Farnell.

We continue to invest in inventory, systems and e-commerce capabilities to further enable Farnell's growth. The Farnell's segment had an operating margin of 8.3% in the quarter, on track to achieve our 10% target by the end of fiscal year 2022. We are extremely pleased with the Farnell's recent results and expect to build upon this momentum.

Turning to cash liquidity and the balance sheet on slide 13. We increased inventory by $475 million in the past quarter to keep up with customer demand. While working capital dollars were up, we were still able to improve our working capital days to 70 as previously noted. Our liquidity position remains strong. We ended the quarter with cash and equivalents of $200 million and $1.7 billion of available lines of credit. We remain comfortable with our debt position, with debt coming in at $1.2 billion and net debt at $1 billion. Our gross debt leverage was 2.2 and net debt leverage was 1.9. We increased our dividend by 4.8% in the quarter, returning $22 million to shareholders. Our net book value per share increased to $41 compared with $38 in the year-ago period.

I will wrap up with some comments about our expectations for the next quarter on slide 14. Our first quarter guidance today assumes ongoing strong demand, continuing supply constraints and associated electronic components price inflation. As a result, we expect to perform better than the normal seasonal pattern. For our fiscal Q1, we are guiding revenues in the range of $5.1 billion to $5.4 billion and adjusted EPS in the range of $1.02 to $1.12. While we expect persisting supply constraints to continue to benefit the pricing and demand environment through Q1, we also have made significant durable changes to our business.

As you'll see on slide 15, as a result of these changes, we now expect by the latter half of fiscal year '22 to deliver sustainable operating margins in the 3% to 3.5% range for total Avnet. We have spent the last year of positioning the business to operate efficiently in all manners of challenging macro environments and we're confident in our ability to continue delivering value to our customers and shareholders.

I will turn it back over to Phil for some closing comments before we open it to Q&A. Phil?

Phil Gallagher -- Chief Executive Officer

Thanks, Tom. As we kick off fiscal year 2022, we see positive growth in our markets and are excited to capitalize on every opportunity. Now is the time to build on our strategies around financial and competitive performance and our earning growth, and investing in the digitization of our business as well as in our employees. I'm incredibly proud of our team's resilience amid the challenges this past year. They've delivered significant value in providing uninterrupted service at a global scale and working collaboratively with our customers and suppliers to manage forecasts, navigate current market dynamics and mitigate supply chain risk. Because of their hard work and focus, we are well positioned today to leverage our strengths going into fiscal year 2022. I cannot be more excited about what the next year holds in store for Avnet.

With that, I'll turn this over to the operator for questions and answers.

Questions and Answers:

Operator

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Matt Sheerin with Stifel. Please proceed with your question.

Matt Sheerin -- Stifel -- Analyst

Yes. Thank you and good afternoon, everyone. My first question, Phil is just regarding the inventory build that you saw in the quarter. You seem to be one of the few companies within the supply chain to be able to do that. So the question is, is that a lot of that inventory already sold? In other words, do you expect them to run that through your balance sheet? And could you tell us where you built it? Is that across your portfolio?

Phil Gallagher -- Chief Executive Officer

Yeah. Thanks, Matt. Appreciate that. We're actually pretty comfortable with the inventory build, Matt. And you've got to remember, it doesn't all come in in this case, closing out the June quarter, it doesn't all come in in April or May, right? So it comes in throughout the quarter, may be end of the quarter. So it doesn't all get out. But no, we're comfortable with it because as we grew the inventory, we actually reduced the working capital days and inventory days, right. So, arguably, we've probably used a little bit more to continue to drive the top line, right. So we're comfortable with where that is. We are meeting with the suppliers pretty much every day. We got our supply chain folks involved on a regular basis evaluating it. And we're comfortable with the level of inventory and the age of the inventory and the quality.

Matt Sheerin -- Stifel -- Analyst

Okay. Thank you for that. Then regarding the growth, that was up pretty significantly. So the question is, is that sustainable? Do you expect to remain at those levels? And how much of that is benefiting from the favorable pricing in the short, the component constrained environment versus your mix, so versus anything you're doing differently and whether that's sustainable or not?

Phil Gallagher -- Chief Executive Officer

Yeah. So it's probably a little bit of both, Matt. So we definitely, as we noted in the script, we are definitely seeing price increases. I'm sure, there'll be more questions on that as we get through the call anywhere from 10% to 15% and some higher than that. That tends to drive the gross profit dollars more than the percent, a little bit in the percent, OK, where we can pass that along. And we do try to pass that along and customers have been pretty good in working with us on that. And then, of course, some of it's also mix, the mix of what we're shipping and by region of what the mix is also impacts the margin. But we're pleased -- you're right, we're pleased with the acceleration in some GP percentage, as Tom pointed out was pretty much across the board. But again, it's a combination of things. And going back on your inventory comment, I'd also just further clarify. There is a lot of stuff, we didn't get in that we need, OK. There is still a lot of lead times, extended lead times and things along those lines out there, Matt, that we're still looking to increase our position on.

Matt Sheerin -- Stifel -- Analyst

Okay. Great. Thanks very much. And congrats on your [Technical Issues] as CEO.

Phil Gallagher -- Chief Executive Officer

Thanks, Matt.

Operator

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

Ruplu Bhattacharya -- Bank of America -- Analyst

Hi. Thanks for taking my questions. Phil, I wanted to ask you, you set a target of getting to 250,000 SKUs in Farnell by the end of next fiscal year, fiscal '22. I mean, it looks like you've added about 87,000 this year. So that means you're going to add almost double, like almost 160,000 SKUs next year. Just wondering how that happens? Do you think -- are you planning to add more suppliers? Or do you think you can get there by penetrating more into the line cards of existing suppliers? And to do that, do you need to hire more FAEs and sales people? And how does that affect opex going forward?

Phil Gallagher -- Chief Executive Officer

Yeah. Thanks, Ruplu. Appreciate that. Well, we're always looking -- in our line card, we're always looking for, we call it gaps and overlaps, where do we have gaps in technology, where we need to add lines and where do we have overlaps. So, we're comfortable with the position that we have to cover, what we call the board, right, the whole board of technology. Farnell is pretty well set. I mean, we've been blessed to be able to leverage the Avnet core along with Chris' Farnell team and Newark and element14 to help them get some lines in the last couple of years, just to name a few. Some of our top brands like Xilinx, for example, we now have at Farnell. So, we added Xilinx, we added SKUs, OK. Renesas, IDT, I could go on Micron, I could go on and on. So that right there, you expand SKUs. But most of it's going to come from existing lines where we're just expanding our SKU count, OK. It's critical for NPI, new product introduction. We've -- remember, Ruplu, we've expanded our warehouse, although it's a little bit late and coming totally online as we've shared in the past, that's allowing us to expand our SKU count from the physical space physician.

So as far as that's happening, we're on track. So, your numbers are right on, by the way. So, you've been adding them up as we've gone through the quarters. So, we're comfortable from where we are in that SKU expansion. And as far as adding cost to do that, not really. I mean, we're leveraging the current infrastructure. Wouldn't really lead to new FAEs. Farnell doesn't really have field application engineers. They do have some account managers. They leverage -- we leverage the combined Avnet FAE team on the core side. So shouldn't be any real opex expansion there, other than where it leads to new demand creation, which is on the core side anyway.

Ruplu Bhattacharya -- Bank of America -- Analyst

Got it. And thanks for the details on that, Phil. For my second question, if I can just ask on Farnell margins. So, you had about 230 basis point sequential margin improvement and you're at 8.3%. How much of that was mix versus pricing versus FX and volume? Because I think you mentioned on one of the slides that half of the revenue, 50% of revenues came from e-commerce, which I think has higher margins. So do you think that is sustainable? And given you're at 8.3% margins now, I mean, your target was to get to 10% by the end of fiscal '22, do you think that, that kind of speeds up and you can get there faster than that? Thanks.

Phil Gallagher -- Chief Executive Officer

You want to take that, Tom?

Tom Liguori -- Chief Financial Officer

Sure. Hi, Ruplu. So yeah, we think -- first of all, we can get to the 10% probably faster than we've expected. The 8.3%, yes, part of it is due to a favorable market as volume and pricing. And the way we look at it is if we didn't have a favorable market environment, it was more of a steady state, we would be on our original trajectory, which would have been about a 6.5% to 7% op margin for Farnell in this quarter. That said, we are really happy with the performance of Farnell. What they're doing with the volume, with their ability to ship it, with pricing. Things are really hitting on all cylinders in Farnell.

Ruplu Bhattacharya -- Bank of America -- Analyst

Okay. Thanks for all the details. Congrats on the quarter.

Tom Liguori -- Chief Financial Officer

Thank you, Ruplu.

Phil Gallagher -- Chief Executive Officer

Thanks, Ruplu.

Operator

Thank you. Our next question comes from Jim Suva with Citigroup. Please proceed with your question.

Jim Suva -- Citigroup -- Analyst

Thank you so much. You just completed a very good year of revenue growth. Any initial thoughts for fiscal '22 outlook? I know it's early and a lot of changing things, but you came off of a very good year, where I think sales were up about 10%, 11%, and I think consensus is kind of modeling 4%, 5%. Any thoughts around the outward year?

Phil Gallagher -- Chief Executive Officer

Let me go first, Tom. Thanks, Jim. I appreciate that. And you're exactly on the year-on-year growth for us at the Avnet, Inc., so good job there. Just on the market environment, I'll let Tom get in more details. I mean, it's tough to look out. I mean, the backlog looks good. The book-to-bill is incoming. They are still really positive. And we track that very closely from the standpoint of the supply chains, in particular, upstream and downstream with our suppliers and customers.

But right now, as we look at it, through December looks pretty solid into 2022. We don't like to give much -- I don't want to call it guidance, much beyond that, because things can change pretty quickly. But it's pretty pervasive across the board from a technology standpoint and from a vertical standpoint. So it's -- it feels very positive as we get through this first quarter as well. Tom, anything you want to?

Tom Liguori -- Chief Financial Officer

Jim, I would just add, I think when you look at consensus for fiscal year '22, we feel very good about it. We think we'll probably do better. When you go further out, it depends on the economy. We feel very confident. Because of the changes we've made, they're not -- just where we were trying to be open with, Ruplu, on the operating margins. In spite of the market or with the help of the market, even if we didn't have that, we'd be posting improved margins. So, we think longer term, we're on a good path. And that's why we gave the signal of the 3% to 3.5% sustainable margins, because the changes are -- they're durable. They're significant benefit to Avnet [Phonetic]. Does that help?

Jim Suva -- Citigroup -- Analyst

Yes. And then my follow-up question, there's going to be a lot of scrutiny on your inventory build, while book-to-bill is solid and your major competitors said that they're basically selling everything that comes in the door right away, and they had a delivery that came the last day or two of the quarter that they said they already sold. So is it -- you didn't have the right parts that everybody wanted? Or you had the chance to say you already sold the inventory, but you said you feel pretty comfortable on the inventory build. I'm trying to triangulate or square the book-to-bill, the strength, the shortages in your inventory build.

Tom Liguori -- Chief Financial Officer

Well, first of all, that would be -- that's a lot of inventory to receive in the last few days and be able to get a new stock. So I'll leave that to the side. But we feel good with the inventory. It did predominantly come through in June. It's -- we have a good position with our suppliers, Jim, and our inventory days are really flattish, right. So that we feel it is the appropriate level of inventory that came in. We're not concerned about it, if that's what you're getting at.

Jim Suva -- Citigroup -- Analyst

Okay. Thank you so much. And congratulations for a great year and really turning up the profitability. Thank you.

Phil Gallagher -- Chief Executive Officer

Thanks, Jim.

Operator

[Operator Instructions] Our next question comes from Joe Quatrochi with Wells Fargo. Please proceed with your question.

Joe Quatrochi -- Wells Fargo -- Analyst

Yeah. Thanks for taking the question. Sorry, I just want to visit the inventory again. I guess I'm just -- I want to try to, I guess, understand the inventory build relative to maybe kind of a relatively flat sequential revenue guide, I guess. I understand that's better than seasonal. But can you help us understand, I mean, with demand being as strong as it is in building inventory, is that the right level of inventory to kind of think as being a stable amount going forward?

Tom Liguori -- Chief Financial Officer

So Joe, we always look at our working capital and inventory days working capital. If you go back last year, we consistently had 65 days, 66 days. Even with the $475 million we added, we were at 60 days. So, this is not an abnormal buildup of inventory. We view it actually the opposite. That's quite positive that, hey, we have it, we can sell it. And inventory days are -- they're in line, if not, they're still tight inside our Company.

Phil Gallagher -- Chief Executive Officer

Yeah. I think there's a -- glad we're going to ask the questions on the inventory. There is -- when the inventories have good quality, it's an asset, OK. And we measure our businesses based on the return on working capital. And we've seen continuous improvement there as well and we will continue to see improvement in return, overall working capital. So when I look at it, and I have the luxury of doing that by business and by region, you start to look at a little bit in Farnell, a little bit in the Americas, a little bit in Europe. So it's not like all was in one SKU that came in or one region or business, it's really a $50 million there and $100 million there, and it's pretty well balanced, frankly, when you look at it by region and by business unit.

Joe Quatrochi -- Wells Fargo -- Analyst

Okay. And then just as a follow-up. Clearly, book-to-bill is well above 1. In terms of just thinking about the lead times for your customers that you're getting, I mean, how do we think about that relative to the normal? Is it 20% higher, 50% higher? Just any color there would be helpful.

Phil Gallagher -- Chief Executive Officer

You mean lead times from our suppliers? I'm sorry, Joe.

Joe Quatrochi -- Wells Fargo -- Analyst

I'm talking like in terms of demand visibility that you're seeing, getting from your customers.

Phil Gallagher -- Chief Executive Officer

Yeah. Well, 55% of our business or so is supply chain, Joe, where we're actually getting in EDI feeds, MRPs, implant stores, consignment programs. A lot of that's -- a lot of our businesses forecast management. So, we're getting to triangulate thousands of customers basically across the world. And then upstream with our suppliers to make sure we're managing that closely. So again, right now, as we see it, to the earlier question, the demand looks very good inside, minimally six months, I'll say, December quarter looks very positive. The adjustments on our backlog, I've shared this before, normal adjustments on our backlog, whether hard orders or supply chain forecast is somewhere 20% roughly, 15%, 25%.

So, we're constantly seeing that adjustment. And it's not increasing at this point in time, so it's pretty stable. Now what we are seeing is -- which is driving some of the book-to-bill higher is with longer lead times, which is why I asked that question from our suppliers. We load that into the MRPs and you end up getting extended bookings as well, right, because people are managing their lead times out further. This demand as we see it right now today looks pretty good.

Joe Quatrochi -- Wells Fargo -- Analyst

Got it. That's helpful. Thank you.

Phil Gallagher -- Chief Executive Officer

You bet, Joe. Thank you.

Operator

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

William Stein -- Truist Securities -- Analyst

Great. Thanks for taking my question, and congratulations on the very good results and outlook. I'm going to ask a very similar question. Pardon me for beating this horse. But I'm trying to understand the changes in the balance between supply and demand that might have happened in the last quarter or so. We see the inventory build relative to historical levels. It's certainly not alarming. It seems pretty likely you're getting the somewhat shorter lead time stuff and maybe having a hard time with certain inventory, so you can't get full kits and it's probably why that's happening.

But I'm wondering about how the balance between supply and demand changed during the quarter. And so for that, I wonder if you might disclose the actual book-to-bill, maybe the backlog dollars or the -- and maybe the way I think about it is the average duration of the backlog today. I'm really wondering whether lead times are still increasing or if they're moderating now. Thank you.

Phil Gallagher -- Chief Executive Officer

Well, the book-to-bill is across the board. Our -- just well in excess of 1, Will. So -- and it's been that way now for, what, I don't know, three quarters or so. So what we do is we try to, again, triangulate that back to what suppliers -- the customer's typical demand has been. So, we've got all that information, what they've shipped this quarter last year, last quarter, what their bookings were, what their backlog was, what their backlog is today and what their book-to-bill is today on us. So, we manage that really closely. And once you have that information, that data is where the strength of the relationships come in.

You got to go to those customers and make sure you're verifying the reality of the book-to-bill, the reality of the backlog and really driving responsibility in the supply chain, which I've used that word now a bunch of times. I think we need to be responsible because we've seen these types of situations before. This one is definitely a bit unprecedented given the COVID situation. As far as lead times, I'm looking at them all right now as we're sitting here. If there's any improvement, it's modest right now. And it's probably the same areas we've talked about with the controllers, some interface products, some analogs, starting to see some capacitors go out and programmer logics extended. So it's really -- it's pretty broad, OK, at this point in time. That said, you're right, there's a lot of stuff that's readily available that we're making sure we've got the inventory on. But it's probably the best I could do on the call today, Will, without really drilling down.

William Stein -- Truist Securities -- Analyst

Okay.

Tom Liguori -- Chief Financial Officer

And I would go back to -- at our Q4 revenue level, our guidance for Q1 revenue level, the amount of inventory we have is fine. It's appropriate. We look at the inventory addition as a good thing. And we don't -- we do have strong, as Phil said, book-to-bills and it's positive. We're not concerned about it.

Phil Gallagher -- Chief Executive Officer

Not -- no, not at all. Will, let me just build on that. I mentioned in the script, what's happened is unfortunate with the pandemic, which we're obviously all still dealing with right now, right, again, unfortunately. And it's just been a little unprecedented. And I think what it's done, I don't think I know is it has put more value in supply chain services, right? And we say we're -- Avnet is in the middle of the technology supply chain. So, we're actually seeing more opportunities today from, let's say, maybe customers we weren't seeing before or increased opportunities inside of existing customers. And suppliers coming to us saying, hey, we need some help with supply chain services. So, I think all of that is a culmination of positive, if you will, for the supply chain and what we do there in addition to demand creation. So again, there's no concern on our end at this point.

William Stein -- Truist Securities -- Analyst

Great. Thank you.

Phil Gallagher -- Chief Executive Officer

Thanks, Will.

Tom Liguori -- Chief Financial Officer

Thanks, Will.

Operator

[Operator Instructions] Thank you. Our next question comes from Toshiya Hari with Goldman Sachs. Please proceed with your question.

Toshiya Hari -- Goldman Sachs -- Analyst

Hi, guys. Thank you so much for taking the question, and congratulations on the strong results. I had a similar question as well. Phil, can you describe the gap that exists today between supply and demand? How big that is today relative to three months ago, six months ago? And I guess, going forward, based on indications from your suppliers and demand signals from your customers, at what point would you expect or do you expect supply to catch up to demand? And then I've got a quick follow-up.

Phil Gallagher -- Chief Executive Officer

I don't think I have all that detail in front of me, Toshiya. So, I apologize for that. But right now, again, based on what I shared on how we track bookings, our billings to book-to-bill, our cancellation rates and adjustments to backlog, right now, we're feeling, again, pretty darn good through the December quarter, which is telling me that things are not all going to free up here in the next 30, 60, 90 days. So, I would put that at a high confidence level at this point. And then when you look outside 90 days, 180 days in our backlog, it really swings quite a bit at that point, right, which is, again, very normal. I mean that's what we do. Again, it's an asset and it's a value we bring to the market.

Toshiya Hari -- Goldman Sachs -- Analyst

Okay. So would it be fair to say that for the balance of the calendar year, you expect to be supply constrained and then beyond that, 2022 is kind of TBD? Is that a fair statement?

Phil Gallagher -- Chief Executive Officer

Yeah. I think that's a pretty fair statement. Okay. And again, there's a lot of information out there from a lot of our suppliers that are corroborating that. So some of them are more -- even given more guidance out there from the standpoint of what they're seeing. But that's as far as I'd like to go.

Toshiya Hari -- Goldman Sachs -- Analyst

Okay. And then as a quick follow-up, just wanted to ask about your margins in both electronic components and at Farnell. Obviously, you're doing a great job in improving gross operating margins. I think pre pandemic, Farnell margins were as high as 12%-ish. And I think on the EC side, you were in the mid-4s. So curious, is there a path kind of back to 12% for Farnell and 4.5% for EC? Or is that a bit of a stretch in your view? Thank you.

Tom Liguori -- Chief Financial Officer

Clearly a path for both. And our game plan, Toshiya, is that we put out 3% to 3.5%, which assumes Farnell gets to 10%, and EC continues in the low-3s. And once we get solid leads at those levels, we'll update you on the next steps.

Toshiya Hari -- Goldman Sachs -- Analyst

Thanks, Tom.

Tom Liguori -- Chief Financial Officer

You bet.

Operator

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

Phil Gallagher -- Chief Executive Officer

Thanks very much. And let me just thank everyone for attending today's earnings call. Really appreciate it. I hope everyone stays healthy and safe. And look forward to speaking to you again in October for our fiscal 2022 first quarter earnings results. Enjoy the rest of the summer. Take care.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Joe Burke -- Vice President of Treasury and Investor Relations

Phil Gallagher -- Chief Executive Officer

Tom Liguori -- Chief Financial Officer

Matt Sheerin -- Stifel -- Analyst

Ruplu Bhattacharya -- Bank of America -- Analyst

Jim Suva -- Citigroup -- Analyst

Joe Quatrochi -- Wells Fargo -- Analyst

William Stein -- Truist Securities -- Analyst

Toshiya Hari -- Goldman Sachs -- Analyst

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