Inventory Normalization Outlook
Q: How long will inventory correction take?
A: Sean Kerins stated that inventory levels are normalizing but still require "this quarter and next" to fully normalize. The company focused on backlog conversion, which helped drive inventory reduction, and noted that excess inventory is partly due to price effects rather than inbound volumes. Lead times have normalized, and suppliers are behaving as in pre-pandemic days, providing flexibility with reschedule and cancellation activity.

Margin Expectations and Regional Mix
Q: What is the gross margin outlook for the March quarter?
A: Gross margins are expected to hold up "pretty well sequentially," with operating margin declines attributed to regional mix, particularly less EMEA business impacting margins. The company is experiencing a loss of operating leverage due to lower sales levels, but structural contributors to margin strength are holding up. Operating expenses are expected to trend downward over the course of the year as the company remains vigilant about cost structure.

Supplier Behavior on Inventory
Q: Are suppliers pushing more inventory to you?
A: Sean Kerins confirmed they are not seeing suppliers push more inventory; suppliers are flexible as lead times have normalized. The company is able to reschedule and cancel orders as necessary and is not experiencing pressure from suppliers in this environment.

Capital Allocation and Share Buybacks
Q: What is the outlook for share repurchases and share count?
A: The company does not guide on share repurchases or share count but reaffirmed their capital allocation priorities: investing for organic growth, appropriate M&A, and returning cash to shareholders through buybacks as it makes sense relative to debt capacity.

Investment Focus and Recurring Revenue
Q: What areas are you investing in during this environment?
A: The company is making "surgical" investments, focusing on demand creation, value-added offerings, IP&E selling, and transitioning to IT-as-a-Service in the ECS business. This shift is changing the sales mix toward gross profit dollars rather than reported sales, with the recurring revenue mix now approaching one-third of the ECS business.

Component Margins and Revenue Levels
Q: Is there a revenue level needed to keep component margins above 5%?
A: Rajesh Agrawal stated there is no set revenue level for the margin target; they remain confident in the long-term target of 5.5% to 6% for component operating margins. Current margin pressure is due to negative leverage from reduced revenues, but structural margin contributors are holding up.

ECS Margin Trends and Strategy
Q: How will optimizing customers and line cards in ECS impact margins?
A: The company is transitioning the ECS business in North America to mirror the European model, focusing on the mid-market and increasing software and cloud mix, which should be margin accretive over time. They are not predicting full-year margin impact yet but expect better progress over the course of '24.

Legal Settlement Impact
Q: What was the impact of the legal settlement?
A: The $62 million benefit from a legal settlement was recorded in the third quarter in operating expenses within the components business, contributing about 100 basis points to component margins in that quarter. The settlement related to a commercial dispute dating back over a decade, now resolved with no ongoing consequences.

IP&E Book-to-Bill Near Parity
Q: Is IP&E book-to-bill approaching parity a recovery indicator?
A: Sean Kerins noted that IP&E did not experience the same shortages as semiconductors and is not in the same kind of correction; book-to-bill is closer to parity due to its resilience and predictability. The IP&E space is favored as it is margin accretive and expected to be attractive over time.

Asia Market Demand and EV Sector
Q: How is demand in Asia, particularly in EV transportation?
A: The Chinese market remains soft with unclear recovery timing, but the transportation sector, specifically EV, has been "a little bit healthier" compared to other verticals. Demand hasn't increased dramatically, but there is consistent sell-through of inventory in that space.