Avnet - Q1 2015
October 23, 2014
Transcript
Operator (participant)
Please stand by. Our teleconference will now begin. I will now like to turn the floor over to Vincent Keenan as Vice President of Investor Relations.
Vincent Keenan (VP of Investor Relations)
Good afternoon and welcome to Avnet's first quarter fiscal year 2015 business and financial update. Before we get started, I would like to point out that we have modified the format of our call to improve the flow and content quality. Given the amount of financial information in our press release and CFO review, we have eliminated the slides and reduced our commentary to allow more time for Q and A. As we provide the highlights for our first quarter fiscal year 2015, please note that in the company remarks we have excluded certain items including intangible assets, amortization expense, restructuring integration, and other items, and certain discrete income tax adjustments for all periods covered in our non-GAAP results. When discussing organic growth, prior periods have been adjusted to include the impact of acquisitions and divestitures.
In addition, when we refer to the impact of foreign currency, we mean the impact due to the change in foreign currency exchange rates when translating Avnet's non-U.S. dollar-based financial statements into U.S. dollars. Finally, when addressing working capital, return on capital employed, and return on working capital, the definitions are included in the Non-GAAP section of our press release. Before we get started with the presentation from Avnet management, I would like to review Avnet's safe harbor statement. This call 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 is set forth in Avnet's filings with the Securities and Exchange Commission.
In just a few moments, Rick Hamada, Avnet CEO, will provide Avnet's first quarter fiscal year 2015 highlights. Following Rick, our Chief Financial Officer, Kevin Moriarty, will review some additional financial highlights and provide second quarter fiscal 2015 guidance. At the conclusion of Kevin's remarks, a Q and A will follow. Also here today to take any questions you may have related to Avnet's business operations are Phil Gallagher, President of Technology Solutions, and Gerry Fay, President of Electronics Marketing. With that, let me introduce Mr. Rick Hamada to discuss Avnet's first quarter fiscal 2015 business highlights.
Rick Hamada (CEO)
Thank you, Vince. And hello, everyone. Thank you all for taking the time to be with us today and for your interest in Avnet. We continued the momentum of fiscal 2014 into our first quarter of fiscal 2015 as our team leveraged revenue growth into another quarter of year-over-year increase in earnings per share. In our September quarter, double-digit year-over-year growth at EM Asia and TS Americas helped drive both revenue and EPS above the midpoint of our expectations. Enterprise revenue grew 7.8% year-over-year to $6.84 billion, and organic revenue in constant currency grew 5.6%, driven by a sixth consecutive quarter of organic growth at EM. We were also encouraged to see TS return to year-over-year organic growth this quarter as sales of software services and networking and security products drove TS Americas' revenue up 11.2% year-over-year, and our core enterprise distribution business in EMEA was up mid-single digits.
This top-line growth, combined with strong operating leverage at EM, drove adjusted operating income up 12.2% year-over-year and adjusted EPS up 13.3%. Adjusted operating income margin increased 13 basis points year-over-year to 3.3%, driven by improvements in our western regions at EM and at TS EMEA. Although we used $41 million of cash in support of our organic growth in the September quarter, our cash flow generated from operations for the trailing 12 months increased 36% to $323 million. Our consistent growth in earnings and strong financial position allowed us to increase our dividend by 7% this quarter, which now equates to an annualized payout of approximately $90 million.
Our disciplined approach to our capital allocation priorities positioned us well for the recent equity market environment as we repurchased 18 million of our shares in the September quarter and an additional 55 million of shares through the first three weeks of our fiscal second quarter. In addition to returning cash to shareholders, we continue to invest in and pursue profitable growth strategies at both operating groups. At EM, we kicked off our global X-fest 2014 technical seminar series in North America to showcase our expertise in solutions-based design capabilities. Over the coming months, we will roll out this program in 35 locations throughout Asia, Europe, North America, and Japan, expecting to reach more than 8,000 engineers who rely on our practical training for FPGAs, SoCs, DSPs, and embedded systems.
As a complement to our focus on demand creation, we continue to customize our demand fulfillment offerings to both global and local customers to ensure we meet their unique requirements while also achieving our return targets. In Asia, EM has been realizing double-digit growth on the strength of select high-volume supply chain engagements while increasing both returns and economic profit dollars. At TS, we continue to expand our offerings in converged infrastructure and analytic solutions through a combination of new and expanded relationships that leverage new architectures to increase efficiency while providing greater flexibility. We continue to allocate our valuable resources in support of high-growth technologies where our capabilities in supporting and delivering complete solutions help some of our partners grow. In addition, we announced the grand opening of our newest state-of-the-art IT services facility in Columbus, Ohio.
Our CenterPoint Value-Added Service Center represents a collaborative environment that allows us to create end-to-end business solutions for our suppliers and VAR partners to reduce complexity and enhance their offerings while decreasing costs and time to market. We believe that these investments position us to capitalize on profitable growth opportunities as value in the IT ecosystem continues to migrate from technology and products to solutions and services offerings. Now, I would like to turn the commentary over to Kevin Moriarty to provide more color on the financial performance of our operating groups. Kevin.
Kevin Moriarty (CFO)
Thank you, Rick. Hello, everyone. In the September quarter, EM delivered another quarter of revenue growth that was at the high end of our expectations and normal seasonality. Revenue increased 2.3% sequentially in constant currency, primarily due to a 10.8% increase in Asia, partially offset by seasonal declines in our western regions. Organic revenue grew 7.8% year-over-year, with our Asia region up 13.2%, EMEA up 6.4% in constant currency, and the Americas grew 1.2%. Gross profit margin declined 57 basis points sequentially, primarily due to the geographic mix shift to Asia, and increased 12 basis points in the year-ago quarter due to the MSC acquisition in EMEA. The year-over-year increase in revenue growth, combined with the increase in gross profit margin and continued expense management, resulted in operating income growing 1.4x faster than revenue. Operating income margin increased 17 basis points to 4.6%.
Working capital grew 8.4% year-over-year to support the organic revenue growth, and working capital velocity was roughly flat with the year-ago quarter. Return on working capital increased 86 basis points year-over-year, primarily due to an increase in our Americas region. Turning to TS, double-digit year-over-year growth in the Americas region resulted in top-line growth of 2.4%. In EMEA, continuing weaker-than-expected sales in our computing components business offset mid-single-digit growth in our core enterprise distribution business, which resulted in a 5.8% year-over-year decline in constant currency. TS Asia declined a worse-than-expected 15.2% as we saw broad weakness across the region. Gross profit margin declined 22 basis points from the year-ago quarter as the decline in the Americas region was partially offset by increases in EMEA and Asia. Operating income of $62.4 million and operating income margin of 2.5% was essentially flat with the year-ago quarter.
In our TS EMEA region, which has been driving efficiency since the transition to a consolidated ERP platform in the March quarter, operating expenses declined 4.6% sequentially in constant currency, and operating income margin increased both sequentially and year-over-year. As a result of the year-over-year decline in revenue, working capital velocity declined from the year-ago quarter, and ROWC decreased 282 basis points. As we close out our September quarter, our book-to-bill ratio at EMEA was just above parity. Through the first three weeks of our second fiscal quarter, our book-to-bill was slightly below parity. Although we continue to deal with an environment of mixed signals, our guidance for the December quarter is within our seasonal range after adjusting for currency. At TS, our December guidance incorporates the impact of our fiscal cutoff as compared with the calendar quarter.
These factors have been built into our December guidance with consideration given to current market conditions and historical trends. Now, turning to the outlook for our second quarter, we expect EM sales to be in the range of $4.15 billion-$4.45 billion and sales for TS to be between $2.85 billion and $3.15 billion. Therefore, Avnet's consolidated sales are expected to be between $7 billion and $7.6 billion. Based upon that revenue forecast, we expect adjusted EPS to be in the range of $1.15-$1.25 per share. This guidance does not include any potential restructuring and integration charges or the amortization of intangibles. The guidance assumes 139 million average diluted shares outstanding and an effective tax rate in the range of 27%-31%.
In addition, the above guidance assumes that the average U.S. dollar-to-euro currency exchange rate for the second quarter of fiscal 2015 is $1.27 to the euro. This compares with an average exchange rate of $1.36 to the euro in the prior year's second quarter and $1.33 to the euro in the first quarter of fiscal 2015. With that, let's open the lines for Q and A. Operator.
Operator (participant)
Thank you, ladies and gentlemen. We will now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit your question to one question and one follow-up. Our first question comes from the line of Steven Fox with Cross Research. Please proceed with your question.
Will Stein (Managing Director and Senior Analyst of Technology)
Thanks. Good afternoon. A couple of questions for me. First of all, just looking at some of the Asia commentary, can you talk a little bit more in detail about the high-volume mix, how much of it was there, and give us a better idea on the margin impact, and then how you expect that to continue into the fourth quarter? And then secondly, Rick, I was just curious with regard to factoring in the calendar for the TS business, I mean, what does that say about your confidence level around typical seasonality if you were to X some of those extraneous factors out of your forecast? Thanks a lot.
Rick Hamada (CEO)
Yeah. Thanks, Steve. I'll let Gerry comment on the EM Asia, and I'll take a stab on the calendar comments. Yeah.
Gerry Fay (President of Electronics Marketing)
Sure. Thanks, Steve. So our large consumer business hit our expectations for the quarter from a growth perspective. Looking out into next quarter, we expect it to increase. It'll be our biggest quarter of the year for that business. So from a percentage perspective, it will increase as a total of our total business next quarter.
Rick Hamada (CEO)
Steve, talking about the fiscal calendar we've had, obviously, you can imagine quite a set of lengthy conversations in here on how to try to properly handicap this. Here's the influencing factors. It's a very unique calendar, and since those three calendar days will fall in our fiscal last three days of December will fall in our fiscal Q3, we took a look at historical patterns of what type of back-end loading we've typically seen there. We also took a look, if you remember, our sequential growth for TS last year was north of 30%, a little bit outside the high end of our normal range stated at 20%-26%. Then we also took a look at the fact that we had a pretty strong close to the calendar September quarter.
In other words, we picked up two days at the beginning of our Q2 here that were pretty strong and very much in line with the momentum reflected throughout the September quarter. So we factored all that in to deliver the guidance that we did today for TS. All that said, as we always continue to reinforce, there's a whole lot of activity that's going to be taking place late in the quarter associated with the final number.
Will Stein (Managing Director and Senior Analyst of Technology)
And just a very quick follow-up on those two comments. One, so we should expect more of a mix issue in this quarter, again, relative to Asia. And then secondly, do you think that that means that the next quarter, the March quarter, probably has less seasonal downward because you probably have a spillover effect?
Rick Hamada (CEO)
Yeah. Those are both good assumptions.
Will Stein (Managing Director and Senior Analyst of Technology)
Yep. Yep. Great. Thank you very much.
Operator (participant)
Our next question comes from the line of Will Stein with SunTrust. Please proceed with your question.
Will Stein (Managing Director and Senior Analyst of Technology)
Thanks. I'm hoping you can remind us about the operating margin targets in each of the two segments and timing as to achieving that, in particular, in the components business. I'd also like to ask about your sense as to the pace of demand given speculation or commentary by some of the more prominent companies that speculate on the cycle that we're headed for a downturn. I wonder if you can elaborate on your view.
Rick Hamada (CEO)
Yeah. Well, let me take a stab, and I'll invite Phil and Jerry maybe to chime in. So the long-term targets for EM on operating margin, it's 5%-5.5%, and for TS, 3.4%-3.9%. And I believe we're on record previously as stating that with normal seasonal patterns from here, we anticipate EM getting back into that type of a range in the second half of our fiscal year here in so March and June quarters. And for TS, what we're looking to get there is continued year-over-year improvement, year-over-year improvement on a sequential basis, building back towards the 3.4%-3.9% over a little bit longer timeframe overall. The pace of demand comment, I assume, was related primarily to the semiconductor business.
There certainly have been, and we continue to talk about mixed signals overall, and I would also say this earnings season there may have been somewhat a limited amount of mixed commentary. But generally, as you saw reflected in our results and in fact the conversation here about guidance, at this point, we did not believe there. We did not see any significant signals of change or disruption to our expectations. Far be it from us to comment on others' opinions of what's going on in the marketplace. As you would expect, of course, we tend to stick to what we're seeing on our dashboards, and we'll share what we see and continue to keep you posted on any developments as they occur.
Will Stein (Managing Director and Senior Analyst of Technology)
That's really helpful. I appreciate that. If I could have a follow-up on the systems business, can you remind us as to the level of supplier concentration here? I know IBM used to be the biggest one, but they've gone through some changes lately, diversifying or divesting some of their portfolio to Lenovo, and I think you've signed up as a, it's probably still a prominent part of your business and your big supplier or big distributor for them. Can you remind us how the concentration is today and how it might have changed? Is it much more diversified than it used to be? Anything you can elaborate on that would be helpful.
Rick Hamada (CEO)
Yeah. I'll let Phil comment on that.
Phil Gallagher (President of Technology Solutions)
Yeah. Hi, Will. Phil, how are you? Yeah. Good question. You really got to go back over the last five years, and we look at this constantly as far as the balance and the weighting of the different suppliers. We're pretty comfortable where we are today. If you look at our top 10 today, they're going to be in the 75%-80% range. The top 10 several years ago would have been closer to 80%-85%. So just when you start to look at that diversification alone, it says we're starting to build a bit more of a tail of, I'll just say, new suppliers, other suppliers. You're right. Lenovo is going to split off from IBM, so IBM is going to become less of a percentage of the total.
It's still a pretty heavy concentration in the top 10, but much less really than it was years ago. We're pretty comfortable with that as we move forward.
Will Stein (Managing Director and Senior Analyst of Technology)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Brian Alexander with Raymond James. Please proceed with your question.
Brian Alexander (Senior Managing Director and Director of Equity Research)
Thanks. Rick, I wanted to ask about the book-to-bill comments you made at the beginning of the call. Is it common for book-to-bill to be below parity at this stage of the quarter, of the December quarter? I think if I look back at the last two September quarter earnings calls, you talked about book-to-bill being below parity on those calls also. So I just wanted to see, is that typical for this period of the year, and is that comment applicable to all regions, or is it more specific to Asia or other subsegments of the business?
Rick Hamada (CEO)
Yeah. So Brian, it is not atypical to see this for the first three weeks, and it was generally across all three regions. So we didn't have pluses and minuses. Generally, all three of them are a little bit muted as we get started here. I don't know. Gerry, do you want to add anything else on that, or?
Gerry Fay (President of Electronics Marketing)
Yeah. The only thing I would say, Brian, is that it is soft this quarter, but that's not atypical for this quarter. And we've had globally three quarters of positive book-to-bill, so we don't see any impact. We see nothing changing in cancellations or push-outs. And so it seems, by all indications we have today, to be pretty normal.
Brian Alexander (Senior Managing Director and Director of Equity Research)
I mean, so you're guiding down about 1.5% sequentially for EM. That's actually the best outlook you've given for a December quarter since December of 2009. And the currency headwind actually would make this more like flat in constant currency on a sequential basis. So it sounds like not only are you not seeing weakness that Microchip and maybe a couple others called out, but you're actually guiding toward the better end of seasonality for EM. And I just wanted to make sure that I understood those comments correctly.
Gerry Fay (President of Electronics Marketing)
Yeah. I think you again, I won't comment on anybody else, but what we see, yes, the quarter was very strong, particularly when you take 4x into account. As we talked about, our Asia fulfillment business will be up this quarter, so that's given us some tailwinds from a growth perspective. So all in all, right now, all of the things we look at on our dashboard look fairly positive for this quarter.
Brian Alexander (Senior Managing Director and Director of Equity Research)
Okay. All right. Thank you.
Operator (participant)
Our next question comes from the line of Jim Suva with Citigroup. Please proceed with your question.
Jim Suva (Managing Director)
Thanks, guys. And congratulations. First, a clarification question. You made some comments around the IBM Lenovo, and could you just clarify about that? It didn't come across the phone with Will Stein or Chris Breslin about how relevant or material it will or won't be to you guys going forward. And my follow-up question is, on a macro standpoint, when you guys sit back there and look at the company and look at the world state of things, you've got some companies like Texas Instruments saying things are just fine and other companies like Microchip saying the cycle is over. Can you just tell us how you guys sit back and look at the dashboard and how you kind of bridge those two very different opinions? Thank you. Yeah.
Rick Hamada (CEO)
Jim, so first of all, on IBM Lenovo, I think we were just clarifying that the transition was done on October 1st, and that actually meant there was actually a transfer of about on a global basis. We shared our total numbers in the neighborhood of $600 million of revenue that actually now is out of IBM and into a new relationship. We're open for business around the globe with Lenovo and off and running with them. On the macro environment, yes, as we said earlier, it continues to be an environment of mixed signals.
And rather than us commenting on anybody else's outlook, what we're saying is that, look, based on what we see and based on our conversations with our broad range of customers and suppliers, looking at our own dashboards, looking at our trends, historical patterns, et cetera, this is what we see and what we expect going into the marketplace. As far as trying to contrast those with any single particular supplier or relationship out there overall, that would be way out of our area of expertise to try to triangulate at that level.
Jim Suva (Managing Director)
Okay. And then as a follow-up on that IBM stuff, so if we talk about pre versus post-close, do the numbers come out same and normal what you'd expect, or do you have more business post that closing or less or some leakage, or how should we think about pre versus post on a normalized looking seasonal when you kind of sort it all out?
Rick Hamada (CEO)
Yeah. Jim, it's early days, so we're in the first month of the new relationship here, but the handoffs have been made. We're open for business. We got all the agreements transferred over. We've got business flowing and open for business. So we'll keep you posted if anything is different than our original expectations. But right now, it's been a pretty clean handoff and transition.
Phil Gallagher (President of Technology Solutions)
Yeah. Just Rick, I had one other comment, Jim, is that even as IBM, as we close out the September quarter, was really where we expected it to be and a very typical quarter for us with IBM in the close, even with all that transition going on with Lenovo. And I'll reiterate Rick's point. We put a press release out last week. We feel very confident about the opportunity with Lenovo moving forward. They feel excited about working with us, and we do with them. And another differentiation we have versus some others, we're the only global distributor that has Lenovo in all regions of the world. So we see it as going to be a positive moving forward.
Jim Suva (Managing Director)
Great. Thanks, guys.
Operator (participant)
Our next question comes from the line of Shawn Harrison with Longbow. Please go ahead with your question.
Shawn Harrison (Senior Research Analyst)
A lot of time on EM and what signals you're seeing. Maybe you could more speak about TS. I know at the beginning of the year, we had some push-outs and decision-making. Whether kind of the uncertain macro has led to any of that globally, it looks like your Asia business is definitely down, but maybe other regions where you're potentially seeing any uncertainty on the TS side.
Rick Hamada (CEO)
Yeah. Shawn, I would say the way we call it here is what we're seeing at this particular point. Asia was a surprise for us, and the team is doing their forensics on exactly what happened where. Can we spot any trends? As always, trying to separate what may be secular versus cyclical with that business. And there's lots of little things that contribute to that, whether it's a Buy China bias for our China-based business, whether we've got macroeconomic concerns and slowdown going on in Australia contributed to our disappointment at ANZ. So we're putting all that together to understand. But for us, for TS globally, it was Asia was the outlier, Phil, absolutely, for sure. And then the growth in the Americas, which was above expectations, and then the return to growth in our core enterprise business in EMEA, which we thought was a positive sign.
Shawn Harrison (Senior Research Analyst)
Okay. As a follow-up, different topic. Last call, it was talked about maybe $400 million of operating cash flow for the year. I guess operating cash flow was a greater use than I would have anticipated here in the September quarter. Does that expectation change, and how should we expect inventory to track for the fourth quarter?
Kevin Moriarty (CFO)
Hey, Shawn. It's Kevin. I think fundamentally, the key impact was tied to working capital to support the organic growth. And if you do look at the trailing 12 months through our first quarter, cash flow generated from operations was $323 million. And obviously, as we look forward through the rest of our fiscal year, I would still support that number. And I think as we built inventory here in our first quarter, it was tied to supporting the organic growth, but also to support the select fulfillment engagements we have going on in Asia-Pacific. So again, overall, I feel confident in our full year number.
Shawn Harrison (Senior Research Analyst)
All right. Thanks for that clarification. Congrats on the results.
Rick Hamada (CEO)
Thank you, Shawn.
Operator (participant)
Our next question comes from the line of Ananda Baruah with Brean. Please proceed with your question.
Ananda Baruah (Director of Research and Senior Equity Analyst of Equity Research)
Hey, hey. Thanks, guys, for taking the question. And congrats on a solid quarter and a solid guide. Two, if I could, the first one is, can you just comment on the softness in computing components, the impact that it's having on TS growth, and also remind us what's in computing components? And then if I could make it a four-part question, but just what should our expectations be in the coming, I guess, over the next few quarters about TS growth, given the computing component softness and given that it's now, I think, kind of moved from 8% growth a year ago to 2% growth now? Thanks. And I have a follow-up. Thanks.
Rick Hamada (CEO)
Yeah. Ananda, it's Rick. I'll take a stab at it. Maybe I'll still chime in. So just to remind, what we call the computing components business, think of it principally as processors, general-purpose CPUs, memory, and hard disk drives. So sort of components going into the self-build market. The trends there, we continue to work the portfolio to make sure that that business is meeting our return requirements, which is one aspect of getting it right-sized. There are some major supplier relationships there that are in transition that are also causing some disruption to the overall expectations here. But over time, we will make sure we right-size this business where whatever we're retaining is meeting our return goals.
And if it doesn't, by the way, it continues to be a tailwind for the overall margin profile for TS because we keep this roughly $1 billion of total revenue today under the TS umbrella from a reporting perspective. So it's certainly been more volatile than the core enterprise business over the last couple of quarters. May continue that way for the next couple at least. And count on our disciplined approach to the portfolio management to be the primary toolset and strategy we employ to make sure that whatever we're allocating our resources to has an appropriate return consistent with the long-term goals we've talked about. I don't feel anything else you want to add.
Kevin Moriarty (CFO)
No, I think just another good question. We continue to manage this one very, very closely. It's running roughly 8%-10% of the total revenue, so it does have an impact when it goes a little south on us. I think Rick hit it well. There's a few major suppliers that are going through some technology refreshes, and we just got caught in that a little bit. But we're looking at it very, very closely, and we're going to make the adjustments we need to, okay, to be sure we get that portfolio right-sized.
Ananda Baruah (Director of Research and Senior Equity Analyst of Equity Research)
Thanks. And is that essentially the computing components? Is that essentially the Bell Micro business?
Rick Hamada (CEO)
It's not exclusively because some of the processor relationships we had prior to that, but Bell Micro certainly boosted the HDD content in that business.
Phil Gallagher (President of Technology Solutions)
Some memory and some of the memory.
Ananda Baruah (Director of Research and Senior Equity Analyst of Equity Research)
Yep. Got it. Excluding the 8%-10%, that's computing components. I think you made a comment on the call that the core TS enterprise portfolio was growing at mid-single digits. Is it fair to assume that the remaining 90% is growing at mid-single digits? Is that appropriate context?
Rick Hamada (CEO)
Yeah. Ananda, I just wanted to clarify. I think my commentary along those lines was strictly in the context of our TS EMEA business. In other words, the TS EMEA core enterprise was actually up mid-single digits despite the fact that TS EMEA, as reported, was down 5.8% in aggregate.
Ananda Baruah (Director of Research and Senior Equity Analyst of Equity Research)
Got it. Got it. Okay. That's helpful. Thank you so much. And then just as a follow-up, you guys were pretty aggressive on the buybacks the first three weeks of the quarter. And I mean, it sounds like you're still going to be active for the remainder of the quarter, but less so. Can you just give us sort of what the mosaic is that you used to think through how aggressive you were the first few weeks when the stock was lower? What are the mechanics through which you decided to get as aggressive as you did and through which you're deciding to get less aggressive for the balance of the quarter? Thanks a lot. Appreciate it.
Rick Hamada (CEO)
Yeah. And I'll take a stab here and maybe let Kevin chime in a little bit. So hopefully, we have been consistently telegraphing our long-term commitment here to overall capital allocation priorities. And I think I'm on record as well as saying that when we view our own equity as an alternative form of M&A and we think it's a great acquisition, we leave a standing schedule in place throughout windows that automatically get us involved at certain price points. And we tend to look at both our internal financial projections. We look at forward PE opportunities. We're using all this information to put a schedule in place. And then that schedule was in place as the equity markets reacted to some of the earlier comments that were referred to. We took advantage of that, and we leave this disciplined approach in place.
I think about $133 million left on the authorization, Kevin. Is that right?
Kevin Moriarty (CFO)
That's correct.
Rick Hamada (CEO)
Okay. So hopefully, it does look aggressive, but what I would tell you, there was an aggressive move in the market that led us to implement our disciplined approach. And hopefully, we've been very consistent and very transparent about the way we do approach this. And if equity drops down, you can expect us to be participating on a higher rate. And if equity moves back up, we're participating at a lower rate.
Ananda Baruah (Director of Research and Senior Equity Analyst of Equity Research)
We thought it was aggressive in a responsible way, so we liked it. Appreciate the context. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Louis Miscioscia with CLSA. Please proceed with your question.
Louis Miscioscia (Managing Director)
Thank you. For the TS business, you mentioned the top 10. Either now, if you have it, or maybe later, if you could just refresh our memory as to who your top 10 are. That would be helpful.
Rick Hamada (CEO)
Yeah. We'll do a follow-up with you, Lou, and get you a chart on that. We've done that in our analyst days in the past. We'll update it and get it out.
Louis Miscioscia (Managing Director)
Great. And then my other question is that software as a service. I'm just wondering how many folks and vendors who signed up in that capacity. And some of the bigger software companies are starting to say that it's affecting their licensing revenue. Just wondering if it's affecting anything that your VARs are selling or you all are selling and how many you have signed up in that capacity.
Rick Hamada (CEO)
Yeah. Lou, it's a really great topic. As you know, we have not typically played much at the application layer. We do have some new relationships such as SherWeb that offers hosted exchange-type options, etc. So there's a little bit of traction gaining there along the way, but not much happening at the SaaS level as far as some of the new partnerships.
Phil Gallagher (President of Technology Solutions)
Just to add to that, Rick, our software continues to grow.
Rick Hamada (CEO)
Yeah.
Phil Gallagher (President of Technology Solutions)
As a percentage of the total revenue of TS, it's over 0.1% this past quarter. So we're not seeing it affect our core business at this point.
Rick Hamada (CEO)
Yep. Good point.
Louis Miscioscia (Managing Director)
Okay. One last quick follow-up. If you could just recap, I know you did it and you prepared remarks, the areas that were stronger in TS and the areas that were weaker? Thank you.
Rick Hamada (CEO)
Yeah. Phil, you want to go through those?
Phil Gallagher (President of Technology Solutions)
Yeah. We already mentioned a few. We saw good strength in the security and networking was a real highlight for us, Lou. We continue to see that as a focus. It's a strategy we've had now for several quarters. We have a great portfolio. We're going to see that continue to grow. Software, as I just noted, has had nice growth for us as well, which is good news. And we didn't mention in the script, but we did have positive growth in storage, okay, in mid-single digits as well, which was good news. Of course, storage, as we've noted, that denominator is getting pretty large. It's our largest technology today. So the growth numbers aren't where they were a couple of years ago, but still very nice growth today and in the future. We're planning for storage.
We even saw servers up this past quarter, which was positive in both proprietary and industry standard.
Louis Miscioscia (Managing Director)
On the weaker side?
Phil Gallagher (President of Technology Solutions)
Well, we talked about the PC component. That certainly was, if there's one that stands out, that's one that definitely was down quite significantly.
Louis Miscioscia (Managing Director)
Okay. Thanks, guys.
Operator (participant)
Our next question comes from the line of Sherri Scribner with Deutsche Bank. Please proceed with your question.
Sherri Scribner (Director and Senior Sell-Side Equity Research Analyst)
Hi, guys. I think most of my questions have been asked, but I wanted to ask a little bit on the TS side about to get an update on your cloud business and what you guys are seeing there in terms of growth rates and how that's progressing. Thanks.
Rick Hamada (CEO)
Yeah. Phil, you want to start or?
Phil Gallagher (President of Technology Solutions)
Yeah. Let me take that one, Sherri. First of all, we're well-positioned with the cloud. As you look at the cloud, I'll start with the hybrid. Most of the cloud opportunities we're seeing today are in the space around the hybrid. And we're servicing a lot of that via what we call our converged infrastructure, where we're seeing continued growth. So a lot of the growth we're seeing actually kind of starts to look still like a data center cell, if you will, as you get into the hybrid and the private. We're also seeing a lot more of engagement from the partners with our cloud ready. Okay? So a lot of the services we're offering around consulting services and enablement services for our partners back to the end users and how they're going to manage the cloud and the opportunities within their data center.
So it's actually moving absolutely in the right direction. Last quarter, I think we noted in the last call, we signed up with IBM, or IBM signed us up globally with their software, which was very exciting. We've had over 200 partners actually engage in contract with us and want to move forward with us. And we've actually got some contracts in place for generating revenue. It's small out of the gate. It's more annuity-based, as you know, when you get into the cloud, but certainly moving in the right direction.
Rick Hamada (CEO)
Yeah. Sherri, I would tell you we are working internally to try to get tighter linkage to some of the trends we're seeing in areas like converged infrastructure. And of course, many of our partners, not only IBM, Cisco's got their Intercloud initiative now. HP's got their Helion. So there's lots of moving parts here still. And we know how important this is to be able to try to tie the connections. And we're looking at the world as private cloud, hybrid cloud, what's going public cloud, what's part of a solution, what's a standalone. We're working hard to try to make sure we can tighten up the story here to be more directly connected to that answer.
But it is still difficult to try to just tie specific revenue streams to specific influences, particularly when you put the private cloud in there, and it's still a big part of our overall business.
Sherri Scribner (Director and Senior Sell-Side Equity Research Analyst)
Okay. Great. And then just if I could follow up with a different question in terms of technology solutions. Why does technology solutions take a bit longer to come back in terms of the margin profile? Is that related to some of the cost-cutting you guys need to do or some of the back-end technology changes you're making? I'm just trying to get a better understanding of that. Thanks.
Rick Hamada (CEO)
Yeah. It's primarily, as we talked about our initiative, particularly with TS EMEA overall, there are always a combination of short-term cost actions that need to be done. But as we referred to, I think last quarter, we've also made some structural changes in the sense of consolidating an ERP platform. TS EMEA up through in the middle of our third quarter last year finally moved from four different ERP systems onto one. And that begins to enable us now to make some changes that just weren't going to be possible in the previous environment. So as you work through those now and you try to relocate and consolidate and standardize and simplify your business models, it's not just as quickly as one quarter at a time of just making one particular change on a singular expense item.
The expectation for TS on that journey, though, is that for each quarter that we continue to progress, we're looking for year-on-year margin expansion as we get back to that range. That's the way that you can expect us to continue to manage the business up into those committed ranges.
Sherri Scribner (Director and Senior Sell-Side Equity Research Analyst)
Great. Thank you.
Operator (participant)
Thank you. And ladies and gentlemen, as a reminder, you may press star one on your telephone keypad if you would like to ask a question. You may also press star two if you'd like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit yourself to one question and one question as a follow-up. Our next question comes from the line of Mark Delaney with Goldman Sachs. Please proceed with your question.
Mark Delaney (Analyst)
Good afternoon, and thanks very much for the opportunity to ask a few questions.
Rick Hamada (CEO)
Thanks.
Mark Delaney (Analyst)
I had a follow-up to begin with on the high-volume programs that you're participating in in the EM region. Can you just help us to better understand the types of end applications that you're supporting? So is it PCs? Is it handsets? And then if you can help us understand what percentage of your EM Asia sales are made up of these high-volume programs.
Rick Hamada (CEO)
Yeah. So what I would say, I won't be particular, but it's in the consumer space, the high-volume applications. And as you know, it fluctuates by quarter somewhere between three and four percentage points on the high end to the low end of that business model.
Mark Delaney (Analyst)
Yeah. 3%-4% of total revenue or of the EM Asia sales?
Rick Hamada (CEO)
No. It flexes by 3%-4% of our total revenues at EM.
Mark Delaney (Analyst)
Okay. Okay. Then for a follow-up on OpEx, kind of a multi-part question on OpEx, can you just help me understand first how much of the MSC synergies are now reflected in the current OpEx levels? And then part B, of the $15 million-$20 million of annualized cost savings that you were expecting to get from the TS Asia business, when should we expect those OpEx savings to be fully in the model?
Kevin Moriarty (CFO)
So Mark, I'll take the MSC piece first, and Gerry. One of the things we stated was that in Q1, we would be at our synergy target numbers. We would be at margins that were accretive to our EM global operating income, and we have succeeded there. So we've met our goals there.
Gerry Fay (President of Electronics Marketing)
Mark, hi, Kevin. So you're right. As we did mention on the August call, we have targeted the $15 million-$20 million annualized reduction within TS Europe. We have half identified in an action, and it is subject to the regulatory approvals in Europe. We expect continued impact in Q2, and we expect to see the majority of the annualized reduction as we progress through the back half of our fiscal year.
Mark Delaney (Analyst)
Thank you very much.
Operator (participant)
Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question.
Matt Sheerin (Managing Director and Senior Equity Research Analyst)
Yes. Thank you. Just another question on the technology solutions business. And Asia, you talked a little bit about the weakness there. It sounds like you're still trying to figure out what's going on. In terms of what you're seeing now, are you expecting normal seasonality in the December quarter there? And I'm looking at the last few quarters, and it seems to jump around in the December quarter. So what is typical seasonality in that business in Asia?
Rick Hamada (CEO)
It's an interesting point. We have figured out a great deal of what's going on, but as I said, we haven't consolidated under a single trend that was happening. There's issues about the prior year. Prior year quarter had a big order from one particular customer, and that didn't repeat. And like I said, there was a little bit of influence in China because of the buy China preference. So it was actually, as I said, broad-based, and we've done a lot of specific identification. Asia typically has a little lower sequential boost than the Western regions. And again, it's the smallest part of our TS portfolio overall, somewhere in the neighborhood of 15% of the revenue.
Phil Gallagher (President of Technology Solutions)
That's right. Yeah.
Rick Hamada (CEO)
We would normally expect to have a little more robust sequential boost in Asia for our overall business. That's the way we built the guidance here for TS Global for this quarter as well.
Phil Gallagher (President of Technology Solutions)
Yeah. And Matt, this is still Asia Pac. Just to add on to Rick's comment, they don't have the typical budget flush that we see, particularly in North America, then Europe, and then Asia. So their sequential is somewhere in the range of typically looking at historically half or even a little less than half than what we typically see in the U.S. and Europe. Okay? So it's not nearly the sequential boost that you typically see.
Rick Hamada (CEO)
Yeah.
Phil Gallagher (President of Technology Solutions)
And with it being 15% of the total revenue roughly, we feel confident with the guidance of what we have in.
Matt Sheerin (Managing Director and Senior Equity Research Analyst)
Yeah. Well, if you flow the numbers through seasonally, it looks like that's going to be down, I don't know, 15%-20% over the next couple of quarters. In terms of the profitability ratio, I know that for a while that the profitability in Asia was below other regions because you're investing there. So if that remains at a lower level, let's say down double digits for the next two to three quarters, do you still think you'll be able to grow operating margins overall in the tech solutions business because of what you're doing in EMEA and in North America?
Rick Hamada (CEO)
Yeah. It's a great question, Matt. We're on it. It will matter where that growth is coming or not coming from. If it's all in components, there's less impact. If it's more in the enterprise, we've got to respond and react to it overall. We were disappointed to see that our TS Asia team broke a nice six-quarter string of year-on-year margin expansion. But even with the relatively strong disappointment there in the revenue line overall, their year-on-year degradation on margin was very limited. It didn't fall in half. It didn't fall. They just missed not expanding year-on-year. So they're close. They'll keep an eye on all their levers, including expense, and we'll make sure that we've got our resources aligned to whatever the realities of the market are.
Matt Sheerin (Managing Director and Senior Equity Research Analyst)
Okay. Thanks a lot.
Operator (participant)
Our next question comes from the line of Amitabh Passi with UBS. Please proceed with your question.
Amitabh Passi (Senior Technology Equity Research Analyst)
Hi. Thank you, Rick. I guess my first question for you was, I'm curious how you explain the diverging trends in the Americas between your components business and your TS business. And then the inflection you saw in your TS Americas business, double-digit growth year-over-year, do you think that's sustainable? Was there any sort of one-off events that may have explained the strength?
Rick Hamada (CEO)
I would tell you that the 11% for TS Americas was a positive surprise, I guess I would say, Amitabh. No, there wasn't one particular huge big one-off event or some big order or some big release that was associated with that overall. It's pretty broad-based. The tie back to components is what I'm also thinking about in the question here. We do try to correlate and take a look at what's happening from a geographic basis for these businesses overall. But the fact that we've had slower growth in the Americas, or the slowest of the three major regions, but still positive growth areas.
And then this boost with TS, remember, we've had a couple of decoupled quarters going back, such as the March quarter where we had the negative surprise in TS Americas when the customer behavior got very skittish there towards the end of that particular quarter. So it's kind of interesting to us overall that it appears that components business has actually been the lower beta, more stable, and consistent business than the IT business overall. But nothing that we can point to specifically in the September quarter that led to that upside surprise and nice growth for TS Americas.
Amitabh Passi (Senior Technology Equity Research Analyst)
Got it. And then just as a quick follow-up, your TS operating margins for the segment were slightly down on a year-over-year basis. As we look at the December quarter, did you say you expected year-over-year growth, or do you think you'll still be slightly?
Rick Hamada (CEO)
Yeah.
Amitabh Passi (Senior Technology Equity Research Analyst)
Sorry.
Rick Hamada (CEO)
It was slightly down like 7 basis points, Amitabh. But remember, the currency headwind just about neutralizes that.
Amitabh Passi (Senior Technology Equity Research Analyst)
Okay. So as we look forward, do you think you'll do better than the 3.7% last year?
Rick Hamada (CEO)
Kevin, do you want to?
Kevin Moriarty (CFO)
Yeah. And what I would point to, as you know, the typical we expect, given the sequential basis trend within TS, we would expect that the sequential volume increase, the margins we're expecting to be up year-on-year.
Amitabh Passi (Senior Technology Equity Research Analyst)
Okay. Thank you.
Operator (participant)
Thank you. This concludes today's question and answer session. I would like to turn the floor back to management for closing remarks.
Vincent Keenan (VP of Investor Relations)
Thank you for participating in our earnings call today. Our First Quarter Fiscal 2015 Earnings Press Release and related CFO commentary can be accessed in downloadable PDF format at our website under the quarterly results section. Thank you.
Operator (participant)
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.