Phil Gallagher: Yes, I’ll take that, Joe. Thanks. I think what we’ve seen it vary global basis, I’d sum it up that where we’ve seen probably the greater weakness and it’s been very strong and really some of those would be in the industrial space, okay? And that’s our — let’s call it between 25% and 33% of our business is industrial. It’s really broad, okay? But that’s come down a little bit sequentially and year-on-year. That’s been particularly strong. The industrial has been particularly strong in Europe. And Europe, as we pointed out, has had 3 record quarters until this past quarter. So we’ve been performing well as that got soft that obviously affects us. If you look at the transportation overall, I know there’s a lot of mixed signals out on transportation.
That’s still holding up pretty good. It’s down sequentially and down year-on-year, but I would say modestly in single digit. So still holding up and it’s actually up in the Americas was more down in Europe, again, which is our second largest vertical. Defense, unfortunately, with what’s going on in the world today is actually quite healthy, and we see that continuing to stay strong.
Operator: [Operator Instructions] Our next question is from Matt Sheerin with Stifel.
Matt Sheerin: Phil, I wanted to get back to the inventory issues. I appreciate the commentary about the supply chain engagements as a service. But it seems like it’s more — you’re actually you’re buying the inventory, you’re carrying the inventory, that’s a working capital burden for you. And so when you talk about inventory, and I know it’s restricted, but that’s still inventory on your books, right? So when we think about your over 100 days of inventory, what’s the target for the next 2 to 3 quarters? And is there a thought to given to working with OEM customers, where they’re actually owning the inventory, it’s more consigned so it’s a true as-a-service model because it seems like it’s a traditional model where you’re carrying the cost of that inventory.
Ken Jacobson: Matt, I mean — this is Ken. I guess I’d start with is, I think there’s alternative forms of funding of the inventory in general, right of the components part of what you’re talking about is really an accounting versus how you actually perform the service, right? So you need physical custody, you need in our warehouses to move it, right? You think about the OEM that may not have manufacturing and things like that. So this gets to a lot of complications in terms of there’s one, how you account for it and how we report it in our financials, and there’s 2, is how do you actually conduct the service for OEMs that are without manufacturing footprints and things like that, right? So I think there’s tax things, legal entity things that get into why someone like Avnet needs to step in to provide the service versus other parties.
So I guess how I’d characterize it, we do feel it’s a different risk profile. We do feel that we’ve got enhanced protection for this product versus, let’s say, normal course of business product. So we do view it differently, even if it’s currently reported in the same line item as the other inventory, and that’s what we’re trying to convey. But part of that becomes in, how do you provide the service. And if it’s consigned then that means something that OEMs could already do the supply chain on their own, right? In some cases, it’s not consigned, but it’s — the capital is provided by the OEMs in some cases, they want capital being part of the service, right? So it’s a mixed bag. And our view is we’re trying to maintain flexibility to provide the services they need but measure it based on the returns we get and the fact that it won’t restrict our normal course of business opportunities, right, with the capital restriction, right?
We’ve got enough, let’s say, elevated inventory levels in our normal course of business, we’re not compounding the issue, if you will with these engagements. And that’s been transparent with the customers we’re working with. And so they kind of understand that this is kind of separate.
Phil Gallagher: Yes, Matt, so it’s just — thanks, Ken. Yes, the inventory days are certainly up a little bit higher than we’d like it to be. And as I said in the script, we’re not — I mean, inventory is not a bad thing. We have maybe a little too much, but it’s not aged, it’s not a liability. We do want to start bringing it down in the March quarter as we bring it down relative to the sales, it’s a math issue, the days of inventory. So we would expect the days to start to come down as well. But the key is just making sure we got the quality inventory as we bring it down, start generating more cash. So again, we got to support the market that we see going forward and balance the right investments in inventory is one of the big ones.
Matt Sheerin: And then just related to that, your interest expense obviously has gone up significantly, it looks like it’s kind of — it’s a $300 million run rate for fiscal ’24. 2 years ago, it was $100 million. That’s obviously a huge swing in EPS. So Ken, is that a priority in terms of working down at short-term borrowings and getting that interest expense down.
Ken Jacobson: Yes, Matt, 100%. I mean, I think the — we need to get the cash flow and that cash is going to be used in part for debt pay down, right? I mean there’s a combination of factors driving that. But clearly, the elevated inventory is a big piece of that over the past year and even longer than that. So I would say that is a focus. And the cost of borrowing is definitely much more expensive than it was in the past, but we need to get that down. And it’s going to take some time, though, I would caution.
Operator: Our last question is from Toshiya Hari with Goldman Sachs.
