Marshall Witt: Hi Jim, it’s Marshall. Yes, as we disclosed or discussed in our prepared comments, quite often within Hyve, and we do this in distribution as well, we have programs that we performed throughout any given cycle or year for which once we perform the service, the cost plus margin gets recovered. And when we close those out or do the refinement review, we tend to get some final settlements or final margin associated with those programs. So we wanted to call that out because it was a meaningful in Q4. It happens in distribution as well as we’re working with partners and customers and refining and making sure that the margins that we agreed to receive are achieved and recognized. So it just isn’t as visible. We wanted to demonstrate that, that was part of the strength in Q4.
It wasn’t the only reason why we outperformed, but it was one of those. And then, Jim, as I think about ’23, Hyve, we expect will continue to perform well. The strong ’22 is just a tough compare and the margin profile itself was very, very exceptional for ’22.
Rich Hume: Yes. Jim, I just would maybe provide a little bit more clarity. When I think about the over performance to the midpoint of the guide, I would share with you a couple of thoughts. So first of all, there’s two pieces to Hyve. One is, as Marshall talked about, the margin catch-up and we tried to provide the clarity on that. Second is the incredible performance overall in sort of the base business. We always talk about the lumpiness of our Hyve business. Then an over — we actually overperformed our expectation within core distribution. And then kind of — as an interest expense. So it would be those four elements, the core distribution, overperformance, significant overperformance in Hyve, the Hyve margin recovery and then the interest expense giveback.
Jim Suva: Okay. And then earlier in the question — or Q&A, you talked about the PC market and things like that. Just curious on the mobile phone market, there were some supply disruptions. How is mobile phone demand and kind of channel supply from what you see, but most importantly, demand from what you’re seeing for mobile phone?
Rich Hume: Yes. So to make sure everybody understands, we have mobile phone distribution in Europe only. The channel dynamics of Europe are different than they are within North America. So it’s sort of in that theater. We saw very good demand for mobile phone. I would say that, yes, we tactically have seen some issue relative to the volatility out of some of the Asian markets, but we fully anticipate that supply to catch up really rapidly.
Jim Suva: Thank you so much for the additional details and clarifications. And congratulations to you and your teams.
Rich Hume: Thank you, Jim.
Operator: Our next question comes from Shannon Cross with Credit Suisse.
Shannon Cross: Thank you very much. I was wondering, as you look at 2023, can you talk about what you see are the biggest pockets of growth? And I’m wondering if you can talk both from end demand as well as — I guess there’s just so many questions out there about what’s happening, right? So end demand and then also backlog fulfillment. So if you go through some of your product lines, you mentioned, I think, on the call, strength in printers. I assume some of that is basically catch up from backlog during the pandemic. But if you could just go through maybe categories that you would point to that we can watch as we look at ’23. Thanks.
Rich Hume: Yes. Thank you, Shannon. So I’m going to embellish a little bit more here. When we run this call last year, we had informed that we had a point of view that said that the first half of the year or actually the entire year, we would see a moderating PC. But in the second half of the year, we would see a robust sort of data center market. And in fact, we were talking about it yesterday. The year played out exactly as we had envisioned it from a category perspective. Obviously, if we take a look at the first half of this year, we believe that PCs will be a challenging category as most of the market had — or most of the vendors had projected, with the expectation that there will be a recovery in the back half of the year.
And I know that you’re well informed in the PC ecosystem market, but it’s things like operating systems transitions, as well as more premium devices given the worker profile is different than it previously had been. And then there was even comments around the net useful life of laptop, which is more prevailing these days is shorter than sort of a desktop. All of those things, I think, are anecdotally, feel right to me. So I do believe it’s going to be a bit of a slow PC category in the first half with that opportunity in the back half. And then I think that will continue to run off backlog in Advanced Solutions in the first half and then see a more moderating Advanced Solutions in the back half. So those are sort of the big themes that we think will play out.
Obviously, things will ebb and flow based on the economic circumstance or the reality is the move — the year moves forward as well. But those are the big thoughts for this year for us.
Shannon Cross: Thank you. And then can you talk about what this — I don’t know if it’s a transition, but at least it’s somewhat of a shift, from transactional to devices and service infrastructure as a service. Pretty soon nobody will own anything. But the shift of purchasing from CapEx to OpEx. How are you seeing that play out? And do you feel like it’s still a push from a company perspective versus a pull from a customer perspective? And how should we think about it running through your P&L over time? Thank you.
Rich Hume: Sure. So let me start with the infrastructure as a service thought. We see that as material and meaningful in building. And a lot of the — obviously, we have the traditional Infrastructure as a Service, Platform as a Service, that is virtually delivered today, and those are very, very meaningful business, but we also see the on-prem as a service and infrastructure. And we’re engaged with many contracts relative to that space. So I see that one sort of developing and ramping. Candidly speaking, although we provide Device-as-a-Service offerings as well, those discussions had begun arguably as many as five years ago, we haven’t necessarily seen a — the ramp or that monetize the way it has been envisioned. We do participate in, I’ll call it more niche sort of activities around that space right now.
We continue to work with vendors to see if that promise will play out. But I would have to say of the two, the infrastructure one has more momentum right now than the Device-as-a-Service one.
Shannon Cross: Great. And then just my last question is on cash flow. Is there any — maybe Marshall, are there any working capital levers that you can pull for 2023 beyond getting the inventory levels down to drive incremental cash flow?
