艾睿電子 (ARW) 2021 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Arrow Electronics Fourth Quarter and Year-End 2021 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Steve O'Brien. Please go ahead.

Thanks, April. And with us on the call today are Mike Long, Chairman, President and Chief Executive Officer; Sean Kerins, Chief Operating Officer; and Chris Stansbury, Senior Vice President and Chief Financial Officer.

During this call, we will make forward-looking statements, including statements about our business outlook, strategies and future financial results, which are based on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our most recent 10-K and 10-Q filings with the SEC. We undertake no obligation to update publicly or revise any of the forward-looking statements.

As a reminder, some of the figures we will discuss today on today's call are non-GAAP. We have reconciled those to the most directly comparable GAAP figures -- measures in our financial statements and earnings release. These are non-GAAP measures and are not intended to be a substitute for our GAAP results.

You can access our earnings release at investor.arrow.com, along with the CFO commentary, the non-GAAP earnings reconciliation and a replay of this call. We will begin with a few minutes of prepared remarks, which will then be followed by a question-and-answer period.

I will now hand the call to our Chairman, President and CEO, Mike Long.

Thanks, Steve. Thanks to all of you for joining us today. Before I get into our most recent results, I would like to take a minute to reflect on the past year at Arrow.

In today's environment, our focus on constantly evolving our business to better serve our customers is more important than ever. Our team has long recognized that the future of business will not look like the past. And in order to win, we must both maximize our current business and embrace new avenues and sources of profitability.

At Arrow, we continue to enhance the solutions and services we provide as the markets we serve change at an increasingly rapid pace. And it's clear that our work is paying off. Our strong results demonstrate that we remain ahead of the curve, supported by the best team in the industry.

This year, our colleagues worked tirelessly to overcome the many challenges caused by the lack of supply in the face of an acute need for components and IT solutions. While our sales, gross profit and operating income set all-time absolute records, our team's efficiency was also unmatched.

We reached new benchmark levels on an individual employee basis for all 3 metrics. This increased efficiency was a direct result of our work over the last several years to assemble the most capable workforce possible, leveraging diverse skills, experiences and backgrounds to best serve our customers across the different regions and industries.

Credibility and transparency continue to be the hallmarks of our business. Instances of severe supply chain bottlenecks have resulted in production slowdowns. But they also have enabled Arrow to showcase our unmatched experience, industry knowledge, products and services to customers, new and old.

We understand the demand dynamics and are uniquely positioned to help our customers navigate today's challenges. This includes companies and industries who may be unaccustomed to shortages or supply restrictions. By helping to mitigate production risks and ensure a continuous stream of products to the market, Arrow deepens customer relationships and solidifies our position as a trusted partner.

Moving to the most recent results. We continue to believe our investments in design, engineering and supply chain services are bearing fruit. However, there is certainly an element of favorable pricing that is beneficial to our margins. We have reason to believe that the overall industry pricing environment has structurally improved and could be better from cycle to cycle.

From a structural perspective, consolidation is a key factor in pricing. In addition, we see only modest capacity additions coming online within the next couple of quarters compared to the overwhelming demand. Longer-term, we recognize that there will be more challenging demand conditions. At some point in the future, this will test the thesis.

In this shortage environment, it's paramount that we rethink the way business in our industry is done in order to manage the dynamic nature of demand. Arrow has been working to address, from our own perspective, the potential for rising inventory levels in the electronics component industry despite claims of unmet demand in the channel. Stocking higher-value inventory with greater design and engineering components contributed to record margins and returns on working capital and invested capital.

That said, we know we must balance the competing near-term priority of keeping our cash cycle short with our long-term goal of maximizing economic returns. We're monitoring the quantities, types and turns of our inventory closely and believe we're well positioned to sell through our inventory and collect future cash on our working capital investments.

Turning to enterprise computing solutions. Close followers of our story recognize that sales and profit growth have become disassociated due to the accounting treatment of software services and cloud. We're pleased to deliver on our main focus, operating income growth for the full year.

While supply chain issues continue to limit our ability to capitalize on strong demand, we saw postponed or realigned projects turn into available cloud-based resources. The flexibility of our business model has made us, in either case, well positioned to remain engaged with customers and tailor our solutions to their needs.

With enterprise computing solutions' operating income on solid footing, we enter 2022 with excitement to serve our customers. Now more than ever, Arrow is unmatched in its services and support when compared to the competition. We're providing much needed stability and experience to value-added resellers and managed service providers without distraction.

In closing, I would like to congratulate our team for delivering strong financial results and economic returns that we have been striving towards. In 2021, we have turned each potential challenge that came our way, from consolidation to tariffs, to cloud and to shortages, into opportunities, in turn successes.

While our industry continues to change over time, the fact remains that Arrow continues to improve and expand our business to the benefit of our customers, suppliers and team. We look forward to continuing to build on this momentum.

With that, I'll now hand the call over to Chris to provide more details on results and our expectations.

Thanks, Mike. Fourth quarter sales increased 8% year-over-year on a non-GAAP basis. The average euro-dollar exchange rate for the quarter was $1.14 to EUR 1, below our forecast and expectation of $1.15 and below the $1.19 in the fourth quarter of 2020. Changes in foreign currencies understated sales growth by approximately $73 million year-over-year and had an approximately $58 million larger negative impact than we originally forecasted.

Fourth quarter gross margin of 13.3% returned to its highest level since Q1 of 2017. Gross margin improved year-over-year in global components in each of our operating regions and enterprise computing solutions in both regions. Operating expense increased slightly as a percentage of sales during the fourth quarter but decreased as a percentage of gross profit.

As a reminder, many of our value-added services and solutions can be independent to the sale of electronic components and therefore contribute more meaningfully to profit than to sales.

Interest expense was slightly above our prior expectation. This was mainly attributable to higher interest rates on floating rate debt but also due to the issuance of $500 million of 2.95% 10-year notes. The proceeds were mainly used to meet the recent maturity of $350 million of 3.5% 7-year notes.

Fourth quarter tax rate was slightly below our expectations. This was primarily due to the timing of discrete tax items, and we also saw some favorability in regional profit mix. Our long-term target effective tax rate remains 23% to 25%.

Turning to the balance sheet and cash flow. Fourth quarter operating cash flow was $28 million. Compared to the third quarter, DSOs and inventory days lengthened but were naturally offset by an increase in our payable days. As a result, our cash cycle of approximately 54 days was 3 days longer than the third quarter.

As Mike mentioned earlier, with returns metrics such as return on invested capital and return on working capital at the highest level in our modern history, we are being mindful of incremental working capital investments but also want to capitalize on the strong demand environment. Our liquidity position is the best in the history of our company and continues to improve.

Leverage, as measured by total or net debt to EBITDA, is at its lowest level in over 10 years and was slightly lower than the third quarter. We returned approximately $250 million to shareholders for the third quarter in a row through our share repurchase plan. These are the largest single quarter share repurchases in Arrow's history, enabled by our strong profits and proactive working capital management.

We repurchased $900 million worth of shares in 2021, by far the largest single year of repurchases in our history. We reduced diluted shares by approximately 8% over the course of the year. We remain committed to returning cash to shareholders by adding an additional $600 million to our authorization during the month of December. And as of right now, we have approximately $763 million remaining on our share repurchase authorization plan.

We're confident that we are repurchasing shares below their intrinsic value based on increasing return on invested capital and return on working capital.

Please keep in mind that the information I shared during this call is a high-level summary of our financial results. For more detail regarding the business segment results, please refer to the CFO commentary published on our website this morning.

Now turning to guidance. Midpoint of sales and EPS guidance imply all-time first quarter records. Midpoint global component sales guidance would be an all-time record for any core. Our guidance reflects continued strong operating leverage for global components on a year-over-year basis, with profit growing several times faster than sales.

Our forecast suggests enterprise computing solutions profits grow slightly year-over-year as reported and at a somewhat higher rate year-over-year, adjusted for currency. We estimate an approximately $160 million headwind to sales and $0.10 headwind to EPS growth due to the strengthening U.S. dollar, principally compared to the euro.

Finally, please note that the CFO commentary includes information on our fiscal calendar closing dates. Our 2022 quarter closing dates are mostly aligned to those of 2021.

With that, I'll turn the call over to the operator for Q&A.

(Operator Instructions) And your first question comes from Jim Suva with Citigroup.

It's a high-profile job and just a great opportunity. So this is a career thing, and that's why people on my team, just hush-hush, yes, we're meeting with Bruno Mars for dinner.

We have -- Jim -- I think Jim is doing something else.

Yes. Your next question is from Nikolay Todorov with Longbow Research.

And congrats on great results. Mike, first, I want to start with a comment that you see reasons to believe that the overhead pricing is going to be better cycle-over-cycle. Do you have any type of framework that you have -- you've been thinking? Obviously, it's -- how should -- how do you think prices will evolve? Traditionally, obviously, they've been coming down cycle-over-cycle. But what do you see different? And how do you see them evolving going forward?

Well, if you take this cycle compared to past cycles, past cycles were purely demand, and then there was the expectation that you could get more efficient, thereby getting more product in. This cycle is a little different because you've got inflation hitting, too. And that's raw material prices, and prices for raw products of building semiconductors has gone up.

So there's a structural change there that's not expected to have those raw materials come down anytime soon. The same thing you've seen now in transportation of those products all around the world, those prices are up at the same time and again, not expected to come down. And some of that would come down with fuel cost rate, but you don't see any limiting factor there right now other than that's likely to go up again before it comes down.

So you have that, which means the price of the component itself is higher, where the cost to manufacture is higher. And I don't see that changing in the near term. And I certainly don't see that changing, going from cycle to cycle here.

Okay. That's helpful. As a follow-up, I think you guys do a survey of your customers. Obviously, you're doing your due diligence. And sometimes, you've shared findings of that survey on the calls regarding customer inventory. And I think you touched on the call that you're monitoring the situation carefully. And despite that there are some shortages, I might have heard that you said that there is some signs that inventory is uneven. I don't know.

How would you characterize inventory downstream at your customers? And maybe what's the feedback on the survey that you guys do each quarter on your customers?

Yes. Yes, that's -- this is a highly interesting question because prices have gone up significantly in semiconductors, and it really started to hit in the fourth quarter and going into the first quarter. So customers' inventory values are going up. So whatever they had traditionally in stock, they've probably gone up by somewhere between 10% and 20% now. And so they probably are reacting to the fact that they have more inventory dollars than they've ever had.

Now in our situation here, our actual units that we're getting from the manufacturers have gone down quarter-on-quarter, which is another reason to believe that the demand situation isn't going to fix itself anytime soon. So what you have is customers that have a mix of product that may be out of the SKU a bit, which is slowing their manufacturing time, but still, there's a lot of hand to mouth.

But again, inventory levels are up. Just like they're up here, you'll see that, you'll eventually ask us, but that inventory value is up, units are actually down.

Okay. Helpful. Last question for me, and I'll go back in the queue. On the ECS side, I think in the CFO commentary, there was a note that you're showing -- you're seeing increased customer engagement and I think, order activity. What else can you share in terms of are you seeing upticks in activities on the hardware side, and it's a matter of supply chain improvements?

Or is that activity more so like you talked how -- because of the supply chain constraints, more projects are moving to the cloud? And how would that reflect on your ECS top line over the next couple of quarters?

I'll be happy to take that question. Actually, if you look at our progress in ECS, I'll take you back to something Mike said about the way we treat reported sales. We've been pivoting our focus to the market for hybrid and multi-cloud for some time. And that really is all about all things IT as a Service. And that implies more software, more cloud and more services. And that's going to not look as good in the reported sales line, but it's really going to show up nicely when we get to the operating margin line.

And I think you saw some of that in our Q4 results. We think it validates that we're in the right market space for our value-based selling motion, and frankly, we just need more scale. And I think the -- some of the underlying indicators we're seeing from that business are encouraging.

We might be a quarter or 2 away from seeing even more momentum. But if you look at the market headwinds, either supply chain or pandemic-related restrictions, I think they're ultimately transitory. So we're expecting to see even more improvement from that business across the course of 2022.

Your next question is from Melissa Fairbanks with Raymond James & Associates.

Just wondering if you could highlight any hotspots where maybe supply constraints worsened in the quarter. You did mention that unit volumes were down in terms of your inventory. Just wondering if there was one area in particular that was worse than the other. Or if you're -- what we've heard is that some of the suppliers are kind of playing whack-a-mole, chasing constraints in one area from the other.

So I like your analogy there, and unfortunately, that fits. We don't have a lot of suppliers that we could say are up-to-date on everything. And again, the -- I think the golden group piece that you're talking about is different for every customer.

So every customer has a shortage of product that is keeping them from producing something, and it may or may not have overlap with other customers. So the moral of the story is we're doing more expediting here than we've ever done.

We are on the phone with suppliers more than we ever have been. And delinquencies continue, I even hate to say continue to rise, but our demand curves are very strong right now. And we don't see catching up all of 2022, I can tell you that, because anything coming online is very modest compared to what's out there right now.

Okay. Great. Yes. That's -- we're kind of hearing the same thing across the board from your suppliers as well. Just wondering, so your -- what you said was that supply is not going to ease meaningfully or you're going to be in delinquencies through 2022. Is there any sort of baseline assumption that we should use for how much that's constraining your revenue upside? Or are there just too many moving parts to call that?

I think it's a lot of moving parts. And the reason is, for example, you might have seen a bit of a drop in Asia in the fourth quarter, which is typical seasonality for Asia. However, more product went into North America and Europe. So product is moving around based on demand, based on where the suppliers have constraints and really attempting to keep everybody moving as far as their production goes. So there's a lot of hand to mouth. There's a lot of work being done on behalf of the customers to make sure that they can continue to produce their products.

Yes, our -- we are constrained right now due to supply. And you see our first quarter forecast, and what that is, that's purely a supply forecast still compared to a demand forecast. That's what we think. We're going to get in enough supply to be able to deliver those sales [to you] in the first quarter. And when we start to see it free up, we obviously will acknowledge that, and we'll go to more inventory control, but we're not seeing that at this point.

The other thing I might highlight for our first quarter, the reason that we could come out as strong as we did, is that our inventories were up a little bit in some of the products that we were delinquent on, and we're going to be able to fulfill those needs. So we have more confidence in our first quarter number forecast as being more accurate than I could say we have been for the last 3 or 4.

Your next question is from Matt Sheerin with Stifel.

I wanted just to ask regarding the strength in the gross margin you're seeing on the component side. A multiyear record, it looked like operating margin was the best number in 20-plus years. And obviously, as you said, you're benefiting from favorable pricing, also mix, [where they go down, the other] regions up.

So my question is, how sustainable do you see that over the next 2 to 3 quarters? Mike, you're saying, basically, it sounds like you're pretty much booked, and you sound confident in the next couple of quarters. So should we expect elevated margins here for the near term?

I think what you'll see is some hovering around and changes based on customer mix and product mix, Matt. I expect our gross margins to come down slightly in the first quarter just because of some mix issues. Fourth quarter was highly engineering -- a high level of engineered products that we were able to get back into the marketplace. And we expect that to subside some for the first quarter and have a more level mix, not only across the regions, but also with product and with customer base.

We didn't have a lot of phone activity or high-level computing activity customers in the fourth quarter, and some of those have demand again going into the first quarter. But very little fluctuation over the next couple of quarters, Matt.

Okay. Great. And just regarding the outlook for computing, it sounds like component constraints is an issue there. But in terms of outlook, what you're hearing from your reseller customers in terms of backlog projects that need to be done at customers, what's the outlook as you look through the rest of the year?

Yes. I'll let Sean go into more detail. But in general, we're seeing higher demand now and higher demand for the services that we're providing. And a lot of the slowdown is on the hardware side, which pushes those out. Sean, I'll let you add some more color to that.

So that's right, Matt. I think Mike captured it. I would just add that since sort of mid last year, we've seen lead times for most of our hardware businesses nearly double. That probably will be the case for a couple or 3 quarters until the whole semiconductor supply situation starts to normalize.

But the good news is our visibility to the pipeline for our channel partners and users is only improving because they're giving us backlog with visibility much further out. So that gives us pretty good confidence that demand remains strong. And again, I think as some of the limitations to traditional data center business continue to abate, things will ultimately look up even more nicely.

Your next question is from Joe Quatrochi with Wells Fargo.

I'm curious, your leverage remains at an all-time low. And I guess, given your commentary is very positive on the forward demand, how do we think about what the right level for leverage is in the context of where your shares are trading today and then your working capital needs and just the expectations of interest rates increasing this year?

Well, I think if you look at the working capital since the beginning of this uptick, if you will, or this demand cycle, we've had to put less working capital in per dollar sale than we ever have in the past. So there's a -- and if you would think any time you've had growth rates, like we've had over the last 2 years, in the past, we wouldn't have been able to cash-flow, and this time, we're cash-flowing on a higher basis than we have.

I'm going to say expect more of the same of what you've seen because there is no physical way to get a whole ahead of the inventory demand and get enough inventory in here to catch up with that demand. So just the market itself keeps us from spending the money on inventory, where, frankly, I would love to have it.

But I know if all the inventory shortages come in, in one time, this cycle is over. And we're just not going to see it. I don't think it's a concern, nor do I think it's going to be an increase at least for this year, 2022. Chris, do you want to add something there?

I would just add, given that, Joe, I mean, we've been very aggressive obviously with the buybacks, $900 million last year. At current valuations, safe to say, that does not slow down.

Got it. That's helpful. And then just a question, we're starting to see the component shortages actually impact the guys who make the equipment to increase semiconductor capacity. So how do you maybe prioritize your customers? Because it seems like you're at a position where you could help kind of alleviate some of the supply issues by advocating for certain components to go to customers that could help increase semiconductor supply.

Yes. What I'm going to say is everybody is getting what they can, hand to mouth, to produce their equipment. But do I stop giving semiconductors to people that are making heart machines for people that are doing transplants? Do I stop giving semiconductors to other industries that are helping people? Do I shut down automotive? No. The answer is everybody has to manage their inventory effectively in a cycle.

And as long as those people have put their orders in, in a first-in, first-out basis, that's how they're being supported largely by the semiconductor manufacturers. And we're not talking about one product here. We're talking about thousands of products and in the case of the broader market, millions of products.

So no, you just can't start taking at your own whim and cutting people out of what's rightly theirs to give to another industry. And that doesn't say we don't lean in and try to get extra product for that type of a situation. But everybody is feeling the pain equally here.

And I don't know. You can say they're building the equipment, but we -- what fab is it going into, and what's the end result going to be as a result of them getting more product right now? I don't know that answer, and I don't know that that's a proven statement.

Your next question is from Toshiya Hari with Goldman Sachs & Company.

And congrats on the very strong results. I had one clarification question and then a follow-up. As my clarification question, just on inventory, I think, Mike, you mentioned that value was up, but -- I'm sorry, value was up, but volume was down on your balance sheet. Was that a Q-over-Q statement or a year-over-year? Or was that both? And do you think you can build inventory in the current quarter?

That's a statement for both quarter-over-quarter and year-over-year. Our forecast is not anticipating us building inventory units.

Got it. Okay.

And no, I don't think we can over the next couple of quarters, just to finish that thought for you.

Got it. Okay. Very clear. And then my question, I just wanted to get your thoughts on sort of the competitive landscape. Obviously, in the near term, the higher tide, I suppose, is lifting all boats, and you guys are performing really well. As you think about your business longer-term, the competitive dynamics between, I guess, distri and direct is something that I wanted to ask about.

TI, in particular, they continue to talk about the advantages they see in going direct to their customers. They hosted a call earlier this morning and talked about ti.com and those kind of things. I think your other suppliers are taking a much more balanced approach.

But just curious, from your perspective, how are you thinking about that dynamic between distri and direct? And I guess, more importantly, within the distri industry, what have you done, I guess, over the past couple of years during the pandemic to better position the company as you come out of the pandemic?

Well, if you -- there's a lot of questions in there, first off, and I'll try to hit them all and be as concise as I can. First off, on the changing dynamics of distribution, I haven't really seen a lot at this point with those changing dynamics. Individually, with different manufacturers, sure, they have changed their dynamics, but yet some have increased their participation in distribution.

So as you said, I think there's a balance out there, and there's a balance that will be out there for a long time. Also, we've seen huge increases in our engineering business over the last 2 years now. And in fact, we're seeing a marketable change in customers looking to redesign some old products to make sure that they can still manufacture with many types of products as they can. So we're seeing that come into play.

Also, our supply chain business is really way up, and that is some of the arrangements we have with customers to either ship their products directly to them, handle freight only or do handling of their inventory, those types of activities are up, too. But the one activity that is way up right now is going out there and finding shortage components for customers. And I expect that, that business will always be there for us, but it's heightened activity right now.

Then you just think more broad with the digital changes we've made in the business for customers to come online and do some of their own designs, to setting up supply chain over the web, to the cloud business in ERP and the ECS business. So we've done an awful lot, if I have to highlight that, over the last couple of years. And those businesses are just starting to come online and expect to be high producers in the future. So it's not all about products.

And congrats again.

Thank you.

Your next question is from William Stein with Truist Securities.

Mike, I'm hoping you can talk about the timing of impact of price increases from suppliers, whether, when they announce that, does that affect your backlog and does it affect your customers' backlog onto you at the same time. Or is there a timing difference that might allow you to capture a better margin today?

So far, what we've seen is sort of immediate price increases. And those immediate price increases affect everything. And really, that is due to the nature of increases that the suppliers have received in making their product. And that has to be passed on because they're not going to take losses, of course, on what they're selling to get more product in the market.

So really, there's an immediacy of this that I've never seen before, ever. Usually, they say we're going to do it over the next couple of quarters, and we're going to hit this family or that family. It's the first time we've seen it. And by the way, the price increases are still coming by some of the manufacturers that are getting a late start on it. So it's not over, and it's not going to go away. I guess that would be the answer, and it's more immediate than it's ever been.

So no, the opportunity to really raise your margin because of price increases, it's not the activity that's on your mind right now. This is a supply activity market.

I appreciate that. I wonder also, you touched on this for a moment earlier, you said there's a business where you just chase shortages. I'm not sure if I'm -- I'm sure I'm not capturing all of the work that goes on there with that small explanation, but it was an interesting dynamic that you call out as a specific business.

But what I'm hoping you might address is the portion of revenue that you're doing in the components business that relates to sort of these established franchise agreements, where there's price protection, which is not -- is probably not super relevant in this cycle. But those sorts of agreements versus more arm's length transactions, where you might be able to eke out better margins, can you remind us what the split is between those 2 types of businesses and whether it's changed in the last year?

Yes. And I probably misspoke. It is an activity we're doing, not a specific business. So that's one way to put it, is that we have groups of people that are doing nothing but trying to chase down product of maybe where we sold something before, and that customer isn't using it anymore. And we can divert that product to another customer, and then the transaction comes through us. But the selling company sets the price, and the buying company decides whether they want it or not. So that does exist.

And as far as putting a cost on it, I think what you're seeing is the business is the business right now, the mix is the mix. If, for example, demand starts to get fulfilled, then that activity I just talked about will go down, too. But it will probably stay the same percentage of the business even when the demand goes the other way because there's always shortages out there.

And so that activity still goes. So I don't see a structural change in that in the future. It just happens to be more because there's more shortages right now. But also, sales are elevated, right? So you've got both things going on at the same time.

I think what you see right now in our margins is mix between U.S., Asia, Europe, same mix issues we've had before. And the same thing goes for mix issues on the type of product that goes out the door. And other than that, we shouldn't have any other changes that take place over the next year.

Your next question is from Jim Suva with Citigroup.

I have a long-term kind of strategy question. We've been through the China trade wars, COVID, power outages, tsunamis, all these type of things. I was just wondering, Chris and Mike, are you having discussions with your suppliers or maybe even your customers about adjusting the model less from just in time and more inventory and housing stuff longer-term and even if it's like a price to carry or a consignment inventory.

I'm just kind of wondering what's the next risk thing that they can navigate now that there some active discussions. And anything coming out of it? Or is it just discussions that maybe is different than last cycles?

I think it's a great question, Jim. That's stuff that we think about here every day. And the answer to your question is, yes, of course, we're looking at housing situations for customers that possibly you would pay by the month or pay by the quarter or something like that. Then you have to get into the carrying costs and the working capital that goes into whose inventory is it.

But yes, those kinds of models will start to materialize in the future. Although, what I can tell you with a high degree of confidence, nobody would have carried as much enough inventory to solve this problem. They might have had a quarter's worth of inventory, which would have protected them for 1 more quarter because nobody is going to put a year of inventory in across the board of everything that they need.

And typically, our lead times aren't that. What you're into now is you actually have to build fabs to get more product out the door. And that's just waiting out there because the demand is so high. And what is it? I heard 10 million less cars being built over the next year or 2. That's an awful lot of components, and that's an awful lot to catch up on.

But the answer to your question is, yes, Jim, that is it. That's nirvana. We're working on those models right now. Those will be introduced. But first and foremost is just getting more supply for our current customers and getting them out of this problem so they can live another day for that problem you just talked about.

And I would now like to turn the call back over to Steve O'Brien for closing remarks.

Thank you for -- everyone, for joining us today. If you have any questions, you can reach out to me. We appreciate your interest in Arrow Electronics, and have a nice day.

This concludes today's conference call. Thank you for participating. You may now disconnect.