Jabil Inc.
Q4 2007 Earnings Call Transcript

Published: 28 Sep 2007

[Operator:]

I would like to welcome everyone to the Jabil fourth quarter and fiscal year 2007 conference call. (Operator Instructions) I would now like to turn the conference over to Ms. Beth Walters, Vice President of Investor Relations and Communications. Please go ahead.

[Beth Walters:]

Thank you. Welcome to our fourth quarter and fiscal year 2007 call. Joining me on the call today are President and CEO Tim Main and Chief Financial Officer Forbes Alexander. The call is being recorded, and will be posted for audio playback on the Jabil website in the investor section, along with today's press release and the slideshow presentation on the fourth quarter and fiscal year results. You can follow our presentation with the slides that are posted on the website and began with slide 1 now, our forward-looking statement. During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected first quarter fiscal year 2008 net revenue and earnings results, our long-term outlook for the company and improvements in our operational efficiency and in our financial performance. The statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to, the Securities and Exchange Commission having views different from ours on the results of the review of our past stock option grants, conducted by a special committee of our board and governmental authorities; and the review of our historical recognition of our revenue by our audit committee; the impacts of the restatement of our financial statements and any other actions that may be taken or required as a result of any such reviews; risks and costs inherent in litigation, including any pending or future litigation relating to our stock option grants; the restatement of our financial statements as a result of the evaluation of our historical stock option practices and revenue recognition associated with financial statements or any declines on the price of our stock; whether our realignment of our capacity will adversely affect our cost structure; ability to service customers and labor relations; and our ability to successfully address the challenges associated with integrating our acquisition of Green Point; our ability to take advantage of perceived benefits of offering customers vertically-integrated services; changes in technology, competition and anticipated growth for us in our industry that may not occur; managing rapid growth; managing any rapid declines in customer demands that may occur; our ability to successfully consummate acquisitions; managing the integration of businesses we acquire; risks associated with the international sales and operations; retaining key personnel; our dependence on a limited number of large customers; business and competitive factors generally affecting the electronic manufacturing services industry, our customers and our business. Other factors that we may not have currently identified or quantified and other risks, relevant factors and uncertainties identified in our annual report on Form 10-K for the fiscal year ended August 31st, 2006 and subsequent forms reported on Form 10-Q and Form 8-K and our other securities filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please turn now to slides 2-5 as I discuss the results for our fourth quarter and fiscal year. Results for the fourth quarter of fiscal 2007, on revenues of $3.1 billion GAAP operating income increased to $50.5 million. This compares to $7.6 million GAAP operating loss on revenues of $3 billion for the same period in the prior year. Core operating income, excluding amortization of intangibles, stock-based compensation and restructuring charges for the quarter, was $103.8 million or 3.3% of revenue, as compared to $90.2 million or 3.1% for the same period in the prior year. Core earnings per diluted share were $0.29. Legal and accounting costs associated with the recent reviews in the quarter were approximately $2 million. On a year-over-year basis, this represents a 6% growth in revenue and a 15% increase in core operating profits. On a sequential basis, revenues increased by 4%, while core operating income increased 19%. Revenues for the fiscal year 2007 were $12.3 billion. GAAP operating earnings were $181.9 million, compared to $10.3 billion and $241 million, respectively, in fiscal 2006. Core operating income excluding amortization of intangibles, stock-based compensation and restructuring charges for the fiscal year, was $331.6 million as compared to $391.6 million in fiscal 2006, resulting in core diluted earnings per share of $0.95 versus $1.53. Please turn now to slide 6 for a discussion of revenue by sector for the fourth quarter. Production levels in the automotive sector decreased 10% from the prior quarter, reflecting the seasonal nature of this sector. Computing and storage sector increased 9% from the third quarter, reflecting additional business awards with two customers in this sector. The consumer product sector decreased by 3% from the third quarter, reflecting the transition of business mix in this sector. Instrumentation and medical sector was better than our expectations, and increased 7% from the third quarter. This is a result of sequential growth with more than 90% of our customers in this very well-diversified sector. The networking sector levels of production increased by 12% from the previous quarter, reflecting demand strength in our largest customer from this sector. The peripherals sector increased by 8% over the third quarter, reflecting the continued ramp of previously discussed new business awards with an existing customer. The telecommunications sector decreased 8% sequentially, slightly better than our expectations. Our sector information for the quarter in the fiscal year in percentage terms is as follows

[Forbes Alexander:]

Thank you, Beth. Good afternoon. I would now like to review our balance sheet and trends with you, and I'd ask you to turn to slides 8, 9 and 10. The company's sales cycle in the quarter improved by 6 days to 19 days. Days sales and accounts payable days outstanding improved by one day each, as compared to the third quarter. Inventory days improved by four days to 43 days or 8.4 turns, a reduction of approximately $70 million in the quarter. Cash flow from operations is approximately $250 million in the fourth quarter. Cash flow from operations for the fiscal year was approximately $190 million. Our return on invested capital improved to 11% as compared to 10% in the previous quarter. Cash and cash equivalents were $664 million as compared to $558 million at the end of the third quarter, after paying down $70 million of our bridge facility. Our capital expenditures during the quarter were approximately $93 million, including approximately $33 million of expenditures related to our expansion of facilities in China, India, Poland and the Ukraine, these building expansions being ahead of our previous expectations. Capital expenditures for the year were approximately $307 million. Depreciation for the quarter was approximately $57 million, with EBITDA in the quarter being $161 million. For the fiscal year, depreciation was approximately $210 million and EBITDA was $542 million. During the quarter, we amended our revolving credit facility from $500 million to $800 million of capacity with a five-year term through July 2012. In conjunction with this, we also entered into a $400 million term loan A with the same five-year maturity. Proceeds from this term loan were used to pay down $400 million of the bridge facility in place to fund our recent Green Point acquisition. $400 million remains outstanding on the bridge facility, expiring on the 20th of December, 2007. We intend to replace this outstanding bridge financing with permanent longer-term capital prior to that date. We're pleased with the continued progress we have made in the quarter

[Tim Main:]

Thank you, Forbes. Our financial performance in the fourth quarter provides further confirmation that we're executing on what we said we would do a few quarters ago. Earlier this year, we said we needed to focus on five key areas

[Beth Walters:]

Operator, we're ready to begin the question-and-answer session.

[Operator:]

Your first question comes from Louis Miscioscia - Cowen.

[Louis Miscioscia:]

Tim, can you talk a little bit more about Taiwan Green Point and how things are going there? I apologize if you had that in your remarks; I was unfortunately getting on the call a little bit late.

[Tim Main:]

We didn't address Taiwan Green Point specifically and we don't intend to break them out going forward. They are part of the Consumer Division and more narrowly, part of the mobility and displays sector within Consumer. Having said that, they are on plan, doing well. I did make some comments that we have relationships now with most of the major device manufacturers in mobility, and that Green Point is a cornerstone element of our value proposition in that area. Our major thrust in fiscal 2008 will be leveraging Green Point's technology and capability into bigger, broader relationships with those device OEMs. We feel like we're on a very supportable path to do that. We did mention that in the mobility area, we would expect the benefits of leveraging that technology and expanding relationships to contribute to year-over-year top line growth in late fiscal 2008 and then, more appreciably, in fiscal 2009.

[Operator:]

Your next question comes from Steven Fox - Merrill Lynch.

[Steven Fox:]

On the consumer business, you mentioned some areas that you need to focus on and need to evolve in. I was wondering if you could talk about what areas are most challenging, whether it's the vertical integration, pricing discipline? Where do you think you're furthest along, and what should we see as the most improved area during the course of this fiscal year?

[Tim Main:]

I think it's really now a function of primarily resuming growth and continuing to execute on the key areas that we talked about

[Steven Fox:]

Forbes on the tax number, non-GAAP, I came out with about $20 million in book taxes. Is that the right number for the quarter? Can you just review what happened, what was the true-up that went on again?

[Forbes Alexander:]

Yes. The actual tax number for the quarter, if we're talking about core, was actually about $18 million, 22% in the quarter. As you are aware, we book our taxes on an annualized approach, and I think there's a couple of million there just in true-up as we have seen income come in from higher tax jurisdictions. Now, as you are aware, we've got many geographies with tax holidays and we are not always perfect with a predictive index as to where exactly that income is going to fall through from. So that's really the impact there. As we look into fiscal 2008, I would use an 18% tax rate, based upon the profile of the income stream that we see.

[Operator:]

Your next question comes from Matt Sheerin - Thomas Weisel Partners.

[Matt Sheerin:]

Now that you're breaking out your businesses into three segments, can you give us an idea of profitability levels for each segment and return metrics, and what your short and long-term goals are for each division?

[Forbes Alexander:]

We don't plan, certainly at this stage, to go into that level of detail. Our overall goal is to continue to grow our operating income margin from 3.3% this fiscal quarter and continue a step function to return our overall profitability to our longer-term goals. You see that being a step function as we move through fiscal 2008, and we're going to continue to strive towards that and look towards a number of key drivers in our business, predominantly adding revenue as we move through the fiscal year, continuing with our restructuring plans and, frankly, some continued focus on our operating expenses in terms of SG&A. So clearly, our divisional heads have metrics and targets placed upon them, but overall we're looking to drive the corporation step function forward to our longer-term targeted goals.

[Matt Sheerin:]

Just another question on the mobility and consumer business. It sounds like you're really looking to leverage Taiwan Green Point to get some bigger contracts with some other large handset customers out there. What does the pipeline look like? Are you close to signing any big deals there?

[Tim Main:]

We looked at the fiscal year having growth in the back half of the year; let's say, late in fiscal 2008. I prefer to just leave it at that. We have major relationships, including Jabil relationships that are still critically important and still top 5 customers. So there's no reliance completely on making sure that we get big deals from Green Point's customers. We're looking at this as a total business solution, not something that's reliant on one or the other. We're creating a vertically integrated solution that will be operated and managed under a single organizational structure. That's moving forward, and we think that will yield significant benefits for us going forward. We did take particular time in the prepared remarks to talk about how this is not reliant on a single customer or a single opportunity. With EMS growing at the rate they did in fiscal 2007, After Market Services growing, and very significant growth in Consumer Electronics and actually most of the areas that we do business in, I wouldn't say that we are dour or depressed about what's going on in that division. As a matter of fact, I'm becoming more enthusiastic about what our prospects are there. So a good pipeline of opportunity. We're looking at a fiscal year in which we intend to continue to methodically improve our value proposition. We will see top line growth, and we're going to stay focused on things like cash flow, balance sheet management, return on invested capital and get the financial metrics, the performance of the company back to historical levels.

[Operator:]

Your next question comes from Shawn Harrison - Longbow Research.

[Shawn Harrison:]

Just first on the margin profile, understanding that revenue growth is kind of the key to delivering further operating leverage, what other maybe headwinds are we still facing, in terms of just legal fee expectations going forward or anything else out there? Then maybe just some commentary on the timing and restructuring benefits. Do we still expect that 20 or 30 basis points to be more back-end loaded in FY 2008? Or is there a chance that maybe it can be pulled forward a little bit?

[Forbes Alexander:]

You talked about legal fees. I would expect to see legal fees starting to really tail off now. Maybe it's $1 million in the following quarter; it's that type of magnitude. So not an incredible burden in terms of the SG&A structure. With regards to restructuring activity, that's a great question. As we look at things right now, we've incurred on a US GAAP basis $119 million of those charges. I would want to point out that that's on an accrual basis. Really, what I'd encourage investors to look at it is follow the cash impact. So cash going out the door in terms of restructuring is indicative of physical change within the corporation in terms of plant closures, employees leaving the company, revenue streams transferring out of our higher-cost locations into some of our lower-cost locations. So given that and the fact that we incurred somewhere in the region of $70 million of cash, it is going to be the back half of fiscal 2008. Again, these product transfers are occurring. We've got ongoing discussions with unions and employee representatives in Western Europe, and you may see some additional restructuring charges again on a US accruals basis in the first fiscal quarter or second fiscal quarter in the magnitude of $45 million to $50 million. Again, I'd ask you to follow the cash. In summary, yes, we still continue to expect to see these benefits in the back half of fiscal 2008.

[Shawn Harrison:]

The interest rate on the credit facility as well as the term loan put in place, what's the debt rate on the bridge loan?

[Forbes Alexander:]

That's LIBOR-based. I don't have that in front of me.

[Shawn Harrison:]

Maybe just a better question is, should we expect any further interest expense savings as you transfer that $400 million to maybe a fixed-rate debt?

[Forbes Alexander:]

Yes, there's certainly opportunity to do that, absolutely. Again, with the cash generation that we've seen in the corporation in the last two quarters the $200 million after our CapEx and dividends, we would anticipate certainly having some higher cash balances also, which would help give the potential to drive that net interest expense down.

[Operator:]

Your next question comes from Brian White - Jefferies.

[Brian White:]

Just curious, Tim, if you could comment a little bit about some of the news stories surrounding Jabil potentially acquiring assets from Nokia Siemens in Italy.

[Tim Main:]

I can confirm that there's a dialogue with Nokia Siemens Networks regarding certain operations in Italy. That's a negotiation that's in process, and we'll reserve any further comment on that until those agreements are complete. It's principally about a transfer of business though, not an acquisition of substantial brick and mortar and assets. So there's an employment base of less than 1,000 employees. During the transition period, we would lease certain operations and then move that business into our existing facilities in the Italy market. So I think that the negative comments we've heard from folks have to do with, is this another brick and mortar acquisition? That's not really the nature of the transaction. We'll have more details on that, provided that the agreements are finally completed.

[Brian White:]

This would be more board level or system level?

[Tim Main:]

We'll comment on that more when the deal is done.

[Brian White:]

It looks like the Consumer business for the November quarter, relative to historical sequential changes, looks a little soft. Is that simply because of the transition that's still ongoing or are you just seeing something in the markets?

[Tim Main:]

Which looks a little soft?

[Brian White:]

Consumer. I know you broke it out a little bit differently, but I still think you can compare it to historical. It looks a little softer than we have seen historically for the November quarter. I'm just curious why that might be.

[Tim Main:]

It's not really that much softer. Some years we've seen 30%, some years we've seen 20%. 15% to 20%, I think, in this environment is being reasonably conservative.

[Operator:]

Your next question comes from Kevin Kessel - Bear Stearns.

[Kevin Kessel:]

The question actually, Tim, that I have is also related to the Consumer Division, just trying to understand it better based on some of the numbers that you guys broke down today. Nokia is about a 13% customer now, and Philips has fallen below 10%. So if I look at those two, they both appear to be down in excess of 20% year on year for you guys, yet your Consumer Division itself actually was only down 2% or so based on my numbers. So that shows maybe what you were speaking to was just the diversification. If that is the case, maybe you could describe what other areas within Consumer you guys had actually made some good traction on during the year?

[Tim Main:]

I don't know that Philips is actually down 20%. There are elements of Philips that go into other segments. It's not completely Consumer. Having said that, don't forget also, Kevin, that we have the Green Point acquisition categorized in that segment, which will increase it there. There is an impact of diversification in that segment, principally in the displays area today. We have added several important customer relationships in the displays area. It's not a big driver of revenue growth in 2007. But, again, we think that will contribute to fiscal 2008 and contribute more substantially in 2008 later in the year.

[Kevin Kessel:]

Just so I heard you correctly, did you say that Nokia you expect to be below 10% in the quarter coming up, November, as well as February? Or was it the quarter you just reported?

[Tim Main:]

The quarter we just reported, so the fourth quarter of 2007 and the first quarter of 2008. Again, I think, to your point, which is all is not gloom and doom in that segment. We have been working very hard at diversification and moving our value proposition. In the short term, we'll have some setbacks. But over the long term, we would expect that to yield significant results. I think we're demonstrating some progress in those efforts.

[Kevin Kessel:]

Just on segment reporting, maybe for Forbes, you guys are now looking at your business differently and you're running it differently than in the past. You're not providing the detail here today. I know that change only happened on the 1st of September, but going forward, when you start filing your Qs in your segment, rather than reporting by geographies, will you begin reporting out operating profits by segments the way you are now?

[Forbes Alexander:]

Yes, we will, Kevin. The thought process behind the divisional approach also is allowing investors to see how the divisions are performing. You're absolutely correct. In terms of our filings, our Qs and our Ks, we will be breaking this out by the EMS Division, Consumer Division and After Market Services Division. With that will come certain asset information and operating income information, corporate charges and such, just as you see today in our current filings.

[Kevin Kessel:]

But will it be retroactive, meaning to this K that's about to come out, or will it only be going forward on your first Q for November?

[Forbes Alexander:]

It will be a year-over-year comparison. That is a requirement.

[Kevin Kessel:]

So you will show it for this K, then, against last year?

[Forbes Alexander:]

Not for this K, no. For our first quarter Q.

[Operator:]

Your next question comes from Amit Daryanani - RBC Capital Markets.

[Amit Daryanani:]

Just a quick question on the margins. In the past, you have spoken about a 4% margin target. Could you just talk about what do we need to get there at this point? In the past, I think you said $3.34 billion run rate if you get to the midpoint in November, and we're still, I think, 50 basis shy of that target. So what do we need from here to get to the 4% number?

[Tim Main:]

Let's put that in some perspective. A 50 basis point change in our operating margin is around $15 million, $16 million. So we're not talking about a huge leap from where we are to where we want to be. I think also, let's think about where we've come from in 2007, so a much more material and tested revenue stream in our networking segment and some of the other segments we do business in. As we generate and manufacture more business in the industrial instrumentation medical segments, as we gain vertical integration and traction in Consumer Electronics, we're essentially increasing the amount of value add in our revenue stream. That will certainly help the margin side. Secondly, we do plan on getting additional operating expense leverage, much like we saw in the 2003 - 2006 time period when the expansion of our operating expenses and SG&A expenses were relatively flat. We fully intend to do a better job of leveraging operating expenses as we grow revenue, particularly in the back half of fiscal 2008. Then we'll get better capacity utilization. Forbes mentioned we spent approximately $90 million in capital expenditures. We're building facilities because we anticipate growth in, certainly, the back half of 2008. As that top line increases, it will give us a much better opportunity to see that operating margin improvement.

[Amit Daryanani:]

That's really helpful. Then just in terms of ROIC levels, you had a 15% target or plus 15% historically. When you look at the three segments we have now, would it be safe to assume that the EMS and After Market Divisions were not at that 15% target?

[Tim Main:]

I don't think that would be safe to say. But I can't really answer it on it, because we don't have divisional ROICs at our fingertips at this point. What has really impacted our ROIC obviously, the earnings side. But the acquisition of Green Point significantly expanded the capital base. Of course, in our calculations, they include all goodwill and the rest of it. So we still think those targets are attainable and doable. We're actually very pleased to see our ROIC move up into double-digits. The nice thing about adding to that is it should take our weighted average cost of capital down a little bit and provide some relief to shareholders that have historically been the loan supporter of capital for this corporation. So a better balance of equity and debt and really just driving the earnings and efficiently managing our assets. I think we'll continue to see improvement in ROIC. It remains a key objective for the corporation. Forbes talks about it all the time. It's practically all he talks about in terms of cash flow, balance sheet management, returns on capital. Our business unit guys get it. We made a strategic decision to make a major acquisition, and that will delay the period that we get to the 18% to 20% ROIC. But I still think, based on the models we have, that that's doable.

[Operator:]

Your next question comes from Long Jiang - UBS.

[Long Jiang:]

Good afternoon. I was late to the call, so I apologize if you already addressed it. Did you talk about the foreign exchange impact for the quarter in terms of revenue and operating income?

[Forbes Alexander:]

We did not specifically discuss that. However, we're not seeing a very large material impact in terms of foreign exchanges, though certainly, we have a broad-based revenue stream across the world, with various dollar purchases, yen purchases, even based in European markets and such. So we don't see significant impacts on our revenue stream or income stream as a result of that. We're pretty well-hedged and risk-averse, if you will.

[Long Jiang:]

Basically, no meaningful impact to the top line operating profit?

[Forbes Alexander:]

That's correct.

[Long Jiang:]

A question related to the consumer segment. You are guiding flat for fiscal 2008. Now, to what degree do you assume vertical integration with TGP products in guiding flat consumer revenue for fiscal 2008?

[Tim Main:]

As we've said, any revenue contribution from Green Point operations are included in our consumer segment.

[Long Jiang:]

Yes, I understand. But if you increase vertical integration, some of their products may not reflected in external sales, right? If you do more consulting with TGP?

[Tim Main:]

Are you saying, if we substituted Green Point plastics for externally secured plastics, that would not increase the revenue stream? I had a hard time understanding what you're really asking.

[Long Jiang:]

If TGP increased production, some of the increased production, if used internally with your EMS side of the business, that could impact the extent of sales, but it could benefit margins, right?

[Tim Main:]

Yes.

[Long Jiang:]

So I'm just curious to what degree do you assume that kind of vertical integration in fiscal 2008?

[Tim Main:]

Well, all we talked about, really, was top line guidance. So in terms of providing margin or EPS guidance, we didn't do that. But you're absolutely right to the extent that we can get additional vertical integration benefits from Green Point in our existing relationships and in a broader number of segments, yes, that would be good for margins, we would hope.

[Long Jiang:]

What's the typical production ramp-up lead time for the consumer segment?

[Tim Main:]

The lead time associated with what, now?

[Long Jiang:]

The lead time from you getting an order or you getting the business to full production ramp-up? Because I just want to get a better understanding about your guidance of consumer ramp-up in late 2008 and 2009. I'm curious whether you already have strong indications, tangible indications from your customers in terms of increased orders for consumers.

[Tim Main:]

Yes. The lead time isn't that long. By the time a customer gives us a purchase order, the assets are in place and we are already locked, loaded and ready to go. So I wouldn't expect purchase orders to show up until 8 to 12 weeks before they expected to receive a part from us. But we would certainly have to have more confidence about pipeline, the opportunities, what we're bidding on, what we thought we would win, in order to think that we will see some positive top line comparisons year over year, later in fiscal 2008. So that's where our confidence comes from, where we are going. Sorry for stumbling on this a little bit, but we're getting a lot of static from your line or our line. I'm not sure what it is. So it's hard to hear those questions.

[Operator:]

Your next question comes from Thomas Dinges – JP Morgan.

[Thomas Dinges:]

To segue off one of the things you said there Tim, with the relentless pursuit that Forbes has on ROIC and cash flow and so forth, can you talk a bit in general terms about the build rate of new capacity that you guys are undergoing? Is next quarter maybe a bit of the peak of that? Because a couple quarters in a row, you guys have obviously come in either at the high end or higher than where you thought you would be on new capacity. You talked about a couple of sites there. Especially in the context of what you guys are seeing for new opportunities for the year, it would help if you can walk through your assumptions on where you stand in that.

[Tim Main:]

I think Forbes has been making the rounds and picking up people's credit cards and counseling their lines of credit. But to be directly responsive to your question, I think from a facility expansion standpoint, yes, that tends to be very, very lumpy. It's a stair step function, classic stair step function, whereas the internal machinery and equipment that will go into the facilities can come, matched with the revenue stream on a much closer basis. So we did have a pretty significant build out in terms of facility expansion, and we will have an opportunity to slow that part of our CapEx stream down when they are complete, after the end of the first quarter.

[Thomas Dinges:]

The quick follow-up is just last quarter you mentioned, I think it was, four to five different sectors where you guys were anticipating some ramps of some nice programs. Some of those look like they got reflected either in the outlook for next quarter, or perhaps what you actually saw in the reported results for this quarter. My question is, have you seen any changes to any of those plans that you have? Is that perhaps one of the reasons why, as you talked about especially, say, in some of the segments, maybe the outlook is a little bit on the conservative side? Or is this just purely you guys taking a haircut to what you're seeing out there from your customers in general?

[Forbes Alexander:]

Well, in terms of the program wins that you mentioned, Tom, our guidance today and our discussions do I think fairly reflect what we talked about last quarter. Some of these programs we talked about an automotive win. Automotive, by its very nature, is a much slower transition into the EMS model. Again, qualification on assembly-by-assembly basis rather than, for example, on an overall line basis that one would use on a storage product or networking product or anything of that nature. So I don't think our overall outlook has changed in terms of these wins transition into our customer. You're absolutely correct. Some of the revenue uptick that we saw in the quarter we just reported reflects those wins coming in, in the computing and storage spaces and peripherals. So overall, I think we're happy with what we're seeing, and everything is on track to our previous anticipation.

[Beth Walters:]

Operator, we have time for one more question, please.

[Operator:]

Your next question comes from Jeff Walkenhorst - Banc of America.

[Jeff Walkenhorst:]

Could you talk a little bit more about the communications equipment sector? It seems like you came in slightly better on the top line overall than the $3 billion guidance. It looks like maybe some of that upside came on the com side. It seems like networking, you guided for that to be consistent and telecom, you actually guided that to be down 10%, but that was actually slightly higher, in our numbers. Was there anything in the revenue, maybe on the networking side from Cisco, that was more materials-related that you weren't expecting, that helped create the upside? Or talk on that and the overall headline growth rates for the full company for the full year at 20% looks great. But, of course, if you look at it on an organic basis, it's a little bit less than half of that, by my numbers. So the last question related to that is, I think earlier in the call you did say you are not providing fiscal-year guidance for 2008, but you do expect that your long-term target of 20% type growth is what you're shooting for. Is that the case?

[Tim Main:]

On your first question regarding the communications segment, networking and telecommunications both came in above original expectations and guidance. Spending in those areas has been pretty good, and it's kind of an iffy end market environment right now. But those two areas seem to be relatively strong. So I think we are expanding our services in those areas, if you speak of communications to encompass networking and the telecommunications side. We're expanding services. We're winning market share. I also talked about the potential they had, a couple of relationships in wireline and wireless OEMs that we don't have today, in the fiscal 2008 year. So I'm looking for those sectors to be pretty strong for us as we go out into future quarters. Now again, it's kind of an iffy end market. So we don't want to get too far ahead of ourselves. But yes, you are right, those were relatively strong. In terms of top line growth for fiscal 2008, what we have said is we're not providing fiscal 2008 guidance. We provided no specific guidance relative to our long-term targets or any other targets. We spent some time in the prepared remarks to talk about how that looks on a divisional basis, and certainly if you go back and look at the comments or re-listen to them, we expect growth to accelerate in the back half of fiscal 2008, with consumer making a contribution very late in fiscal 2008 and more appreciably in 2009.

[Jeff Walkenhorst:]

That's helpful color. One last follow-up on the comm equipment side. Does that mean that some of the growth we saw with Jabil is more of a share gain versus market growth, or is it a combination of both, some improvement in the end market as well as share gain?

[Tim Main:]

In terms of the last quarter, share gains happen over time. So I'd say a large part of the contribution is end market.

[Beth Walters:]

Thank you. That concludes our earnings call for today. Just a side note that Jabil management will appear on CNBC and Bloomberg Television tomorrow before 7 AM Eastern. We thank you again for joining us on the call today.