Sanmina Corporation
Q1 2008 Earnings Call Transcript

Published: 24 Jan 2008

[Operator:]

At this time I would like to welcome everyone to Sanmina-SCI’s First Quarter Fiscal 2008 Conference Call. (Operator Instructions) It is now my pleasure to introduce your host, Mr. Jure Sola, CEO and Chairman of Sanmina-SCI Corporation. Sir, please go ahead.

[Jure Sola:]

Good afternoon, ladies and gentlemen welcome to Sanmina-SCI First Quarter Fiscal 2008 Conference Call. Thank you all for being here. Joining me on today’s conference are Joe Bronson President Chief Operating Officer and David White, our Chief Financial Officer. For today’s agenda, we have David White to review our Financial Result for the First Quarter Fiscal Year 2008, Joe Bronson will review operations, then I will follow additional comment relative Sanmina-SCI results and future goals. And after that we will open for questions and answers.

[David White:]

Good afternoon everyone, before we get started, please note that selected portions of this presentation are available in a form of slide presentation on the internet, which can be accessed from the investor relations section of our website at www.sanmina-sci.com. I will be making references to these slides during the course of my remarks. Prior to discussing the state of our business and financial information with you, I would like to take a moment to review the following Safe Harbor Statement in slide two. During this conference call, we may make projection or other forward-looking statement regarding future events for the future financial performance of the company. We caution you that such statements are just projections. The Company’s actual results of operations may differ significantly as a result of various factors including economic condition in the electronics industry, changes in customer requirements and sales volume, competition and technological change. We refer you to the documents the company files from time to time with Security and Exchange Commission. Specifically, the Company’s most recent Annual Report on Form 10-K for the year ended September 29, 2007 filed on November 28, 2007. These documents contain and identified important factors that could cause actual results to differ materially from our projections and forward looking statements. You will note in our press release issued today that we have provided you with the statement of operations with the three months ended December 29, 2007 on a GAAP basis as well as non-GAAP financial information. A reconciliation between the GAAP and the non-GAAP Financial information is also provided in the press release. In general, our non-GAAP information excludes restructuring and integration cost, impairment charges, loss on extinguishment of debt, non-cash stock based compensation expense, amortization expenses, and other infrequent or unusual items to the extent material. Any comments when making as it relates to income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, SG&A, and R&D expenses, opening income, opening margin, net income and earnings per share, we are referring to our non-GAAP information. As you are aware, we have made it publicly known of our intentions to separate our personal business computing division from our core EMS business. While this process is taking longer than originally anticipated, we are currently in negotiations with the prospective buyer. However, because we do not have a definitive agreement at this point, we concluded that as of the end of our first quarter, that we have not met all of the accounting requirements under US GAAP. We are reporting this unit as a discontinued operation as was previously anticipated. As such, the financial result that would be presented in today’s conference call will address the total Company, consistent with our past practices. On today’s call, I will review the result of our operations, discuss selected balance sheet accounts in corresponding metrics, provide an update with respect to our restructuring activities and finally I will conclude with guidance for our second quarter of fiscal 2008, ending March 29, 2008. Slide 3, revenue for the first quarter of fiscal 2008 as announced in our press release dated January 14 with $2.53 billion which is just above the low end of our guidance of $2.5 to $2.65 billion versus $2.51 billion dollars in the prior quarter and $2.78 billion dollars in the same period a year ago. Non GAAP earning for the quarter for the $21 million, which equated to $0.04 per share, this is at the high end of our guidance of $0.02 to $0.04. By comparison, our non-GAAP EPS was $0.02 in the prior quarter and $0.07 in the corresponding period a year ago. Slide 4, for the first quarter, our revenue by end-market were as follows

[Joseph Bronson:]

If I could take a few minutes to discuss the operational performance of the company. Gross margin improvement was in shape in the first quarter as significant operation improvement was executed in the technology components group. EMS continued to perform well at previous level. EMS operations achieved both revenue and gross margin targets and grew sequentially over the prior quarter. Gross margins continued to track well above the corporate average with a continued focus on business mix. We were particularly pleased with the performance in the EMS organization. As certain customer deliveries was pushed out in the quarter, in our Huntsville, Alabama operation was somewhat impacted by a power disruption during the quarter. Due to the customer push out, inventories in the segment were higher than anticipated resulting in lower than anticipated returns. We continued to execute well in this group evidenced by quality metrics and customer satisfaction. Inventory levels are anticipated to decline with higher terms forecasted in the second quarter. The technology components group improved their gross margin significantly in the first quarter compared to the fourth quarter of fiscal 2007. Printed circuit boards, back planes, cables, precision machine and industrial systems were all at or above corporate average profitability in the first quarter. The loss on the enclosures division was substantially reduced as the unit approach gross profit break even. Performance and enclosures is the key ingredients to our turn around and is a major focus for the company. Enclosures division made significant improvements in performance level at all factory, including factory efficiency, production control, supplier management, inventory control, and capacity planning. Significant improvements and on-time delivery performance to the customer were achieved confirming that the changes implemented are producing real results for our customers. The enclosure division is now poised to grow revenue thru its global footprint and technology offering. The printed circuit board division achieved their performance objectives with solid profitability and has potential for additional business. Factory capacity utilization was higher than the fourth quarter as the unit continued to win high end technology business. Revenue declined in the industrial equipment precision machining group as the unit has been impacted by lower demands from the semi-conductor industry, as that industry is currently experiencing a cyclical down turn. Inventory performance continues to be good in all the component divisions and improved from the fourth quarter levels. The operational improvements that were necessary in the enclosures division is largely complete. Continuous improvement programs are underway to deliver the next set financial miles stone for profitability. The success of the components groups is critical to delivering the vertical integration solution for their outsourcing requirements. Our technical capability combined with operational execution and our global footprints enable customers to move more quickly with lower costs results for their products. We expect the EMS operations and the components group to make further operational and financial improvements in the second quarter. We believe that the enclosures division is positioned to turn profitable and that we will continue to improve our position in printed circuit boards, back planes, cables, precision machining, and industrial equipment operation. Operational execution plans and strategy are defined and being implemented to ensure continuous improvement and profitability. Now I would like to turn the call over to Jure.

[Jure Sola:]

As you heard from David and Joe, this was reasonably a good quarter. I am pleased that the progress we made during the first quarter and most importantly that we are in a good position for the second quarter. As David mentioned, the revenue came in at $2.53 billion but if you go down deeper at our core business is the key to these thing, it came in at $1.79 billion with the margin of 7.7%. The key to that margin is that we did improved from 6.8% to 7.7 % quarter to quarter driven by margin improvements in defense and aerospace, medical division and our component division that Joe talked about, which includes printed circuit board, enclosures, back planes, cables, plastics and custom memory. Personal computing business or PC, the way we call it internally, revenue came in at $740, that was basically 10% down below our expectation. But the gross margins improved in that operation from 2% to a 2.3%. As we are planning to talk for this division to professional buyer, this division has been run completely separately from our core business. Now, let me bring you up to date on the sale of this PC business. This process took longer than we expected when we started this process a year ago. We have to resolve a couple of major things, number one, work with our customers, eliminate their concerns and also put a transitional plan in place how this business is going to be correctly transferred to a future buyer. And David indicated in his opening comments, we do not have a definitive agreement at this time, but, we are optimistic that we can close a deal in the near future. Although, there can be no guarantees at this time, now, let me talk to you more about our core business. As with our active personal computing business, the business going forward is what at the company we call core business at run rate based on our Q1 results approximately $7.2 billion in revenue with gross margin of 7.7%. This is base to build our company. This is our future going forward. Now, I can tell you that we are confident about our future when it comes to our core business. With our position to compete at the high end markets and high end technology, high mixed products. Our customer base is also, what is important about our new focus business strategy as we talked about this new strategy with our customers especially in the six months. So, we are very positive from that point of view. This strategy also, has a main focus building our high end infrastructure products and this is the key markets. Communication, infrastructure, high end enterprise, computing and storage, defense and aerospace industrials, semi-conductor capital equipment, medical systems, multi media, automotive and also the new markets that we are starting to develop such as what we call the new emerging energy markets. For those markets, we provide full end to end manufacturing capability and the company is really well positioned to compete around the world with anybody in this market, so basically, we provide custom design and vertical manufacturing models to full system assembly including repair and logistics. Let me add a little bit more flavor to our goals that we have here for our fiscal year 2008. Number one; we are going to continue to generate free cash flow from operation and the asset sale. We expect to generate over $650 million in the fiscal year 2008. We are going to continue to re-size the company. When a decision was made to exit the PC business a year ago, RSG&A cost was approximately $100 million per quarter. Basically, if you look at the Q1 07, it about $100 million. At that time, we put the plan in place to downsize our SG&A. I can tell you that it going the right direction and we expect to exit third quarter, fiscal year 2008 with SG&A at the run rate of less than $80 million per quarter. So, substantial amount of saving going forward. We are going to continue to improve balance sheet as David mentioned earlier. This year, we are planning to take a minimum of $500 million worth of debt. This quarter, we already paid down $140 million of debt and we expect to pay down additional $380 million during the remainder of the year. And the bottom line this year is a whole focus about the margin and customer satisfaction. Let me spend a few minutes on the market conditions. The second quarter for us but it is really a March quarter, has historically living seasonally a down quarter. But market demand for second quarter at this time looked fine. We do have a pipeline of new projects and over all at this time, as we look at the calendar year 2008, it is very hard to predict, but I can tell you cautiously, we are optimistic about our outlook for calendar year 2008 based on our customer forecast that we are getting in basically on a daily basis. Let me give you some of the basis why we are confident about this second quarter. First of all, we do serve a global customer base where more than centered on global economy. We are focused under some key initial opportunities here. Also, 70% of our revenue comes a day from a low cost region for Sanmina, this is a huge change even comparing to a year ago. Our relationships with our key customers are good and improving. Operationally, as Joe said earlier, there are no major issues. Operational issues that we have in our enclosure division are more like fixed. And we continued to put a right program in going forward. During the quarter also, we want some new programs from existing, the new customers and this new programs should start contributing in the June quarter, which for us is the third quarter fiscal year 2008. So, overall, hard to predict, but we feel comfortable about the second quarter. Let me also make a few comments on the guidance that David talked about. We do expect to operate our personal business or PC business through March quarter. If I look at the demand for this forecast, only business that we have today that we are forecasting down in the second quarter is really our personal computing business. And we are forecasting personal computing business to be down 5% to 10%. Our core business is basically flat if you compare it to last quarter if anything could have some upside. Continue to generate free cash flow as David mentioned, we are going to reduce the inventory at least $50-plus million in a quarter or more. So, over all, I think it should be a good quarter. So, in summary, I think we are making a steady progress in our goal to continue to make improvements in every quarter as we look out in the calendar year 2008. After this major restructuring that Samina is just basically finishing, we are well positioned globally to complete by providing a superior technology that we possess, plus all our product line and services to our customers. We are focused to drive shareholders value and that is the main focus, is to deliver the return investment capital, above our rate of cost of capital. If we look at the economy today, it is really hard to predict. It is kind of crazy out there, as you all know better than I do. But even in a tough environment, we are positioning the company, even if we have a tough economical year, I think we are positioned to do well. But, as I said earlier, I think the core business that we are focused on, I believe that our market that we are focus will invade the top economy better. No matter what, the company is positioned to continue to generate free cash flow and improve margins. And I can tell you that the company is being well tuned up and positioned for a long term success even during the tough times. Now, I would like to extend basically special thanks to our investors for participating on this conference call. Also, I like to say thank you to our employees for their hard work and dedication to our company. And operator, we are now ready to open the line for questions and answers. Thank you again all.

[Operator:]

(Operator Instruction) Your first question comes from Louis Miscioscia.

[Louis Miscioscia:]

Let me ask you a question the vertical proportion of your business and I am glad to hear that things sound like they are going in the right direction. I think years ago, you used to be able to give how much business you are actually selling in-house. Is there any measurement that you have that we can sort of track either on this quarter, just on a quarterly basis to see how much of this business you are actually cross selling and that predominantly show that the customers really want to buy that as opposed to selling it externally?

[Jure Sola:]

If you look it total company, we are including our vertical and other stuff that do it. So it is a little over a $100 million a quarter

[Louis Miscioscia:]

Okay and we know we stand what would be the direction or how high would you want to try to get it to?

[Jure Sola:]

The idea is to get a 100% but realistically if you look at it, we would expect to you know as our growth comes in to increase that at least by approximately another $50 million a quarter.

[Louis Miscioscia:]

Okay on the last earnings call, you had talked about reducing your operating expense by $360 million, $60 million on the quarterly basis and I think that you said that on the fourth quarter September you already got about a half way there, you got the $32 million; how much of your Opex costs do you really need to make by selling the PC business and how much is just the other reinstruction you are doing?

[Jure Sola:]

First of all we talked about that about a year ago you know that is what I just mentioned, that time we felt that we could reduce about $60 million form that point of view. As you can see that number is going to be more than $60, as much as it could be $90 plus million on a yearly basis once we get done with this. Dave, maybe you can make a comment on this, but we are not ready to break that down yet and hopefully once we sell the PC business we will be able to do that for you. but the key here before I pass it on to Dave, the purpose of the whole strategy was that we have to reduced the SG&A down as we sell this. There is a contribution from the PC business; and as we right size the company, we are re-sizing the company for our core business only and you know I think it is the right step in the right direction and we are looking forward, going forward business will be generating more profits than what we are generating today. That is the goal number one; so, David.

[David White:]

I just had a couple of pieces; if you look at my comments the fourth quarter versus first quarter comparison; our first quarter debt includes some bad debt expense above and beyond our normal recurring provision rate and that is primarily what drove up our SG&A you might see in the fourth quarter, so we would expect that to come back down we actually have a number of re-organization plans in the company as it relates to our SG&A activities and so we would expect that. If you actually did some reverse engineering I think on the guidance we gave to you, you would see that the operating expenses are going to be coming down fairly substantially over the next quarter. And then as Jure commented, as we break out the PC business and hopefully get that behind us will be able to provide a little bit more transparency in terms of not just only the SG&A expenses but in the entire business model. Operator the next question.

[Operator:]

Your next question comes from Jim Suva.

[Jim Suva:]

Hi it is Kim Duncan in for Jim Suva, I was just wondering can you comment on Sanmina scale term and competitive in relation to Flextronix and the Henhei that seems to be moving more and more at the higher end markets.

[Jure Sola:]

Sanmina, you know we founded this company in this what we called niche high end markets; a year ago as we look to the competitive globe out there the decision was reviewed and then basically we made a decision what markets that we can compete and how well, first of all, it was the best market to compete going forward based on the way we set up. The market that we are exceeding is the personal computing business and consumer business. We never did a lot of consumer all that is just a fair amount, but we kind of exited in that business in last four or five years and a year ago we decide to exit the PC business. I believe in those markets. consumer and personal computing business, I believe that companies that you mentioned are probably set up and a lot more focused to compete on that business, but I think when it comes to this niche markets such as Americo, Defense aerospace, industrial, semi conductor, high end storage computing type of products and telecommunication infrastructure, I believe we set up to compete with anybody and our customer based fix for that. And as I mentioned earlier we did a lot of analysis in the last six months talking to our customer regarding our new strategy and I can tell you that basically everyone likes our focus and they believe this is the right thing for us to do.

[Kim Duncan:]

I guess last week, can you give an update to your end market growth outlook for fiscal 08 have they changed since last quarter?

[Jure Sola:]

Well, I would not say they changed much from the last quarter at all. I just talked about we are right now mainly focused in our second quarter and as you know this is a seasonally weak quarter, so the second quarter is a little bit stronger then maybe what we thought is going to happen three months ago; so comfortable about second quarter what is going to happen about 2008, we are sort of in the fourth quarter it is hard to predict today but based on my customary forecast, there are no major changes from let us say 60 days ago.

[Operator:]

Your next question comes from Kevin Kessel.

[Kevin Kessel:]

Hi guys, can you just expand a little bit in terms of the divestitures, so outside of the PC’s what right now is left to sell in your mind and maybe you could just remind us in terms of the old raw proceeds that you expect from them as well as the PC division I guess.

[Jure Sola:]

Well first of all the biggest one here to sell is the personal computing business and which, as I mentioned we are working on it right now with a potential buyer, that is number one and the rest of the assets are really a lot of it is real estate assets that we have around the world as we restructure the companies, a big part of that is real estate and then of course when you look at the total amount that we expect including the selling of these assets, and the pre cash flow that we generate from operation we expect to generate $650 million plus.

[Kevin Kessel:]

That is free cash flow for this year so the $122 that you did in the quarter plus the next three quarters plus the proceeds, from the divestitures of real estate and PC?

[Jure Sola:]

That is correct. Mainly PC, real estate and operation.

[Kevin Kessel:]

The PC, real estate and operations, when you say operations you mean?

[Jure Sola:]

What I mean, free cash flow from operation.

[Kevin Kessel:]

Free cash flow, okay, because what about at one point, there was something like five different sets, is that what you are referring to as real estate now the five different sets, like the one in Australia that you sold?

[Jure Sola:]

That was a small business I mean there were a couple of other small businesses that we have in the market, but we pulled it off the market for the main reason, it was just that timing is good and at the same time these businesses turned profitable, it makes no sense for us to unload them right now especially when you look at their outlook going forward.

[Kevin Kessel:]

Right, is that your memory modules and those other things we are talking about?

[Jure Sola:]

Memory module would be a good example of that.

[Kevin Kessel:]

And then you have mentioned in your prepared remarks about the forecast, how you have the forecast for PC’s down five to 10, but for the other end market. I assume that they are up because that is what you said; is there any way to give more specific granularity around that?

[Jure Sola:]

Right now, we are really trying to hard to section those, but overall our core business which includes everything, but the PC business, we are forecasting for second quarter to be flat, we have few markets ups and few down but it is a really small percentage in a 2, 3 percentage, one way or another.

[Kevin Kessel:]

So core flat, PCs down five to 10? And then within the quarter that is flat you are saying somewhere up, somewhere down, but there is none that you can single out?

[Jure Sola:]

Nothing major, if you look at it really, nothing major that will be predictable; we have one market section, we have some product delay, but we already knew about that three months ago; and that is about it.

[Kevin Kessel:]

And then just to clarify you on the SG&A comments that you made about reducing them to $80 million a quarter on a run rate? Is this what the PC division divested?

[Jure Sola:]

That includes not having the PC division with us.

[Kevin Kessel:]

Okay so that division is gone; because right now you are at 94, right? So we are talking about $14 million you want to eliminate a quarter in SG&A?

[Jure Sola:]

Yes, at least.

[Kevin Kessel:]

At least and in terms of the PC’s have you ever broken out what that is from an SG&A perspective?

[David White:]

We have not, Kevin but we typically said it is in the range of a percent, give or take.

[Kevin Kessel:]

Of sales, okay.

[David White:]

Yes, so you are looking at $8 million give or take.

[Kevin Kessel:]

Got it, alright, I appreciate it.

[Operator:]

Your next question comes from Shawn Harrison.

[Joe Whittin:]

Well this is Joe Whittine filling in for Shawn; I want to go back to the previous caller I think talked about some of the differences in the markets between yourself and some of the big guys Flex and Henhai, I was curious more on the market opportunities that may have been created from the merger I guess, you mentioned some wins earlier where some of those wins potentially coming from fall off from the merger.

[Jure Sola:]

No I mean the reason that we won, that I do not think that has anything to do with the merger, it really has more to do on the customers that we are involved. We would have got those with or without the merger. I think the merger with Flex and Selectronics is good for the industry, as you know the industry have a little bit extra capacity I think they can allow it, it is not bad for it, it is good. We fight everyday or compete everyday for the same customer base in this high end stock, so we competed with Selectron and now we compete with Flex-Selectron so there are really no major changes for us it is all about who can do a better job in this unique project that it is all about.

[Joe Whittin:]

And then just one more point of clarification, you mentioned a statistic about the percentage of your manufacturing that is in low cost I think it is around 70% is that right?

[Jure Sola:]

That is correct.

[Joe Whittin:]

I was wondering if you could just provide prior figures maybe just give an idea where we have been over the last three quarters, I did not see that number reported in the past.

[Jure Sola:]

We did not, but if you really compare it a few years ago, that case is 50/50.

[Joe Whittin:]

Maybe a year ago closer to 50/50?

[Jure Sola:]

David, I do not know if you have the numbers there.

[David White:]

A year ago, it amounted 60/40, but if you go back five years ago it would have been just to reverse of what we have today. It would have been about 70% in high cost and 30% low cost; so it is completely flipped it over round and I think if you look at the trend, we consistently continue to be pushing that number up towards the low cost countries.

[Joe Whittin:]

With the additional restructuring that is expected over the next six months or so that should go up further?

[David White:]

Yes, for that and for other reasons as well.

[Operator:]

Your next question comes from Sundar Varadarajan.

[Sundar Varadarajan:]

Just some questions with respect to your plans to kind of reduce debt, is the timing of that in any way contingent upon your getting the PC sale behind you or it does not really have anything to do with that when you realize the asset proceeds and the reason I am asking that question is you know it seems like you are already having you know a pretty good cushion from a cash perspective based on what you have said that you need to operate the business.

[Jure Sola:]

Well, let me transfer that question to our CFO.

[David White:]

Well you know you look at last quarter, we retired a $120 million and we did not have a PC sale at that point in time; so our plans, certainly the amount debt that we will retire will certainly be influenced by the timing of PC sales and proceeds from that, but our free cash plans in the quarter is still going to divert a lot of our free cash flow to paying down debt irrespective of the timing of that.

[Sundar Varadarajan:]

It seems like given where LIBOR going, is there any preference you have between which front of that you would want to take out?

[David White:]

We do and it has to do with a number of different characteristics of that debt, not only just the rates of the debt, but also the seniority of the debts and the remaining terms of the debt so, interest would just be one factor in the consideration.

[Operator:]

Your next question comes from Alex Benson.

[Alex Benson:]

I would like to address the question of the end markets for a moment and just if you could talk about the strengths and weaknesses that you see developing in your order rates by different types of products that you make and have you seen any effects that you can identify from economic weakness in the US and or Europe or Asia so as to break it down geographically.

[Jure Sola:]

Alex, I do not know if I can break it down geographically because we do have a international customer base, as we mentioned earlier, over 70% of our businesses today we manufacture in low cost region.

[Alex Benson:]

That is the location of the production, I am talking about where the demands are coming from.

[Jure Sola:]

Let me finish up, but the most of this stuff like I said, shipped to international global customer base, as you know we have European customer base, North American customer base, Japanese customer base, and the rest of the Asia, so we do not have a really good way of measuring of where exactly these products gets sold, okay. But we know we have enough information in general terms; that our customers everyone of our major customers especially when you look at companies like Cisco, Alcatel, Siemens, Nokia, just to name a few, these are all global companies. IBM, HP of course so that is really kind of what I can tell you. But on the economical side of the business, as the customers are nervous a little bit and bothered with just what is going on around the world, but the skies are not falling down, at least not as of today. I think from Sanmina’s point of view we would take in one quarter at a time, this quarter we are well positioned, actually in a better position at the beginning of this quarter and the last quarter that is number one. Secondly, I think the company has been going through major restructuring, we are in the final stage of that restructuring, so we are well positioned to weather the tough times and we are ready if the economy becomes a lot more difficult than what is today, I still believe we would get through it okay.

[Alex Benson:]

Okay, let me just try it one more way here; looking at your guidance for this quarter, can you separate out what is coming from new wins that you might have had and what is coming from the ongoing business and what is really happening to the ongoing business even if your sales were to be flat quarter over quarter, you might have a down turn in the existing business replaced by some new business, so it would not show up; do you see what I am saying? So how would you characterize it?

[Jure Sola:]

We have been very fortunate that in the last couple of quarters, we have a fair amount of new business or new projects, in our business you got all projects that basically get replaced by new programs and fortunately for us, we had a fair amount of progress turning to the new programs, and these new programs have a bigger upside and so we are optimistic about that. But we do not really break it down in that detail that you are asking me for, but in general terms I can tell you the new program is what helping us in a short term, and I think it will help us in the longer term. So our core business, I would say is very healthy, from a stability point of view. You have to understand, we have a wide customer base, global customer base, so it is very difficult at this time to predict, but we are cautiously optimistic about the future, the programs that we are involved in and who are the customers. If you look at our customer base, it is basically who’s who in our core business. At the same time we have been very aggressive in developing some of these emerging markets and also in areas that we did not have a lot of business such as industrial side in the defense and aerospace area. I mean our defense and aerospace business almost doubled in the last 12 months and, defense and aerospace is a market that delivers you three X-margin than what you are getting in a typical EMS industry, so we are going after this emerging markets a lot more aggressively today or this was a part of this new future for Sanmina in the last 12 months than ever before.

[Operator:]

Your final question is a follow up from the line of Jim Suva.

[Jim Suva:]

Joe, you have been a little quiet here except for the repair remarks, can you give us a little bit of overview as far as the opportunities, challenges and maybe some of the milestones that we can look for and kind of what you see now that you have been there a little bit.

[Joe Bronson:]

I think the key issue is revenue growth that will dovetail the efficiencies that are being executed in the plans and you put a little of financial discipline and accountability on top of all those things and we can really make a pretty good margin improvements down the road, that is going to be important. So the enclosures thing is very encouraging, that is going to be a very good business for us as we go forward and it is that kind of situation that I think exist in pretty much of all our operation, where as we continue to make these kinds of improvements, we will be better than the competition, we have to be in order to improve.

[Jim Suva:]

And Joe what type timeline or milestones are we looking at to see some measurement from your specific effort?

[Joe Bronson:]

Well, I would like to see sequential margin improvement quarter after quarter and certainly the upside for us is certainly still in the components area even though we have a number of the operations at the corporate average we want to get enclosures to the corporate average, that will probably be the first thing and then we want to bring the others up you know 50 or hundred basis points over time and that will really increase our profitability rate.

[Jure Sola:]

Thank you. Well ladies and gentlemen that is all for today, again I appreciate your support. If you have any questions please give us a call, otherwise we will be talking to you in the next 90 days, bye. Thank you.

[Operator:]

Ladies and gentlemen this thus conclude today’s Sanmina-SCI’s teleconferenc, you may now disconnect.