Benchmark Electronics Inc (BHE) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen. (Operator Instructions.) Now I would like to turn the call over to Ms. Gayla Delly, the CFO of Benchmark Electronics. And, ma'am, you may begin.

Good morning. Welcome, everyone, to the Benchmark Electronics second quarter 2004 conference call. First, I'd like to begin by introducing our team present today. I'm Gayla Delly, the CFO of Benchmark Electronics. With me is Cary Fu, our President and Don Nigbor our CEO. Barbara Sorensen, our Director of Treasury Services is also joining us and will assist us in our discussions today.

As we begin our call this morning, I want to highlight some important points regarding our second quarter results. First, our focus on customer service and operational excellence has, again, allowed us to have consistent financial results in a difficult financial environment.

We noted in our guidance last quarter that we were ramping a number of new programs. These programs are in various stages of branding and some will ramp to volume in early 2005. We are pleased that we reported an improvement in our revenue, gross margin and operating margins even while some the new programs are still in their early stages. More importantly, we are participating in the next generation of products for many of our major customers.

Second, we continue to see the benefits from our customer diversification efforts. Our Q2 revenue from our top customer was at 32%, on record revenues of $491 million. This, again, is indicative of the number of new programs we have added over the past year and a half. Our new opportunities in the sales pipeline remain solid with a drive to outsourcing remaining very strong.

Now, I will turn it over to Don for a few comments regarding our quarter results in addition to providing an overview for the quarter, and then Barbara will present the financial information and we will conclude with Cary and I answering your questions in a Q&A session. We will, again, hold this conference call to one hour. Before I begin, I will read the forward-looking statements.

During this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We would like to caution you that those statements reflect our current expectations and that actual results or events may differ materially.

We refer you to the risk factors and cautionary language contained in the documents we file from time-to-time with the Securities and Exchange Commission, specifically our recent filings on Form 10-K, 10-Q, and our 8-K, which identify important factors that could cause actual results to differ materially from our projections or forward-looking statements. We undertake no obligation to update projections or forward-looking statements in the future. Don?

Thank you for joining us today as we provide with you our second quarter review and a quick update on the marketplace opportunities and challenges we see moving into the second half of 2004 and further into 2005. We are continuing to see a good level of activity in our customer base and in the sales pipeline. It is true that not every technology indicator is a positive one. However, we continue to witness positive signs throughout the supply chain.

We have been adding a significant number of programs and customers over the past year and a half and we are seeing the growth in these programs and expansion of our customer relationships continue. As I indicated last quarter, we see 2004 shaping up to be a very exciting and promising year for Benchmark as we ramp a number of new programs.

Now, I will turn it over to Barbara to provide a more specific input on our financial performance for the quarter.

Thank you, Don.

As we reported this morning in our press release, we completed the second quarter of 2004 with record revenues of $491 million. This was slightly above the high end of the guidance provided during our last conference call when we estimated revenues in the range of $465 million to $490 million.

Our second quarter revenue was 9.5% higher than the second quarter revenue for the prior year and sequentially up as compared to our strong first quarter revenues by approximately 2%. Our diluted earnings per share were a record 42 cents per share on a GAAP basis. For the same quarter in the prior year, our diluted earnings per share were 31 cents.

Net income for the second quarter of 2004 was $17.6 million on a GAAP basis compared to net income for the second quarter of 2003 of $11.8 million on a GAAP basis, an increase of 49%.

For the second quarter, our cash flows provided by operations were $10 million. Our inventory level was $277 million, an increase of $7 million from Q1 with inventory turns at 6.5 for the quarter compared to 6.6 in the previous quarter.

As we anticipated, our gross margin for the second quarter was 7.8% of sales as compared to 7.7% in the first quarter, improving slightly with more efficiency gains in our new program ramps. MPI activities and schedule changes continue at high levels and as we have previously noted, these activities continue to impact the level of efficiency in our production and negatively impact our gross margin.

SG&A in whole dollars was $15.3 million, which represented 3.1% of revenues. We have continued to maintain strong cost controls and anticipate the SG&A will remain in the 3.1% to 3.2% of revenues range. Our operating margins for the quarter was 4.7%, and our pre-tax margin was 4.9%. Our ROIC was 13.9% for the second quarter.

For the second quarter interest expense was $394,000, interest and other income was approximately $1.4 million and other expenses were approximately $39,000. The tax rate for the quarter was 26.7% with our effective tax rate for the year at 27%. Taxes have been favorably impacted as we expand our Asian operations.

The weighted average shares outstanding were $42.2 million. Our cash balance at June thirtieth was approximately $312 million, an increase of $10 million from March. Receivables were $231 million consistent with receivables for the first quarter of 2004.

Our days sales outstanding were 42 days, and a one-day improvement over last quarter. Inventory was $277 million compared to $270 million last quarter. Inventory charges were 6.5 times. Our inventory levels in support of new program ramps, including next generation programs for several of our top customers, are continuing to build in advance of product introductions.

Cash cycle days were 47 days. We do see that once again, we have an opportunity to improve on this, as we ramp some of our new programs to volume and reduce the level of inventory, which we have built up in support of the anticipated program launches. Currents assets were approximately $850 million and the current ratio was 2.5 to 1.

Capital expenditures for the quarter were approximately $2.5 million and depreciation expense was $6.8 million. We have no amounts outstanding under our revolving credit facility of $175 million or on our term loan and remain in compliance with all of our debt covenants.

Cash flows provided by operations were $10 million for the second quarter of 2004.

Our revenue breakdown by industry for this quarter approximates as follows. Medical 7%, Telecom 11%, Computers 61%, Industrial controls 12%, Test and Instrumentation 9%. As we mentioned earlier, our revenue from our top customer is 32% this quarter as compared with 33% last quarter. We continue to expect a level of concentration among our top customers to decrease.

Now, I will turn it over to Gayla to discuss our new program wins and guidance for next quarter.

Thank you. During the second quarter, we booked seven new programs. We continue to see a good mix represented in our program wins with a new program in industrial controls, medical, Telecom, and computers. The revenue potential from these wins is estimated at $72 million to $113 million on an annual basis when ramped and as always, some new products or programs do not meet customer expectations from time-to-time.

With the level of the new product introductions we're ramping as the markets improve generally, it's difficult for us and our customers to assess the true revenue potential for these new products.

Additionally, we would like to note that we have been awarded the next generation of products from our two top customers. As well, the pipeline of quotation and outsourcing activities remain strong and highly competitive and we do still see some aggressive marketing efforts by the competition. The component markets have shown some easing with several commodities experiencing a more favorable pricing environment.

This quarter, we saw some lead times improve slightly also. We have recently seen improved conditions in the marketplace generally. However, long-term outlooks are still showing signs of fluctuation. As the market does not yet provide a track record for consistency, we will, again, provide forward guidance for one quarter only. And continue this practice until more stability is seen in the long-term outlook and further data available from our customers. Any guidance provided is based on information available at this time.

We currently expect revenues for the third quarter of 2004 to be in the range of $485 million to $505 million, which is based on indications from our customers, and the corresponding GAAP earnings per share is estimated in the range of 38 cents to 43 cents.

We are not providing guidance currently beyond one quarter, but I do want to know that we anticipate our operating margins to continue to gradually trend upward from 4.7% to 5% as we ramp the new program by the end of 2004 or early 2005. We're very excited about the new programs that have meaningful production levels beginning in Q4 in early of this year and early 2005 and some of the larger designs to production wins are on track to launch during this timeframe.

I would like to turn it over to Cary for a for closing comments before we begin our Q&A session.

Thank you, Gayla.

Good morning. This is Cary Fu. As we indicated, our performance during the 2003 set a very high standard for ourselves. Yet today, we're very proud to announce again that we have an opportunity to announce a record quarter for Benchmark. Internal revenue up by 10% and net income of 49%.

As we previously indicated, margins compress as a result when we bring up new programs. Inventory grows to ramp the volumes -- volume production for those programs. Those were my words in the last conference call. Today, we have to see just what happens.

In the first half of 2004, we have supported many, many new programs. As always, the cost associated with new programs have impact on our gross margins. We do anticipate our gross margins to improve as we ramp up our new program in the coming quarter. Also, we expect -- as we expand the level of production in the low-cost geography, we expect the improvement in our tax rate. This impact has been included in our guidance in earnings for the third quarter.

We're continuing to diversify our customer base by adding additional new program in the - in customers. As we indicated last quarter, we anticipate the revenue from our top customer to reduce to high 20% range by the year-end of 2004.

In response to the increased demand for the product in Asia and for the design engineering service, we announce to start by a 125,000 square foot facility in Karai (ph), Thailand, which we anticipate will be operational in Q3, the current quarter. We are also in the process of significantly increasing our engineering resources.

We are continuing to see strong activity in the customer base. We believe Benchmark is well-positioned globally to have a very good year in 2004.

At this point in time, I will turn the call back to Gayla for the Q&A section.

Again, during this session, we will request that you limit yourself to one question and then one follow-up question so that we can allow time for everyone's question. Operator.

I'd be happy to. (Operator Instructions.) And our first question comes from Brian White.

Good morning.

Good morning.

Good morning, Brian.

Just a quick question here. It sounds like you have the next generation product for a couple of your top customers. Your largest customer, in particular, when do you think that you'll be going through this product transition and what type of impact might it have on your sales and margin level? My understanding is this is something that could occur maybe sometime in the December quarter?

Again, Brian, I don't want to be announcing on behalf of any of our customers the timing of their new product introductions. As we have indicated, several of the programs that we're supporting we expect to ramp in the Q4-Q1 timeframe and, again, specifically to the rest of your question, as we ramp production not on any specific program, but getting the programs into a mode versus an MPI and startup mode, we expect our margins to have some improvement as we indicated earlier.

OK. Just looking at the different end markets here, you know, some outperformed. It looks like, you know, test instrumentation did real well, you know, medical declined a bit. Can you discuss the trend you're seeing in those two markets? And then may be, what markets really surprised you this quarter on the upside and the downside?

I think, Brian, that in the medical area, we see that simply as the other areas were showing growth this quarter, that we didn't have the level of new program ramps and the increase there. So, I don't think that as surprising. I think test and instrumentation has continued to rally if you will, it's been strong. I don't see any of the specific changes as new or unique data points.

I think it shows that there are some, you know, minor adjustments from quarter to quarter, but overall, the IT growth is still very strong. We continue to attract a good number of customers there. Telecom is continuing to be weaker from previous days. So no real shifting of ties or changes, just generally a balanced mix going forward.

Did you see any slowdown in the month of June at all as some other tech companies have indicated?

No. I cannot say that we've witnessed that.

Thank you.

Our next question is from Jim Savage.

Good morning.

Good morning. You have over $7 a share in cash at this point on your books, and you've had it for a while. It has not been deployed. Is there any opportunity here with your stock trading at 14.9 times earnings and your enterprise valued EBITDA is below six times next year or below seven times this year that you would consider a buyback of shares?

And if not what would be the possible use of the $300 million in cash that you have, particularly with your high levels of profitability and positive cash flow characteristics?

Well, Jim, probably we answer this -- three points for the question. Number one, we will look in the cash buyback as one of the options under careful evaluation of the company. Number two, the cash is all variable to use to ramp up new programs as well as to look at potential acquisition of opportunity either from the OEM side as well as from the EMS side.

And number three, we have so many new opportunity from the new customer program standpoint of view, we do need to have a pretty strong position to position ourselves to continue that growth in the near future. And I know that's been a subject that we talked about quite a bit in the last couple of conference calls. This issue has been carefully studied by the company and then we would do whatever makes sense for the company.

I assume at this point that your credit is quite strong. Obviously, you have an unused line of credit and you do have positive cash flow and high, you know, high profit margins -- well, there's obviously -- with $300 million in cash, there's justification in having debt on your books. But it seems with your profitability, you could handle a modest amount of debt even if you were to make an acquisition or to have very significant revenue growth in the future.

Clearly, if we were to undertake an M&A activity that outstrips the -- M&A activity, we would have plenty of bandwith to take on a debt load.

OK. I have one other thing, which is you have an -- for a company your size, you have an extraordinarily low level of SG&A. What is it that allows you to accomplish that where some peers that are significantly larger than you have higher SG&A as a percent of sales and companies more toward your size have substantially higher percent of SG&A? What's the secret sauce, if there is such a thing?

I don't know that I can specifically compare and contrast to those of the competition because I don't know specific classifications between SG&A and gross margin. I think that there may be some items classified between among the group looking at it over a period of time and consistency. So, you know, operating margin may be a more specific indicator rather than trying to say which people get bucketized in which category, Jim.

OK. That's great. Thank you.

We have a question from John McManus.

Good morning John.

Good morning. Could you first comment there on your best guess of what the tax rate could be in '05?

John, the tax rate, kind of put it down (inaudible). It depends on how fast the moving part of the product to oversee and how possible in a different country and region. And we'll be honest with you, we have not done the calculation for next year yet, and as a matter of fact, the budget for next year, we will be working on it, you know, the coming quarter. I expect, you know, it will go down slightly. I don't have a precise number I can give you today.

Could you comment on the new Thailand plant? You'll be ramping some major customers in that. Obviously, there's some slot of expenses. When do you feel that those slot of expenses are over, and would that kind of basically continue to add there to gross margins once you kind of get there to kind of a ramp, you know, a steady-state ramp phase?

That's probably a good way to answer the question and probably answer Jim's question earlier. To kind of give a little background on this facility. This facility is a part of the acquisition where we acquired the Thai facility from ACT. And we been having this facility on our book being depreciated and having all the cost associated with being on our book.

So now with the Thai facility is gaining -- is -- almost reaching the full capacity, we open this operation and we're able to shift some of the product from our current facility in Thailand to the new facility and, really, it's all, really, the additional cost will be the material costs and some of the head count costs and we believe this operation can be possible very, very soon. This is because we have been assuming costs all along.

This is a great deal for us, and when you talk about low-cost solution, this is a low-cost solution. We have had the costs on our book for the last year and a half. Now we're going to put some revenue on the top and of course we are going to add some variable costs for the facility, and that's why we indicate that this facility will be profitable very, very quickly.

And could you give us your feeling about cash flow generation for the third and fourth quarters with the ramp that you have with the new customers?

I think it's probably not different than the guidance we give last quarter. We'll probably see about $10 million to $15 million a quarter from a cash generation standpoint of view. I definitely -- looking to see -- looking forward to see some improvement during the working capital matrix, particularly on the inventory side, as the new program runs from the MPI into production cycle.

And then you can, you know, to actually use up inventory, we have in-house prepared for the introduction of the new product, and we're just been going very strongly for the last two quarters.

Thank you.

We have a question from Amy Younger.

Good morning. I have one -- just follow-up from last quarter. You talked about two medical programs that had been pushed back until third quarter. Is that still on track to start up? I think you said by the end of third quarter we'll see a pickup in that business next quarter?

We'll begin doing some shipments probably in that timeframe. The full volume ramp will probably be, whether it actually is any volume in Q3 or if it trails had into Q4, more than likely, volume will be hitting Q4.

OK, great. And also can -- Gayla, can you explain to me what exactly is in the other income line? You know, that fluctuates so much and this quarter at least versus our expectations that added two pennies, so how can we think about that going forward and what all is in there?

Typically, foreign currency is in there. The foreign currency gains or losses, so what you are seeing is that over the past, whatever, year, you have some, and I believe also there is interest income on a favorable size so the more cash generation and cash we're holding, we have interest income and also rates going up a little.

OK. Great. And, I'm sorry, one last question just on the number of programs. The sound beeped out. Did you indicate a specific number of programs and if you can repeat what end markets those were in?

Certainly. We had seven new programs. It was between $72 million and $113 million in annualized revenue, four were in Telecom, one in high-end computers, one medical and one industrial control.

Are any of those new customers versus existing?

Yes. There were four of them that are actually new customers.

Great. Thank you.

We have a question from Steven Savas.

Good morning.

Good morning, thanks.

I guess on your guidance for next quarter, two questions. One, given, you know, good revenues in 2Q, are you just being conservative with respect to third quarter on the trend there or is it something that you have either seen in your business from customer orders or just general concerns broadly speaking from a macro environment and kind of what you have been hearing?

Well Steven, I would like to hope that we are being conservative in there in most of good things to come. What we do is consistent with each of into our previous quarters the way we pull together the information as we expect our diversification from the top customer to continue.

We'll be back-filling with incremental and new programs ramping and then probably thirdly as I indicated earlier, some of our programs ramping, the volume probably will not be into the volume stage in Q4 or until Q4 or Q1. So, from one standpoint, should any of those pull in, it could be conservative or if market conditions show more favorable, but it's the best information we have available right now.

OK that's great. And then just working down the income statement on the guidance, balance of the EPS or higher EPS guidance between gross margin and SG&A leverage, is it mostly gross margin, is it little bit of both?

I guess referring back again to our earlier comments, we expect SG&A to remain into 3.1% to 3.2% range. So, not getting into more finite in that as to expectations, but I think that is a manageable range for us to stay in and so our gross margin gets favorably impacted really when we get the programs ramped to volume.

OK that's great, thank you very much.

Thank you.

A question comes from David Seshrin.

Good morning. Gayla, maybe if I can just follow up on the guidance. It looks like at the midpoint of your revenue guidance and midpoint of your EPS guidance that your margins would actually be down quarter-over-quarter. So, are we -- am I interpreting that incorrectly? Or is there may be something going on below the operating line that's making you want to lower the midpoint of your EPS on flat sales?

Well again, on the SG&A in dollars may be slightly up as we continue to add some of the engineering and other resources that Cary indicated that we continue to add as we are growing our business.

So, we may actually see operating margins tick down even maybe 10 basis points next quarter?

No, I think as you'll note in the range what you'll have is, from a low to a high, will be kind of the -- if you will have a conservative view of the potential range of events and on the high end, if you go from low-to-low to high-to-high, you'll see that, yes, it will have an impact that can go up or down in our range and that is typical of how we will give our guidance.

OK and then maybe be just on the inventory question, it looks pretty decent management on the inventory. I'm interested to hear what you are hearing from your customers in terms of them asking to you hold more inventory, because we've been hearing that a lot from a lot of your competitors that inventories have gone up because your customers are asking to hold more inventory and we know you do that in your hubbing activities.

So, are you not seeing that or is your inventory management just that much better than everybody else?

No, thank you, but you know, actually, no, I don't think we're doing quite as well on the inventory we should be doing. So, no, that will be a follow-up for our teams today and we will be working to improve on our inventory. I think there's still room for improvement. So, thanks, but we're not doing good enough.

OK thanks a lot, Gayla.

Our next question is from Keith Dunne.

Good morning.

Yes, good morning. How are you?

Fine.

Good, good job. A couple of follow up questions. Depreciation was a little bit lower than I would have anticipated. You guys have the capacity issue. You're adding Asia but, as we all know, you've got that on the books already. How do I look at depreciation going forward may be for all of next year?

I think that what we're seeing in depreciation, Keith, is truly kind of what I will call the runoff of the, you know, time period just since we have had the significant levels of investment that were required in earlier years. So, although we continue to have Capex, it's not clearly at the rate of, you know, depreciation that we have. So, we -- I expect it to stay in the 6.7%, 6.8% range.

OK. So, that -- and I understood the philosophy, just - we're getting near the bottom of it now and then, you know, may gradually go up if not really building capacity.

Again, you can see this quarter's capex, while not large, it was double what it was last quarter.

And is capex, you know, because you have got the plant coming on, you may have to equip it. Should we look at capex then for the rest, you know, the whole year this year being somewhere around $10 million, $12 million and next year $20 million, or how do we look at capex?

Probably in the $10 million to $15 million range this year.

And next year, more like $20 million, $25 million as demand continues to pick up?

As I see the improvements continuing in the marketplace, yes, I would expect it to be probably north of $25 million.

OK. And then you talked about the pipeline being robust. Should we define that as you expect orders to stay, you know, for the next quarter 2 in the $80 million to $110 million range or does that imply there is, you know, opportunity to break on the upside out of that?

Keith, that's probably really hard to anticipate at this time. When I say robust, I look not just to the quantitative measures of the program, but the qualitative nature of them. In other words, sometimes you will have an opportunity with a single program as you begin a discussion with a prospective customer, but as we begin those programs, we may find that the total available market is much, much greater and we are really seeing that more often now as the outsourcing trend continues.

So, from both kind of a quantitative nature because the inventory levels are low and demand seem to be somewhat better and from a qualitative nature as to the total opportunities, we see it as -- and so, that would be my definition of robust.

And in the other lines, should we think of that coming back toward half a million dollars of income or something from the $1.3 million this quarter. How are you thinking of that when you give guidance?

Because of the foreign exchange kind of unknown in our natural hedging that we use there, Keith. That's kind of difficult to anticipate. Typically, I will -- I would say that our best information is kind of what we have available this quarter and use that for purposes of planning.

And my last question is, you've been bringing up some significant computing customers. I mean, it's pretty obvious when Sun was, you know, your largest customer, say, over 50% of revenues, you know high end computing with 60%, 61.2%, and it's still 60%, 61.2% with that largest customer, you know, it suppose they are coming down over 20 percentage points. You have done a great job there not only bringing them down but winning. There's a customer, Unisys, that didn't have a great quarter this quarter, but one of the other - your competitors is not doing as well. Could you have possibly won some initial business with Unisys?

No, I don't think so, and I guess as we're getting better in the system integration, we expect the reputation in a particular segment and we're abstracting and allow a good customer into the completed site and that's why you witness the revenue of the computer and maintain pretty flat, even our top customers' percentage are coming down.

Now one point I want to make, kind of answer the earlier question, was now what impact of the product transitions on the coming quarter revenue and I believe in the guidance we give in the quarter, we already including those transitions into those guidance.

Then it's fair to say, I mean, I know some suppliers that are already sending boards for some of those new programs related to your top customer. Would you agree with comments?

I'm sorry.

We've been involving in the transition for a while.

OK. I didn't want to put you on the spot. Thanks a lot. Bye-bye.

And we have Patrick Parr. Parr, you have an open line for questions.

Hello, this is actually Ben Loo from Warburg. Maybe I didn't hear this earlier but did you give any guidance for expectations for Sun heading into the next quarter and whether you guys are still expecting exit in the year with Sun being in the only high 20% range?

Yes, we did give information specific as to exiting the year at a high 20% range but we did not do it on a quarter-by-quarter basis. So, this consistent with how we did it in last quarter.

Oh, was the new program ramping, do you have any timing at that so that we -- is that factored into the high 20% guidance you're giving?

Can you repeat that?

With the new program win from Sun that you guys got in the quarter, is that factored into the timing of when you guys went into the high 20%?

Well, I guess we are, as the forecast is very dynamic thing, OK. And we have gone, like we say, we go through the transitional stage for several of our customers. So, that transitional revenue, the revenue impact on transition is actually in our guidance, yes.

OK great. And then, can you give us a sense of when we may get back to the 5% operating margins given these new program ramps and the start-up cost associated with it?

It really depends on the timing of the new program ramping to volume, but I expect that since we see some of the major programs ramping in the Q1 of next year, Q2 of next year that the early part of 2005 would be when we would expect to see as getting back up to that level.

And then one, two last questions. Can you give us a sense of what programs you guys are currently building out of China and Thailand, and the last one is for Cary, can you give us a sense if a lower tax rate can be assumed in your guidance for next quarter?

I'm sorry. We're having difficulty because you're kind of breaking in and out here on the call, but I think you were asking about the specific types of programs or product that we're producing in Asia and then something about the tax rate. So, the production type that we're doing in Asia, really, we're covering each of the industries, I believe, that we support at Benchmark. So, we do telecom, we do industrial controls, test and instrumentation, high-end computers and medical. So, yes, I just clicked them off out-loud for you and we are doing each of those.

Also something that's very interesting to note is, to my knowledge, we are one of the only FDA facilities available to customers in Asia. So, we have that in Thailand, and that's a very strong differentiator for us. Speaking on the tax rate, in many parts of Asia, you have a favorable tax rate for the first few years and so we will be taking advantage of that. I'm not sure if that was your specific question because you were cutting out.

I guess, Gayla the question I was asking was, is a lower tax rate assumed for your summer quarter guidance?

Yes, it's included in the guidance at the effective tax rate of 27%.

OK thanks.

Thank you.

Our next question is from Thomas Dingus.

Hello, guys. Very quickly, Gayla, I wanted to follow up on a comment that you made in your prepare remarks following on after you had talked about some of your new customer wins and what you seeing out there in the market that you had seen a bit of an aggressive marketing effort or just some aggressive marketing efforts on the part of competitors. This is something that I thought had abated a bit and wanted to just get a little bit more clarification on that from what you guys are seeing out there.

Is there any particular end market that folks are really trying to penetrate aggressively and pricing business at lower levels than you guys think they should be or is it more pervasive in just may be one or two end markets. And the only reason I ask is in the context of everyone seems to be putting up better revenue on a year-on-year basis, you would think that a lot of these more aggressive efforts seeing as they don't really do any positive benefit to margins we would have abated here.

But just a clarification here on that would be helpful.

Part of the aggressiveness, in my mind, really comes, or the way I develop that thought, is really from the standpoint of you see people from time to time saying that they have greater levels of capabilities and strengths than is truly present and evident and we hear from a variety of people as they look to outsource. Some of the competition seems to be aggressive in their approach to how they want to do business.

So, haven't seen it as impactful as maybe some of the competition wants it to be, but it seems like it's a little bit of a unique marketing perspective trying to grow the revenue line.

Just to follow up on that very quickly. Would it be fair to say then that folks are characterizing different capabilities, whether they are internal component fabrication capabilities and other areas like that, as areas where they, themselves, think they can add margin and then on the assembly side of the business, are they being a little bit more aggressive on the assembly side of the business there?

Is that what you're seeing, or is it just a kind of laying out the table of services and saying, I can offer all of this to you and that's a better buy that you can get from some body fairly -- you can get Benchmark who doesn't have all of those capabilities?

As you might expect, it depends on who the party is, what are they're going to tout as what they bring to the table. Each one is a little bit of a different story. Obviously what they're trying to do is market to their area of strength and try to exploit that.

One quick follow-up. You gave us the percentage of revenue from the top customer. Could you also give us for the top three customers that you have just either an aggregate of the other two?

No, I don't have that information available with me right now. I believe there's only one other customer above 10% for the second quarter.

OK, I'll follow up. Thank you.

We have a question from Jerome Landy (ph).

Hi. It's been a little difficult to track some of the totals of the new programs you booked, so could you maybe give a little bit of information on that, were you to take those programs that you expect to be at full ramp during 2005 but are not currently what would that total on an annual revenue basis?

I wish it were that simple to actually aggregate them all and say, OK, you know, customer X, you said this program would ramp in Q1 and that was the time line we put forth and what is the dollar size and add them all up.

Realistically, on a quarter-over-quarter basis as we ramp new programs, and consistent with what we have indicated previously, the general rule of thumb is it takes about six to nine months for a program to ramp to volume. That, of course, gets significantly elongated if you are doing a design to production ramp and that can be, you know, a two-year program.

If you were on a fast track and taking it from someone who has previously outsourced, maybe taking it from a competitor, it can go faster than the six to nine months, so because of the variability in the timing, it is very difficult to just stack them all up and identify exactly what the number is of, quote, unquote, new programs that are coming into any single quarter.

And then that gets compounded by the fact of how long are you going to consider it new, just because it is a theoretical new program after nine months, you can still consider that new simply because it has not ramped to volume.

So because of that, I don't give a specific number. We try to identify them and quantify them when they first come up in each quarter as we win them to give you some indication of the market activities that we see out there.

And did you say within that seven new programs booked in the quarter there were follow-ons within that?

We said there were four new customers and there were three existing customers where we had one new program.

Got it. Can you comment on the M&A pipeline? Are you looking at deals currently? How would you characterize the market overall?

As always, we get a lot of activity in that area and we continue to look at the opportunities that come across us.

Thanks.

We have a question from Lou Miscioscia (ph).

Hi guys, this actually Amy Coles (ph) for Lou. Actually, we had more of a general question. Could you talk a little bit about your medical business, and just the industry overall, are the customers there truly bringing in more outsourcing to the EMS guides and is there any industry growth rate that we could think about? Thanks.

I think medical is an exciting industry for us, number one, because of our expertise in that area, and number two, because we do see more activity as more and more parties begin to outsource. To scope out, however, it isn't an industry that is, in my mind, ever going to reach the size of, say, Telecom even today or high-end computers.

For simplicity sake, I like to indicate that even though we may have an aging population, not all of our ailments will be taken care of through electronic products, and although, medical is a very large arena, electronic medical products is not that significant.

So I don't have a specific number to band for you on a low end and high end, but to frame it, I think we can say that there's great opportunities for outsourcing because of the level of outsourcing that has previously been done versus what is looked at in the upcoming year to two years expected to be outsourced, but I don't think it is a market anywhere near the size of some of the other markets that we addressed.

Great, thanks. Is that industry getting more competitive as far as winning business?

I think there's a lot of people in our industry who saw it as a very exciting industry to try to make an entree in. I don't see that many of them have been nearly as successful as they expected to be. You may have different data points, but we don't see it as the new players having gained the traction that they expected to.

OK, sure, thank you.

A question comes from Michael Walker.

Good morning, guys. Two questions. First is that, last quarter during the Q&A, I believe, I think, Cary, you said for the full year '04, you thought that top-line growth could be between 5% and 15% with the highest probability kind of converging at the midpoint of that range. Would you say that's still the case?

I still say that we're going to have modest growth in our revenue, and as I recall last quarter, Gayla got pinned down, we indicated 8% to 10%. That's still probably a pretty good indication at this point of time.

8% to 10%?

Yes.

OK and then second question, Don, and I don't know if he's still around, but way up front, Don said not every technology indicator is pointing positive. I wonder if you can tell us which indicators are pointing down.

I guess Don has stepped out, and I'll probably answer the question for him. I guess the point there is, you know, we really don't have a very uniform indicator from any particular market, but you are looking at the industry with the various earning release and indication from a various high-tech companies. Not all of them are positive. So that's what we meant.

Right and I wonder if you can give us more color on which ones are not point of positive.

Well I guess you can point on to any industry -- even in our own industry, day to day, it's inconsistent whether you know next quarter earnings and revenues are going up modestly, significantly, or not going up at all.

Some of the Telecom customers, it's projected revenues downward. It's really kind of very mixed market, Michael, today, and you see some of the players in some industries do quite well and some do not, and the earnings are no different than EMS. We do them quite well.

I don't believe stock market works for that but you know, we still see some of our players struggling. So it's happening in every market and good companies continue to deliver good results and you have to deal with a good company.

OK. Thanks a lot.

We have a question from Rajesh Chalabias (ph).

Hi. Could you let us know how many customers you ended the latest quarter with? And, if possible, the geographical distribution of these customers? Thank you.

I don't believe -- I don't know how many customer we have and I believe it's somewhere between the range 75 to 80 customers and the -- we don't believe we are providing the geographies that break down for the customers because, for one thing, we built quite a bit of product in one region and shipped the final product around the region. It's difficult to bring it out from the full manufacturing point of view.

Saying that, and the exciting thing about it, this is our Asian output on a shipment standpoint will be continued to close out and the two years ago, our revenue from Asian production facility is almost nothing. Today, it's almost over 20% of our total revenue. So those are the indicating definitely continue shift to product to the overseas side and there is some indication that we can get a -- continued to provide a cost reduction to our customers as well as we're going to enjoy some low tax rates.

Thank you.

(Operator Instructions.)

At this time if there are no other questions, we will end the call and thank you for joining us today.