Benchmark Electronics Inc (BHE) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Benchmark Electronics fourth-quarter 2008 earnings conference call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, today's call is being recorded.

At this time then, I would like to turn the conference over to Mr. Don Adam. Please go ahead.

Good morning. Welcome to the Benchmark Electronics conference call to discuss our financial results for the fourth quarter of 2008. I am Don Adams, Chief Financial Officer of Benchmark Electronics.

Today, we will begin our call with our CEO, Cary Fu, discussing the overall marketplace that we faced in Q4 and we are facing today. Gayla Delly, our President, will then provide comments and a more detailed discussion of our fourth-quarter activities and performance in addition to our outlook for Q1. I will follow with a more thorough review of our financial metrics for Q4. After our prepared remarks, Gayla, Cary and I will take time for your questions in our Q&A session. We will hold this call to one hour.

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 these statements reflect our current expectation and that actual events or results may differ materially. We would also like you to refer to Benchmark's periodic reports that are filed from time to time with the SEC including the Company's 8-K and S4 filings, quarterly filings on Forms 10-Q and our annual report on Form 10-K. These documents contain cautionary language and identify important risk factors which could cause our actual results to differ materially from our projections or forward-looking statements. We undertake no obligation to update those projections or forward-looking statements in the future. Now I'll turn the call over to Cary.

Thank you, Don. Good morning. I want to spend some time this morning giving you some view as to what we have seen recently out in the marketplace and to provide you insight of how we at Benchmark are managing through the storm and aligning ourselves to be emerging from this recession a stronger organization.

The macroenvironment that we have seen referred to has been taking new meanings. Globalization really means global low today. The recession we are currently in is impacting almost every business in the world today. Because of the scope of the recession, the customer diversification we have been working towards over the last past couple of years has provided little insulation to our customer and revenue base. In fact, our fourth quarter was different from any prior downturn in that most segments saw weakness or either the same time. We did continue the ramps of a number of new programs during Q4 and those did serve to offset the weakness overall.

For the full year 2008, we saw the strength in three of the industry sectors that we serve with new program ramps. Although these are not strong enough to affect the weakness in the computing sectors as well as in the Test and Instrumentation sectors. In times like this, we expect a variety of actions from our customers which are a normal reaction to the environment, such as a reduction in R&D expenditures, rationalization of products, reduced inventory in the channels, factory closedowns and the workforce reduction.

But the primary between this downturn and the one in the past is lack of liquidity. This, we believe, has the greatest impact not only to the consumers, but to the business whose must [conserve] cash and work down inventory.

Due to the slowdown, the supply chains are not generally suspicioned, therefore outsourcing partners, i.e. Benchmark, to provide buffering of the inventory for the OEM. We often are among the first ones to feel either the growth or as most recently experienced, the contraction with sales we saw from the OEMs responding to the end market. Our declines are more dramatic and the [rebalance] much stronger for the short period of time. Also we saw the back demand of priming the engine for a growth period.

Another important part of reacting to and priming for the softening in demand is cutting cost structures. We have worked very hard to prepare in advance for the recession. When we saw the first sign of slowdown, we began in early 2008 taking necessary steps to reduce our operating costs by implementing strong cost control, including a reduction of our global workforce by approximately 9%. The majority of the workforce reductions being contract workers.

We, like others, recognize cash is king in this environment. We're currently [hard] to repurchase our stock. We're constantly valuing our cash position and use our cash in line with our cash generation, and, of course, any M&A activity.

This is not a time for the weak. Our Company is strong and we at Benchmark are managing through this downturn diligently to emerging a stronger organization. Now I'll turn the call over to Gayla.

Thank you, Cary. We believe our team has effectively managed our overall operating performance during 2008. We have been negatively impacted by the slowdown in demand, as customers responded to the softer market by first drawing down on their inventory levels. We saw this in many of the industries we serve during the latter portion of the year.

Our operational discipline was key to protecting the bottom line for the year. Our margins were impacted by only 3 basis points against an 11% revenue decline. The most significant decline in revenue was seen during the fourth quarter, where revenues declined 21% on a year-over-year basis and 9% sequentially from the third quarter.

On the positive note, we had a better revenue mix and we did drive operating efficiencies. Even with our lower revenues for the quarter, we had strong overall financial and operating metrics, excluding our goodwill impairment charge and other special items, which will be discussed later in the call.

Our highlights are as follows, during Q4, once again, the Benchmark team delivered on strong operating metrics. Our gross margin improved on a quarter-over-quarter basis and demonstrates our strong operational discipline.

Earnings per share, excluding special items, was $0.01 better than consensus with a better revenue mix, although our revenue was slightly below guidance. More than ever, customers are concerned with supply continuity and the financial stability of their business partners.

Benchmark is well positioned to manage through the downturn with our strong balance sheet and financial position. Our cash and long-term investments totaled $408 million at the end of the year. Cash flow from operations was approximately $39 million for the quarter and $164 million for the year.

Bookings in the fourth quarter continued to be strong, showing that new outsourcing opportunities are available and growing. Benchmark is continuing to focus on supporting our customers, focusing on and anticipating their needs.

The softness in the marketplace, which we began to see in the high-end computing sector early in 2008, which was likely driven by the financial institution meltdown, and it continued to permeate all sectors and become a pronounced global recession, impacting our customers and Benchmark by year-end. Our revenue diversification and new program wins have been strong, but they have not been strong enough to offset the overall macro downturn. During Q4, each one of our industry sectors showed reduced revenues.

As previously mentioned, we continue to see a strong pipeline of opportunities and new program bookings and in Q4, we booked six new programs with a current estimated annual revenue rate of $106 million to $127 million. These new program opportunities are with both new and existing customers within industrial controls and the telecommunication industry.

So what is Benchmark doing to position for the long-term growth and create opportunities in this tough market? We are continuing to differentiate ourselves with our execution and our service model. We expect to continue to gain opportunities with new and existing customers as they seek solid supply chain solutions.

Given our solid financial metrics and our strong balance sheet, we are confident in our ability to flexibly support the needs of our customers. Until the overall market rebounds, we will continue to exercise strong cost controls and invest in our future. And we will plan to emerge a stronger organization when the down cycle is over.

Based on our outlook, we expect first-quarter 2009 revenues to be in the range of $525 million to $570 million, and we have factored into our guidance the expectation that our organic volumes will be slightly lower than normal in Q1. You will recall that Q1 is typically a soft quarter.

The corresponding earnings per share for the first quarter are expected to be in the range of $0.16 to $0.26, excluding restructuring charges. Also, with the limited visibility and the overall uncertainty in the economic environment currently, we will only provide guidance for the first quarter at this time.

Now, I will turn it over to Don again to discuss our financial metrics in detail for Q4.

Thank you, Gayla. We completed the fourth quarter of 2008 with revenues of $582 million. These revenues were slightly short of our revenue guidance of $600 million to $640 million provided during our last conference call. Again, the overall softer market has continued to impact our customer orders.

Our earnings per share, excluding special items, was $0.27 per share, which was within our guidance provided. Again, these results were good, given the decreased revenue from the prior quarter and from our guidance.

Our results for the fourth quarter of 2008 include two special items that are both a result of the global economic crisis, which are as follows -- restructuring charges of $2.5 million or $2.3 million net of tax and a non-cash impairment charge of $247 million to write off the majority of the carrying value of our recorded goodwill.

The restructuring charges incurred during the quarter were primarily severance related and were due to our continued effort to realign our global resources based on our customer and their demands, which continue to be impacted by the ongoing global economic slowdown and resulting changes in demand requirements from our customers.

The non-cash impairment charge to write off goodwill was driven by end market weakness coupled with a significant drop in our market capitalization due to declines in the stock market. The goodwill write off is non-cash in nature, does not affect our liquidity or cash flows, in compliance with our debt covenants.

To provide a more meaningful comparative analysis, we will prevent certain financial information, excluding these special items, during this conference call. We will call your attention to the fact that these items are excluded when we do tell them. In today's press release, we have included a reconciliation of our GAAP results to our results excluding these items.

Our gross margin for the fourth quarter was 7%, excluding special items, compared to 6.9% for the third quarter. This improved gross margin was a result of a better product mix shift during the quarter, as well as increased operating efficiencies. Our operating margin for the fourth quarter was 3.1%, excluding special items noted earlier. This operating margin was down from Q3 due to the overall decline in revenues of $60 million when comparing the quarters.

Excluding the special items, net income was $17 million compared to $24 million in the same quarter last year. GAAP net loss for the fourth quarter of this year was $204 million compared to GAAP net income of $21 million for the fourth quarter last year.

Fourth-quarter diluted earnings per share, excluding special items, were $0.27 in 2008 compared to $0.33 in 2007. GAAP diluted loss per share was $3.13 per share in Q4 of 2008.

Interest income was approximately $1.8 million for the quarter. Interest expense was approximately $353,000. And other income was approximately $224,000.

Excluding the special items, our effective tax rate was approximately 11.6% for the fourth quarter. On a GAAP basis, the effective tax rate was a benefit of 11.5% for the quarter due to the net loss recorded.

Weighted average shares outstanding for the quarter were 65.4 million on a GAAP basis. Please note that in this press release, we have included an immaterial correction of the Company's prior period financial statements. The immaterial correction to our previously reported earnings per share for 2007 and 2008 was $0.01 per share impact for each year.

Our cash and long-term investments balance was $408 million at December 31, which includes $48 million of auction rate securities classified as long-term and represents $6.25 per share. These securities were classified to long-term during the first quarter because of issues in the global credit and capital markets that have led to sale of auctions with respect to our auction rate securities.

The unrealized loss on our auction rate securities at December 31st was $5.3 million due to changes in the market value for these securities over the last year. Please note that the changes in the unrealized loss on these securities is reflected in accumulated other comprehensive income as a component of shareholders' equity.

Due to the liquidity and financial crisis that has continued through Q4 and into Q1, we will continue to monitor the financial institutions and cash management vehicles we are using to invest our excess cash balances. We continually look at the overall credit-worthiness of the financial institutions that we use in addition to investing our excess cash balances in vehicles where preservation of principal is a priority, i.e., money markets, government agencies, securities, etc.

During the quarter, we repurchased $7 million of common stock. For the fourth quarter, our cash flows from operations were approximately $39 million. For the year, cash flows from operations were $164 million.

Capital expenditures for the fourth quarter were $11 million. Depreciation and amortization expense was approximately $10.3 million. Receivables were $422 million at December 31, an increase of $7 million from the last quarter. This increase is partially due to the increase in the back-loading of sales for the quarter.

Inventory was $343 million at December 31. Our inventory turns were 6.3 times for the quarter compared to 6.6 times in Q3. The decrease in the turns is a direct result of the decreased demand from our customers that we saw during the quarter.

Current assets were approximately $1.2 billion and the current ratio was 3.4 to 1 in Q4 compared to 3.4 [to] 1 in Q3. As of December 31, we had $12 million in debt outstanding, which is primarily a long-term capital lease on one of our facilities.

Comparing fourth quarter of '08 to the same period last year, the revenue breakdown by industry is as follows -- medical was 14% in 2008 compared to 11% last year. Telecommunications was 20% in 2008 compared to 16% in 2007. Computing was 46% in 2008 versus 55% in 2007. Industrial Controls was 17% in 2008 versus 13% in 2007. And finally, Test and Instrumentation was 3% in 2008 versus 5% in 2007.

Our top customer for the year had sales of 16% for 2008 and 14% for the quarter.

At this time, I would like to open the session up for the Q&A. During the session, we will request that you limit yourself to one question and one follow-up question in order to allow enough time for everyone's questions. Thank you.

(Operator Instructions). Brian White, Collins Stewart.

When we look at the EPS range, I think it's much wider than we typically see, yet the revenue range is not that much different. So what drives that wide EPS range?

Again, I think a lot of that, Brian, has to do with certainly, I guess, the absorption covering the fixed cost at the facility. So when you see a decline in revenue, what would happen is you'll see a larger proportion of it drop on the EPS side. So it's really volume related.

But the volume is very similar to what you typically gave in revenue guidance in the past, but the EPS is very different.

Right. So it really is going to be most significantly impacted by the mix and the variability in forecast, in essence, the accuracy from the customers. And so as you can see from our recent quarters, we have had a pretty strong performance in operational discipline and a favorable mix. So the market, as it turns out, for Q1 and the industries which may show contraction, will have an impact on the earnings range. So we've really tried to flex that with quite a few different scenarios into the assumption of the earnings.

And how should we think about the tax rate for '09?

Generally an 11% to 12% range.

Okay. We can use that for the first quarter as well?

Yes.

And I just want to be clear. On the market segments, was that for the December quarter?

Yes.

Oh, it was?

Yes.

Okay, it was for the December quarter. So if you look out at the March quarter, what markets do you think will probably see the biggest sequential decline in sales?

I don't think we ever guide on an industry-by-industry basis for any given quarter, but just a general lay of the land and the markets we see right now performing and giving opportunities to Benchmark, which do not always equate to the general state of the industry we speak to itself, but likely where we are ramping programs and winning programs, we continue to see telecom and industrial strong.

In medical, you'll see we're going through some lifecycle transitions. And where some products have been introduced into the marketplace and will be declining in volumes and other products will be brought to market, that is the one industry that I'd say it's going to be difficult to truly anticipate how many of those will affect Q1 versus Q2. But we do see good growth opportunities there. I cannot snap the line and identify exactly when those will hit revenue release and ramp.

I think Computing and Test and Instrumentation will continue to see challenges. I believe in Computing specifically, as we have seen in other down cycles, the ability for many organizations to delay their investment in capital spending is very strong. And so I would expect to continue to see that suffer in the current environment generally. And also the fact that Computing is typically a soft spot in Q1.

And Test and Instrumentation, I don't know when that hits its up cycle again, but I don't see it in the near term.

Okay. Thank you.

Sean Hannan, Needham & Co.

Is there a way, perhaps, to provide a little bit of color around where your utilization was within the December quarter? And then, how or what we should deduce on this level based on your guidance for March or ultimately where it might go.

I will let Don speak to the actual utilization rate, but specifically, Sean, I think that as we know, we're in business for the long haul. So we strategically align ourselves for the opportunities we see on the horizon. And since we have the financial flexibility and the foresight to manage through the difficult times, not all of the decisions will be made in such a manner that you would see the benefit or the utilization rate at any given facility in the upcoming quarter, what we expect it to be in the future. So, we will have some staying power and some opportunity to benefit from that staying power and facilities that in the near term may not be at their optimal run rate.

Yes, I think in terms of the utilization, prior to the fourth quarter, we're probably in the low 60s. Right now we're probably around the 60% range.

Okay. Then, just from a cost perspective, your SG&A ticked up the fourth quarter despite the revenue decline. Is there a way to explain a little bit about that? And then, in addition, can you elaborate on some of your go-forward opportunities, just elaborate a little bit more on the ability to pull costs out of cogs as well as perhaps the SG&A line.

In terms of quarter to quarter, I think the majority of the increase is related to stock compensation costs or option costs, which explains most of that.

In terms of opportunities to take out costs, I think, again, we look at our customers demand and react accordingly. If you look at what we've done during the year, we have seen a drop in demand throughout the year, but yet our gross margins have actually increased every quarter this year. So needless to say, we will take the steps that we deem necessary and we have taken those this year.

So Sean, ultimately, what you see as we are very opportunistically kind of investing for the future. And one of the things that we do during the downturn is to ensure -- we know one thing is going to happen, and that's change. And customers are seeking opportunities to have a more efficient supply chain and we will make investments and continue to drive overall operating improvement, although it may be that in some cases, the SG&A is not at the efficiency level we ultimately expect and desire it to be at. In the near term, there may be some investment to get to the longer-term improvement. And those will be such as sales and engineering costs that we will continue to incur.

And we believe that those are appropriate and prudent investments in the future. And we want to increase our operating efficiencies to allow us to have the opportunity to invest. So we're going to keep driving in that direction, but not make short-term decisions that we believe are truly that, short term.

Is there an ability based on your current path to get below the $20 million level?

I'm not sure in dollars that that would make sense for the business model that we have. I think again, truly, our plan is to reprime the engines, continue to book the new programs, which is, as you can see from the numbers we gave on the new program bookings, they have been kind of sized to the current volumetric expectations for today's environment.

We expect to continue to book those programs, see a good front log of opportunities to expand with customers, and that does take some investment. So I do not expect that we will -- we know we're not going to -- the old saying, you're not going to cut your costs to the future. We really expect to see the opportunities through revenue growth and are going to invest to do that.

That's helpful. Thank you.

Jim Suva, Citi.

Gayla and Cary and Don, you guys have done a great job with keeping your OpEx under control. Gayla, you had mentioned you're not going to cut your way to growth in the future. I guess looking ahead, you know, at what point do you think we are going to start to see some future growth at Benchmark?

You know, I don't know that we see significant growth without some improvements in the marketplace. I think we will see some slight growth opportunities come about specifically in advance of the market improvement because customers have taken the inventory out of the channel that existed when the demand levels were expected to be higher. So you will see a little bit of improvement from that, but I do think it takes some pull-through for the inventory levels to, after they're right-sized, to generate incremental revenue opportunities.

Having said that, we always see some improvement when we continue to book these programs and we ramp those. I just -- I wouldn't sit here today and tell you that we expect it and nor can you see from our guidance. We expected that our bookings would more than offset the weakness in demand in the marketplace. But we were wrong, so.

I'm just trying to see if you guys thought the bottom would be in March or June or anything around that.

I'm not an economist. But I would say that the signs that we have seen recently would indicate that the deterioration rates have subsided. Is that a pause? Is that ready to run at the rates again? I don't know that I have enough data points, but I do believe the cycle is beginning to run its course. It's hard to call whether it starts back in Q3 and Q4 is actually stronger than Q1. I think that's the indication that people would have at this point in time, if you generically speak to them. I'm not sure that the demand levels are out there to support that at this time. But that's what it would point to.

Great. And as a quick follow-up, can we switch over to restructuring and just kind of talk about that, about anything as far as incremental we should see in the gross margin line going ahead in the future, looking ahead? Or any impact to the cost outflow or cash outflow that we should expect and be modeling in?

No, I don't see any significant. Again, we kind of started on the path when we saw the impact, the meltdown in financial institutions was having on computing, we really started probably earlier than most in taking the appropriate actions. But I do not see that we have major steps to take on restructuring activities and no major cash outage from that.

On the other side, we do see opportunities just generally. We continue to exercise the diligence on the M&A side. And I do believe there will be more opportunities to increment skill and capabilities for customers in this environment. We've been very successful in being able to do that in prior downturns. It's getting just about ripe, I think, for people to need a strong support infrastructure to be able to endure this downturn. And we expect to see some opportunities for that.

Yes, the restructuring charges that we took in 2008 will probably generate approximately about $10 million savings in 2009.

Great. Thank you very much.

William Stein, Credit Suisse.

Gayla, just expanding on that last comment, today, we saw competitor, [Samina], do an asset purchase from JDS Uniphase. I'm wondering if you're seeing those kinds of asset purchase deals on the table. Perhaps you look at that one, but I'm wondering where generally do you think that you see more of these kinds of deals? Or in your last comment, did you mean more traditional M&A, where you could potentially take out a smaller competitor?

I don't see that there's as much in the direct competitor front. There's probably a number of OEM activities that may be underway as they look at the supply chain. And there's the opportunity for some increase and some skills and capabilities that we might find that we can take on but not as much on the competitive front.

Great. And then just quickly on CapEx, maybe Don, you can talk about this for a sec. I think CapEx looked a little bit higher than I expected this quarter. Can you give us an idea of what we should expect in 2009, how we should think about CapEx either on a dollar level or perhaps percentage of sales?

Well, I think looking at CapEx for next year, depending on where the market conditions are, probably in the $20 million to $30 million range for 2009. And again, we will react accordingly, depending on where we are at and how the market -- if there's a rebound or not.

Any reason the quarter was -- there's this $11 million I think (multiple speakers)

Some of that is -- part of the uptake is primarily related to finish out of the building in Suzhou. And then one other quick one. The sequential decline in revenue that you're guiding to is down only about 6%. And that seems actually quite good relative to most of your peers. I'm wondering what you think is driving your relative outperformance and the sequential growth. Is it new ramps or customer exposure or end markets? Any comments around that would be helpful. Thank you.

I think in terms of the revenues, again, we have had a very solid bookings over the last two years. And I think especially when you look at the nontraditional segments in which we operate, I think if you look at that -- on a year-over-year basis, the medical Industrial Controls and Telecom actually saw year-over-year growth from '07 to '08. So I think what's really driving those are the new programs taking hold and offsetting some of the declines that we've seen in the other segments.

Steven Fox, Banc of America- Merrill Lynch.

Thanks. Good morning. Just curious. Gayla, you'd described hopefully some kind of bottoming and then maybe a little bit of a lift, or if it's a slow growth environment in the back half of the year, I guess what I'm wondering is, where do you see some of your cash flow ratios going, such as inventory turns and receivable turns next year? I guess they were a little bit disappointing based on the timing of when you get paid, but I'm wondering what you see for cash flow next year.

I think two things there. First, with a little bit of back-end loading in the quarter, the impact on receivables is strong. And then on inventory, reacting, both our customers and then our ability to react to the market environment, it isn't as efficient that the inventory is taken out as rapidly as the deterioration in the marketplace occurred this time. So we would expect that we would gain efficiency in our metrics for next year.

Yes, and if you look at, at least for cash flow generation for Q1, we are anticipating probably a range of $50 million to $90 million from operations.

And any comment on where that would mean that your inventory turns go to next quarter?

Well, again, there's a range that's sort of dependent on the terms, but anywhere from the 6.3 to 6.5 range.

Okay. And then lastly, I'm just not quite sure I'm clear on the SG&A side. I understand you are still investing to win other new business. But are you saying that SG&A improvement -- like you had $90 million of SG&A in '08. Are you saying that you are still going to be in that range, even on a weaker sales base? Or could we see some improvement in that dollar number as we go through 2009?

I guess from the quarterly standpoint of view, we had $22 million; we're probably going to stay at that level. But it definitely is coming down from the $90-something million for the year.

Okay. All right. Thank you.

Sherri Scribner, Deutsche Bank.

Thank you. I was just curious about customer deferrals during the quarter and what you've seen into January. Obviously, I assume there was a lot of customer deferrals of programs. But could you maybe give us some more specific commentary in terms of the segments where you saw the push out, and if you are still seeing it through the month of January?

I think what we saw primarily was volumetric declines, so not specific push-outs, where programs that were expected to come under the radar screen were delayed through say R&D activities, but more so, specifically, we saw volumetric decline. I don't have any specific numbers, but I can tell you that off the top of my head, I don't remember really any programs which were moved to the right specifically as a result of the economy.

Okay, that's helpful. Thank you. And then in terms of the revenue number, down at the midpoint, 6% Q-over-Q, how much of that is being driven -- I mean Will already asked about the decline not being quite that bad. How much is that driven by the new customer wins versus your regular business?

I guess this is the one you always stump me on is how we want to define new. But I do believe, as we said in the prepared comments, that the way that we are faring through the downturn and being able to deliver results is because of diversification of our customer mix and our portfolio of business, where we've added a number of new accounts and are continuing to ramp and grow with those programs and customers. So I don't have a percentage, but I would clearly say that the insulation that we had in Q1 does come from those activities and our sales activities there.

Okay, great. Thank you very much.

[Ryan Jones], RBC Capital Markets.

Thank you. I'm in for Amit Daryanani of RBC. Any concerns right now on any inventory obsolescence or A/R aging?

I think our credit policies and practices that we have had in place at Benchmark for a long number of years but were further enhanced following 2001, have served us very well. We do not elect to participate in a lot of high risk accounts, and therefore, I believe that we are in good position with the controls we have.

Never say never. I think we've all seen some activities and some news of note that has been surprising, but we continue to manage very diligently on that front. And you will note that while others in our industry have seen significant write-offs in current and maybe even the prior quarter, that we have not. And so we continue to diligently look after that.

All right. And then one final follow-up question. Your gross margins have held pretty well throughout the entire downturn. I was wondering as we start to return to maybe some revenue levels that approach what Benchmark was doing at the end of 2007 and the beginning of 2008, where could we expect gross margins to start to track?

I don't think we've completely modeled forward enough to see the impact of really the improvements. But, clearly, you can see that with the existing mix and the opportunities we have in front of us, that we would expect to rebound with a better overall performance than what we had previously. I don't have a specific new goal out there, because, quite frankly, when we have not achieved specifically the goal of 4.5% to 5%, I'm probably hard pressed to put forth any numbers north of that and have you believe them. So we're going to still put that out as our guidepost of 4.5% to 5% and drive towards that. But I would expect when revenue rebounds, that we would be able to continue beyond that.

All right, thank you.

Alex Blanton, Ingalls & Snyder.

I had to get off for a minute, so if this is repetitive, forgive me. But on the telecom strength, you mentioned that that was a stronger area in the fourth quarter because of new bookings and you expect it to continue that way in the first quarter. Are these bookings with new customers or existing customers?

And, telecom is fairly well penetrated, so are you getting transfers from other companies? Or is there -- is this coming from let's say in-house plants of companies that haven't fully outsourced? I presume there isn't any overall growth in the market involved here.

So, if I kept track of all of your questions, Alex, it's yes, yes, yes and yes. So, we are seeing it from new customers. We're seeing it from new programs with existing customers. We're seeing transition from competitors and we are seeing outsourcing of previously internally produced products. So yes, each of those are occurring and it probably does speak to the fact that you said that the overall market is not increasing. So the increased pressure to drive improvements is clearly one of the drivers for outsourcing.

And what are the reasons for the transfers from competitors? You're more competitive? Concerns about the financial viability of the competition? Or what is it?

I think the financial viability is clearly one that people are concerned with, with some suppliers. I think performance or flexibility to be able to support the customer and dedicate the resources when -- what we witnessed in prior downturns is that some of the competition becomes internally focused to resolve issues internally and not externally focused on the customer. And that plays out to have the customer level of dissatisfaction.

Thank you.

(Operator Instructions). William Stein, Credit Suisse.

A couple quick follow-ups. First, in the past, trends at your new customer, you guys have -- your number one customer, I should say, you guys had discussed some dual outsourced plans that I think were then later retracted. Can you give us an update as to how your business position is tracking with your top customer relative to competitors?

Once again, we don't speak to specific customer activities. I think if I refer to prior calls and just Computing in general, we have seen softness in Computing. You are correct in the reversal of the trend on the second sourcing. But beyond that, I don't have any specific updates on kind of how the program transitions and support are going on any specific customer.

And then also, quickly, options expense pretax, do we have -- I know you are reporting differently these days, but it would be helpful to compare.

For the fourth quarter, it was about $1 million.

Okay, thanks.

I think that will conclude our call today. We thank you for joining us and will be available in our offices for any follow-ups. Have a great day.

Thank you very much. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T's Executive Teleconference. You may now disconnect.