Benchmark Electronics Inc (BHE) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Benchmark Electronics first-quarter conference call. At this time all lines are in a listen-only mode. Later there will be a question and answer session. (Operator Instructions).

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

Good morning. Welcome to the Benchmark Electronics conference call to discuss our financial results for the first quarter of 2010. I'm Don Adam, CFO of Benchmark Electronics. Today Cary Fu, our CEO, will begin our call discussing the business environment during the first quarter and further into the year. Gayla Delly, our President, will then discuss our activities and performance in Q1 as well as an outlook for the second quarter of 2010. I will then follow up with a review of our financial metrics for the first quarter. 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 call we will make projections -- we may make projections or other forward-looking statements regarding future benefits or the future financial performance of the company. We would like to caution you that those statements reflect our current expectations and that actual events or results may differ materially.

We also like to refer you to Benchmark's periodic reports that are filed from time to time with the Securities and Exchange Commission, including the company's 8-K and S-4 filings, quarterly filings on Form 10-Q, and our annual report on Form 10-K. These documents contain cautionary language and identify important risk factors which could cause actual results to differ materially from our projections or other forward-looking statements.

We undertake no obligation to update those projections or forward-looking statements in the future.

Now I will turn the call over to Cary.

Good morning, thank you for joining our call today. Once again, Benchmark teams delivered solid results in the face of a component challenge in a supply chains, in addition to softness in the computing sectors.

Our first quarter 2010 results reflected a 15% year-over-year revenue growth and 88% growth in EPS excluding restructuring charges.

Along with our results we are also happy to report we had a record new program booking during the quarter. The improvement in the overall business environment, our results, and the excellent booking for the first quarter provide a great start for -- to the year.

Notably, our results for the quarter show a quarter-over-quarter improvement in our operational margin as we'll continue to benefit from improved revenue mix as well as our efficiency improving initiatives.

It was disappointing, however, that our Q1 revenue was impact by two primary factors.

First, we had a forecast with our -- with a customer greater strength in Q1 demand from the computer sectors, which is typical back end dated -- back end loaded. The demand pull at the end of the quarter with much weaker than anticipated. This evidence also show, as do our revenue by industry results, showing that the computer sector was down 24% from Q4.

Second, the product mix from our customers in the non-computers industry experienced greater variability than was planning in our forecast model. Furthermore, the component constraint that began toward the end of 2009 carried into 2010 as our supplier continued to be challenged by the increased demand level with the improving economy. Long lead times for the certain components impact our ability to meet the forecast mix changes and the -- support driving order from our customers.

Our supply-chain teams in support our customers were very diligently to working with a extended supply chain to meet a demand challenge. However, this extended lead time impacted our shipment by approximately $20 million for the quarters.

Also as you recall, our Q4 revenue exceeded our guidance due to strong demand, resulting in the lower inventory balance to begin our first quarter 2010. The current lead time [as it stands] has been incorporated into our planning cycle. Because of this we believe our inventory level now as we exit Q1, where is somehow higher than Q4 is appropriate size given expanded lead times in the marketplace today to support the sequential revenue growth projected in Q2.

For Q2 we will continue to see steady demand from our customers across the industry sectors. We see the continued process (inaudible) from our customers with the revenue booking and a new program ramps.

During the first quarter 2010 we will complete our restructure charges activity, which was announced in the second half 2009. As anticipated would incur the $1.7 million in restructure charges, primarily related to the closures of one of our US facilities.

Know that at the same time we are currently expanding our precision machining capability into Asia to provide our customers with another solution in a low cost region.

Now I'll turn the call over to Gayla to talk about the operation details (technical difficulty) one.

As Cary noted, we are very excited to report the record new bookings we had during the first quarter. To give you more color on that, we booked 11 new programs with current estimated annual revenues of $300 million to $375 million at full ramp production.

These bookings include two sizable programs in the computing sector. One is a design to production opportunity, and the other is a transfer of current and upcoming productions.

Several of our new program wins are an expansion and addition to new customers in our customer base. For example, in the medical sector we now support new sectors, including energy with design to production services for new customers.

In addition to the wins in the computing and medical sectors that we mentioned, we also had new bookings in the industrial controls, telecommunications sectors for the quarter.

These bookings, of course, are subject to the risk of timing and to the ultimate realization of the estimated revenues.

As Cary mentioned, the first quarter of 2010 was very dynamic. Normal seasonality in the first quarter of each year typically includes some level of softness in the computing sector. However, this year the computing sector was more significantly impacted, and this was offset by strength in our other sectors.

These sectors, however, represent a greater mix of business and experienced greater mix changes. These changes resulted in some shortages and inefficiencies in our operations, which are reflected in stable levels of finished goods but higher levels of raw materials and RIP, where our components were delivered too late for us to produce and ship products to our end customers.

Even with these challenges, we are very happy that we drove results meeting our earnings per share guidance and driving efficiencies in ultimately our operating margin. We achieved a 4% operating margin, excluding restructuring charges, at the $572 million revenue level.

As you recall from our last quarter call, we noted that this level of operating margin would be achieved when we reached the $600 million level of revenue. We achieved this goal due to a better revenue mix and due to operating efficiencies. We believe that this trend will continue as volumes continue to ramp.

It is worthwhile to note that we believe that our footprint and infrastructure is adequate for our planned and incremental growth, considering the comments that Cary made expanding our precision technology capabilities in Asia. We do not expect that we need to add new, sizable facilities in the near term but will continue to invest and expand in our existing facility to support our customer demand.

Our earnings per share remained strong with solid performance and execution by our team, even while the supply chain challenges created certain inefficiencies. Our earnings per share, excluding restructuring charges, of $0.30 was within our guidance.

Our operating margin, extruding restructuring charges, was up quarter-over-quarter. During the first quarter our operating margin increased to 4.0%, compared to 3.5% for the fourth quarter.

We expect estimated revenues for the second quarter of 2010 to be in the range of $600 million to $630 million. The corresponding earnings-per-share for the first quarter -- for the second quarter, in the range of $0.31 to $0.34, and we note that we do not expect any restructuring charges in Q2.

We are providing guidance only for the second quarter at this time, and I will make note that the guidance that we have provided considers the constraints in the supply chain, and we do expect to be able to ship the delayed shipments from Q1 and also have included in our forecast the impact and constraints that may happen at the back end of Q2.

With that, I'll turn it over to Don to speak to the financial metrics for Q1.

As Cary noted, we completed the first quarter of 2010 with revenues of $572 million. These revenues were slightly below our revenue forecast of $580 million to $620 million, provided during our last conference call, due to the reasons noted earlier.

During the quarter we saw stronger shipments for all industry sectors we serve except for computing, where we saw significant decrease.

Sequentially when comparing Q1 2010 to the fourth quarter of 2009, revenues from the test and instrumentation sector were up 26%, revenues from industrial control sectors were up 7%, revenues from the telecom sector were up 4%, revenues from the medical sector were up 2%, and revenues from the computing sector were down 25 -- 24%, again with demand weaker than we anticipated.

Our earnings-per-share for the quarter was $0.30 excluding restructuring charges of $1.7 million, or $847,000 net of tax. The rate restructuring charges incurred during the quarter were primarily related to the closure of one of our US facilities.

To provide a more meaningful comparative analysis, we will present certain financial information excluding restructuring charges during this call. We will call your attention to the fact that this item is excluded when we do so. In today's press release we have included a reconciliation of our GAAP results to our results excluding these charges.

Our gross margin for the first quarter was 7.9% excluding restructuring charges, which is substantially improved from the fourth quarter of 7.3%.

Our operating margin for the first quarter was 4% excluding restructuring charges, compared to 3.5% for the fourth quarter of 2009.

Consistent with our last call, Q1 benefited from a better revenue mix in addition to improved operating efficiencies. Excluding restructuring charges, net income was $19.1 million, compared to $10.3 million the first quarter of last year.

GAAP net income for the first quarter of 2010 was $18.3 million, compared to GAAP net income of $9.2 million for the first quarter of last year.

Q1 diluted earnings per share excluding restructuring charges were $0.30 in 2010, compared to $0.16 and 2009.

GAAP diluted earnings per share were $0.29 in the first quarter of 2010.

Interest income was $367,000 for the quarter.

Interest income -- interest expense was $339,000.

And other expense was $371,000, which was primarily foreign currency related.

Diluted weighted average shares outstanding for the quarter were 64 million on a GAAP basis.

Our cash and long-term investment balance was $446 million at March 31, which includes $45 million of auction rate securities classified as long-term investments.

The unrealized loss on our auction rate securities at March 31 was $4.6 million, due to changes in the market value for these securities. The unrealized loss is reflected in the accumulated other comprehensive loss as a component of our shareholders' equity.

For the first quarter our cash flows from operations were approximately $6 million.

Capital expenditures for the first quarter were approximately $9.6 million. We anticipate capital expenditures for 2010 to be in the $35 million to $45 million range, of course dependent upon market conditions throughout the year.

Depreciation and amortization expense was approximately $10.3 million.

Repurchases of common shares for the first quarter were $18 million or 900,000 shares. Since the inception of our share repurchase programs in June of 2007 through our last quarter, we have repurchased $192 million or 11 million shares.

Receivables were $408 million at March 31, a decrease of $10 million from the last quarter.

Inventory was $362 million at March 31. Our inventory turns were 5.8 times for the quarter, compared to 7.1 times for Q4 of 2009. Our inventory turns were impacted by the material constraints that we noted earlier.

Current assets were approximately $1.2 billion, and the current ratio was 3.4 to 1.0 in Q1, compared to 3.5 to 1.0 in Q4 of '09.

As of March 31 we have $11.6 million in debt outstanding, which is primarily related to a long-term capital lease on one of our facilities.

Comparing the first quarter of 2010 to the same period in 2009, the revenue breakdown by industry is as follows. In 2010 medical was 12%, versus 13% in 2009. Telecom was 23% in both 2010 and 2009. Computing was 32% in 2010, versus 44% in 2009. Industrial controls was 24% in 2010, versus 19% in 2009. And finally, test and instrumentation was 9% in 2010, versus 1% in 2009.

At this time I would like to open for the Q&A session. During the session we request that you limit yourself to one question and one follow-up question. Thank you.

(Operator Instructions). Amit Daryanani, RBC Capital Markets.

Just a question on the new wins. So 300 to 375, that actually seems like three times the normal amount you guys typically announce. You mentioned two large wins. Could you just talk about how much were those two wins alone accounting for that 350 million pot? And it sounded like one of them is a transfer from a competitor. Could you confirm that? And are both the wins from existing customers I guess?

The new wins were quite sizable this quarter. We're very happy with the progress we made on that front. And the two new bookings that are sizable are -- one is a transfer from the competition, and it is existing and new generations of products that we are bringing up. And the other is a new customer also, where we are doing design to production work with a new customer for new products. So we are very excited about those.

On the design to production, just as a note and comment, you will note that those are always longer to bring up into the revenue stream. And then on the ramp of the transfer from a -- competition, that will come into the revenue stream over the next couple of quarters.

The two projects are -- represent about $200 million, would be the size -- the portion of the new bookings that that pertains to.

Then just as a follow-up, looking at the June quarter guidance it looks fairly aggressive at up 8%. But I'm just trying to think about the 20 million that you guys -- 20 million that you left on the table in December. Do you expect to ship that in the June quarter? Have you already done that? Because if I ex that out, then the guidance looks like it's up 4. That seems a lot more in line with seasonal trends.

Yes. As I indicated in the notes, the inventory was late to be delivered so you saw some of it in RIP and of course some in raw materials. So we do expect that to ship. And we have also considered in our forecast the constraints in the supply chain that we would expect to continue to experience.

And maybe one of the notes that we did not make is that we still see some challenges in the extended supply chain and do not expect that the added capacity or the decline in demand would take place in the third quarter. So we expect to see the continued challenges throughout the third quarter and would not see easing until fourth quarter potentially.

I'll cede the floor. Thanks a lot.

William Stein, Credit Suisse.

Just wondering in the shortages what product categories are we talking about? And are they jumping around from category or commodity to commodity or SKU to SKU? Or are they more consistent? And what are you doing to try to chase that material down?

Yes. The component shortage that the component lead times pretty steady. I guess it's from the type of component that we deal with it. We do see some shortage, the lead time extending into some segment -- semi components -- memory and displays, and of course some dial and some capacitors.

In the -- we had identified those components in the -- in -- through our whole planning cycle. We are incorporate the lead time -- extend the lead time of the component into our planning cycle, which should give us a better visibility with the impact on the lead time extension on revenue. And as Gala said, we will not anticipate those lead times improve till probably late Q3 or maybe early Q4. Of course this is the -- it's further pushed the lead improvement until -- from Q2 -- in the last call we talk about the lead time should be improving in Q2/Q3 time frame. Now it's another quarter out.

Our teams work very hard on the -- to deal with the situation, as a very defined escalation path within our organization, and the -- unfortunately some of lead time extended is exceeding the dropping of the lead times. So we are just not having enough room to ship the product. But as we have a high inventory level in the first quarter, which gives more flexibility to accommodate the Q2 revenue requirement.

Then a follow-up on the computing end market if I can. The overall margin was certainly higher than expected. With the shortfall in the computing end market, a natural question might be that -- is this end market perhaps somewhat of a drag relative to corporate average margins? In other words, when we see this come back, should we expect it to drag the margin? And then also related to that, are material shortages affecting you in an outsized way in this end market? Or is it more demand that hurt the computing segment?

Specific to computing in fact the supply chain is typically not as elongated and does not have as many unique components. So the supply chain is typically not an issue in the computing sector.

The computing sector in general does not necessarily have lesser margins. It typically is a combination of volume and new products and the complexity of products. So I wouldn't generically say that computing has a significantly different margin.

However, I would say that we find it, as you have seen, over the last few quarters the number of new wins that we had, we're supporting a lot more production in the front end and design, and so we have, along with driving operational improvements and execution of our teams, the efficiency we are gaining is providing results to the operating margin.

I would expect that with an increase in the computing programs that we are ramping, we would see the volume increase and the capacity utilization along with our operational execution continue to allow us to drive the margins that we have expected and drive towards the 4.5% range as we ramp those over the next few quarters.

Great, thank you.

Alex [Balton], Ingalls & Snyder.

That's Alex Blanton. Though win from competitors that you described -- can you share with us what the reasons were that you are able to win that business away?

I think that's always an interesting question to go through. But what you typically find in our business is clearly being a service business is really all about the service a customer gets. So at any point in time there are parties and players in the industry, maybe some plant to plant or from team to team, that experience challenges in serving the needs of the customer and sometimes maybe even become -- I hesitate to use the word so harsh as callous, but become a little too comfortable and don't continue to perform and go over the top for customers. That's just typical in a service industry. I think (inaudible - background noise) in this situation. And we are really excited to take on the new customer and to support their needs.

So it wasn't a matter of price but just satisfaction with the performance they were getting?

Absolutely. I think the industry is very competitive already. I don't think that you are seeing pricing become as much of a differentiator in the case today, simply because the competitive nature of the business is already baked into all of the quote (multiple speakers) business processes.

Right. And did you tell us -- I have forgotten -- what industry that win was, the one from the competitor?

Computing.

In the computing sector. Okay. The drop in the computing business -- what is your best guess as the reason that happened? And what kinds of products are we talking about?

Well, as I looked across what was happening in the industry, I think it's common with some of the subsets of product that we have, such as servers, you saw a (background noise) [transfer] of customers or providers in that sector, as well as some of our competitors, the same nature. And then the level of decline is more specific to the subsets of products that you're supporting.

So just based on the industry results for Q1 combined with the types of products we were serving, I think that was the real driver there.

Well -- oh, okay. I better ask you more about that off-line.

Finally, the component shortages. Everyone has talked about that to one degree or another. What is your best guess as to when we might see an easing in that?

At this time in talking to those in the supply chain that we are seeing struggle, in essence, we expect to see them bring on the additional capacity in the late Q3 and the Q4 time frame. This is a delay as compared to what was expected. We had expected the improvements to be seen, in fact, in Q2, late Q2/Q3 time frame, which is another factor that we have played into our forecast. But with the continued increase in demand, that improvement in capacity did not occur.

Oh, so the amount of capacity that expected three months ago won't be sufficient? And that's why (multiple speakers)

Yes. Again, not our supply -- not our capacity, but our suppliers' capacity.

Yes. That's what I mean.

Right. So they have continued to increment (background noise) headcount and facilities and expect that to be kind of I'd say remedied. Maybe that's too strong, but a significant improvement to be seen towards the latter portion of 2010.

All right. So the implication here finally is that the demand level that the people in the industry are expecting now for the second half of calendar year is higher than it was three months ago? Demand is accelerating? Is that what we're looking [to]?

Yes.

Thank you.

Sean Hannan, Needham & Co.

Just to clarify something around the guidance -- and I think there were some questions around this a little bit earlier. I'm trying to look at some of the organic progression. So you're -- and Gayla, I think you had some comments earlier as well on the guys incorporating the component shortage situation. So if we are looking at your numbers, are you effectively -- your numbers for June -- are you effectively assuming a similar limitation due to these shortages? So if we didn't have this issue, would the organic guide actually be a little bit higher than what we are talking about?

I guess the other way to say it is do I have backlog that I could ship if I could get all the components I want? The answer to that is yes.

That's great. Just -- and then if I could circle back on the two wins -- you clarified one -- the transfer is within the computing space, and that is from an existing customer?

No. Neither of the new programs are from existing customers, they are both new customers.

That's helpful. Then the second, what is the segment for that new customer? Sorry, I was dropped off the call a few times. So I -- you may have stated this.

Oh, that's okay. It is computing also.

Both computing. Okay. And then lastly -- is there a way -- if you could provide a little bit of commentary around your general level of utilization at this point?

Generally our utilization rate is in the high 60% range. So we still have I'd say about [68]%. So we still have room to grow, and as Cary and I indicated in our call notes, don't see a lot of need for additional brick-and-mortar, although we are expanding our precision technology capabilities further in Asia. But beyond that don't see a lot of significant investment required to be able to achieve our growth goals and targets.

That's great, thanks so much.

Brian Alexander, Raymond James.

Could you just talk about if computing isn't really a drag on overall operating margins and we expect a rebound there in the June quarter, why are we not expecting to see any operating margin expansion sequentially per your revenue and earnings guidance? I think you are expecting it to stay at around 4%.

I think actually at the midpoint it's probably at I'd say 4.1. So we are expecting some improvement. But again when we are fighting the inefficiencies associated with the supply chain, we bake that in. And that has a pretty significant impact when you're not getting the components, and I think as others have likely referred to, you're getting de-commits. So it's not only the planning parameters that have changed on the extended lead times, we have expected deliveries that don't show up, so the inefficiency is associated with that. Once again, we've tried to bake those into our planning and forecasting.

That's helpful. Then just on the computing wins, is there any way to be a little bit more specific, given that computing is such a broad category that includes servers and storage and --? I'm just wondering (multiple speakers)

We don't break down our computing any further than that. As we get further into the ramp (technical difficulty) of the production, likely at that time we will be able to share a little bit more about those programs with you.

And then I know one of your large customers is going through a product transition in the computing segment, which affected your March quarter. I'm just trying to get a sense for what your expectations are about that product transition per your June guidance. Are you basically expecting the computing business to rebound seasonally? Or are you expecting it to still be weak?

On the customer going through transition, it's probably important to note that that is down to low single digits and is not a significant factor in impacting our guidance or whatnot going forward.

I was actually thinking of a different server customer that is also going through a transition. But it doesn't sound like that is having an effect either.

No.

Thanks.

Brian White, Ticonderoga.

Just on the markets as we look into the June quarter, what areas do you think are showing relative strength?

[Like we commented in the call now, Brian], we see a -- we anticipate that all sector will be flat or up in second half -- in the second quarter. And the -- a lot of strengths are -- definitely come telecom side, industry control, and the test and instrumentation. And the -- of course computer will rebound a little bit, so --

And the new wins that you announced today, what percentage of those do you think will have an impact on this year's revenue?

I would say probably only 20% at the most will be impacted this year, particularly the largest program, the computing program, which will be from design to production. We saw that one would be -- start to ship preproduction order in Q4 and start the full production order in Q1 -- in next year's.

Just finally on test and instrumentation, what are you seeing there that caused such a big uptick in the March quarter? Is that a new program? Or is that just the end market demand?

What we are seeing there is a combination of both new program wins that are kicking in, as well as volumetric increases based on the market demand.

Great, thank you.

Sherri Scribner, Deutsche Bank.

I just wanted to go back to the guidance question again -- sorry to belabor it. But I guess I'm a little confused on the 2Q guidance. It sounds like -- so you said 20 million will ship in 2Q that should've shipped in 1Q. And then you said that you expect the component constraints to continue at about the same level. So it almost seems like the guidance that you're giving with the 1Q revenue that's shipping in 2Q and the component constraints -- that sort of washes each other out, and it seems like the guidance is generally for -- the guidance should be pretty much what you expect to see with those two canceling each other out. Is that the right way to think about it?

Yes, I think that's correct to cut out some gain for the constraints on the back end and the opportunities from the front end as a result of the constraints on the beginning.

Okay. So then -- and the guidance seems a little bit better than typical seasonality, which I know on Amit commented on. So it's that strength is coming from the segments that you mentioned -- testing, telecom and industrial controls, with some recovery in the compute segment? Is that (multiple speakers)

Yes. But I think that -- kind of following on Brian's question, I should have jumped in there. But while some of the programs that we have recently announced today will not ramp, what we are seeing is the impact of some of the previous wins beginning to ramp. And we still have several of those that will begin to ramp into the next two to three quarters.

That's helpful. Did you have any greater than 10% customers in the quarter?

I believe we had one computing customer at right around the 10%, 11% range.

Then in terms of inventory levels, Cary, I know you had mentioned that you feel like inventories are about -- are basically okay where they are now. You guys have had a pretty big inventory build over the past couple of quarters. You're up about 8% sequentially in the fourth quarter and then up 15% in the first quarter. Is the implication that inventories would stay relatively flat now that you're comfortable with the levels? Or do you think they will grow in line with the revenue growth?

I think certainly the constraints that we talked about -- we look at the inventory from turns, and then we ended up at 5.8, which is certainly below our target. I would anticipate next quarter probably get back over 6.0, 6.5. So where that equates to in terms of real dollars -- we'll see. That's still a pretty broad range, but with the supply-chain constraints out there, it's still a little bit difficult to predict.

Okay. And then in terms of 4.5% operating margin guidance, have you guys given a revenue target of where you think you can reach that? Clearly you're ahead of your original plans (multiple speakers)

That's a difficult part of programming. You can recall last call we talk about at the $600 million we'll be 4% operation margin, and that's our near-term goal in the last quarter. Now our near-term goal for operation margin in 4.5%. I think -- we see it's really depend on mix as well as the utilization of the factory. I think in the north of 675 we should be there, and they of course would be a steady going up from this point to there. So -- and about 675 we should be 4.5%.

Great, thank you.

Jim Suva, Citi.

Looking at your program ramps, which looked extremely strong, and I think if I heard you correctly from the commentary from Gayla, Cary, that it sounds like some of that entering into this year, maybe 20% of it, but it sounds like most of that is going to ramp into next year.

Right.

Is it fair to say that next year for you guys -- and I know you don't guide really far out -- looks to be an extremely healthy year with these very large programs? And given the size of them, can you just get them running with the same type of operating efficiency and margins? Or since they are so big, should we expect a little bit of (technical difficulty) or learning curves given the -- just the magnitude of how impressively big they are?

We clearly are planning to hit the ground running and drive efficiencies there. I think as with all manufacturing organizations you're driving continuous improvement and lean initiatives for efficiency. So we are seeing a large number of new programs that we are excited about, a lot of ramps.

But there's always some falloff, some cannibalization, some unexpected leakage, whether it's from customer forecasts, the competitive nature of their industry. So I guess what we don't see, we don't know, and as we get closer into that -- to next year, we will see the downside.

I think the upside we see based on what we are booking. We just -- we -- what we don't see is what markets, what industries will suffer from unintended consequences of the market environment.

Just a housekeeping question. Is 15% tax rate kind of what we should kind of look at going forward?

Yes. That the (multiple speakers) [guess]. 15% go forward, yes.

Unfortunately. Unfortunately. That's a problem we have with having such a high level of new product ramps and a strong performance in our non-Asian site specifically. We are seeing good opportunities in growth but the tax rate is very high.

(technical difficulty) very much everyone.

[Eric Earnadi], Bank of America Merrill Lynch.

Gayla, I just wanted to circle back on the comments you made, you talked about with respect to your computing business down like 24%, 25% sequentially. If you could just clarify what drove that? Thank you.

Again, I think it's the underlying marketplace primarily, and it was unexpected from -- in comparison to what our customer forecast was. So it wasn't our forecast independent of our customers, it was based on customer forecasts, a demand shortfall was there.

So with any more color we would really have to look specifically at the customers, because I really don't understand the dynamics of the computing spend in Q1. I believe that there was some consumer spend that took place, but I think on the higher end the spend did not accelerate in Q1 as much as was anticipated. But beyond that I don't have details.

Thank you very much.

That does conclude our question and answer (technical difficulty) today's call. I'd now like to turn the call back over to the company's management for any closing comments.

Thank you for joining us today. We will be in the office answering the questions you have, and the -- thank you again. Thank you for your support.

Ladies and gentlemen, that does conclude our conference for today. Thanks for your participation and for using AT&T's Executive Teleconference. You may now disconnect.