Celestica Inc (CLS) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by.

Welcome to Celestica's second-quarter results conference call.

(Operator Instructions).

I would like to remind everyone that this conference call is being recorded today, Thursday, July 23, 2009 at 8 AM Eastern time.

I will now like to turn the conference over to Mr.

Paul Carpino, Vice President Investor Relations.

Please go ahead, sir.

Thank you, Theodora.

Good morning everyone and thank you for joining us on Celestica's second-quarter conference call.

On our conference call today will be Craig Muhlhauser, President and Chief Executive Officer, and Paul Nicoletti, Chief Financial Officer.

Greg and Paul will provide some brief comments on the quarter and then we will open up the call for Q&A.

Copies of the supporting slides and the Company's webcast can be viewed as Celestica.com during this conference call.

This conference call will last approximately 45 minutes.

And after the call we can be reached for follow-up questions.

During the Q&A please limit yourself to one question and one follow-up to ensure everyone on the call who would like to ask a question has the opportunity to do so.

You're welcome to get back in the queue after you ask your question.

Before we begin I would like to remind everyone that during this call we will make forward-looking statements related to our future growth, trends in our industry, and our financial and operational results and performance that are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.

We refer you to the risk factors and uncertainties discussed in the Company's various public filings, which contain and identify factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

These filings include our Form 20-F and subsequent reports on Form 6-K, filed with the Securities and Exchange Commission, which can be accessed at SEDAR.com and SEC.gov.

Please note that we will refer to certain non-GAAP financial measures during this call.

The corresponding GAAP information and the reconciliation to the non-GAAP measures are included in our press release, which is available at Celestica.com.

I will now turn the call over to Craig Muhlhauser.

Thanks, Paul, and good morning everyone.

Celestica's second-quarter financial results reflect our continued success at driving quality and efficiency throughout the Company, while delivering value for our customers despite this challenging economic environment.

The Company's revenue was $1.4 billion compared to $1.9 billion in the same period last year.

Our GAAP earnings were $5.3 million or $0.02 per share, compared to $39.8 million or $0.17 per share last year.

The adjusted net earnings were $0.11 per share compared to $0.17 per share for the same period last year.

Both revenue and adjusted net earnings were better than the midpoint of our guidance.

Consistent performance of our margins and returns also continued in the second quarter.

Operating margin was 2.7% compared to 3% last year.

The gross margins were 7.3% as compared to 6.7% in 2008.

Our return on invested capital including intangibles was 15.3% compared to 11.8% last year.

Cash flow from operations was $55 million, and the Company generated free cash flow of $41 million.

These results have been accomplished during a period of unprecedented volatility and uncertainty in the global economy, which significantly impacted overall demand.

With our track record for quality, operational excellence and improving financial returns now established, underpinned by a strong balance sheet, we are now investing in customers and capabilities to achieve profitable growth, while delivering higher returns for our shareholders.

Delivering improved shareholder returns even during the low point of an economic cycle is a prerequisite for any industry that wants to attract investment capital and create long-term value for its shareholders.

We believe that deploying significant capital and resources to build capacity without the flexibility to deliver acceptable returns throughout the economic cycle is no longer a viable model or strategy for this industry.

The leadership of any company must strive to deliver acceptable financial returns at any point in the cycle, and shareholders should expect this from the EMS industry.

At Celestica we remain firmly committed to this basic principle.

While our margins have improved during this downturn, our current average utilization is approximately 50%, which is well below our target.

Our improved operating performance throughout our global supply chain network, combined with the uncertainty regarding the length of this downturn, has resulted in the decision to further reduce our cost base globally to meet the demands of today's competitive environment.

Going forward achieving further cost reductions and our targeted revenue growth objectives will enable Celestica to continue to improve operating margins beyond our current target of 3% to 3.5%.

Looking to the third quarter, the midpoint of our guidance indicates we are currently forecasting seasonal growth and new program ramps which result in 7% sequential revenue growth.

Although we are encouraged by the positive trend in our revenue for the third quarter, we remain cautious in our outlook, as end market demand remains volatile across all industries and visibility remains limited.

Operating margins are expected to continue to improve in the third quarter to approximately 3%, which is reflected in the midpoint of revenue and EPS guidance.

Celestica continues to execute well in this environment; however, our focus on continuous improvement requires us to further raise the bar on our operational performance and financial targets.

We are realistic about our expectations relative to end market demand and the competitive environment in the near term.

We intend to be at the forefront of the industry in taking the necessary actions to drive better efficiency and cost productivity for the future.

We firmly believe the combination of our improved financial strength, operational excellence, and the speed and flexibility of our global supply chain network will continue to create a unique advantage for Celestica as we focus on targeted revenue growth opportunities and our commitment to deliver increasing returns for our shareholders.

Now let me turn the call over to Paul, who will take you through the financial results in more detail.

Thanks, Craig, and good morning.

Revenue for the second quarter was $1.40 billion compared to $1.88 billion in the second quarter last year, and $1.47 billion in the first quarter of 2009.

The year-over-year decline in revenue was driven primarily by the challenging economic environment across all sectors, with server, enterprise communications, aerospace, defense, industrial and consumer experiencing the largest declines.

Sequentially consumer had the largest decline, primarily due to product transitions.

While the storage segment showed strong sequential growth associated with the wrapping of new program wins.

Looking at our revenues by end markets.

Enterprise communications represented 23% of total sales.

The consumer segment was 22% of sales.

Telecom was 20%.

The server segment represented 12% of sales.

Storage was also 12% of sales.

And industrial, aerospace, defense, healthcare came in at 11%.

Moving to our customer concentration.

Our top 10 customers represented 70% of sales for the quarter.

Our top five were 48% of sales.

And we had three customers with sales of greater than 10% in the quarter.

GAAP net earnings were $5.3 million or $0.02 per share for the second quarter of 2009, compared to GAAP net earnings of $39.8 million or $0.17 per share for the same period last year.

The year-over-year change reflects the impact of $474 million lower revenue, primarily associated with the weaker end market demand, as well as a $21 million restructuring charge in Q2 2009 compared to $4 million in the second quarter last year.

Adjusted net earnings for the quarter were $25 million or $0.11 per share, compared to adjusted net earnings of $38.9 million or $0.17 per share for the same period last year.

Gross margins remain strong and came in at 7.3%, compared to 6.7% last year on 25% lower revenue.

As Craig noted in his remarks, we have established a very flexible and efficient operation which allows us to maintain strong levels of gross margin despite the sharp decline in revenue.

Operating margin for the quarter was 2.7%.

We have done a very good job containing SG&A, which was down $5 million sequentially to $61 million.

Finally, our pretax returns on invested capital, calculated as EBIAT divided by average debt invested capital, was 15.3%, our seventh straight quarter of double-digit returns.

In terms of a restructuring update as of June 30, we recorded restructuring charges of $21 million during the second quarter, and to date have recorded $63 million in charges related to the $75 million restructuring plan announced at the beginning of 2008.

As you saw in our press release this morning, we have made a strategic decision to aggressively increase capacity utilization throughout our global network.

While our financial performance continues to be strong, the Company is firmly committed to breaking the cycle of running our network in the 50% to 60% utilization range, which we have been operating at for far too long.

Instead of chasing any and all revenue just to fill our plants, we will be increasing our focus and resources on targeted revenue that best leverages our capabilities and networks to meet our longer-term financial targets.

Given our more targeted approach to revenue, we can reduce our existing infrastructure, and as a result we are implementing a new restructuring program for $75 million to $100 million to achieve this higher utilization initiative.

We expect this program to be completed by the end of 2010 and with 85% of the charges being cash costs.

As Craig noted, when this program is complete and revenue recovers, we believe we can target margins potentially higher than the back 3% to 3.5% profile we have been targeting at these levels of revenue.

We also believe our customers will benefit from the lower cost structures associated with the reduction in excess capacity.

And we would like to see the rest of the industry aggressively reduce their idle capacity as well.

Moving to working capital.

Our cash flow and balance sheet metrics continued to perform well.

Cash flow from operations was $55 million.

We spent $14 million for CapEx in the quarter and generated free cash flow of $41 million.

The lower than typical CapEx spending this quarter offsets the timing of the higher $32 million capital additions in the first quarter.

We expect CapEx will remain in our 1.1% to 1.3% of annual revenue this year.

Cash cycle for the quarter was 21 days compared to 19 days in the first quarter.

We also continued to work down inventory in the second quarter, with inventory cutting down 9% or $61 million from the first quarter.

This performance compares well against a 5% sequential decline in revenue from the first to second quarter and a 7% increase in revenue at the midpoint of our guidance for the third quarter.

Inventory turns were 7.8 turns, which we expect is leading our peer group for the eighth consecutive quarter.

The balance sheet continues to be strong for the Company.

Cash at June 30 was $1.12 billion or a $38 million increase from the first quarter, and long-term debt was $583 million.

Overall we enjoy the strongest net cash position amongst our peers.

In summary, the operations are driving consistent and positive returns without the benefits of revenue growth, which we believe bodes well for stronger returns when revenue growth resumes.

In terms of outlook for the third quarter, we expect to see sequential revenue improvement as the consumer segment benefits from its typical seasonal increase.

We expect revenue to be in the range of $1.425 billion to $1.575 billion, and adjusted earnings per share to be in the range of $0.11 to $0.17.

Depending upon the mix of business, the midpoint of the guidance implies a 3% operating margin, which would represent a sequential improvement from the second quarter.

We also expect to generate additional free cash flow in the September quarter.

That concludes the review of the financial results.

I will now ask the operator to open up the call for any questions.

(Operator Instructions).

Matt Sheerin, Thomas Weisel Partners.

The first question regards the restructuring program that you have announced.

Could you tell us what the capacity utilization rate now is for the Company, and what your target would be?

As you take that capacity off-line and you transfer projects to other manufacturing plants, historically you have had some issues in the past doing that.

So what kind of safeguards or plans do you have to ensure a more seamless transition?

The Company is currently operating at around 50% utilization.

Upon completing these actions, at current revenue levels, we think this will take us up into the 60% range.

As far as program transfers, I think that is something we have done a good job executing in the last few years.

The teams here, consistent with the operating improvements that we have seen across the board, execute -- have been executing extremely well.

So we have a very focused process on program transfers.

And I am pretty confident here that we won't run into any issues.

I guess I should also note to you that overall when we look at -- while we are not giving any specific details around sites and locations, that the revenue that is impacted is nominal as far as what is moving.

Great.

My second question, as you look at the pipeline opportunity of new business, you have done a terrific job of bringing gross margin up.

As you look at new business, particularly on the consumer side, how do you weigh the margin targets versus returns in evaluating new business?

It is Craig here.

We have target thresholds for each of the major market segments.

And based on the operating leverage we are getting and the improvement in execution, we are using a portfolio approach to balancing the mix and managing the revenue targets, as well as the returns to maintain industry-leading objectives, frankly, when it comes to operating margin and return on invested capital.

I think you see some of the early results here in the last number of months and quarters here as we have executed the game plan.

Gus Papageorgiou, Scotia Capital.

Just a question on the revenue.

Just on the consumer, I mean, it was down quite a bit sequentially and whereas storage was up quite a bit.

I would have thought that the trend would have been the exact opposite.

Can you give us a little bit color at what happened to consumer and why you're confident that it will ramp as we go into Q3?

It is Craig here.

On the storage site, the improvement was related to a new program win that very successfully and very quickly ramped in the second quarter.

So we were very pleased with that.

And the consumer shortfall in the quarter was related to actually a program transition, where we are moving to end-of-lifing of some current programs, and we are ramping aggressively a significant number of new programs in the second half.

Are those programs -- sorry, the transitioning of those new programs, are they with an existing customer or a new customer?

Yes, they are with an existing customer.

Great.

Thank you.

Sherri Scribner, Deutsche Bank.

I was hoping to get a little more color on the server segment.

It was down a decent amount this quarter, but storage was up.

Is there anything significant going on there?

And what would be your expectations as we head into the second half?

It seems like commentary has been that server seems to be stabilizing a bit and there might be some uptick.

So I just would be curious on your thoughts.

It is Paul.

Forgive us, we are having a bit of a hard time hearing you.

Could you just repeat your question?

I was on mute.

I am very sorry.

I was curious about the server segment.

It was down a decent amount this quarter.

The storage part was up.

There has been some commentary as we go into the second half that server seems to be possibly coming back.

So I would be curious to get your comments on what happened this quarter with server and what your expectations are in the second half.

What is happening with server for us is just reflective of the mix of demand we have in our products.

So there has been no share shifts or program losses underneath the cover.

It is just the demand we are seeing.

It is hard to say what is going to be typical in this environment.

Having said that, we would expect that, as we have seen in the past, to see a bit of a pickup in the server side as we look into the second half, so that is what we would expect to see.

As far as storage is related, Greg mentioned earlier, really pleased by what we are seeing on the back of a new program win that we ramped up during the quarter.

And would expect from what we see right now, we expect that to be the range we will operate in for the foreseeable future.

In terms of the -- following up on that -- in terms of a bit of a pickup, are you hearing that from your customers or is that just -- really, are you hearing that from your customers that you'll probably see a pickup or is that more a seasonal expectation?

As you know, visibility continues to be very poor.

So we look at everything very cautiously here, which is certainly part of the backdrop to why we decided to take some additional capacity out.

But that said, when you look at the forecast and based on our discussions with customers, certainly as we look to Q3 we have reflected what we think is going to happen in each end market.

And you're seeing a pickup sequentially, which is pretty good, when you sit back and look at what is going on with some of the guidance of our customers.

So the short answer is it is a bit of a mix of both.

It is what we expect sequentially, what we are seeing in our discussions with our customers and what we see in our order book.

Great.

Thank you.

Jim Suva, Citigroup.

Thanks and good job on the execution.

A question regarding the restructuring.

Can you let us know a little bit about the details about is the majority of this, or how much of it, is coming out of COGS and plant closures versus SG&A?

And just kind of give us some details on the breakdown of where those dollar amounts and savings are expected to come from?

I think the majority of it will hit the COGS line.

You have seen us continue to chip away at the SG&A, and as I commented in my remarks, down $5 million sequentially.

Which we're pretty pleased with what we have been able to accomplish here.

But this specific restructuring I would characterize 75%, 80% of it will be on the COGS side and a little bit on the SG&A site.

And on the SG&A side, you know, down around $60 million this quarter is extremely impressive.

Is there still some room to go there or are we operating pretty lean now to where we should expect $60 million going forward?

I think for the foreseeable future in that low $60 million is where you should expect to see it.

There is always some SG&A in plants, and so as plants shut down through 2010, we will see a bit of reduction to SG&A at that time.

But for the foreseeable future I think low $60 million is a good way to think about it.

And a question for Craig.

Craig, your operating margins has been improving very impressively.

When you talk about potentially getting above your 3.5% -- 3% to 3.5% operating goal, which you are right now at the lower end of that right now, to get above that 3.5%, in addition to restructuring, do you need revenue growth or will this restructuring, assuming the demand environment remains relatively stable, even though we hope it all improves, could we get above or at 3.5% or do we need some type of topline sales growth?

And what sales growth -- or what sales level would you expect to need to get to 3.5% margins?

It is really looking at -- the vectors here are the restructuring is going to reduce the COGS save, improve utilization, and frankly solidify this 3% to 3.5% range as a floor for us.

And then we drive to higher when the revenue recovers.

Obviously mix is going to play a significant role in that, as we look at the pricing dynamics of the business we pursue.

You see our portfolio management.

And then the other thing is we are aggressively investing in higher value-added services which tends to expand our customer penetration.

You see we've got extremely strong cost controls in place -- a fairly aggressive disciplined operating model.

And the bottom line it would be a mix of both obviously.

We say we are raising the bar across the entire Company, both in terms of execution as well as margin performance.

So a mix of continued cost controls, solidifying the base based on the outlook we see for revenue and then driving revenue growth.

And you see the leverage begins to come with 7% next quarter.

And obviously the objective is to begin to feather that in as we look at it.

Great.

Thank you very much.

Steven Fox, CLSA.

A couple of questions.

Does the restructuring program, the new one, imply that you're taking your core eight facilities down?

And can you give some more details on where you will be from a footprint standpoint after you complete this?

And then I had a follow-up.

It is Craig.

Good morning.

No impact on the negative sites.

We are just selectively continuing to prune the network based on the less strategic sites as we look to the future.

So they would be more of the non-core sites in higher cost geographies, frankly.

That's good to hear.

Then secondly, what are the implications for -- you mentioned that you don't want to take just any business, you want to take the right business, but what does that imply in terms of how you view outsourcing trends overall in the industry today and maybe six or twelve months from now?

I think the philosophy is for us to take business -- or for us to acquire new business, or acquire an outsourcing relationship, we have to be clear on the value we can add to the business.

So I think the old model of taking over a plant from a major OEM and expecting to run it better and generate enough value for both companies over the long term is probably the old model.

We have been successful in working with companies in the storage space to create new relationships that are I would say based on this value added model from the value we contribute, and then the ability for us to frankly get paid for it.

Sorry, just to ask that another way, was there -- I guess, I'm trying to understand the reasoning behind this latest action.

Was there something that you saw in the marketplace over the last quarter or two related to your -- the long-term trends of outsourcing that made you react, or is this just more another strategic step that was in the works anyway?

It speaks to our philosophy here.

I think we've got an operating model which would allow us to deliver returns throughout the entire economic cycle.

And obviously we have been operating at 50% capacity much longer than we frankly would have liked to.

We don't see any near-term demand increases in the marketplace.

We see continued competitive pricing, which we question, frankly, the rationality of it based on where we see capacity being.

And as we look to the future, we see that this is a prudent move and in-line with reality of what we are dealing with today.

So it is basically the fundamental principle by which we are building the future of Celestica.

We are going to operate the leanest, most flexible, cost-effective operating network in the world.

And we are driving to achieve that and move more aggressively now.

But it is not based on any negative outsourcing trends.

We are actually developing this strategy.

We are actually working to become even more competitive in the marketplace and for our customers.

Great.

That's very helpful.

Thank you.

Amit Daryanani, RBC Capital Markets.

Actually this is Ryan in for Amit.

But I just wanted to ask you about your inventory balance.

It is actually at one of the lowest levels on a dollar basis that it has ever been for Celestica, even going back to 2001 and 2003.

Is that sustainable or should we expect some sort of a buildup quarter on quarter going forward?

It is Paul.

If you go back over the last 24 months, I think we had inventory turns into the 9s.

I think we peaked up at 9.7 was our highest turn.

This quarter it was 7.8.

So we actually see our inventory turns going up.

And our goal is to get it back to where we had it there pre the economic cycle.

So that is one area for the Company -- another area that continues to operate very well.

And our goal is to get the turns certainly into the 8s as we look here into the second half of the year.

And then continuing along on the cash flow statement, cash flow continues to be very good.

And I was curious about what the usage -- what the cash usage would be like going forward.

I know there has been some discussion about possible acquisition ideas.

I wondered if you had any update there.

I think that we continue to evaluate a series of options.

And it is a conscious decision for us to hold onto that cash while we look at the best way to deploy it.

So we are -- would certainly look to continue to be in the enviable position to have the very strong balance sheet that we have, and to continue to generate cash flow, and we think that will continue to give us options.

That aside, we are not going to deploy the capital just for the sake of deploying it unless we see a very clear path to generate sustained returns.

And that is the filter we run.

Congratulations on a great quarter.

Brian Alexander, Raymond James.

I guess most investors would agree that the industry needs to demonstrate more discipline around return on capital -- you guys talk about this a lot -- through a cycle.

So how confident are you that as we move forward the industry will, in fact, behave and allow for this to happen?

If you could maybe just tie that to the overall pricing environment you're seeing on some of the new programs you're going after relative to maybe pricing conditions that existed coming out of the last downturn.

And then I have a follow-up.

From my perspective, I think we are going to do what is right for Celestica.

We can't speculate on what the competition might do.

Certainly in this environment, obviously we think for our Company and where we are headed as an organization, this is the right thing for us and the right thing for the industry.

We are confident with the path we are on.

We are confident with the track record we have built.

We are confident with the operating model we've got.

And we are selectively moving into a new phase, where we are focused on further improving our operating performance, driving improved returns beyond where we have been in the past, and then targeting selective growth opportunities that align with our capabilities.

Then just another follow-up on the restructuring.

If the actions you're taking are going to only drive utilization from 50% today to 60%, I think you said by the end of next year, and you said earlier that you don't want to run the business at less than 65% utilization levels -- granted there will probably be some growth between now and then.

I am just curious why is this level of restructuring the right level?

Why not do more to improve the (technical difficulty) more?

I think that if we reflect on how the Company is operating, we've got some pretty solid margin performance in the Company right now at the current utilization level.

The eight mega sites are operating extremely well.

And as Craig mentioned earlier, these actions are really focused on some smaller sites that [include] less strategic.

There is a balance, obviously, and our goal is to get up to, as has been said earlier, between 3.5% to 4%.

Having said that, we are not going to take out capacity that we think makes strategic sense.

This was just a timing issue.

So if we can get the Company up to 3.5%, which certainly would be our goal upon completion of this program, I think that will be -- rank up to the top performance in the industry as we see it right now.

And that is what we have set our sights on.

You may have said this earlier, but if you didn't -- could you just talk about the linearity of the savings you are expecting over the next few quarters?

How should that flow through?

As far as -- I think I will answer it saying, we are targeting to run the Company between 3% and 3.5% in the short term.

So as we said earlier, mix comes into play, but that aside, at our current mix and what we are seeing the midpoint of our guidance suggests 3%.

And that is -- our goal is to run the Company in that range, so that is what we are targeting for.

That will be a mix of continuing operating improvements, benefits from the restructuring program that we had underway, and benefits from this new program.

So we're not going to carve it up in the individual pieces, just suffice to say, we are targeting to run the Company between 3% and 3.5%.

Shawn Harrison, Longbow Research.

Just as a quick follow-up on the restructuring, the previous restructuring program, if you can maybe quantify just the dollar of savings still left to roll-on over the next few quarters?

We have spent $63 million against that program, so there is a little bit left to go here to -- as we said -- I think we said on previous calls we would expect to be at the high end of the previous range to the $75 million.

Generally speaking when you take a charge, you usually start to see the benefits in one plus quarter.

So if we take a charge in the current quarter, the savings usually come in -- not this quarter but the one after that.

So that is the rule of thumb.

And the second rule of thumb is payback on a cash basis is typically between 12 and 18 months, so I think you can build your model that way.

So something like $30 million plus in potential savings still to come?

With the additional program?

With this prior program based upon timing.

Yes, of savings?

Yes.

Yes.

Okay.

Second question has to do with what you're seeing in terms of the pipeline.

Are you seeing more program opportunities say over the past 90 days?

What end markets are looking at least brightish in terms of outsourcing opportunities?

And then following backup on a point that you made with the prior questioner, if you're looking at a 3% to 3.5% gross margin long term -- or EBIT margin long term, does that imply a newer business coming on may have a lower margin profile, but a higher asset velocity in terms of what you're targeting?

Well what we are seeing, we are seeing a growing funnel of new opportunities quarter-on-quarter and year-on-year.

It is broadly across our four or five major segments, so it is across the broad market.

We see our win rates improving over the course of the quarter-on-quarter performance.

And our new bookings are up over the first quarter and above last year.

So as we build financial strength, as our operating excellence continues with the level of flexibility we have been able to deliver, and given the volatility in the demand environment, we are very selectively going through these opportunities.

But it is not for a lack of opportunities, it is the targeted approach we are taking to the growth, frankly.

So we are opportunity rich.

We are targeted with our rifle looking at the right opportunities.

And then we are making sure we are executing at a very high standard for the programs we have, and building our customer relationships in a much broader way to add high value-added services in addition to our manufacturing support.

So just to close up, I shouldn't assume then that the 3% to 3.5% target EBIT margin, post the closure of some of these higher cost facilities, means that you're just bringing on some mix that may be a little bit lower than you are right now -- you are kind of looking at a broad landscape still?

Yes, that is precisely what we are not doing.

We are setting the cost base in line with the reality of the market, and then we are managing the portfolio to maximize the margins.

Thank you very much.

William Stein, Credit Suisse.

Someone already asked about use of cash and potential acquisitions.

I would like to dig into that a little bit.

What kinds of things have you looked at?

I am sure you are not looking at adding capacity, but there could be potential manufacturing technologies, and then there is also the vertical option component or other design capabilities.

What is your plan in that regard?

We are looking across a broad range of markets.

We are looking at our current markets and our new markets.

The investments we are evaluating are a range of investments, as you mentioned.

They are not capacity related or intellectual property related.

They are capability related.

And they are aligned with the target markets we have established as our key growth opportunity.

So it is a very selective look at adding intellectual capital and driving to add capabilities that will allow us to expand our relationships and attract new customers in new markets that require those capabilities.

Then if I can follow up also on the end markets a bit.

I don't want to beat this horse more than we have already beaten it, but the storage much better quarter-over-quarter.

Is that driven by new incremental outsourcing or new programs that exist with customers, or is this business that you might have taken away from a competitor?

It is new incremental outsourcing from an existing customer.

Great.

Thank you.

Sundar Varadarajan, Deutsche Bank.

Most of my questions have been answered, but one housekeeping question.

Could you tell us what your outstanding balance was under the AR securitization, particularly at the end of the quarter?

We still have $30 million at the end of the quarter as opposed to $100 million at the end of first quarter.

So you did reduce it by about $70 million during the quarter?

That's correct.

Well, that's pretty good.

Secondly, on the restructuring, did you actually give a dollar number for the kind of amount of savings that you expect from this restructuring plan, or is it more the goal towards getting to that 3% to 3.5% operating margin target?

It is the latter.

So this goal is to get between 3.5% and 4%.

And it is a combination of restructuring, continued operating efficiency, and frankly us managing the mix, to Craig's point about being targeted about the business we bring in the Company.

So a combination of all those things.

And these cash payments for this restructuring, could you give us a sense for what the timeline might be?

Is it front-end loaded, because you said you're going to complete it end of 2010.

So that is almost a year and a half away.

So how do you expect to see the timing of this kind of flow through over the next six quarters?

I think the lion's share of the cash will come in the first-half of 2010.

I should mention that there is potential where we would defray some of the cash aspect of it from asset sales.

There will be a timing gap, so we will incur the cash restructuring charge and outlay, and at a point later on we will defray part of that cash with asset sales.

To give you a bit more color, we think we can defray about half of the cash impact of the restructuring with asset sales.

Great.

Thank you.

Gus Papageorgiou, Scotia Capital.

I guess the question has already been asked.

I will kind of ask it another way.

Earlier in the year you bought back some debt when your cash balance was around $1.2 billion.

You are slowly getting back up there.

Any plans to do that again anytime soon, or do you think that you would rather just keep the cash on the balance sheet and look for other more (inaudible)?

Listen, that is certainly one of the range of options.

So when we look at, per our discussion earlier, acquisitions, things along those lines, we do measure them saying, hey, how does this look like vis-a-vis taking more debt out?

So that is certainly an option.

We have not made any decisions along those lines right now, but I would tell you that is something that is on the list of things to consider.

No plans at this point, but on the list.

Great.

Thanks.

(Operator Instructions).

Gentlemen, there are no further questions at this time, please continue.

Theodora, thank you.

And I thank everyone for their interest in Celestica and calling in today.

And we look forward to our continued conversations.

Thank you very much.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for participating.

Please disconnect your lines.