Celestica Inc (CLS) 2009 Q4 法說會逐字稿

Good afternoon.

I'll be your conference operator today.

At this time, I'd like to welcome everyone to the Celestica fourth quarter and year end conference call.

All lines have been place on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

I will now turn the call over to Mr.

Carpino, Vice President of Investor Relations.

You may begin.

Thank you, Amanda, and good afternoon, everyone.

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

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

Copies of the supporting slides accompanying this webcast and supplemental information can be viewed at Celestica.com during the 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'd like to ask a question has the opportunity to do so.

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

Please note that starting with the fourth quarter to be consistent with our major peer group, we have aligned our definition of adjusted net earnings and other non-GAAP profitability metrics to exclude all stock-based compensation expense.

That is both option expense and restricted stock expense.

Prior to this quarter, only option expense was included in these definitions.

All adjusted earnings and profitability metrics discussed today for the current quarter, prior periods, and future periods reflect the new definition.

We've provided detailed quarterly and annual information on our webcast slides as well as supplemental information in our press release and on our website that highlight this change.

We have also included comparisons, showing adjusted earnings and various other operating metrics using both the previous and new definitions, as well as a reconciliation to GAAP results where applicable.

Please note that current external analyst models and first call estimates for the fourth quarter, full year 2009 and future periods may not reflect the impact of switching to the same definition as our larger North American peers.

Before we begin, I'd like to remind everyone that during this call we'll 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 that involve risks and uncertainties that could cause actual outcomes and results to differ materially.

We refer you to our cautionary statements regarding forward-looking information in the Company's various public filing,s including the Safe Harbor statement in today's press release.

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.

These non-GAAP measures do not have any standardized meaning prescribed by GAAP, and are not necessarily comparable with similar measures presented by other companies.

We refer you to our press release, which is available at Celestica.com for more information about these non-GAAP measures, including reconciliation of the non-GAAP measures to the corresponding GAAP measures.

I'll now turn the call over to Craig Muhlhauser.

Thanks Paul, and good afternoon everyone.

Celestica delivered strong results in the fourth quarter and continued to build on our track record of meeting or beating our commitments to our shareholders.

Five of our six end markets had sequential revenue growth for the quarter, and have begun to exhibit signs of a modestly improving demand environment.

We had sequential growth of 7% in the December quarter, with Server, Storage, Consumer, Enterprise Communications, and our Industrial Aerospace Defense and Health Care segments all showing sequential growth.

Company revenues for the fourth quarter were 14% below the comparable period in the fourth quarter last year, although Consumer and Storage grew 1% and 25% respectively.

Operating margins for the quarter were 3.6%, and continue to reinforce Celestica's commitment to achieve profitable growth and strong returns.

For the full year 2009, we averaged 3.5% operating margin, which represented our best full-year operating margin performance in more than five years.

This was achieved despite a year-over-year revenue reduction of 21%, as many of our end markets were negatively impacted by the global economic recession and financial crisis.

Despite this environment and these external factors, Celestica was able to achieve industry-leading financial performance through continued focus on operational excellence and delivering improved quality, shorter cycle times, greater flexibility, increased productivity, better capacity utilization, and cost reductions in 2009, across all aspects of our business.

A good example of our financial discipline was evident in the reduction of our SG&A spend for 2009, which on an absolute dollar level was also the lowest spend in over five years.

Celestica continued its industry leadership in inventory turns and return on invested capital this quarter.

For the fourth quarter, our inventory turns were 9.1 and return on invested capital reached 27.5%, the best in the Company's recent history.

Our strong cash management, cost productivity, and operational performance enabled us to internally fund the redemption of our remaining 2011 notes in the fourth quarter.

Our strong performance has increased our net cash position and liquidity, allowing us to also fund the redemption of our 2013 notes in the first quarter of 2010.

This will result in an annualized reduction to our interest expense of approximately $17 million on a full-year basis, a full $0.05 per share.

Once completed, the Company will have redeemed all $750 million of its long-term debt, while at the same time, increasing its net cash position over the same period, from $400 million to an industry-leading $700 million.

On a full-year basis, 2009 was the second straight year gross margins were over 7%.

Operating margins were above 3%, and return on invested capital was double-digit, and well above our weighted average cost to capital.

Overall, our results were very strong in 2009, and we thank all of our customers for their continued confidence and support, and our employees around the world for their outstanding contributions to this success.

We are building our future on a strong foundation of highly engaged and motivated employees that are inspired by the opportunity to unleash their full potential.

We are on a mission to be recognized as the industry leader in our target markets and with our customers, while delivering industry-leading financial returns.

As our Q1 2010 revenue guidance suggests, our first quarter will reflect a first quarter year-over-year revenue growth since 2005.

The first quarter of 2010 is benefiting from new programs and increasing demand from our current customers.

Our pipeline for new growth opportunities is in line to achieve our target revenue growth objectives on an annualized basis.

The first quarter guidance is expected to continue to deliver among the best returns on capital, as compared to our North American peer group and well above our cost of capital.

We are very encouraged by the wide range of new revenue growth opportunities across all of our major markets with existing and new customers.

Investments in these opportunities will be required to ensure the successful launch readiness and provide the required working capital to meet a range of program launch dates.

We also plan to increase our investments in expanding our design, engineering, and after-market services, as we intend to accelerate our growth in these important segments of our business.

The recent acquisition of Scotland-based Invec will enable Celestica's after-market services offering through its proprietary Reverse Logistics software, which allows customers to review their [peer] status and inventory information from anywhere in the world using a web browser.

The system can be tailored to meet unique customer requirements, and Celestica will integrate Invec's Reverse Logistics software throughout all its major after-market locations.

We're confident in our ability to build on our 2009 success throughout 2010, and to consistently deliver on our current medium term goals of 6% to 8% revenue growth, operating margins of approximately 3.5% to 4%, returns on invested capital, greater than 20%, and free cash flow between $100 million and $200 million annually.

Looking forward, the current pipeline of new business opportunities remains strong, and we are well positioned to support the required investments to attract new customers, new programs, and to make our current customers successful.

We are particularly encouraged by the opportunities we're seeing in our targeted end markets, such as Commercial Aerospace and Defense, where we see an opportunity to leverage our recognized industry leadership and innovative supply chain capabilities in this largely untapped market.

I can assure you we're being very targeted in establishing the priorities in the area of revenue growth.

The pipeline includes both organic and acquisition opportunities, and our priority will be on the customer relationships, the new markets, and the segments of our business that drive profitable growth, expand our capabilities, and support our financial objectives.

Although we expect end market growth to remain modest, we see a high number of new outsourcing opportunities which offer the opportunity for Celestica to achieve our medium term revenue growth objectives of 6% to 8%.

As our guidance shows, revenue is expected to be 8% below Q4 at the mid point, as compared to a historic 15% to 20% seasonal dip we've experienced in previous years for the March quarter.

Continued improvement in demand and new programs are contributing to this reduction in seasonality.

While we're not giving guidance beyond the March quarter, the new programs we've won and the forecast mix of our end market customer demand, not withstanding increasing investments in new programs and customers we expect to win, we expect to continue to deliver modest year-over-year revenue growth and EPS growth in each quarter of 2010.

Based on our best judgment, we currently anticipate the first and second quarters of 2010 to be in the similar range of revenue and EPS that we've provided with our first quarter guidance.

Obviously, our actual results will be driven by end market and our customer demand, but the current tone is very positive and encouraging.

We anticipate the need to continue to increase our investment in additional capital and resources to support these new programs and customer opportunities in the first half of the year, with the expectation that these investments should drive higher revenue, margin, and EPS performance in the second half of 2010.

We are a confident Company as we enter 2010, highly motivated and well-prepared to compete and win in our industry, by making our customers successful, and delivering improved financial returns and value for our shareholders.

Now I'd like to introduce Paul Nicoletti who will discuss our financial results in more detail.

Paul?

Thanks Craig, and good afternoon.

Revenue for the fourth quarter was $1.66 billion, compared to $1.94 billion in the fourth quarter last year, and $1.56 billion in Q3 of this year.

Lower revenue, primarily from our Telecommunications and Enterprise Communications segments, accounted for a significant portion of year-over-year decrease, offset somewhat by growth in our Storage segment and a stable Consumer segment.

On a sequential basis, revenue from all of our end markets increased, except for the Telecommunications market which was flat.

Looking at our revenue by end market for the fourth quarter.

The Consumer segment was 32% of sales and grew 7% sequentially.

Enterprise Communications grew 5% sequentially and represented 20% of sales.

The Server segment represented 14 % of sales and delivered 17% sequential growth.

Storage accounted for 13% of sales, and increased 9% from the September quarter.

Telecom was 11% of revenue, unchanged from Q3, and finally, Industrial Aerospace Defense/Health Care came in at 10% and had a 4% sequential growth.

Moving to our customer concentrations, our top ten customers represented 72% of revenue for the quarter and our top five were 51% of revenue.

We had two customers with revenue greater than 10% in the quarter.

Research in Motion represented 17% of total revenue for the full year of 2009, and 21% of total revenue for the fourth quarter of 2009.

GAAP net earnings were $31.1 million or $0.13 per share.

Included in GAAP earnings was a $24 million nonrecurring recovery from a legal proceeding, and a $10 million gain on the redemption of the 2011 notes, offset by a $10.9 million mark to market impact of stock-based compensation in the quarter, $14 million in restructuring, and a $12 million impairment charge against property, plant and equipment.

These results compared to a GAAP net loss of $822.2 million or $3.58 per share loss for the same period last year.

GAAP net loss in the fourth quarter of 2008 was primarily as a result of an $851 million or $3.71 per share write-off for impairment of goodwill.

As you saw in our press release today, beginning with the fourth quarter of 2009, we revised our definition of the various non-GAAP metrics to exclude total stock based compensation expense and any other stock compensation expense that may arise, which we had not excluded under our previous definition.

Prior to this quarter, option expense was the only stock-based compensation item that we excluded from our adjusted net earnings and other non-GAAP metrics.

We made this change for a better comparison with our larger North American EMS peers.

The primary metrics affected by this definition change are adjusted net earnings, adjusted gross margin, adjusted SG&A, adjusted operating margin, and return on invested capital.

In the webcast slides and on our website, we've provided supplemental information comparing these metrics under the revised definition and under the previous definition.

I encourage you to review the charts to note the modest differentials in results based on this definitional change.

In general terms, the impact averages approximately 30 basis points per quarter on gross margin and operating margin, approximately $0.02 per share per quarter in adjusted net earnings, and about two percentage points in return on invested capital.

Adjusted net earnings for the quarter were $49.5 million or $0.21 per share, compared to adjusted net earnings of $65.2 million or $0.28 per share for the same period last year.

When we issued our fourth quarter guidance on October 22, 2009, for adjusted net earnings of $0.14 to $0.20 per share, this range did not exclude total stock-based compensation expense.

Under the revised definition, the guidance for adjusted net earnings per share would have been $0.16 to $0.22.

Adjusted gross margins remained unchanged at 7.1%, compared to 7.1% in the third quarter, despite the higher levels of revenue in the quarter from the Consumer segment.

Adjusted SG&A was $52 million, compared to $50 million in the third quarter and $73 million a year ago.

Last year's SG&A included a $13 million foreign exchange impact associated with currency volatility at that time.

Excluding that impact last year, we were still able to reduce quarterly SG&A by almost $10 million on a year-over-year basis.

We do expect SG&A to increase modestly in the next couple quarters as we put additional resources in place to drive additional growth.

Operating margin for the quarter was 3.6%, compared to 3.7% in the September quarter and 3.5% one year ago.

As Craig noted, our pretax returns on invested capital was at an all-time Company high of 27.5%, compared to 24.2% last quarter, and 18.8% for the fourth quarter last year.

Looking at our restructuring program, we've recorded charges of $118 million of $150 million to $175 million charges we announced in 2008 and 2009.

Of this amount, $14 million was reported in the fourth quarter with the remaining restructuring charges expected to be completed by the end of 2010.

Moving to our working capital, cash flow, and balance sheet metrics.

Celestica finished the year on a strong note.

Cash flow from operations was $45 million, and free cash flow was $28 million.

We spent $21 million for CapEx in the quarter, and no accounts receivable was sold this quarter.

This quarter, we have also aligned our cash cycle definition with our major competitors and no longer include accrued liabilities in the calculation.

Cash cycle was 30 days in the fourth quarter, compared to 34 days in the third quarter.

We delivered very strong inventory performance this quarter, reducing inventory by $21 million on a quarter-to-quarter basis and driving turns to 9.1 times.

This was achieved despite a 7% sequential revenue growth in the fourth quarter, and our first quarter revenue guidance a little stronger than the typical seasonal declines.

Cash at December 31 was $938 million and total debt was $223 million, resulting in over $700 million in net cash, the strongest net cash position amongst our peers.

We took advantage of our strong balance sheet in the quarter and paid $346 million to redeem the remaining 2011 notes with existing cash on hand.

The redemption of these notes resulted in an accounting gain of $10 million, which we excluded from adjusted net earnings calculations.

As you saw in our press release today, we've decided to use our strong cash position to redeem all our outstanding senior subordinated notes due 2013.

The outstanding principle amount of the notes is $223.1 million, and the redemption will be funded from the Company's existing cash resources.

In accordance with the terms of the notes, the redemption price is 103.183% of the principle amount, together with the accrued and unpaid interest to the redemption date.

We expect to complete the redemption in the first quarter 2010 and upon redemption, will reduce the Company's annual interest expense by approximately $17 million.

As part of the redemption, we expect a book loss of approximately $9 million through other charges, which will be recorded in the first quarter.

Giving effect to the redemption of the 2013 notes, at December 31, 2009, the Company would have approximately $600 million in cash, zero long-term debt, no borrowing under our $200 million credit facility, and no sales under our $250 million committed AR facility.

Let me now move to our outlook.

For the first quarter 2010, we expect revenue to be in the range of $1.45 billion to $1.6 billion, and adjusted earnings per share will be in the range of $0.15 to $0.21.

At the midpoint, the revenue decline of 8% is better than the typical seasonal declines experienced in the March quarter, with all of our segments performing slightly better than expected.

Depending upon the mix of the business, at the midpoint of the revenue range, we expect operating margins to be approximately 3.4%.

We also expect to generate additional free cash flow during the 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).

Your first question comes from (inaudible).

Your line is open.

(Inaudible).

Can you speak up just a hair?

Yes, sure.

Thank you.

My first question is, last time around we spoke about intensifying price competition, I guess in the Consumer segment in particular, just curious if there's an update there, if that's changed at all, particularly considering that the pipeline is still robust from your perspective?

We have a robust pipeline pretty much across all our segments.

We do see continued price competition across all markets.

I wouldn't say Consumer is anymore hyper-competitive than the rest of the industry.

So it's a generally price competitive market, but obviously for the right customers and the right opportunities, they recognize the value of Celestica.

We're comfortable that we have the right outlook.

Got you, okay.

And then just as a quick follow-up, the numbers for your top customers, 17% for the year, and 21% during the fourth quarter, just curious, is there any risk from your perspective, as far as that being above the comfort zone of either you or the top customer?

Has that been discussed yet?

Well, we don't believe there's any risk.

We have a very strong relationship with these customers or this customer, and we're comfortable in supporting their future growth as needed.

Obviously, we expect other growth from other segments as we mentioned, given the strength of the market that we see in our target segments, so we expect this concentration to reduce over time.

Great, thanks a bunch.

Thank you

Your next question comes from Sherri Scribner from Deutsche Bank, your line is open.

Hi, thank you.

Craig I was hoping you could speak a little bit more about your strategy of expanding into Engineering Services, you mentioned Acquisitions, and just trying to get a sense of really flushing out what your plans are there, and also, if that becomes a bigger piece of your business, is that something you'd break out?

Can you give us a sense of the size of it right now and where you think that goes?

Sure, I think the strategy, as we've articulated is really four-pronged.

First of all, it's raise the bar on the existing operating performance in the Company, we're expanding into the higher value-added services, as you mentioned, Engineering and Design services, as well as our after-market services.

We're looking at new markets, primarily Health Care, Aerospace and Defense, Industrial, and Alternative Energy, and then we want to build a much stronger vertical on the support of after-market services, support of our customers.

The Engineering services are defined broadly.

We have large scale engagements with some customers in some facilities, primarily with our large OEMs in the area of design and areas of sustaining engineering, in the areas of failure analysis, root cause and corrective action, we also do a large amount of MPI business for I'd say the highest end of the technologies for some customers that we don't do any manufacturing for.

What we're doing is we've created the ability for us to accelerate the learning across the network, [as to] why that makes sense in some facilities and why that doesn't make sense in others.

So the strategy is around expanding the share of our business in the area of sustaining engineering, design service and support of our customers, root cause failure analysis, correct action, new product introduction, and to do that with more of our established customers and also create a foothold in our new customers and I think over time, we will be focus on showing margin expansion in the core of our business by doing that.

We'll continue to e valuate the transparency on how we give you better color, so you can monitor the success of the implementation or the deployment of this strategy.

So that's sort of an ongoing evaluation, and you can expect us to be more forthcoming in that type of segmentation as these things begin to take hold.

Can I assume acquisitions would be sort of similar to the Invec acquisition?

Very much.

Especially in areas where we don't have large established market positions like in Health Care, for example.

So you're absolutely right.

We have strong positions in the Computing, we have strong positions in the Consumer, strong positions in the sense of server and storage design capabilities, we've got strong positions certainly in the Telecommunications space, in particular Wireless and Optical.

So you can see us enhancing those capabilities, but more importantly, building the breadth of our engineering capability outside of our markets.

Great, thank you.

Thank you, Sheri

Next question comes from [Lou] (inaudible).

Your line is open.

Okay, thank you.

Wonder if you can talk about your largest customer now in the sense of, if you look to grow that customer in 2010, or do you think that you'll look to grow other businesses to get a little bit more diversification there?

Well our mix of business with our largest customer has grown significantly in 2009, and it's really driven by their success, and fortunately it's driven by our success in being able to be growing with them in their fastest growing programs, and the mix of products we provide is a broad mix across their, I'll say product life cycle.

Obviously end market demand will affect the future success of the engagement, but we're very, very optimistic, both in terms of our relationship, we are establishing some strong competencies in our ability to support their product launch capability.

And as I mentioned prior to this question, the encouraging thing for all of us here is the fact that we expect growth in other segments to begin to mitigate the concentration, which is very encouraging based on the pipeline we've got.

Maybe could you go into anymore detail about the pipeline, just which areas are maybe the strongest, and maybe if you could give us some size measurements both on how big the pipeline is?

And then if you could also, just the wins that you've had, maybe in calendar 09?

Well the funnel for opportunities is very rich, across the segments.

We had one business last year in all verticals, so we have one business in all verticals.

If we had to highlight, I'd say in the most recent quarter, where we've seen the greatest strength in large scale business, it would be in the Server sector.

In general, we feel very good about the opportunities we're seeing, and we feel very good about the number of opportunities that are actually in the negotiation and proposal phase.

But as I mentioned previously, we're seeing opportunities in all segments, and obviously we're strengthening our focus on new markets, which are in the very early stages, and also on the after market space.

Final question, you mentioned quarter two would be similar to quarter one from a revenue standpoint.

Usually you can get a bump depending on what areas.

Anything going on with that comment?

Hey, Lou, it's Paul.

I think per our comments earlier, we'd have typically seen a higher decline or a bigger decline in Q1, and then followed by an increase as you noted.

I think what we're seeing here, we're just not seeing that decline into Q1.

That doesn't necessarily mean that you add on into each quarter from Q1.

I think it's, for us right now, for the mix that we see, we're pleased we're not seeing the typical decline in Q1, but we're not translating that to say that you add that going forward to each quarter, so to speak.

Okay, thanks, guys.

Thanks, Lou.

Your next question comes from the Brian White.

Your line is open.

I'm wondering if you could talk about the Telecom market, the flatness in the December quarter.

Is that simply the same reason we heard about in the September quarter it went down?

Brian, it's Paul, that's exactly right.

So I think that's one area, while you know, per Craig's comments, we've seen , some modest growth in all sectors.

Telecom is one that stuck out as far as continuing to be pretty challenged, particularly for the mix of customers and products that we have.

So, what we saw through the year, if you recall in the beginning of 2009, we did see some growth.

It was very lumpy, depending upon the particular installations from the customers that we had.

But we're not seeing that flow through.

Enterprise Com has been quite strong for us.

I think Telecom is one that's continued to lag, but there's no specific story behind that, other than just the demand of the customers that

Okay, but is it related to the insourcing that you talked about in the third quarter, same thing?

There's been no flow-through impact on that, Brian, it's just the fundamental demand.

Okay, and then when we think about , it's a great revenue outlook for March quarter, down 8% at the midpoint, how much of that better than typical seasonality is just new programs, versus your

I think that when we look at it, we have new programs ramping every quarter, so we're trying to separate what's kind of normal course versus an anomaly.

I think generally right now, when I look at first quarter, it's mostly just fundamental demand across the board, is stronger than what we would have seasonally expected.

Okay, and you talked about the Server market, that you have some opportunities there, and there's a lot of convergence in the infrastructure and the data center storage server and networking, I think that's going to be very positive for some [EMS] companies, some guys are going to get weeded out because of that.

Big players like Cisco and HP are doing this.

And I'm just wondering how Celestica is positioned to take advantage of that?

Well, Brian, it's Craig.

We think we're very well positioned.

The strength in this Company, from a core competence standpoint is Servers and Storage at the inception, so very strong on the product side.

[We're] building capability throughout the supply chain with our customers as we take on new out-sourcing with our current customers, and we have some very innovative concepts in the area of Data Solutions.

So we anticipate that we'll be an important contributor to the success of our current customers, and potentially attracting new customers in what we think will be an exciting emerging [century].

Great, thank you.

Thank you.

Your next question comes from William Stein from Credit Suisse.

Your line is open.

Two questions, first on the restructuring, can you talk about the timing of the benefits of that, how long do we continue to see benefits from restructuring activities?

Will, it's Paul.

So nothing's changed as far as the profile of how benefits unfold.

So to recap what we've talked about in the past, when we take a charge in a current quarter, typically the benefits will come out, not the next quarter, but the quarter after that, generally from a timing point of view.

So we don't see any change overall to kind of the way that's unfolding.

So as each quarter progresses here and we book more charges, that's what you should expect to see going forward.

Great and then another topic that has been discussed at length last quarter is component shortages, lead times, et cetera.

Have you seen that condition extend into the Q4 and maybe into Q1?

Can you give us an update on lead times and whether maybe shortages affected the revenue in the quarter?

Yes, hi Will, it's Paul.

I think that first on your last question, through the quarter, we definitely, I call it got jammed up, so we got parts later than we wanted, and led to some inefficiencies as far as how we'd like to run the plants, but I wouldn't characterize we left anything meaningful on the table from a revenue point of view.

We pretty much shift what demand was there, again just not on the linearity that we would have liked.

Overall lead times, I would not say, have gotten any worse over the last 90 days.

We did see some pressure in Q4, that's pretty much been unchanged.

I will say that, and you know that we've been making significant investments in our supply chain tools, and not only are we running with industry-leading turns, but those tools have enabled us just to get better collaboration with the suppliers, and frankly we believe get better performance in getting parts when we need them.

Great, thank you.

Thanks, Will.

Your next question comes from Amit Daryanani with RBC Capital Markets.

Your line is open .

Perfect, thanks.

Good afternoon, guys.

Just a quick one, given the fact we're adjusting how we account non-GAAP EPS going forward.

My understanding is all that you're doing mistaking out RSU expenses, which is in line with what everyone does, but that is benefiting your December and your March quarter guided EPS roughly by $0.02 roughly, is that math accurate?

That about right, yes.

If I drag that forward, does that mean the longer term target really we should think about is 3.8% to 4.2% kind of range, versus 3.5% to 4%.

Yes, Amit, we gave a range right, so 3.5% to 4%.

We're not going to slice it that fine, suffice it to say, I mean, look at our performance here this quarter, we're into that range.

So clearly this accounting change aside, we're driving for the highest numbers we can drive to.

I'd like to think that we can get to the higher end of that range, as far as this will obviously help us get there, but we're just going to stick to that range, because there is a mix of business that's coming in, as you saw, a very strong quarter on Consumer, and very pleased to have that, but that does drag it down.

So we're sticking to that range, but obviously it'll be easier to get to the top end of that range now.

I think it makes it more of an apples to apples comparison with all of your peers this way, so that helps.

On the SG&A side you talked about investing in new opportunities on the design side after-market services, can you help quantify what sort of OpEx expansion or growth that we're going to see in the first half of 2010, versus the '09 number that you just gave out?

Yes, Amit, I think if you look at where we ended up at the fourth quarter, our growth here, what we're talking about is pretty modest, so single-digit millions from where we are today.

So we're not talking about anything significant from the current levels.

So looking at the going rates of where we are in fourth quarter, I would expect on an annualized basis for our investments to be between $5 million and $8 million, something along those lines on a net basis.

On a net basis.

On a net basis, yes.

Got it, and just finally, rough math on the debt repurchase that you're going to do, $17 million savings, that's about $0.67 annualized to the bottom line.

Is that factored into your March quarter guide as well?

No, so the way the timing works, Amit, we plan to complete it during the quarter; it'll be late in the quarter given the necessary notice period to the bond holders.

So there will be very little benefit into Q1.

The annualized benefit that we'll see will begin in full force as of Q2.

Got it, thanks a lot.

You're welcome.

Amit, one thing, you talked about the earnings per share benefit, just to make sure, that $17 million is obviously pretax, so you do have to tax effect that.

Fair enough, thanks.

Your next question comes from Brian Alexander from Raymond James.

Your line is open.

Thanks, just going back to your pipeline, I know you're not quantifying what your new wins are, but can you give us a sense directionally whether the magnitude of new business wins are increasing each quarter, decreasing, or staying the same?

And are the win rates improving as your cost structure is putting you in a better position to compete for new business?

We look on a quarter-to-quarter basis, year-over-year basis, so on a quarter-to-quarter, year-over-year basis, our win rates are increasing, as well as the volume of new wins.

And as I mentioned, it's across all segments.

But the overall impact, based on the timing of those wins, the ramp timing for the various programs, we're very comfortable with the 6% to 8% revenue guidance that we've really got for this operating model that we're putting in place here as the medium term target.

And Craig of the 6% to 8%, how much of that would you characterize as just overall demand improvements with existing customers versus these new wins?

It's difficult to really kind of, I'll say feather in, but let's assume we get 10% year-on-year erosion of the base.

We have a very solid base of customers now.

So it's difficult to give an accurate number to the exact mix, but the net result is a 6% to 8% growth rate, which is a combination of new wins, existing customers, new customers, and then new programs coming into the fold.

But on the order of somewhere between 25% and 30% of revenue in the next year will come from the new wins we book this year.

And then just a clarification on the comment earlier in the call that I think you guys said each quarter you should see modest growth in revenue in EPS, I assume that was year-over-year, not sequentially.

That's correct.

Thanks a lot

Your next question comes from Todd Coupland from CIBC.

Your line is open.

Good evening, everyone.

'm just wondering if the shift in your Consumer business might cause a shift in your own seasonality, based on product launches and timing of carrier launches of those products, et cetera?

It seems to me, looking at public statements, that your seasonality might be shifted out to a degree into the June quarter as a result of that.

Todd, it's Paul.

So I'll agree with the view that historically looking at Celestica, much more enterprise-weighted, IT-weighted, and as you know Q4 would typically be the highest and Q1 would be the lowest.

It's difficult to conclude now, I mean clearly a big piece of our business is in the SmartPhone market, as you know.

That market continues to grow at exponential rates, and new product life cycles are short.

New products are starting every quarter.

I will agree with the statement it's a seasonality pattern shifts; I'm not sure about the June piece of it.

Okay.

So basically, the point is, we're just too early into 2010 to know similar to what we've heard from some larger OEMs so you'll just wait and see how it plays out?

Yes, I think that it depends which programs are winning, and what they're targeted towards.

Are they targeted toward the back to school market; are they targeted toward the more enterprise side, a more holiday season market?

So I think that somewhat factors into it.

But as I said right now, the growth has been so strong that we don't see that as a factor when we look into our numbers going forward to the June quarter, as an example.

That's great, thanks very much.

Thanks, Todd.

Amanda, we'll take two more calls.

I know everyone has a call at 5:00 as well, so we'll take two more calls.

Your next question comes from Frank Jarman from Goldman Sachs.

Your line is open.

Just a quick question for you, can you discuss your thoughts behind running with zero long-term debt, and give me a sense for what you're thinking about what an optimal capital structure is going forward?

Sure.

So we've been talking throughout the year that our priority is to invest the capital into the business and having said that, we're maintaining our discipline around returns.

And so we've taken a step today that really is more, not in any way to suggest we see less opportunities, more just taking advantage of the Company's continued strong cash flow generation.

So we continue to be pretty bullish around putting that cash to work and still see us having a significant amount of excess capital to put to work into the business.

Craig and I are pleased to run a Company with no debt.

It gives us a ton of flexibility, certainly to grow, and so if those opportunities present themselves with the right returns, we'd be very comfortable adding debt to the balance sheet.

No plans at this time.

But in the past we've talked about being comfortable at debt to cap of up to 25%, and that's something that we'd be comfortable with this EBITDA generation and cash flow generation level.

Great, and have you had any discussions with the rating agencies; I guess at this point it's kind of a mute point to the extent you don't have debt outstanding?

The answer is we've had no direct conversations yet, but I agree with the second part as well.

Okay, thanks so much.

Thank you.

Your last question comes from (inaudible) from Longbow Research.

Your line is open.

The last one's going to be quick.

I'm just curious Paul, if you could lay out how you see interest expense trending in dollars over the next couple quarters, the March and June quarters, considering the last buy back was enacted midway through this past quarter as well?

So I think that our plans are to try and get this repurchase done in the early March timeframe.

I think interest will be around $4 million for the quarter, the first quarter.

Moving beyond that, it really just becomes stand by [piece] on the credit facility and on the AR facility.

So you should think about it as being about $1 million, $1.25 million.

Okay, that's great.

Thanks.

If anyone has any follow-up questions, we'll be here, and appreciate your time.

Thank you.

Thank you.

Thank you very much.

This concludes today's conference call.

You may now disconnect.