Celestica Inc (CLS) 2013 Q1 法說會逐字稿

Good morning, my name is JoAnne and I will be your conference operator today.

At this time I would like to welcome everyone to the Celestica 2013 first-quarter results conference call.

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

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

(Operator Instructions).

I would now like to hand today's call over to Manny Panesar, Director of Investor Relations.

Sir, you may begin your conference.

Thank you, JoAnne; good morning, everyone, and thank you for joining us on Celestica's first quarter of 2013 earnings conference call.

On the call today are Craig Muhlhauser, President and Chief Executive Officer, and Darren Myers, Chief Financial Officer.

This conference call will last approximately 45 minutes.

Darren and Craig will provide some brief comments on the quarter and then we will open the call for Q&A.

During the Q&A session please limit yourself to one question and a brief follow-up as we have our annual general meeting immediately following this conference call.

We will be available after the annual general meeting for additional follow-up.

Copies of the sporting slides accompanying this webcast can be viewed at Celestica.com.

As a reminder, during this call we make forward-looking statements related to our future growth, trends in our industry, our financial and operational results and performance and financial guidance 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 also refer you to our cautionary statements regarding forward-looking information in the Company's various public filings including the Safe Harbor statement in today's press release.

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

These filings include our annual report on 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.

During this call we refer to certain non-IFRS financial measures which include adjusted gross margin, adjusted SG&A, adjusted operating margin or (inaudible), adjusted net earnings, adjusted EPS, return on invested capital or ROIC and free cash flow.

These non-IFRS measures do not have any standardized meaning under IFRS and may not be comparable with other non-GAAP or non-IFRS financial measures presented by other companies including our major North American competitors.

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

Unless otherwise specified all reference to dollars in this call are to US dollars.

I will now turn the call over to Darren Myers.

Thank you, Manny, and good morning, everyone.

Celestica delivered first-quarter revenue, profitability and free cash flow generally in line with our expectations.

While we delivered revenue at the midpoint of our guidance range adjusted earnings per share were at the higher end of our guidance despite a challenging demand environment.

First-quarter revenue of $1.37 billion declined 8% sequentially and was down 19% compared with the first quarter of 2012 with the year-over-year decline predominately due to our disengagement from RIM.

After excluding revenue from RIM for the first quarter of 2012 first-quarter revenue was relatively flat year over year.

Some additional highlights for the first quarter include, non-IFRS adjusted earnings per share of $0.16 came in at the higher end of our guidance range of $0.11 to $0.17 per share.

Non-IFRS operating margin of 2.5% was down 60 basis points sequentially on lower revenue, however, at the higher end of our guidance range.

IFRS net earnings of $10.5 million or $0.06 per share were impacted by restructuring and other charges totaling $7.3 million.

We generated free cash flow of $13.5 million and we ended the quarter with a cash balance of $531 million.

With respect to our revenue by end market, consistent with our beginning of quarter expectations, we experienced year-over-year growth in our diversified markets and sequential declines generally across the business mainly due to seasonality and overall demand weakness.

Our diversified end market comprised 24% of our total revenue, up from 19% in the first quarter of 2012.

First-quarter diversified revenue declined 4% sequentially as we experienced slightly weaker than expected demand from some customers.

The communication end market comprising 40% of total revenue for the first quarter was relatively flat sequentially and on a year-over-year basis and we saw growth from some programs offset by lower demand from others.

The server end market representing 16% of total revenue for the quarter was down 10% sequentially primarily due to seasonality and a strong fourth quarter.

Server revenue declined 9% year over year primarily due to lower demand.

Storage end market comprising 13% of total revenue in the first quarter was down 14% sequentially in part due to seasonality.

While we were expecting year-over-year growth in our storage end market, revenue came in relatively flat compared to the same period last year as strong demand from some customers was offset by weak demand from others.

The consumer end market representing 7% of total revenue for the quarter declined 34% sequentially primarily due to program transitions.

Our consumer end market declined 77% year over year primarily as a result of the RIM disengagement.

Our top 10 customers represent 66% of revenue for the quarter, down from 71% for the first quarter of 2012.

We had two customers in the first quarter individually contributing greater than 10% of total revenue.

We posted first-quarter IFRS net earnings of $10.5 million or $0.06 per share compared with IFRS net earnings of $43.2 million or $0.20 per share for the same period last year.

For the first quarter we recorded restructuring and other charges of $7.3 million.

Our non-IFRS adjusted net earnings for the first quarter were $30 million or $0.16 per share compared to non-IFRS adjusted net earnings of $53.6 million or $0.25 per share for the same period last year.

Our adjusted tax rate for the first quarter was 11.4%, consistent with our expected adjusted tax rate of 10% to 12% for 2013.

First-quarter non-IFRS gross margin was 6.6% and declined 30 basis points sequentially primarily due to lower revenue.

Our non-IFRS adjusted SG&A expense for the quarter was $50.3 million, as expected as we continue to focus on cost containment.

Finally, pre-tax return on invested capital was 14.4% for the quarter.

As an update to the restructuring program we previously announced in 2012, we continue to estimate charges between $55 million to $65 million.

For the first quarter we recorded restructuring charges of $7.3 million, substantially all cash charges.

This brings our total restructuring charges to date under this program to $51 million.

We expect to complete the remaining restructuring actions by the end of 2013.

Moving on to working capital performance, inventory increased by $43 million from the end of the fourth quarter due to program ramps and transitions.

Inventory turns were 6.7 turns in the first quarter compared with 7.2 turns for last quarter.

Capital expenditures for the quarter were approximately $11 million or 0.8% of revenue which was slightly lower than our expectations at the beginning of the quarter as some capital expenditures were pushed to the second quarter.

Our cash cycle days was 40 days, one day higher than the fourth quarter and we generated free cash flow of $13.5 million for the first quarter.

Moving to the balance sheet, the Company's financial position continues to be strong.

Our cash balance at March 31 was $531 million, a decrease of $19 million from the end of the fourth quarter.

With respect to the $55 million drawn from our credit facility at the end of the fourth quarter, we repaid $35 million during the first quarter.

We expect to repay the remaining $20 million in the second quarter.

Moving on to our guidance for the second quarter, while we are expecting overall sequential improvement in our business the general demand environment across our end markets is expected to remain challenging.

For the second quarter we are projecting revenue to be in the range of $1.375 billion to $1.475 billion.

At the midpoint of this range second-quarter revenue would represent a sequential increase of 4%.

Second-quarter adjusted net earnings per share are expected to range from $0.13 to $0.19.

Non-IFRS adjusted SG&A expense for the second quarter is expected to be in the $51 million to $53 million range.

At the midpoint of our second-quarter guidance non-IFRS operating margin would be approximately 2.5%.

I would now like to turn the call over to Craig for some comments on our end markets and the near-term outlook.

Thank you, Darren, and good morning, everyone, and thank you for joining us this morning.

Overall while our first-quarter results were consistent with our guidance we did experience higher than typical variability in customer orders during the latter part of the quarter.

While our operating teams were able to effectively manage the dynamic changes to customer demand, longer-term forecasts have become more volatile.

Let me provide a brief summary of the trends that we're seeing in our business.

In our diversified markets while we did experience year-over-year growth, however it was not as strong as expected in particular due to challenges in our healthcare business which is proving to take longer to ramp than we originally anticipated.

Second quarter we're expecting strong double-digit sequential growth in our diversified markets with revenue increases across all segments except healthcare.

While it's premature to assume a recovery, we're also expecting sequential growth in our semiconductor and industrial businesses, aerospace and defense continues to be steady and we expect sequential growth.

Our semiconductor business is currently operating below capacity creating overall pressure on our short-term margins which we expect to continue over the coming quarters as we continue to invest in resources to support our new program ramps and the long-term growth strategy in this end market.

We remain focused on expanding in the complex mechanical and semiconductor equipment markets.

We're strengthening our relationships and pursuing new business opportunities with leading customers in this industry.

Within our communications end market we experienced stronger than anticipated demand in the first quarter from several of our key customers which was offset by lower demand from other customers.

For the second-quarter we expect revenue to be up sequentially and year over year due to the transfer and ramping of business from a competitor.

In our server end market we're currently forecasting a sequential decline for the second quarter due primarily to a program transition with one customer and on a year-over-year basis to weaker demand.

As previously disclosed, we anticipated the in-sourcing of part of the business with one customer, resulting in a revenue decline sequentially of $50 million in the second quarter.

We now currently expect this transition to extend over the second and third quarters with the revenue impact now expected to impact the second quarter by approximately $35 million and the corresponding $15 million to extend into the fourth quarter -- or third quarter, excuse me.

In storage we've also experienced customer specific impacts which continue to influence overall revenue growth in this segment for the first quarter.

For the second quarter we're expecting storage revenue to improve on a sequential basis.

Finally, for our consumer end market we are projecting second-quarter revenue to increase sequentially in the second quarter into the ramping of a new program win with an existing customer.

While we are expecting overall improvements for the second half this year we are also seeing volatility in customer demand.

With the market and competitive environment expected to remain challenging for the balance of the year, we continue to focus on delivering strong operational execution to our customers including the successful launch and ramping of new programs and continuing to win new customers and new programs while working to improve our financial performance.

In addition to a series of actions we initiated during the latter part of 2012, to further streamline our operating network, simplify our processes, increase our cost productivity across the Company, we continue to focus on improving our margins, our returns and cash flow performance through disciplined cost management, investment in state-of-the-art applications and software tools and working capital improvements.

We're also very encouraged by the new business we've won during the first quarter of this year across all of our end markets, as well as our quarter-on-quarter growth and the funnel of opportunities and the forecast we're seeing for new business expected to close during the second quarter.

Our priorities continue to be on accelerating our progress through transition by driving profitable revenue growth, expanding the revenue base into higher value added services, successfully launching and ramping new programs and making the necessary investments in technologies and resources in support of longer-term objectives while continuing to deliver unique value and solutions to our customers.

That concludes our prepared remarks.

JoAnne, please open the call for questions.

(Operator Instructions).

Amit Daryanani, RBC Capital Markets.

This is Mitch Steves filling in for Amit.

I just had a quick question on the communicating segment trends.

It looks like it was a little bit better than historical.

So I was wondering if you guys provide any color of what you guys kind of expect from the service side basis on both an organic and inorganic basis.

Well, what we see is basically program specific, customer specific, some very strong programmatic demands in the second quarter offset, as I said, by weaknesses in some other customers, but overall the strength of our communications business is strong.

And obviously the mix of business, the program specific opportunities that we are involved with are driving the growth of that business.

And the underlying improvements we expect to see in the second half will be driven largely by the transition of a key program from one of our competitors.

Okay, if I could just have one other quick question.

What kind of leverage should we be looking for for your ramp from 2.5% operating margins to that 3% bogey?

Well, we haven't given firm guidance on the operating margin improvements in the second half, but we will see operating margin leverage on the growth of the business as we go into the second half.

Great, thank you.

Matt Sheerin, Stifel.

Craig, I am hoping you can elaborate on the issues that you are seeing in the healthcare side of the business in terms of ramp issues.

Is it specific to programs?

Is the cycle longer, winning business cycle, is it end demand related?

If you could just be more specific that would be great.

Sure, Matt, I mean we have a very targeted strategy of three sub segments in healthcare.

What we have got is a portfolio of quality customers, so we have dramatically increased the number of customers that we are serving in the healthcare base.

The revenue delays have not been related to program ramp difficulties; it has been the closed cycle on the new business opportunities and then basically the qualification as well as the customer transition in some cases from competitors to Celestica.

So those are the primary factors, not the operational related issues.

It is really market factors relating to the sales cycle to close the business as well as the ramp cycle when it involves transferring business either from customers' facilities or from competitors.

Okay, great.

And then on the semi capital -- semiconductor capital segment, which obviously is a big part of your business now.

It sounds like you are seeing some positive demand trends, but on the other hand you talked about still lower volumes impeding the margin expansion.

So what kind of growth are you looking at there and what kind of volumes do you need to get the margins up in that business?

Well, we are building infrastructure, as you know, on the basis of forecast demand due to program ramps that we actually have won with customers.

So the timing of those ramps and the speed of those ramps and the fact that we are investing before those ramps meet production volume is driving the margin compression.

Obviously we are now in a situation where we are looking for the second quarter to show sequential improvement the full year then quarter on quarter showing continuing improvements, and then we are beginning to get indications of some upside due to some of the improvements in the overall industry.

So we are not giving specific demand around segment-by-segment guidance on the margin, but we will get leverage in that business, as I mentioned, for the entire Company, but especially in this business due to the high fixed cost nature of the business as we go into the second half and then 2014.

Okay, thanks, Craig.

Brian Alexander, Raymond James.

If I could just revisit the revenue guidance up 4% sequentially and if I back out the $35 million of server revenue decline it is up closer to 6.5%.

If I look over the last few years, which has also been a challenging demand environment, you have guided Q2 basically flat to up 2%.

You have come in a little bit better than that.

But again, you are guiding up 6.5% ex the server issues.

So is that mostly new program ramps?

It didn't sound like your overall demand commentary was all that positive; you talked about increased volatility.

So I am just trying to reconcile those comments with your June outlook.

No, that would be, Matt -- or Brian, that would be primarily new program ramps and then taking marketshare from customers in some of our core customers.

Okay.

As Craig mentioned, we are, Brian, expecting that double-digit growth in diversified off the backs of the booking success we have been having over some time here.

Right.

Yes.

And so just to follow on that, Darren, just operating margins being flat sequentially in June despite your diversified segment being up I think you said double-digits and that tends to be higher margin.

So I know you talked about maybe some ramp costs, lower utilization of semi cap, but just maybe a little bit more color and why we're not seeing leverage in the June quarter?

Sure, Brian, I mean as we started the year we talked about a 2% to 2.5% operating margin for the first half of the year.

The midpoint of our guidance range, obviously we have achieved that in the first quarter and the midpoint of the guidance range is at the 2.5%.

From an increase, I mean there is an increase quarter over quarter but it is relatively -- it is not significant.

And as we do ramp these programs there are ramp costs associated with them.

So we are making sure that we have the execution engine, as we always do, and therefore are comfortable with our guidance at the high end of that 2% to 2.5% range.

And then just final one for me on healthcare to make sure I am not reading anything into your comments that I shouldn't be.

In terms of the closed cycle elongating, is any of that related to emerging competition?

I'm thinking specifically of the pending deal between Jabil and Nypro.

And I don't know if customers are sort of reevaluating their strategy on the heels of that or if this is completely unrelated to that.

Brian, it is completely unrelated to that.

It is really due to the programs that we are involved with and then timing of the customers' decisions and then also primarily with the ramps of the new customers that we have won over the course of the last 18 months.

Okay, all right.

Thanks, Craig.

Joe Wittine, Longbow Research.

Just a question on the gross margins for the first quarter.

You hit the high end of the range despite SG&A being at the high end of the range.

So I'm curious if there is anything worth discussing there or if it is just a matter of the guidance put out -- the 2% to 2.5% EBIT was on the conservative side, thanks.

Joe, it's Darren here.

No, in terms of our gross margin performance, it came in and frankly in line with where we would have expected with the revenue drop from the fourth quarter and just the leverage of the network.

So it was as expected, maybe mildly better and SG&A came in mildly better as well driving the 2.5% that we achieved.

Okay.

And then a brief follow-up.

In the semi cap business is there any kind of rough time frame you can give us?

I understand you are investing ahead, but when you can expect to let's say hit target levels of profitability for that business.

Is it -- as you sit here right now is it a two quarter phenomenon, a four quarter phenomenon, et cetera?

Thanks.

No, it's going to -- I mean, it is going to continue to grow over the course of the balance of the year and then into 2014.

And the question on timing obviously depends on a number of factors.

But based on the backlog of business, new customers that we have won, and obviously the base of business we are building, we would anticipate continued leverage as we grow through the period into 2014 and beyond, but we are not giving guidance on the timing of that or the amount of leverage involved at this point.

Great.

Then finally if I could, any thoughts on another buyback potentially in the second half of the year?

Well, I think what we will do at the midpoint of the year is obviously look at our cash generation.

We are driving a lot of transition, there are a number of new programs launching in the Company and the magnitude and scale of some of these transitions is very large, as you can see from our inventory balance.

We're also talking about somewhere between 20% -- 18% to 20% growth in our diversified space.

So we are using our working capital right now primarily in the building of inventory for new programs that are launching and to support transitions.

We will reevaluate it at the July time period.

We anticipate on leverage as these programs mature over the course of the second half in cash flow generation.

And then at that time we will evaluate what the right deployment for the cash would be.

Makes sense.

Thanks, Craig.

Brian White, Topeka.

I just want to clarify, the communications market seemed to outperform in March quarter and that was some business shifted over to you in the March quarter or was that new wins outside of that shift or simply end market demand?

Hi, Brian, it's Darren.

It is generally program specific versus end market demand.

So certain programs that we manufacture for performed well in the space.

There were some that were down, but overall we saw strength in certain programs that brought the overall end market a little bit higher than we expected.

Okay, great.

And then storage -- is that marketshare shift or is that just the demand in storage was soft?

It the demand in storage was soft.

It is no marketshare shift from our perspective.

And then we have, as Darren mentioned, and is similar in the communication space, we have in the storage space -- we have some customers and programs that are down year on year.

So -- due to market effects but not any share shift.

And semi cap seems to be picking up, but it doesn't -- do you see that yet, does semi cap pick up?

It had a horrible second half of the year.

But isn't it getting better?

We do.

I mean we certainly see it picking up in the first quarter, second quarter and then moving into the balance of the year.

And based on that we are optimistic about the investments we're making and then we see the opportunity for share gains as we work with customers and new programs on the investments we've made.

So, yes, we are optimistic about semi cap improving over the second quarter into the balance of the year and then on into 2014.

Great, thank you.

Sherri Scribner, Deutsche Bank.

I was just wondering if you could remind us about your expectations for the restructuring that you are going through.

Will you have some charges in the second quarter and have you seen all the benefits of those restructuring actions or do you think there are more benefits to come?

Because it doesn't seem like there is much of a benefit to operating margins in the second quarter from the restructuring.

Hi, Sherri.

In terms of the restructuring we have spent $51 million relative to the range of $55 million to $65 million.

We expect to complete that over the balance of the year.

And we are seeing some benefits from the restructuring, certainly not all the restructuring yet; it takes time to get those benefits.

Generally paybacks are nine months to 12 months and it takes time for when you announce to when you're actually getting those benefits.

So we will see those benefits as we move through the year as well.

As we have ramped our programs -- we are also spending money right now through the network as we ramp programs which offset some of the benefits that we have seen.

Okay, so you will see some of those benefits in the second half of the year.

And would that primarily be on the gross margin line or will you see some SG&A benefit too?

Primarily from where we are today be in the gross margin line.

Okay.

And then just thinking about your guidance and your outlook for the rest of the year.

It sounds like the strength you're seeing into the second quarter is primarily related to new program ramps.

Are there any end markets or segments where you're actually seeing demand being better?

Because it sounded like the commentary was that things were generally mixed, but I wanted to know if you are seeing any bright spots in your end markets.

Thanks.

Well, we are seeing some big bright spots, Sherri -- good morning, it's Craig.

We are seeing some bright spots certainly in all of our end markets.

What it ends up being though is very interesting.

We see some very, very bright spots and some demand both in communications and in enterprise.

But largely we see corresponding offsets in the programs and the customers that we are serving are in some of the either projects or market segments that are under pressure.

So that is why we have that mixed outlook, but it is a balance.

And then we have share transfers through competitive takeaways as well as new business.

So there are a lot of moving pieces today; overall there is a lot of volatility as we've seen recently in some of the end market demand.

But by and large we're executing, we are at the high end of our guidance for the end of this quarter, we are forecasting 2.5% at the midpoint the next quarter.

We had strong business wins this quarter.

So the model is working, we are getting business in the right areas.

And we just wanted to mention the volatility so you understand it is not some sort of demand pattern as much as it is the winners are winning and the losers are losing and we are participating in a very balanced way to take business in the right areas of our business -- in the right areas of the market.

Great.

Thank you.

Todd Coupland, CIBC.

I was wondering if you can roughly size the new networking win that is transferring over to you.

Todd, good morning, this is Craig.

We are not going to give any specific guidance on the size or magnitude of that win.

Obviously it is certainly moving very successfully during the transition.

We are doing it in a very, very expeditious way.

And we are executing at a level that -- and the customers very bullish on the opportunities they face.

So we will finish that transition, we will get more clarity on exactly what the forward-looking guidance is for the second half.

But it will obviously be a material contribution to our communications business.

When would it be fully ramped?

So starting now would it be fully ramped in by Q3?

It will be ramping over the balance of the second half.

Okay, through the balance of the second half.

That is all I had, thanks a lot.

Naser Iqbal, Salman Partners.

Congrats on the second-quarter guidance, it is very strong.

If I may and just maybe pry into your server business.

I think for one of your customers you have the [Smart] productline.

Can you talk -- if you have the new [M-servers]?

Well, we can't comment specifically on our customer specific programs or our involvement in those programs.

I can comment on our strategy.

So what we do, we tend to serve the very high end of the server space.

So obviously the more commoditized segments of the server business are largely ODM and, as we've seen recently, some of the x86 series programs are under tremendous cost pressure and price pressure.

So we are at the, what I'll call, proprietary silicon end of that business.

We are certainly a well established player in that space.

And obviously with a very strong market position with the market leaders.

So -- but we are not in it for a volume play, we are in it for a -- really to participate in the areas of the business where we can add the greatest value.

So that is the overall strategy.

Specifically we tend to be on the winning programs with the winning customers in the higher value added segments of the market.

But it is not a revenue volume play, it is more of a margin and value added play.

Yes.

And it would seem that on the high end that some of the anticipations for new program -- product launches in the high end in the coming quarters, I mean it would seem that you would be a beneficiary of that.

Would that be some of the strength that is driving the Q2 and the second half?

Well, I think the -- we would be the beneficiary as higher end storage or server solutions become attractive to the end markets and as they are going to be.

We also a see a trend toward what we call more of a convergence of networking servers and storage, okay, the convergence infrastructure.

So we see the opportunity to leverage our capability in all three technologies to offer more of an integrated solution and we're working with customers on developing those options.

So as I said, it is a rapidly changing environment, we are participating in the right segments to play to our strengths.

And obviously we have market positions with the leading customers in servers, in storage, in networking to be a major player in how this market unfolds.

So we are very, very excited by the portfolio.

The other great news is we have a very, very strong quarter in our JDM business and a significant amount of new business in the first quarter.

So that obviously will feed through over the course of the next I will say 12 to 24 months as you will see the underpinning of that business strengthen through that higher margin opportunity.

Great, and just for my follow-up, just to beat a dead horse, but in terms of -- you talked about that in the July quarter you are going to give us an update on your cash priorities.

But it would seem that, at least in the comments in the circle, that a dividend would be helpful in the environment.

Is that something you are looking at I guess as part of all things that is being considered?

Hi, Nasser, it's Darren.

I mean in terms of our priorities, as Craig mentioned, it's investing in the business, investing in the ramp.

So as you've seen in the past, if you look at the last three years we have invested $400 million in the business and we returned $400 million to shareholders.

Consistent with the past our belief has been that the normal course issuer bid, the buybacks is a more advantageous way in order to execute returns to shareholders, in particular in this industry where growth is very dynamic and cash flow needs are very dynamic, and it allows you to meter that.

So that continues to bear preference, but we will always look at options and we are always looking at options.

And as we get through the second quarter we will be exploring what options we will (inaudible) as we go forward.

Okay.

Appreciate that.

Thanks very much and congrats.

Jim Suva, Citigroup.

Thank you and congratulations to you and your team there at Celestica.

When we think about -- looking at your detailed press release I think it is like around page 14 or so you talk about your customers, that BlackBerry has transitioned away, which it's nice to kind of move on there.

But you mentioned that you have two customers that individually represent more than 10% of revenues.

Can you let us know who they are and what segments that they reside in?

Hi, Jim, it's Darren.

Good morning.

We don't disclose that on a quarterly basis in terms of the top 10.

There were two top 10 customers, but we don't disclose that.

But we would certainly on an annual basis disclose that.

Okay.

Could you give us any feel for at least the segments?

I guess by the math it would appear that communications would have to harness one if not both of them.

Is that fair?

Sorry, Jim, we are not going to provide that color at this time.

Okay, got you.

Okay, thank you very much, guys.

Gus Papageorgiou, Scotia Bank.

Most of my questions have been answered, but just on the balance sheet.

I mean you are sitting on roughly $500 million of cash with no debt, in contrast to most of your major competitors that all have some leverage on the balance sheet.

I think, Darren, as the new CFO how do you view your capital structure?

Do you think it is too conservative?

Are you willing to take on some debt or are you just happy sitting on a nice big cash pile?

Yes, good morning, Gus.

Well, as the new CFO I am happy to come in here with the big cash pile, that is for sure.

I mean we certainly have the strongest balance sheet in the industry and we want to be thoughtful on how we use that and we are looking at -- are always looking at a number of opportunities.

We certainly could afford to and would be willing to take on some leverage, but it is for the right opportunities.

So it is something we are constantly looking at and we are going to be thoughtful and make sure that what we do makes sense for the Company and for our shareholders.

And when you say the right opportunities I mean, just to be clear, that would be more in line of making some sort of acquisition investment in the business rather than doing some sort of share buyback, is that correct?

Yes, priority has been and will be investing in the business.

But as we have shown through industry, we will probably do a combination of both.

Great.

Thank you very much.

JoAnne, we will take one more question, please.

Vamsi Mohan, Bank of America.

Yes, hi Craig, hi Darren.

This is actually Ruplu (multiple speakers) for Vamsi.

Just a quick question, first on the restructuring, can you remind us which end markets that restructuring is focused on and which ones have been completed?

And the $10 million or so that is left, where would that effort be focused on?

Yes, good morning.

We are not -- we haven't been providing color exactly on the exact end markets because it is really spread across the network and across our business, so it is impacting our various different end markets.

Certainly the lion's share of the charges that we took earlier were associated around the RIM business and that infrastructure.

But we have taken actions across our infrastructure, across our infrastructure, across our SG&A and we will continue to take further actions as we complete the program through the year.

Okay, thanks, Darren.

And Craig, I think you mentioned -- you talked about strength in the communications end market.

Was that confined to certain geographies?

Can you just talk in terms of America's versus Europe?

I mean where did you see the strength there?

The primary strength that we saw was from customers serving the North American markets and some of the buildouts that are going on across the infrastructure in North America currently.

Okay.

All right, thank you.

Okay, I would like to thank everybody for joining us today and we look forward to talking again in the second quarter.

Thank you very much.

This concludes today's conference call.

You may now disconnect.