艾默生電氣 (EMR) 2002 Q4 法說會逐字稿

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Thank you for joining the Artesyn Technologies, fourth quarter earnings release conference call.

All participants are now in listen-only mode, until the question-and-answer session of the call.

Today's call is being recorded.

If there are any objections, please disconnect at this time.

I will turn the call over to the company.

Gentlemen, you may begin.

Good morning, everyone, and thank you for joining us for this morning's conference call.

This is Rich Leland, Director of Investor Relations.

Also on the call are Joseph O’Donnell, Artesyn President and Chief Executive Officer, as well as Richard Thompson, our Chief Financial Officer.

I should mention this call is being broadcast live over the Internet.

Replay will be available immediately following the call at www.Artesyn.com, or by dialing 800-839-0860, through February 7th..

The replay pass-code is 1028.

For those who have not seen the press release, a copy is available on major services or for download off our website.

The format for today is similar to previous calls.

Richard Thompson will provide overview of financial results, followed by business review from Joseph O’Donnell.

We will then open up for 30 to 40 minute question-and-answer session.

Before I begin, I would like to point out today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve certain risks and uncertainties.

Listeners are cautioned forward-looking statements may differ materially from future events or results.

Please refer to recent form 10-K filed on March 8th for a list of important risk factors that could affect future results.

Now, over to Richard Thompson.

Thank you, Rich.

Good morning, everyone.

Hopefully you have seen this morning's press release with fourth quarter financial results.

Revenue for the quarter was $83.4m versus $107.4m in Q4 2001.

Sequentially revenue was slightly below Q3 levels of $86m.

Full year 2002 revenue was $351m, down from $494m in 2001.

Note 2001 results include revenue from the repair logistics business sold in December of 2001 for $7m and $46m for Q4 and full year respectively.

On apples to apples basis, revenue was down approximately 17% year-on-year for the quarter and was 22% for the full year.

Orders in Q4 totaled $85m, representing book-to-bill of 1.02.

This was slightly ahead of expectation and up 6% from Q3.

Customer lead times from order to shipment continue to remain short.

However, we did see slight increase in backlog to $73m, of which approximately $69m is shippable in the first quarter.

As reported, the net loss per share for the quarter was 15 cents, excluding charges and one-time items.

This was slightly better than the analyst consensus and $0.01 better than third quarter.

As previously announced in December, during the quarter, we reported total of $36.9m in charges, including $17.8m for manufacturing consolidations and headcount reductions that are shown on separate line in the P&L.

An additional $15.5m was included in cost of sales to provide inventory reserve for materials in excess of 12 months forecasted demand.

Lastly, we recorded $3mk charge to tax provision to establish a valuation allowance for deferred tax assets in Hungary and $600,000 charge to interest expense to write-off bad debt issuance cost associated with recent amendment to our bank credit facility.

Including the impact of all the charges, the net loss was $35.6m or 93 cents per share in the fourth quarter and $108.8m or $2.84 per share for the year.

The aggressive cost reduction actions which were initiated throughout the year lowered cost structure significantly.

Excluding inventory charge mentioned earlier, gross margin in the fourth quarter improved sequentially to 14.8%.

We still have significant room for improvement, however, as manufacturing capacity utilization in the quarter remained low at approximately 50%.

Looking forward, we expect utilization and therefore, gross margin to improve throughout the year, first with closure of the Kindberg, Austria facility in March and later with closure of the all Ireland factory scheduled for September.

Total operating expenses, excluding charges and one-time items were $18.9m in fourth quarter.

This was slightly higher than our projections, coming into the quarter and reflects lower foreign exchange gains than in the second and third quarters, as well as increased cost related to the debt restructuring.

R&D investment in the quarter totaled $8.9m and was up slightly versus Q3 due to activities associated with new product introductions.

Operating expenses totaled $70.9m for the year, down approximately $25m or 25% from 2001.

Net interest expense in the quarter was $1.8m or $1.3m excluding write-off of debt issuance cost mentioned earlier.

This is down slightly from Q3 due to lower debt levels.

The effective tax benefit is reported was 14.5%, excluding $3m valuation allowance and impact of charges, the benefit would have been approximately 27%.

We expect tax benefit in 2003 to be closer to 15% due to the US, overseas P&L split.

Turning to the balance sheet, we continue to make progress in reducing working capital, improving cash, and lowering debt.

During the fourth quarter, we generated additional $10m in net operating cash flow.

Accounts receivable levels were reduced by $10m in the quarter as we continue to work aggressively in reducing past-due balances.

As result, DSO improved to 55 days in Q4 -- I'm sorry, 55 days in Q3 to 47 days in Q4.

We also made additional progress in reducing inventory levels.

During the fourth quarter, inventory fell almost $8m,.

This is actual reduction and does not include the impact of the inventory charge.

Total working capital at end of the quarter was $89m.

Capital expenditures were $1m for the fourth quarter and $5.2m for the full year.

As previously announced during the fourth quarter we were successful in negotiating amendment to the senior credit facility that eliminated financial covenant and reduced facility size to $40m.

We utilized approximately $33m of cash to reduce the outstanding balance on the facility to just $23m.

At year-end debt less cash was approximately $5m, improvement of over $41m from December 2001.

With the cash balance of $65m at year-end our balance sheet continues to strengthen and our financial profile improves.

I will turn over to Joseph O’Donnell for a business review.

Thank you, Rich.

Good morning.

I will spend sometime discussing the year we just finished, focusing on why we believe the actions taken or announced in 2002 position us well for the future.

As always, we will leave time at the end for Q and A.

Let's talk about end markets for a few minutes.

Although revenue dropped about 20% year-over-year, we certainly saw leveling off in rate of decline.

Quarterly revenues stayed in narrow band between $83m and $91m, or variance of about 10% within the year.

This compares to an almost $40m variance between Q1 and Q4 of 2001.

As we can all appreciate, planning for the business is far more effective when you are not chasing a moving revenue target.

We were also pleased to see positive order trends for the past three quarters and book-to-bill of over 1 in Q4 for the first time in a year.

Off our major end markets, the server and storage sector continues to show the most stability and predictability.

Industry analysts predict modest growth for in this sector, 3% to 5%, this is followed by networking sector, which is estimated to be roughly flat in 2003, and the wireless sector, which is projected to decline to 2% to 4% range.

The telecom wire-line market continues to struggle.

The carrier estimates are being revised downward.

Although this market is projected to decline another 8% to 12% in 2003, it is certainly improvement over the 30% to 40% declines we have seen in the last two years.

The impact of end market conditions is reflected on our revenue mix.

The server and storage sector represented increasing portion of our revenue last year, growing to approximately 60%, with HP, Sun and Dell over 10% customers for the year.

Carrier and networking represented 15% with Cisco being a top five customer.

Wireless was also 15% of revenue, increasing revenue stream from Nokia moved them up to a top five customer for the year.

Interestingly, our revenue with these top five customers as a group was relatively flat year on year.

Where we experienced large declines were with traditional telecom manufacturers in many of the second tier or niche customers.

This is consistent with market trends, but it also reflects the broader industry trend of higher market concentration by the top 2 or 3 leaders in each sector.

In today's environment, companies are increasingly concentrating IT spending with solid, stable industry leaders.

This is reflected in our revenue base, which is becoming increasingly concentrated, as well.

Our top 10 customers represented approximately 70% of revenue in '02, up from 65% in the prior year.

We expect to benefit from the increasing concentration in the end markets, due to our long-standing relationships with the industry leading communication OEMs.

They gain additional share on their end markets and we, too, will benefit as a major supplier.

We also stand to benefit toward the trends for vendor consolidation.

Artesyn is one of the few companies that provide AC/DC, DC/DC bricks, point of load and non-isolated point of load products.

The breadth of our product line supported by leading-edge technology is one of the main reasons we are able to successfully penetrate IBM and EMC over the last year.

With revenue from IBM increasing from $1m in 2001 to over $11m last year.

Based on our forecast, they may be a top five customer this year.

The key to stabilizing business is to continue increasing market share.

First with existing market leaders and then with emerging communication companies.

We have reorganized engineering and sales resources, specifically with this in mind by creating commercial division to focus on 8 market leaders in the server and storage sectors, with the second to focus on 12 market leaders in wireless.

We will increase revenue with current customers by providing more focus and attention than any of our competitors.

We also created a third division, even while reducing cost in other areas of the company.

This division is to target emerging companies.

In the past, we would not have addressed these customers with direct sales effort or engineering support.

We are very excited about the opportunity to increase revenue with these customers and in a short period of time to capture a number of multi-million dollar projects from these companies.

New customers’ names include Extreme Networks, Fujitsu, Unisys and Queue Logic.

We expect that this focused sales approach will allow us to increase market share in 2003 by identifying new opportunities with well established customers, and secondly by adding new customer accounts.

Speaking of new opportunities, 2002 is a strong year for capturing new business.

During the fourth quarter we were awarded 18 major design wins and finished the year with total of 67 major wins.

Compared to target of 50 to 60 when we entered the year.

The wins were split by 17 AC/DC projects and 30 DC/DC.

Within DC/DC significantly, we had 17 point of load wins with balance in DC/DC bricks.

Consistent with industry concentration comments I made earlier, we have also seen increase in average product size with total lifetime value of these projects estimated at $500m or roughly $7.5m per win.

Customers continue to recognize Artesyn as a leader in power conversion technology.

During 2002, we launched a total of 75 new standard products.

In the fourth quarter we extended leadership in the point of load market with introduction of broad line of 30 different non-isolated point of load converters.

The products are 6 amps to 30 amps, with efficiencies up to 90%.

Although they were only launched in October, we have already received several project wins.

Customers continue to recognize the cost benefit of using non-isolated point of load products.

Based on existing project wins and customer forecasts, we expect point of load revenue will double this year.

Our commitment to R&D is also evident in yesterday's market launch of new line of DC/DC bricks by Artesyn.

These are high current, low profile product that is truly set new performance levels for the industry.

Let me tell you about one of these products, a 40 amp 8 brick that sets new DC-to-DC technology benchmark for performance.

Customers continue to demand low profile, high-powered density products to save board space. 8th brick products are important in that evolution.

Customers are very excited about our new products because it allows designer to replace current generation quarter brick with a new high-powered 8th brick and save 40% in board space and up to 20% in cost.

What sets our products apart is amount of power that can be delivered, 40 amps of output current.

Most 8th brick products on the market today are between 20 and 25 amps.

We are able to deliver in some cases double the output current of other leading products.

This is dramatic advancement in the industry and the one we believe will be very hard to follow.

The patent-pending technology of these products offers robust platform that can be extended even further.

We plan to announce additional products in the coming months that will continue to push power levels higher.

Lastly, 2002 was important year for Artesyn from a financial perspective our strategy of focusing on cash resulted in substantial improvement in the balance sheet over the course of the year.

We have generated positive operating cash-flow for the last seven quarters and total of over $40m for 2002.

Importantly, we have implemented process improvements and discipline internally to keep the organization focused on cash.

After funding over $8m in cash restructuring during the year, we were still able to increase cash balance and significantly lower debt.

Cash balances at the end of the year increased $11m versus December of 2001 to $65m.

Most importantly, we significantly reduced dependence on bank debt and lowered bank borrowings from over $100m at end of 2001 to $23m at the end of the quarter.

With a solid balance sheet position and relative stability in end markets, we took actions during December designed to further reduce break-even and restore profitability.

As Rich mentioned, we expect to be begin realizing the significant benefit of these actions during the second quarter, when the closure of Kindberg facility is finalized, continuing until September when we conclude manufacturing in Ireland.

This should result in increase in capacity utilization from 50% today to 75% in Q4, and associated increase in gross margin.

Assuming our current outlook of flat quarterly revenue stream of between $83m and $90m in '03, our target is to be profitability on a net income in the fourth quarter.

Artesyn is entering '03 on a positive note.

First, we believe our visibility is improving and that revenue has largely stabilized.

Second, we maintain solid relationships with the leaders in the communications industry.

Third, these customers value Artesyn as a strong supply chain partner, and we continue to win at least our fair share of the business.

Fourth, we continue to bring new products to market in technology lead in the point of load and DC/DC brick sector.

Lastly, we have significantly improved financial profile and have set the company on a course for profitability.

These conclude the formal remarks.

We would like to open to Q and A session.

Thank you.

To ask a question, please press 1 followed by 4 on your touchtone phone.

To retract the question, press 1 followed by 3.

All questions will be taken in the order they are received.

You will be placed back into the conference following your question.

Our first question is Mr. John McManus, with Needham and Co..

Good morning.

Could you give us the breakdown by industry sector in the fourth quarter?

You gave us for the year, but I wonder what it might be in the fourth quarter compared to the third.

No significant difference in the sectors to give it more depth than would be storage and server 60%.

Carrier and enterprise networking 15%.

Wireless 15%.

Access 2%.

And then, distribution, where we are server smaller accounts, 8%.

And the top 5 and top 10 customers in the fourth quarter, could you give us some idea of what that might have been?

In the fourth quarter, actually top three customers were unchanged, HP, Dell and Sun.

Nokia fourth in quarterly revenues, fifth for the year.

And IBM was our fifth largest customer in the fourth quarter.

How big percent of revenue were the top five?

Here it is.

They had that all finished for me. 55% John.

Could you give us a little color on the new product line?

I assume that this came out of S-Core and was kind of next generation from what they had introduced, can you talk a little bit about when these products might really hit the revenue stream and how you might market these products, this expanded line versus how you marketed previous generation?

Typical in our business -- our guys are very enthused.

I think significant revenue will come from these products about 12 months from now.

There will be some revenue earlier than that due to actual cooperative developments we did with important customers during the -- design of these products.

We didn’t do them in isolation, we did them with some customers.

That will help expedite the revenue stream.

I think the bulk of revenue begins to appear 12 months from now.

The marketing of it that is a good question.

It is actually very consistent with the new structure that we have put in place.

I mentioned it briefly.

We were pulling cost out of the rest of the company and actually added cost by creating the third new division to go after emerging and smaller communication accounts.

Now, we will have a dedicated division serving the computing companies.

These products are directed very much towards the higher end of the server marketplace and the storage marketplace pretty much across the board.

In the telecom and wireless sector, they are directed towards distributed power applications, which are becoming more and more prevalent.

We have a dedicated sales force for those customers, as well, 12 of those and 18 in server and storage.

Then, where I am excited is this new division we created going after mid-sized and smaller companies with dedicated sales and engineering resources.

I talked about some of the near-term successes we have had after getting started in that area.

Finally, we believe we are the only company to have done this.

That is to go to not just North America distribution program with the two largest distributors in the industry, but also Pan-European.

We will be using sales representatives firms around the world and worldwide distributors to sell the products, as well.

The product lines you announced, these are all standard products.

Is there a custom orientation there to the products there for the major top server and telecom customers?

Yes, John.

We call that -- we have actually a small engineering group that their job is to modify standard products for large specific applications.

Where you will see variances might be on the voltages coming into a product, fine tuning the efficiencies for a particular application or then the third primary area of change would be on voltages coming out of the products, all relatively unchallenging modifications to a standard line.

Thank you very much.

Our next question comes from Sanjay Shrestha from First Albany.

Couple of quick questions.

Did I understand it correctly, full benefit of your cost savings is not going to hit until fourth quarter of 2003?

No, we expect cost savings we announced last year to come into two [inaudible] or actually three.

The savings will already start, actions taken in the fourth quarter, where the cost has already been disgorged from the business.

Secondly, when the facility in Austria fully closes at end of the first quarter, those costs and the absorption associated with it will then be gone.

Lastly, in fourth quarter after the Irish facility is closed, you will see similar pick-up in gross margins.

Okay.

In terms of some of the new design wins that you had, I think you actually briefly talked about it.

Can you give us more color in terms of how much of that is AC/DC and DC/DC versus point of load and stuff like that?

Let me get back to the right page on that, if you don't mind.

Not at all.

There were -- let's see, 17 AC/DC project wins.

A number of those, although I don't have it broken out for this, are for the front-end of distributed power applications.

Then, there were 17 point of load product wins.

And 13 DC/DC brick project wins.

Okay.

Now, we're not reporting the small design wins that we received three distribution or less than half million dollar wins that we might get even from a major customer.

We are only here talking about large projects.

That is fair.

Now, another thing here is in terms of the revenue for the fourth quarter of this year, it was a sequential decline.

Can you talk more about that?

Is this one going to be last quarter of the sequential decline and your level of comfort, you know, in terms of making that statement as well as the mix between AC/DC and DC/DC?

Any level of comfort a CEO would have making a forward-looking statement this market environment.

We believe that we have seen a stabilization in our marketplace.

Maybe more accurately, with our customers in the marketplace.

And the erosion which has been dramatic in telecom even from prior quarters, even now has been offset by modest pick-ups in other areas.

I would anticipate and we're planning around being relatively flat through the balance of 2003.

And the range, which is probably the best way to answer that, we're saying is between $83m and $90m from quarter-to-quarter.

Okay.

In terms of the split between AC/DC and DC/DC and point of load for the quarter, can you give us that, as well?

Well, I would expect and I am not going to be too specific here.

I understand that.

Not because I don't want to share with investors, but competitors also listen to these calls.

I imagine, DC/DC including point of load is about 25% of revenue.

For fourth quarter?

For the year we are going into.

Maybe I misunderstood the question.

I'm sorry.

25% for the year you are going into.

What was it for fourth quarter of 2002 and full year 2002?

Okay.

I gave you a bad number.

We are actually expecting the DC/DC will be close to 40% of our revenue in 2003.

2003.

Was it about 25% in 2002?

That is right.

One last question.

What exactly did you mean when you said that you are actually benefiting from competitive standpoint?

Were you referring to your new product line and extended product offering or did that also imply that you are actually winning market share in the very fragmented industry?

You know, I find it awkward, frankly, to talk about gaining market share when revenues decline.

So, it's a strange way to reference it.

We look at our competition, those that are currently for sale, and we look at revenue erosion compared to the erosion we have seen.

Then, we look at project wins.

It seems, and I appreciate this is odd when you are talking about eroding revenue, but it seems any way we slice it, clearly our share of market is improved.

Now, relative to competitors.

Now, what I was talking about benefiting is there is a strong trend that in our end markets, the market leaders are becoming more and more powerful.

The good news for Artesyn is we are doing business with every one of those market leaders as a key supplier.

The two companies where we don't have huge revenue streams as yet, we have been designed into many projects.

I talked about IBM and EMC.

The revenue stream is not large yet, but will be there shortly.

When I look at all the large customers who are market leaders, Artesyn is well positioned.

As their strength continue to increase in those sectors, our revenue should benefit from it.

Thanks a lot.

That is fair.

Thanks.

Our next question comes from is Louis Miscioscia with Lehman Brothers.

This is actually Hardik Doshi for Lou.

Can you give us break even range and what you expect it to be in Q3?

We mentioned in the narrative that the break even range and we are giving a range is between $83m and $90m.

What is it currently?

It would be -- Well, it is a moving target right now because of consolidation and cost reduction.

Let's say what it was going into fourth quarter would have been $110m to $120m.

Okay.

Also, could you update your relationship with Delta?

It is continuing to progress.

I would imagine we would be announcing some product development joint product development efforts in the not-too-distant future.

I am pleased with our relationship with Delta, both at the senior level and at the design engineering and marketing levels.

All right.

Thanks a lot.

Thank you.

Our next question comes from Jim Savage with Thomas Weisel Partners.

Hi, gentlemen.

Can you talk a little bit about the pricing environment in standard products if you are competing with similar products on the DC/DC side?

Is there still significant price erosion?

There definitely is price pressure, Jim, on the DC/DC area.

The thing that DC/DC offers, however, is real time to market opportunity for companies that introduce the technology first.

What you can see, then, until others catch up, is marked difference in your margins.

On the point of load products we introduced, in particular, the nine isolated recently, you know, no one is offering pin for pin compatible product at this point.

Not to say they won't in the future.

So, it's a good competitive environment.

In the new DC/DC, we introduced, we believe it will be a period of time.

Others will introduce similar products, but we think there is a good time to market window we will have which will allow us to benefit on margin, as well.

Clearly, in any technology field, you have to continue that investment in technology to be able to benefit from the differentiation it gets you, but, we are learning DC/DC, the subset point of load within DC/DC is an area you can truly gain margin through time to market advantage.

Can we go back a little bit more on the non-isolated point of load?

Have you yet seen competitors really coming out with competitive products and becoming competitive in that area?

We have seen a lot of product announcements.

Some announcements from companies that don't have a position with our customer base.

It is extremely difficult in this environment to penetrate one of those companies.

We've seen announcements from competitors that have been traditional DC/DC competitors.

And I would assume that over time they will become players.

I am reluctant to give names because I don't know the credibility of those announcements.

The thing that we've learned a long time ago is get a great deal of credit from our customers.

When we make a product announcement, there is product on the shelf, production lines are capable of volume production the next day, and they are fully documented and tested products.

So, some companies don't do that.

We learned that lesson a long time ago.

Can you give us a sense in the non-isolated point of load what the revenue ramp is expected to look like?

You know you are saying on the new DC/DC products, new brick products, you don't expect significant revenue until the end of the year, what about on the non-isolated point of load?

Jim, I will answer that in a general sense only because I was cautioned after a prior conference call that our competitors -- I was giving too much sales data and competitors were getting valuable input.

We expect our point of load volumes which was clearly our fastest growing area this year and significant revenue will double next year.

That is based on current project wins and the forecast customers are giving from the wins.

Okay.

Good.

One other question.

In terms of components, are there any issues in terms of availability on any components at this point and are we continuing to see price declines there?

You are seeing major price declines.

I am not sure if that is to our advantage.

You do see spot production problems.

We missed some sales in the fourth quarter because of it, as a matter of fact.

That was not due to industry trends, but due to companies moving production from the US or Europe into Asia and having ramp-up problems.

Thanks.

Our next question comes from Ramkrishna Kasargod with Morgan Stanley

Joe, is there any difference in the growth profile between your power conversion business and your communication product business?

Can you talk about that?

That is a good question.

I should have mentioned that.

The customer base is the same.

And the types of projects we go after sometimes are the same projects, but certainly the same types of projects.

The growth profile is probably a bit higher for that division, but only because it is a smaller piece of our revenue stream.

One major product can have a very positive effect.

On balance, it's -- the characteristics that fit one division or one product area are consistent with the other.

Okay.

Secondly, Joe, you talked about restructuring savings and potential impact on margins going forward.

The goal is to get toward fourth quarter profitability.

What about in between?

You reported 15 cent loss in the fourth quarter of '02.

Any targets for next couple of quarters?

We expect steady progression in growth margins through the year.

Where you should see a meaningful pop, if you will, will be in the second quarter.

Why would that be?

Because in the first quarter, we are still incurring cost of Kindberg.

That doesn't finish until March.

So, I think if I were looking at the business, I would anticipate steady progression or improvement, if you will, in gross margin through the year.

What about the pricing environment in power supplies.

You talked about the pricing environment in components that you budget.

Right.

What we are planning on for this year is price erosion in the high single digits.

That's what our business is built around for 2003.

What was it in '02 on annualized basis, Joe?

Probably similar to that.

Similar.

Okay.

Finally, sometime I think earlier last year or late in '01, you discussed the relationship with semiconductor companies on point of load, what is happening to that?

Can you give us update on the patent litigation issues, where that stands?

Sure.

We are continuing -- we are continuing and work closely with certain semiconductor companies.

We're actually quite instrumental in the quick development cycle on the new DC/DC product we have introduced.

Also on some of the point of load product we introduced, different companies.

Close relationships, we are not talking about who they are for competitive purposes.

The litigation -- semiconductor companies and their close relationships are very important to our development because we are not developing silicon.

We are applying silicon.

On the patent, let me read what our lawyers told me I am suppose to say so all of you can listen to this.

As Vicor’s (ph) press release indicates help the defendants, including Artesyn by narrowing scope of the claims in the patent.

We are waiting for a trial schedule, but don't expect one to begin before second quarter.

We will have a opportunity to show why we believe the patent is invalid.

If the patent is held to be valid, narrowing of the claim will allow us to argue strongly that none of our products infringe.

However, this is not a quick process and the final resolution may still be over a year away.

Now, quote Artesyn attorneys.

That is the answer I can give on that.

Final question, if that is the case where litigation is ongoing, can Rich give us an idea how much legal expenses in '02 and what would be expect in '03?

Yeah, this is just general.

Changes from quarter to quarter because of the activity we might be pursuing at that time.

But, general rule of thumb, our litigation cost in this matter run between $400,000 and $500,000 a quarter.

Thanks a lot.

Our next question comes from Robert Marson with Marson Assets Management.

Thanks a lot.

The -- I'm having a bit of a problem trying to reconcile the actual revenue forecast for the year with some of the positive things I see happening, including major market share or at least market share gains.

The positive mix shift to DC/DC and a good example might be IBM, which last year was not a significant customer.

If it is a top five customer, it might be added $20m of incremental revenue.

Are there situations that in the smaller part of the market or the AC/DC business or price erosion in the standard products that would be pressuring revenues?

Because if all the other businesses stay flattish, obviously I agree there is some pressure in telecom wire-line, but I don't get the impression there is a major decline in high-end computing or storage business.

I am trying to figure out if there is an opportunity for revenue throughout the year as we progress or if these conservative guidance numbers are actually realistic and not conservative?

We provided guidance, do we really mean it?

Are you low balling us with the positive things happening underneath or being pessimistic on end markets again because your biggest market is not shrinking and you have design wins with two customers that are going to be big incremental revenue it is adding 5% on one of them alone.

I am trying to figure out where the revenue degradation is to give us flat revenue or down year over year revenue year?

I think this is an interesting question.

It is certainly consistent with dialogue we have among ourselves quite frequently.

The strategy we've -- the shift in strategy that we've embraced is going from high growth markets all within communications and being satisfied at growing at those market growth rates as long as they were high enough.

The end markets right now, you know, the optimistic news is servers and storage are going to grow a couple percent as opposed to 20%.

So, the shift in strategy is one where we are going after market share, That is why we created a new division and spent the money for it.

That is why we changed the structure of the rest of the company to go after 8 computing companies, 12 telecom wireless companies and then the third division, to gain share.

That is why we are investing in new technology.

The disadvantage relative to revenue now of this strategy is there really is 12-month gestation period to see significant revenue with our customers.

We've gone through two years, Robert, of really getting blind-sided by customer revenue expectations not being realized.

This has caused us to frankly, be slower than we should have been in reducing cost dramatically in our company because we brought into some customer forecasts.

That is fair.

We have taken an approach now where we structured break-even range in our company.

We talked about that range.

We will manage the business toward it.

We have, when we finish all of these consolidations, about 75% utilization of our facilities.

This includes equipment and floor space.

So, we certainly have the ability to ramp-up significantly versus our current forecasts.

But, since we are going to focus on cash and breaking even, no later than the fourth quarter, we had to pick a revenue level to manage around.

The revenue level we picked is if you take that average of what they have given, $85m.

Uh-huh.

I know I didn't answer your question.

I can't really say this is the area we expect revenue to be in, but it will be a lot better.

It just seems there is a few major revenue enhancing relationships and orders that have been placed.

I am trying to figure out where in the business similar degradation is keeping the revenue flat.

You said it right on the two companies you named who IBM was new this year, essentially.

And we're expecting, as I mentioned, they will be a top 5 customer and that is incremental.

Nokia, also.

Big customers there.

If they become 5% to 10% customers that adds $20m to $40m in revenue, why does the number stay flat.

Anyway, that is okay.

New wins this year and new product introductions, any kind of goals that you would be willing to share today?

We are still in the process of refining the number of wins.

The reason, last year for example was a range, was of course because of the size of the wins.

I can't imagine that the range is going to be any different this year of 50 to 60 and that we will see, as I would expect, higher percentage of those being DC/DC and then the highest part of DC/DC will be point of load.

That will be the trend in our opinion.

Okay.

One final question.

You mentioned you were pleased with relationship with Delta.

Would it be possible to give us some color on any kind of announcements that might be coming?

Any kind of revenue the relationship could generate for Artesyn over the next 12 to 24 months and the magnitude of it?

I don't want to get ahead of ourselves from making the announcements.

You know, you have to have everything buttoned up.

And we just need to make sure that happens.

Again, the areas that I would envision you would see announcements in would be marketing agreements where we're selling under our brand name products that Delta has developed.

Relationships where Delta would manufacture ---relationships where we are licensing technologies, possibly cross-licensing and would benefit from royalty payments in that respect. --

Are they going to distribute your manufacturing products in parts of the world you don't have good coverage or not?

There is a good chance that could be in the announcement.

So the revenue is 8 figures, not a few million bucks.

That would be disappointing.

Tens of millions if this pans out the way you envision it currently?

I think what we are talking about is a relationship that will enhance Artesyn profitability.

If it is royalties, the revenues are not tens of millions, but bottom line.

And the other side of that, we should see important revenue or why bother doing it, from marketing private labels, Delta products in our channels, particularly through third division we created.

Thank you very much.

Congratulations on a good year in a difficult environment, particularly balance sheet management.

Thank you.

Once again, to ask a question, press 1, followed by 4.

Mr. Todd Cooper with Stephens Inc.

Joe, does Delta have access to the two new DC/DC converter families?

Todd, we have to make for a technology announcement for that one.

Okay.

Are you seeing signs of life in the wireless market segment?

You are saying Nokia is picking up, can you give color there?

What is interesting -- and I know you know this, but others may not.

With the lack of growth in 3-G and I am sure everybody knows the reason for that.

Nokia and several other customers have brought us into 2.5 G products.

The expectations I think across our customer base, the wireless people, is that the growth they will see in revenue is in 2.5 G over the next year and maybe a year and a half.

Consequently, they are making their technology investments very rapid basis time to market, trying to shorten and spending a lot of resources in that area versus possibly 3 G. The color would be they are expecting the business to do well infrastructure relative to this year.

However, it won't be in 3 G, but 2.5 G.

Thank you.

Thank you Mr. Ramkrishna Kasargod with Morgan Stanley.

This is a follow-up question for Joe and maybe one for Rich.

One is do you have any acquisition strategies for '03 in light of the improving balance sheet and for Rich, with the dollar going down what impact does it have on Artesyn in '03?

What do you have to do to manage your business on competitive basis?

All right.

On the acquisitions, Ram, we have focus on cash in our business.

And our objective is to continue creating cash in our business.

We at this point, I mean, and I don't think it is going to change.

I don't want to sit here and guarantee it because nobody knows what the future is going to bring.

There are absolutely no intentions right now to do acquisitions.

If we could get our hand on hot technology by basically taking over a very small development shop, that would be a different story, that’s taking on salaries.

We are not looking at acquisitions, but continue building cash balance if not eliminating debt, having a positive cash balance relative to debt.

On the currency side, the movement of manufacturing from Kindberg and Ireland, to China mitigates to a large extent the currency problem that we would have been facing if we stayed in Europe.

The weaker dollar -- first of all, the Chinese currency is tied to Hong Kong currency, which is tied to the US dollar.

The Chinese government has no intention of changing that relationship.

We will see if that continues in the future.

On the revenue side or profit side, the weaker dollar when we realize revenue, which I believe is about 30% of our revenue stream in euro, is actually beneficial to us.

Now, somebody here will have to check if my 30% is right.

But, on balance, I think we're because of our plans of moving production into Asia and Hungary and the positive pick-up on the revenue side, on balance, I think currency is being well managed going into the year.

Ram, beginning last year, exposure on balance sheet for foreign currency was about $30 million and throughout the year we got that down to $10 million exposure.

It is manageable.

As Joe mentioned, we are moving a lot of foreign currency assets, if you like, to the Far East where it is stable environment for today.

We will manage it closely.

We expect unfortunately, weakening dollar throughout the year.

It depends on the macro economics and depending on what happens over the next few months we will respond to it.

Thank you.

To ask a question, press 1, followed by 4.

It appears we have no further questions.

Thank you for joining us for the call this morning.

Thank you.

This does now conclude the Artesyn Technology conference call.

Thank you for your participation. (Normal Termination.) The call ended at 9:29. --- 0