艾默生電氣 (EMR) 2003 Q1 法說會逐字稿

Good morning and thank you for joining the Artesyn Technologies first quarter earnings release teleconference.

All participants are now on a listen only mode.

I will now turn the call over to the company.

Gentlemen, you may begin your conference.

Thank you, Debra.

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

This is Rich Thompson, Artesyn's Chief Financial Officer and also on the call today is Joe O'Donnell, Artesyn's President and CEO.

I should mention that this call is also being broadcast live over the internet.

A reply will be available immediately following the call at www.artesyn.com or by dialing 800-839-0860 through May 7.

The replay pass code is 1028.

For those of you who have not yet seen the press release, a copy is available on the major newswire services or for download from our Web site.

The format for today is similar to previous calls.

I will provide an overview of the financial results for the quarter, followed by a business review from Mr. O'Donnell.

We will then open up the call for a 30-minute question-and-answer period.

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

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

Please refer to our most recent 10-K which was filed on March 26 for a list of important risk factors that could affect future results.

I will now begin our financial overview.

Revenue for the first quarter was $81.9 million versus $90.5 million in Q1 of 2002, or a 9.5 percent reduction year on year.

Sequentially, revenue was two percent below Q4 levels of $83.4 million.

As reported, power conversion sales were down three percent from last quarter, while sales at our single board (ph) business rose eight percent sequentially as a result of bundled hardware and software sales to wireless infrastructure customers.

Orders in the first quarter totaled $87 million, yielding a book-to-bill ratio of 1.06.

This was slightly ahead of expectations and two percent higher than Q4 orders of $85 million.

It was also the third consecutive quarter of increasing order activity and the largest order quarter since Q1 last year.

While customer lead times from order to shipment remain short, we did not see an increase - I'm sorry, we did see an increase in backlog to 78 (ph) million or seven percent above Q4 2002.

Approximately 73 (ph) million of this backlog is schedule for shipment in the current quarter.

As reported, the net loss per share for the quarter was 13 cents, excluding charges and one-time items.

This was slightly better than the analysis consensus and two percent better than the fourth quarter of 2002.

During the quarter, we recorded a total of $2.1 million in previously announced pre-tax restructuring charges and an additional $600,000 charge to interest expense to retire debt issuance cost replaced by the recently announced credit facility.

Including the impact of all charges, the net loss was $7.5 million, or 19 cents per share, in the first quarter, which was level with the year-ago quarter, which, incidentally, had 12.5 percent greater revenue volume.

As required, the earnings release includes an EPS reconciliation from the GAAP loss of 19 cents per share to the 13-cent share loss, excluding charges.

We continue to implement our restructuring and cost reduction actions that were initiated last year, resulting in an improving cost profile.

Gross margin in the first quarter improved to 16.4 percent, up approximately two percent from Q4 2002, excluding inventory charges.

This compares favorably to a gross margin of 12.4 percent in the year ago quarter.

We still have significant room for improvement, however, as factory utilization in the quarter remained relatively low at nearly 50 percent.

Looking forward we expect factory utilization and gross margin to improve throughout the year first with the closure of Kindberg Austria facility last week and then the closure of the Youghal Ireland facility scheduled for September of this year.

Total operating expenses, excluding charges and one-time items, were 18.1 million in the first quarter, which was slightly better than Q4 last year.

Net interest expense in the quarter was 1.7 million and 1.1 million excluding the writeoff of debt issuance costs.

This was down from Q4 primarily due to the lower debt levels and we anticipate that net interest expense will be 800,000 to 900,000 per quarter going forward.

The effective tax rate benefit as reported was 12.1 percent and lower than our prior estimate of 15 percent due to larger losses and foreign jurisdictions requiring tax valuation allowances.

Turning to the balance sheet.

We continue to make progress in reducing working capital and lowering debt.

During the first quarter we generated positive cash flow from operations, despite an increase in accounts receivable.

Receivables level grew by nearly two million in the quarter due to heavy shipments in March.

As a result, DSO increased from 47 days in Q4 to 50 days.

Inventory continued to decline during the first quarter to 53.6 million, a $2 million reduction from Q4.

Inventory has improved to 4.6 turns, versus only 2.9 turns a year ago but we still have opportunity in this area and are targeting turns of greater than six by year end.

Total working capital at the end of the quarter was 78 million, with a current ratio of 1.8.

Capital expenditures were 1.1 million for the quarter but we expect capital requirements to grow modestly as we replace older equipment and acquire equipment required for new production ramp-ups.

As previously announced, during the first quarter we signed a new five-year, 35 million revolving line of credit with Fleet Capital Corporation.

The new asset backline (ph) replaces the company's $40 million syndicated revolving credit facility, which was due to expire in March 2004.

We utilized approximately 12 ½ million of cash to bring the outstanding balance on the facility to 10 ½ million drawn at closing.

At quarter end, debt less cash was approximately 5.6 million and with a cash balance of 52 million at quarter end our balance sheet and liquidity continues to strengthen as our P&L profile improves.

I will now turn the call over to Joe for a business review.

Thank you, Rich.

Good morning.

I will first discuss the quarters performance.

Following that, I'd like to comment on our progress in the three prime areas of near term company focus.

As discussed with you in the last conference call, revenue growth, balance sheet improvement, and profitability and, as always, we'll leave time at the end for questions.

In the first quarter we continued to experience revenue stability which began at the end of 2002.

Sales in the first quarter were relatively consistent with last year's fourth declining by only 2 percent.

We were encouraged by the revenue increase in our embedded computer business and the increasing sales of power into 2.5G wireless infrastructure and ASDL applications.

Our single board computer company began to realize meaningful revenue from integrated hardware and software sales during the quarter.

These software intensive products produce higher margins than stand alone hardware.

As I will discuss later, current performance is supportive of our long-term strategy of providing integrated product solutions.

Likewise, sales of power products for ADSN and 2.5G wireless applications improved in the quarter, while the server and storage market continued to show stability.

Overall, sales from the wireless increased to 24 percent of total revenue.

Server storage was 50 percent.

Carrier enterprise networking was 8, access 2 percent of sales and we're pleased to see that distribution grew to 16 percent of our total revenue.

We are also pleased with the level of incoming orders in Q1.

Bookings were at the highest level since the first quarter of 2002 resulting in a backlog of $78 million, likewise, the highest level since the first quarter of 2002.

Backlog scheduled for shipment during the second quarter covers approximately 85 to 95 percent of anticipated revenue.

We have not experienced this level of coverage in some time and consider it to be another indication that our revenue situation has stabilized, as well as a reaffirmation of our strategic decision to maintain our investment focus on the communications market.

As many of you know, we continue to believe that as our target markets rebound, communication will, once again, account for the highest growth sector within electronics.

During the first quarter we were awarded 14 major design wins putting us on track for achieving our goal of 55 to 65 for the year.

We also won 55 smaller programs, each valued at less than 500,000 in annual revenue.

Artesyn continues to be a leader in product development investing 10 percent of sales in the first quarter.

New products coming from this investment will be major contributors to future revenue growth.

During the quarter we announced the introduction of the new Typhoon family of high-density DC/DC converters.

The Typhoon family establishes new density benchmarks for the industry providing best in class performance in output current, efficiency, height and cost.

The Typhoon eighth brick is the only 40 amp eighth brick product in the market available for shipment.

The complete family of products is scheduled to be available by year end.

Likewise, we announced that our new integrated spiderware (ph) NT product has won the product of the year award given by Internet Telephony magazine.

The network processors based 3G application is a continuation of our strategy to provide integrated hardware and software solutions.

In addition, we had a significant order for another integrated product the SS 7 (ph) .

This order is further evidence that our investment in integrated product solutions is beginning to pay dividends.

Signs of our progress towards profitability are evidenced in the improvement in gross margin percent in Q1 compared to the fourth quarter.

The increase is the result of cost savings initiatives put in place last year and a favorable product mix.

We are beginning to experience the positive effects of factory utilization resulting from the April closure of the Austrian manufacturing facility.

The Irish factory is on track to be closed in the third quarter.

Lastly, we achieved our liquidity objective in Q1 with the announcement of a new five-year credit facility.

As Rich indicated, this new credit agreement with Fleet Capital strengthens our balance sheet and provides an important source of working capital as end markets rebound.

Our strategy of focusing on cash continues to contribute to an improving balance sheet.

Although receivable levels rose slightly due to high levels of shipments skewed to the end of the quarter, inventory levels continue to fall.

And as a result, we have generated positive operating cash flow for eight quarters in a row.

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

Looking to the balance of the year, we expect to fund a significant portion of our previously announced restructuring actions over the next two quarters, which may result in lower cash balances in the near term that should be recovered by year end.

Total debt, less cash, has decreased to less than $6 million, significantly reducing dependence on bank debt.

We have lowered borrowings from $69 million in the first quarter of '02 to $10.5 million in the first quarter of '03.

With a greatly improved balance sheet and relative stability in our end markets, actions announced in December to further reduce breakeven and restore profitability are well underway.

We continue to expect to begin realizing the significant benefits of these actions during the second quarter, when the closure of the Austria facilities finalize, continuing to the September closures of Ireland.

This should result in an increase in capacity utilization from about 50 percent today to 70 percent in Q4, and an associated increase in gross margin.

Assuming our current outlook for a flat to modestly increased quarterly revenue, our target remains to be profitable on the net income line in the fourth quarter.

In conclusion, we believe that Artesyn is on track to achieve the near-term strategic objectives discussed earlier.

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

Second, we are well on our way to returning to profitability, as we execute capacity consolidation and cost reduction initiatives.

And third, we have significantly improved our financial profile to provide working capital to service our customers as the end markets improve.

I will now turn the conference call over to questions.

If you would like to ask a question, please press star, then the number one, on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Lou Miscioscia from Lehman Brothers.

Hey.

This is actually Hardik Doshi for Lou Mesciocia.

I just had a quick question regarding the revenue guidance.

You guided to flat to modestly up.

But considering that you were encouraged by the book-to-bill ratio, I was wondering what your rationale behind the guidance?

Well, I believe maybe the best way to characterize it is, looking at the last two years, we've experienced our (ph) end markets.

And we feel that the most appropriate approach is to be prudent in - you know, in discussing anticipated performance.

We think you'll clearly see improved profitability performance through gross margin, and then taking a cautious approach, which is even or slightly up revenue is probably the most appropriate.

All right and I was wondering if you could give us some more color on what are you seeing with the communications market.

I know you said that your stabilizing.

Do you see any uptick towards that latter half of the year or?

Where we're seeing a definite improvement over anticipated demand is in 2.5G and for wireless.

This is where customers, at the operating level, have chosen, in many cases, not to make the major investment in 3G at this point for entirely new systems but to offer enhanced services for their customer base through 2.5G, which is an incremental investment.

So we've benefitted from that because -- I think I'm correct in saying, without an exception, we're designed into all the major companies 2.5G systems.

So in the telecom side, that would be the area.

In the computing market place, in a -- the server business seems to have a positive uptick but, you know, in the single digit percentages.

OK.

Great and just a housekeeping.

Could you tell me how much cash flow from operations was this quarter?

Cash flow from operations or net operating cash flow, if you like, was 507,000.

507,000.

Right.

And how much was the top five and top ten customers?

The, I'm sorry.

Let me get that piece of paper.

The top ten customers were approximately 70 percent of revenue for the quarter, which is down slightly from Q2 a year ago and about level with the 2002 numbers overall.

So the top ten customers, again, was approximately $58 million for the company.

OK and the top five customers, you still expect this year to be Cisco, Dell, HP, Nokia and Sun?

Well -- those would be in the mix.

You know, I think the names you'd want to make sure you included would be HP, Sun, Dell, IBM and Nokia.

OK.

There's a number of them that will be close in revenue and it's hard to say which one might fall in the top five.

All right.

OK.

Thanks a lot.

Yes.

Your next question comes from John McManus with Needham & Company.

Yes.

Good morning.

Good morning, John.

When you look at the rise in gross margin percentage, what was the spit there between mix and the restructuring savings?

John, the mix was approximately level based on the revenue volume.

Most of the savings were basically from restructuring activity and lower warranty cost.

And could you give us a feel for tax rate.

First, why you're losing money and then when you return to profitability, what will you anticipate the tax rate to be?

Sure, John.

We said that today the benefit we're recording is approximately 12 percent.

I think we'll continue to be in that range for the rest of the year.

When we return to profitability the, which should be in the fourth quarter, our tax rate, depending on jurisdiction, should be approximately 28 to 30 percent as it was in the past.

Obviously the cash out number will be different with a lot of tax assets will be utilized to cover the tax liability.

Thanks.

Could you help us, you know, the wireless grew nicely, what customers drove the wireless sector?

It would be Motorola, Nokia and Lucent.

And in the -

Oh, I'm sorry, also Nortel, Rich just pointed out to me.

It was, as I mentioned earlier, John, it's -- I assume there's possibly an exception, I just can't think of it.

That we are designed into all of the 2.5G designs for market leaders and each of these companies seem to be doing a bit better in that product area than they had anticipated.

And so we're benefiting from that and would expect to continue to.

And in the server and storage sector, are you starting to see traction from new wins like EMC (ph) ?

We're definitely starting to see traction from new wins in the server side and we would expect by year end to see traction in the storage side from new customers.

The volumes currently are still in the introductory levels.

And you had indicated there that you felt that the -- that the new Typhoon series could represent as much as 40 percent of revenue in the power conversion total revenue this year; is that still your thinking as far as their success?

I - we may have mis-communicated that.

As far as the Typhoon series, I would think what you said is not far off for DC/DC, which Typhoon is the new flagship line of but the Typhoon products themselves will not account for that much revenue.

Simply because, as you well know, the gestation period from introduction to volume shipment.

But, I mean, your point is valid that DC/DC will see an increasingly significantly, we think, increasing percentage of our business as much as 40 percent.

Now, my last question, you know, you anticipated that the entire point of load sector there could possibly double from roughly around 40 million generated last year in revenues; that's still your current thinking based on what you see?

Now, we -- when I talk about point of load, we include that in our total DC/DC because that's a sub-set.

So, first of all, it would be a part of the 40 percent and we do expect to see significant growth in point of load this year, yes.

OK.

Thank you very much.

You're welcome.

Your next questions comes from Steve Smigie with Raymond James.

Yes.

Good morning, gentlemen.

Morning Steve.

Just following up on a couple of those questions, particularly with the Typhoon, I was hoping you could comment on some possible design wins?

Just in general, you may have seen the A versus quarter brick (ph) the new Typhoon products?

We've had a lot of the Typhoon products under evaluation now for significant application -- significant meaning high volume.

There have been a number, but not many at this point, of commitments from customers before volume shipments.

In the telecom optics area first, fiber optics, and then a large ADSL application.

So if I'm not mistaken, we've had two large customer commitments, possibly three, and a significant number of what we characterize as in our sales funnel.

That means they're qualified, under evaluation, and then the next step is what we characterize as best few.

And there are a number of them in that category as well.

So we're actually quite pleased with the market receptive (ph) .

Something we're experiencing, though, Steve, is customers were actually surprised by the performance parameters of this product and its size and the power that it's able to deliver.

So it's caused some of them to rethink their approach to their architectures, and that's taking a little longer than just if we had introduced a [Inaudible] product.

But the fact that nobody is even close to that kind of performance parameter at this point we think will give us a longstanding advantage.

OK.

And you mentioned IBM as one of your customers that's been up and coming [Inaudible] .

I'm hoping you might be able to give a little more color on how that relationship is going.

Well, you know without providing too much competitive detail, because I know our competitors listen on these calls as well, it's - the IBM relationship is progressing very well for us.

We're extremely satisfied with it.

We would expect that they're going to be a top five customer for us this year in a number of categories that initially started with one application in the server area, high growth, and - high volume I mean - and has expanded into some others now.

OK.

And then with regard to your board business, it obviously did pretty well this quarter.

And I was wondering if that's something you expect to see, the sort of levels going forward, and what specific programs you might hope to gain with that as well.

They've done an extremely good job in the board business of penetrating the wireless market, both the 2.5G, which I talked about a little while ago, and the 3G.

So we do expect to see their revenue experience growth throughout the year, probably at a higher rate than the company in total.

So I think - I mentioned about the integrated product offering.

While other companies do that, it does change the competitive landscape significantly for them, because many fewer of their competitors [Inaudible] , meaning software and hardware in one package.

So that's helped differentiate them as well.

But we're quite optimistic in our expectations for them this year.

OK.

And I'm just wondering if you guys had any thoughts yet on the Vicorps (ph) announcement from a couple of days ago.

Their - the new paradigm shift.

And I know they haven't really put a product out there yet for you guys to evaluate, but I'm just wondering if you had any sort of off-the-cuff comment.

It's not appropriate to talk about a competitor's announcement, from my perspective anyway.

We've not seen any products;

I'm not sure there's any available.

So I'm not - it's not clear to me at all what a paradigm shift actually means.

And Vicorps (ph) , it's a fine company.

It's one that, however, we don't see too much of as a competitor in our market sectors, which are more oriented towards high volume.

They spend most of their time in industrial and medical kinds of markets.

OK.

Thank you very much.

You're welcome.

Your next question comes from Craig Irwin with First Albany.

Good morning, Craig.

Mr. Irwin, you may proceed with your question, sir.

Hi, guys.

Sorry about that.

I was on mute.

First of all . . .

We know how that works.

Good job on improving the gross margins that, you know, I see we haven't had gross margins at these levels since back in the severest falloff that everybody saw back in the beginning of 2001.

Thank you.

I wanted to ask a couple questions about the cost of goods sold and how the closure of your two facilities, the one in Austria and the one in Ireland, will effect your cost structure over the next couple quarters.

Can you talk a little bit about that?

Sure, Craig.

Looking at it, basically we're taking capacity out.

We talked about utilization.

We're currently at 50 percent and the closure of these two plants will allow us to operate at today's revenue levels at approximately 70 percent utilization.

That alone will generate higher gross margin throughout the year as that capacity is eliminated.

Today that cost is basically inefficiencies that's included in the cost of sales.

OK and then I guess the next question I have is, you know, what approximate percentage of the cogs (ph) or how would you characterize the contribution of these two facilities to this quarters cogs (ph) ?

Would, you know, if we were to do the matchbook calculation and go back using your statements about, you know, 50 percent going towards 70 percent capacity utilization.

Would that be an accurate -- would we arrive at an accurate number?

Yes, I -- let me try to answer it a little differently.

The savings that we expect, remember these products are being transferred to other low-cost facilities but those facilities will still incur direct labor, obviously, with the products.

The -- we expect the material cost to be a bit lower because of the sourcing and both Hungry and China and the key difference to us is in manufacturing overhead.

So with the closure of those plants, we expect Kindberg to generate an additional approximately $2 million cost reduction per quarter in operating cost and, likewise, when Ireland is finally closed, and, by the way, we are keeping a design center open in Ireland of approximately 65 employees, and customer service organizations as Joe points out.

So when the Irish plant is closed, we will save approximately a million and a half, to say a million eight a quarter.

OK

So together you're looking at between 3 ½ and 4 million of savings per quarter going forward by the elimination of that capacity.

OK and just to be sure, that's not only reduction of overhead but that's local sourcing of material?

That's correct.

That's a little lower cost of material through the local sourcing and a reduction of overhead, you know, the factory overhead that exists, the building, the excessed (ph) equipment, if you like, and the indirect labor.

OK and then would you still say that your raw materials or percentage of cogs (ph) is roughly 70 percent?

Yes, I think that's still a good benchmark.

It fluctuates, obviously, product by product.

Our new point of load and our DC/DC product offerings and Typhoon have a little bit higher component cost, as you would expect, and lower labor cost and a little bit higher overhead cost because the amount of SMT equipment that's utilized.

So, I think over the next few years you will see that change a bit.

OK.

Great.

And then just switching gears, the news out of Cisco in the last quarter that they're going to consolidate their supplier base and that we're looking, you know, at a significantly reduced number of power supply vendors, can you guys comment about the Cisco relationship and whether or not you're included in those vendors that are going to be supplying to Cisco going forward?

We've been a long-standing supplier to Cisco and we would anticipate continuing that relationship.

I mean, I'm somewhat hesitant in how I phrase this because they're the customer and, you know, they'll make their own management judgments.

But we would expect Cisco to remain one of our major customers going forward as they currently are today.

We think we have a good relationship with Cisco.

Ok.

Excellent.

And then my last question is, is there any update on the relationship with Bruce Chang (ph) and Delta, if you could just talk about the collaborative R&D that you're doing?

Yeah.

I think we're actually progressing quite well.

I'm a little disappointed you haven't seen a news release on it yet.

But I would anticipate you will shortly.

That some license agreements and products we've designed.

And then either as a part of this same release or a separate one, a joint development of a new technology area which both sides would then share in equally.

So I think we've -- well, let me back up a minute, while it's taken a bit longer than I might have expected a year ago, I do believe we've made tremendous progress in the meantime and it will - we've got real traction going now.

OK.

And do you have an update for us on the amount that Delta's contributed towards the collaborative research?

I mean, is there a dollar amount spent or something you can share with us?

Well, I think the first phase of this collaboration is Delta evaluating and making decisions about our technology and a judgment that it was a technology they might be able to sell into some of their marketplaces.

And, consequently, signed into a royalty agreement where we get a percent of all their sales.

So, the first stage is not a significant engineering investment outside the evaluation investment.

The next stage would be far more significant.

We're both companies, if you will, put a group of real smart engineers into a room and have them implement, through technology marketing direction, on the next generation of power.

Excellent.

Thank you guys very much for all your answers.

You're welcome.

Your next question comes from Todd Cooper with Stephens, Inc.

Rich, can you discuss the linearity or, I guess, lack thereof, of orders and revenue as you progress through the first quarter.

OK.

I think, as we mentioned in our receivable comment, we saw more shipments at the end of the quarter.

I think that indicated to us, and in some cases as mentioned by our customers, that everyone seems to be running their inventories on a need basis versus any shelf stock.

So, we saw more orders than what we had anticipated in order shipments in the quarter.

And coming out of the quarter, we were pleased with the backlog increase, because that indicated to us that those sell-through is indeed very active and there's very little shelf stock.

We did deliver all requested customer deliver dates, or we met all of those that quarter.

So that backlog is a true backlog.

And we're pleased by that because we haven't seen that in quite a few quarters.

So you saw no evidence that the war slowed things down?

I can't comment on that.

It may have happened in some of the computing polls.

We had expected them to be a little higher in the second half of March.

And we did see those slightly down versus our expectations.

But I don't know if that was a customer suggesting (ph) inventory to demand, and if it was due the war or some other factor.

OK.

What products are designed into the 2.5G equipment?

Which of our products, Todd?

Yes, what kind?

Certainly what we would call silver boxes.

That may be an AC/DC or a large DC/DC - not the board-mounted type - the single board computers, and, to a smaller extent, as far as dollar volume, some DC/DC bricks.

And the reason it's smaller is customers have not, in that sector - are just beginning to go to the distributed power approach.

OK.

And one last one, if I may.

Have you given guidance for operating expenses going forward?

No we haven't.

I think we'll comment on the models.

But at the $18.1 million level, as Joe shared with you, he expects to continue to fund research at about a 10 percent level as we continue to invest in new products.

And I would think that that, while you'll see some modest improvements in operating expenses, they won't be a step function.

OK.

Thank you very much.

Todd, and others on the call, what I would say - you know part of my job is to spend a lot of time with customers, which I attempt to do.

And last week I was with several of the largest wireless companies in Europe.

And when they're looking at their supply days, they're very prudent on determining who they believe will be in business in the future, and that's one of the things that a while ago drove us towards the focus on cash.

So they're very comfortable that Artesyn has a strong balance sheet.

That part's positive.

Equally positive - relative to competition, I'm talking about - equally positive is our investment rate in technology.

And then even if they don't use the products they're seeing coming out of it, the fact that it establishes technology leadership in point of load, isolated, non-isolated, or in the new high-density Typhoon products.

So I think from a financial community perspective, people could say, well, why are we investing this kind of money in Research & Development?

Aside from the obvious reasons, it really is differentiating us from competition.

The other factor you asked about Todd, which I think is a good point, is the backend loading, if you will, of a quarter.

It doesn't seem to matter if I'm talking to our storage server or telecom and wireless customers.

They're all commenting that, through the last two years, they've seen a steady trend towards more revenue than the 4/4/5 (ph) would suggest in quarterly revenue.

More revenue into the third month of a quarter.

And I think that if you, you know, talking to other companies at our level in the channel, the subsystems, or the system companies, you're probably going to hear more and more of that.

That quarters have become more back-end loaded.

Any ideas to what's caused that?

That's a really good question.

I think there's a lot of pressure points on companies simply to attempt to accomplish what's expected of them from the measurement points and the measurement points are quarterly if you're a North American public company.

I'm not sure it's any more scientific than that, Todd.

OK.

OK.

Thank you very much, guys.

You have a follow-up question from Craig Irwin with First Albany.

Hi, guys.

Just another question about VMI and your customers that are using VMI.

What percentage of your sales went through VMI in the quarter?

If you said it was about 65 - 70 percent, you'd be in the ballpark and the reason it's not an exact number, well there's some companies like the Dell that it's always through VMI.

There are other companies like an HP or a Sun that it gets to VMI but they go through the product wrap-up phase before they do that or if it's small volumes, they don't use VMI because VMI's harder to manage for customers in exposure as products go end of life or don't sell.

So 65 - 70 percent is a good rule of thumb.

OK and do you expect this to change significantly in the, you know, in the next couple quarters?

I think it already has changed and that this is -- it's much higher than it used to be and this is the level we'll probably be managing our business at.

Great.

Thank you.

You're welcome.

Your next question comes from Bill Nascavitz (ph) with Heartlands Inc..

Good morning.

Hello, Bill.

How are you?

Well, pretty good.

Say, could you give us just a -- I guess what your most excited about and then your biggest worry these days?

Just business wise, Joe.

I'm glad you narrowed the perspective and (ph) left my college daughters out of it.

OK.

What I'm most excited about are -- is the reception we're getting in the marketplace from our new product offerings in Point-of-Load, which have gone -- we've been in this business for, you know, a few years now.

Almost a pioneer, not quite, and its become very important to us but now there's been a major technology jump to a non-isolated approach and clearly, if we're not the leader, we're very close to it.

Then -- so that's exciting.

We're -- I've never been as enthused about a product offering as the new Typhoon line and, I mean, it's really -- for the -- I've been amazed at the reaction of some real tough customers about the technology of these products.

So those two things in the product areas have me very, very enthused.

I think what I worry about the most, it's not our cost reduction programs.

We can manage those.

It's not our management of the cash in the cash aspects of the business.

We can do that.

It's the customer revenue stream and while we've talked about seeing stability and, you know, I would have asked questions, gee, with this kind of backlog in coverage, why aren't you talking about higher revenue.

It's an obvious question.

From the two years we've been through and our whole market sectors been through you can't help but almost be paranoid about revenue streams.

So that would be my biggest concern.

OK.

Thank you.

I appreciate it.

At this time, I would like to remind everyone, if you have a question, please press star, then the number one, on your telephone keypad.

At this time, there are no further questions.

OK.

Thank you for joining us today.

We appreciate your continued interest in Artesyn, and support, and we look forward to meeting you again during the quarter if we have those opportunities, and certainly at our second quarterly call in July.

Thank you very much.

This concludes today's Artesyn first quarter Technologies earning release teleconference.

You may now disconnect.