艾默生電氣 (EMR) 2003 Q4 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to the Artesyn Technologies 2003 fourth-quarter conference call.

At this time, all participant lines are in a listen-only mode.

There will be an opportunity for questions at the end of the presentation and instructions for asking a question will be given at a later time.

As a reminder, today's conference call is being recorded.

I will now turn the call over to Pamela Rembaum, the Director of Investor Relations at Artesyn.

Good morning, everyone, and thank you for joining us for our 2003 fourth-quarter and year-end conference call.

On the call with me this morning is Rich Thompson, Artesyn's Chief Financial Officer;

Joe O'Donnell, Artesyn's President and CEO; and Harvey Dewan, President of Operations.

For those of you who have not yet seen this morning's press release, a copy is available on the major newswire services and is currently posted to the press release section of our website at www.Artesyn.com.

Additionally, the Company filed the earnings release this morning prior to this call on Form 8-K with the SEC.

This call is also being webcast live over the Internet on our website.

A replay will be available immediately following the call on our website or by dialing 800-839--860.

The dial-up replay pass code is 1475 and will only be available through February 10th.

Before we begin, I would like to remind you that except for historical data, comments on today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements, including projections, as to revenues or earnings and other statements relating to expected future performance by Artesyn involve risks and uncertainties which may cause actual results to differ materially from those discussed on this call.

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

Please refer to our filings with the SEC, including our 10-K filed on March 26, 2003, for additional information.

Now I would like to turn the call over to Artesyn's Chief Financial Officer, Rich Thompson, for a discussion about the Company's financial results.

Thank you, Pam.

Good morning, everyone.

Following our normal procedure, I will review fourth-quarter and year-end 2003 financial results and Joe will discuss significant operating developments at the Company.

I am pleased to announce that Artesyn achieved profitability during the fourth quarter, reporting GAAP earnings-per-share of 3 cents compared to a loss per share of 93 cents in the year-ago quarter.

Excluding restructuring charges of 500,000 net of taxes associated with previously announced capacity reductions, the Company reported net income for the fourth quarter of 1.7 million, or four cents per share, which is 5 cents better that the First Call mean of a 1 cent loss.

For fiscal 2003, Artesyn reported a net loss of 15.6 million or a loss per share of 40 cents, compared to a net loss of 108 million or a loss per share of $2.83 for fiscal 2002.

Restructuring and other charges taken during 2003 amounted to 8.2 million net of taxes, compared to 85.2 million taken during fiscal 2002.

Excluding these charges, fiscal 2003 showed a net loss of 19 cents per share versus a net loss of 61 cents per share in 2002.

This morning's release, which is also posted on our website, has a reconciliation of non-GAAP to GAAP financial information discussed this morning.

Sales for the quarter were 99.3 million, increasing 16 million, or 19 percent, from Q4 a year ago, and 13 percent increase sequentially from Q3.

Sales for fiscal year 2003 were 357 million, a 2 percent increase from 2002, as a result of improving market conditions during the fourth quarter.

Orders in the fourth quarter were 107 million, yielding a book-to-bill ratio of 1.08, at the higher end of our normally expected range.

Incoming orders for power products were particularly strong from computing customers and from wireless customers for both power products as well as board level products.

Backlog at the end of the fourth quarter improved to 86.7 million, with approximately 91 percent, or 79 million, scheduled for shipment in the first quarter 2004.

Backlog scheduled to ship beyond 90 days nearly doubled from a year ago as customers began to commit to deliveries beyond the current quarter.

From an operating performance perspective, gross margin as a percentage of sales was 22.4 percent, compared to 20.7 percent sequentially in Q3, and a negative 3.8 percent in Q4 2002, which was due to inventory charges taken in that quarter.

The gross margin improvement reflects a benefit from cost savings taken over the past two years, and more recently, the closures of our Irish and Austrian manufacturing facilities, and as a result of better utilization of our remaining factories due to the higher sales volumes.

Operating expenses excluding restructuring charges were 19 million in the fourth quarter, or 19.7 percent of sales, which is slightly higher than Q3 due to higher R&D cost and volume-related sales expense.

Research and development expenses were 9 million or 9 percent of sales during the quarter as we continue to invest in new technologies and industry-leading products.

Net interest expense in Q4 was 1.3 million as a result of the higher debt level and higher coupon rate for the new convertible note entered into during the third quarter.

We expect interest expense to continue in this range throughout 2004.

The effective tax rate as reported was 12.1 percent for the quarter.

We expect an effective tax rate of approximately 30 percent of pre-tax net income during 2004.

Turning to the balance sheet, we ended 2003 in a much stronger financial position as cash less debt improved to a positive 4.2 million, largely due to the replacement of the bank debt with a $90 million convertible issue, as previously discussed.

Additionally, we made significant improvements in working capital management as we ended 2003 with days working capital of 44 days versus 72 days a year ago.

The components of days working capital for Artesyn include receivables DSO of less than 50 days, inventory turns were 6.8, or 51 days sales, and days payable of 58 days, supporting our inventory working capital investments.

As a comparison, working capital metrics based on publicly available information for direct competitors is approximately 110 days, or 2.5 times more than Artesyn's.

Capital expenditures in the quarter were 2.8 million, up approximately 1 million from the third quarter.

The increase is due to the purchase of new finer pitch SMT equipment and automatic test equipment required to support new products.

We expect capital expenditures in the 15 to $20 million range for 2004 as these technology trends continue.

Depreciation and amortization was 5.4 million in the fourth quarter.

Thank you, and now I turn the call over to Joe for a business review.

Good morning.

In last January's conference call, we outlined our primary goals for 2003.

On subsequent quarterly calls, we provided a status update.

I am happy to report that these goals -- to grow revenue year-over-year, improve liquidity, achieve profitability in Q4, and out-distance competition with new product introductions -- have all been accomplished.

I will use my time with you today to discuss these achievements, along with fourth-quarter performance.

Following that, I will review our 2004 objectives and offer guidance for the current year.

Looking at market trends during 2003 and 2004, it appears the toughest times are behind us and market conditions are improving, as supported by many of our customers recent quarterly announcements.

Demand appears to be on the rise in the communications market.

Revenue.

Our first primary goal for '03 was to grow revenue year-over-year.

While modest growth was achieved for the year, revenue growth in the quarter is far more significant for several reasons.

First, it's the highest sales since the fourth quarter of 2001.

Second, it is the third sequential quarterly increase.

And three, we believe the significant increase over prior quarter signifies that we have made a strong move off the bottom of what many of you have come to call "the communications winter."

However, I think we would all agree it is prudent to remain cautious that this is in fact not a false bounce but is the beginning of what feels like a rebound in our end markets.

Looking at revenue by end market, we are continuing to experience growth in the wireless and server storage businesses, which accounted for 25 and 46 percent of annual revenue respectively.

Our next largest area of growth is in the higher margin distribution channel, which accounted for approximately 18 percent of revenue for the year.

Lastly, the carrier and enterprise networking market fell to 11 percent of sales, primarily from the lack of near-term growth within the telecom business.

Breakeven in Q4.

Clearly our most visible and possibly most important goal within the Company last year was to break even in the fourth quarter.

At 3 cents per share, this significant turning point was achieved.

Contributing to Q4's profitability was a continuing improvement in gross margins.

Gross margins increased as a result of the restructuring initiatives taken during the first nine months of the year and from the sale of higher margin products.

The 22.4 percent Q4 gross margin is the highest since the fourth quarter of 2000.

Additionally, at the end of 2003 our manufacturing utilization was approximately 75 percent.

Cash.

The third prime objective was to improve Artesyn's cash position.

For the 11th consecutive quarter, Artesyn created cash from operations.

Additionally, by repaying the remaining debt under our credit facility, Artesyn is now in a positive net cash position, enabling us to fund growth.

In 2004, we anticipate cash will continue to grow on a quarterly basis.

The first quarter appears to be an exception to this, however, as we fund the addition of several new SMT production lines.

Research and development.

Our fourth prime objective entering 2003 was to maintain Artesyn's position as an industry leader in R&D.

In 2003, we invested nearly 10 percent of sales in technology and product development.

The majority of this investment was dedicated to the DC/DC and point-of-load components of distributed power.

I would like to comment for a moment on Artesyn's market and technology leadership in point-of-load.

We introduced our first point-of-load modules in 2001.

In retrospect, we were fortunate that most of our competitors and many of our customers were committed to DC/DC bricks and gave little credibility to point-of-load.

This has given Artesyn a significant head start.

In 2003 we shipped approximately $40 million in point-of-load products.

We anticipate this will again be our fastest-growing product line in 2004.

Looking to the future, during the fourth quarter, we were awarded 25 major design wins estimated at 223 million in revenue over the life of the projects.

Year-to-date major design wins are 77, putting us ahead of our goal of 65 for the year.

We also won 123 programs valued at less than $500,000 annual peak revenue in the quarter.

During 2003, total estimated lifetime revenue from design wins was more than $700 million.

2004 outlook.

Artesyn's 2004 objectives will be to maintain profitability during the year, grow market share, enter new communication market segments, and invest in industry-leading technology.

If communication market trends continue to improve, these objectives should translate into positive financial results for the year.

During 2004, we expect revenue to grow in the high single to low double-digit range.

Gross margins should improve through the year, ending 2004 in the mid-20 percent range.

These improvements should pave the way for Artesyn to maintain profitability throughout the year and grow earnings per share.

Looking at the first quarter, normally a seasonally down period, balanced by currently positive market trends, it would appear revenues will be about flat with Q4 and up significantly year-over-year.

As in the fourth quarter of 2003, Q1 profitability will be at about breakeven to slightly profitable as we increase spending in R&D.

I would now like to open the call to a Q&A session, please.

Thank you. (OPERATOR INSTRUCTIONS) Craig Irwin with First Albany.

First, just want to say this is an absolutely phenomenal quarter.

Great progress on the cost structure and really growing the top line.

I wanted to ask you a few questions.

The first one I guess centers around the point-of-load alliance that you are in with Emerson and Texas Instruments.

Can you talk a little bit about this alliance and how this might be impacting your level of orders from customers, or maybe if you could talk a little bit about level of customer interest in buying from Artesyn now that you are part of this alliance?

Let the work backwards from way you postured your question, Craig.

First, the level of interest is exceedingly high.

I have actually been surprised by it, that it would be so widespread across our customer base.

The point-of-load alliance with TI takes us into a particular market sector which, while we understood it was important, it was not at the top of our development list for internal point-of-load.

So it expanded applications that we are able to serve.

Currently, it has not contributed to our orders.

Where we are now is in the sampling phases with customers, as they are working on their designs.

As you know, and those that follow the Company, from the time we introduce a product, it is normally one year before we would see revenue, and that is our while product is available, it's primarily due to the customer's design cycle.

So things are going better than expected as far as acceptance, but it has not contributed to any numbers that we report at this point.

Okay, great.

And if we could talk a little bit about the gross margins.

Obviously, you had a little bit of leverage from the upside in the quarter that helped the gross margins by 170 basis points sequentially.

That's a pretty big accomplishment.

Looking forward at the gross margins in 2004, can you comment a little bit about how things could potentially unfold and whether or not there are certain things like statistical sampling of products instead of burning in complete (ph) runs that could potentially help your gross margins sequentially throughout the year?

As I said, we expect gross margins will improve throughout the year, ending in the mid-20s.

Statistical sampling, we in fact do that now with many of our products.

That's pretty much customer dependent.

A lot of our high-volume products and standard products, that is exactly what we do.

I think what you'll see is a gradual improvement through the year as utilization improves through the year.

I doubt we will see big 2 percent jumps in the future.

Okay, and then has there been any impact from purchasing raw materials in the new low-cost locations that you've moved some of your more expensive manufacturing from and to?

Has there been any benefit from sourcing in cheaper locations?

I believe part of the reason our margins have gradually improved throughout the year sequentially is that a bigger and bigger piece of what we bring into the Company has in fact already been sourced from either Asia or Eastern Europe.

This trend will continue into next year.

It will be one of things that adds to the improving profile.

Great.

And then Joe, could you comment a little bit on the linearity in the quarter?

Within the quarter we just finished?

Yes.

The back half of the quarter was stronger than the first half of the quarter, if that is what we mean by linearity.

The third month is always more in terms of simple arithmetic because it's a five-week month for us.

Yes.

Excellent.

Well, fantastic quarter.

I don't want to hog the call, so I'll hop back in the queue and come back with any questions that don't get answered.

Thank you.

Lee Zeltser with Needham & Company.

Joe, can you profile your business for us a little bit with regard to how much of the business is custom versus standard and also CPA versus DPA?

Can you tell us where that could trend going forward?

The trend is clearly towards distributed power.

That there is no doubt about.

There will still be a large -- CP, for those that may not be familiar with the abbreviation, it means centralized power that Lee was talking about, which is typically AC/DC.

The move to DC/DC will reduce the amount of dollars in the AC/DC market, probably our revenue in that sector over time, replacing it with DC/DC and point-of-load.

However AC/DC will be necessary for all of those distributed power systems, so I think a well-positioned company needs to invest in three distinct product areas -- AC/DC, DC/DC, and point-of-load, because all of them are required to address the distributed power market.

There are projections that range from close to 100 percent to 80-plus percent of the market will ultimately be distributed power.

Frankly, I don't know what the right percentage is, but it will be the overwhelming portion of the marketplace in the future.

Okay, great.

And if you could talk a little but about custom versus standard -- how much (multiple speakers).

Right.

It's roughly 80/20 at this point.

That is not right.

That was just for one sector -- I'm sorry.

It's about 85/15 at this point and our goal is to move that to a higher percentage of standard product over time.

We are making steady progress towards that.

I think our low point was around 10 percent.

And the reason, for those that don't follow us closely, the reason for the continued movement towards standard products is we experience better margin profile on that business.

Great.

Thanks very much.

Lou Miscioscia with Lehman Brothers.

Joe, I guess when we look at the March quarter coming up, you mentioned revenue should be around flattish.

Would we expect the whole income statement to be flat, so you could be around at least the same EPS level or is there something different going on in the first quarter?

Lou, looking that far -- it doesn't seem that far, does it, since we are in the quarter -- down the road, it's a little difficult for us to slice it so fine to say is it 0, 1, 2, 3 cents a share.

I think that the way we are looking at it as a management team, we are going to have about the same profile, but we are at the same time increasing spending in R&D.

And so, I think in modeling the business, it is somewhere between breakeven and modestly profitable like the fourth quarter.

You had mentioned -- or actually, I think going back a couple of years ago, I know you had a few relationships on the outsourcing of building your power supplies.

And I was just curious as to -- you mentioned that you were actually going to spend little bit of money on new SMT equipment.

Did you decide to pull that back in-house or what were the give-and takes of thinking about whether to do it internal versus external?

That is an ongoing strategic issue in the Company, by the way, at this point.

So call it a work in progress.

The move to the outsourcing was at the end of 2000 as our business was growing very rapidly to give us more flexibility.

As we went through the retrenching over the last three years of reducing more than half our production facilities and consolidating those primarily in two low-cost areas, Eastern Europe in Hungary and China, we have decided that the best approach to gain leverage is to fill those facilities.

We would not intend to be growing new facilities, but I do think it is in the best interest of the Company's earnings profile to leverage those two major facilities that we have.

I think what we will see probably over the next -- I don't know, is it 6 months, 12 months or longer, is that the companies that will enjoy leverage on the upside will be contract manufacturers and companies like us that have retained the piece of their manufacturing -- in our case, all of it.

Companies that won't benefit as much will be those that have made the outsourcing decisions because the leverage will stay in-house.

However, once we reach the point of having filled the physical confines of the factories, you should expect us to go to outside manufacturing as a part of our strategy.

Great.

Congratulations on getting back to profitability.

Steve Smigie with Raymond James.

Congratulations on a very nice quarter.

I was wondering if you could comment a little bit -- you are increasing your spending on R&D, and I was wondering if there's specific areas that was going towards.

And then I was wondering if you could talk maybe a little bit about overall R&D strategy for 2004 and how you might see yourselves differentiating from maybe some of your competitors out there.

Is it just a continuation of POL or something else?

I think that there is two areas that we're differentiating ourselves on.

The first is what we call power systems or rectifiers.

That is a heavy investment area for us.

We mentioned in the last conference call, I believe, that we expected that would be about 20 percent of revenue for the Company -- now, I'm going by memory there -- in two to three years.

So a big piece of our business and growing very fast.

That will require ongoing revenue investment.

Where we are right now is we have a number of major design wins in that area, but no revenue.

And revenue will begin to -- so we will continue funding that, and then start to see the benefit of it in the fourth quarter this year as initial shipments take place.

The second area, I think everyone within the power world across the majority of our customer base believes the fastest-growing technology, and consequently revenue stream, in power will be point-of-load as a subset of distributed power.

So again, there's three aspects which I do think differentiates us from nearly all of our competitors on distributed power, in that we are investing and have significant revenue in all three parts of it -- AC/DC front ends, DC/DC bricks, and certainly point-of-load.

We will continue investing heavily in point-of-load, but also in DC/DC bricks, AC/DC front ends, and then the rectifiers as a new market area.

So I think, Steve, I would not say it is impossible, but I think you would be really hard put to find a competitor that is putting the equal commitment in those three product areas.

And then in the telecom world, the advanced telecom architecture will be a large investment area for us, both for the power and the embedded computer side.

That is a new architecture that telecom and wireless companies are attempting to create that will standardize platforms.

Some of your competitors also focused a little bit more on heading towards having some silicon type products, and I was wondering if that was something in the plans?

I'm glad you brought that up.

There's two distinct strategies across the power companies who are participating in the point-of-load.

We are fortunate that we believe we clearly have the leading market share and technology position today, but how do you make sure you do in the future?

Some companies are investing very heavily in their own silicon, and probably that is the right strategy for them.

We think for us there is a better strategy.

That strategy is working very closely with partners in the silicon world.

The first one was a question I guess Craig raised earlier, the point-of-load alliance with TI, working with that company and their investment in product development in silicon.

The last one we announced was Volterra, where we are their partner in design and manufacturing for communication applications.

Now, in the area of silicon -- and it's from point-of-load that companies are making that investment or because of point-of-load -- the partners that we have chosen to work with are silicon companies that sell discrete silicon devices into the point-of-load market.

Our customer base are those customers that have said yes, part of what we will buy will be discrete silicon solutions.

That is what they have always bought.

That's what point-of-load has been for a number of years.

We entered into it as a module alternative before other companies.

So our approach is to offer the customer, with a joint development efforts with these silicon companies, a module alternative.

Now, what you see with product announcements coming out from us and more and more that will be coming out in the near future is that we are coming to market faster; per device, we're spending less money; and we are able to address many more applications than if we were trying to fund all of silicon ourselves.

Okay.

Just two final quick questions.

One, if you could just give a breakout in the quarter maybe of your mix of AC/DC versus DC/DC?

And then second, in terms of the change in tax rate, will that switch to the 30 percent (indiscernible) rate in the first quarter or will that gradually get there?

Steve, this is Rich.

Looking at AC/DC in the fourth quarter, our AC/DC was approximately 65 percent and DC/DC was approximately 35 percent.

And that matches the comments that Joe made on improving revenue in the storage and server area.

So a little bit different movement.

Normally we're 60/40, so 65/35.

And point-of-load is certainly a part of that equation.

Looking at the tax rate, we recorded a level tax benefit, if you like, through most of the year, and when we were profitable in the fourth quarter of '03, we used the same percentage.

So that rate was calculated on an annual basis.

Going forward, as we enter into profitability, we expect the tax rate because of where our profits are made jurisdictionally to be approximately 30 percent, similar to where we were when we were profitable a few years ago.

We do expect, however, that the cash we used to pay taxes will be much lower than that, approximately half of that rate.

So cash out of the Company will be less as we use tax assets and the tax rate will be approximately 30 percent.

Great.

Thanks a lot.

Todd Cooper of Stephens & Company.

What percentage of revenue came from your top 10 customers in the quarter?

Let's see, Todd.

I will give you two numbers.

Seventy-two percent for the quarter; 71 for the year.

So it has been pretty constant throughout the year.

Do you mind listing those customers?

The three top 10 customers -- the three customers that are 10 percent of sales or better, the largest customer is HP, then Dell, then Sun.

Our top 10 list -- but I won't do it in a particular order or provide dollars for competitive reasons -- the other names that you would add to that list of the top 10 would be IBM, Cisco, Nortel, Nokia, Lucent, Motorola, and Alcatel.

Any more restructuring charges in the coming quarters?

We believe our restructuring is behind us.

We may have some stay bonuses and true-ups left in the few quarters going forward, Q1 and Q2, but we think it would be modest if anything.

And I did not catch your answer to the percentage of your business now that is customer versus standard.

Could you go over that again, please?

85/15, roughly.

85 custom?

That is correct.

Thanks very much and very good quarter.

(OPERATOR INSTRUCTIONS) Craig Irwin with First Albany.

Could you talk a little bit about turns business in the quarter and what the current outlook is for turns business in the first quarter of 2004?

As we mentioned earlier, we are entering the quarter with about 79 million of backlog.

So give us a little latitude on Joe's comments of approximately a flat quarter.

That would indicate turns business, we would expect of about 20 million in the quarter, which is a little bit less than we actually experienced in Q3 -- I'm sorry, Q4.

So basically, we are expecting the same kind of turns business based on our inputting order -- order input, I'm sorry -- incoming orders.

We're just a little bit higher rate than we were in Q3.

Great.

And could you comment a little bit about -- your sales to distributors in the quarter, could you give us a percentage of sales and then where you see this coming out over the next couple quarters and maybe what is driving that?

History for people, so it is in perspective, is a year ago our sales through that channel were about 12 percent.

This year, they have risen to 18 percent.

I would expect as we are looking at our numbers for next year that we will be around 20 percent.

The goal through that channel is to increase revenue.

That's why we created a stand-alone division, and so far that has worked well for us.

First it's standard products, then the volumes are smaller per order, so we realize much better margins.

That's why the investment from a P&L perspective.

From a market perspective, it gives us access to emerging customers, that with our sales strategy of dealing with the world's leaders, we would have missed in the past.

But this channel allows us to begin doing business with those companies before they become one of the leaders, so it is also a development issue.

Great, thank you.

Also, if you could talk a little bit about wireless.

You are more or less in the same standpoint over the past couple quarters; you saw some nice growth there.

Can you give us a percentage of sales in the quarter and comment on where you see things heading and what is driving that as well?

The quarter and the year are pretty much the same, give or take a percent, and that is 25 percent of our revenue stream is wireless.

It would appear next year that will be about 30 percent of our revenue stream.

Excellent.

And then, I guess it was a couple quarters back on one of your conference calls, you mentioned that you were leveraging your manufacturing in areas like Hungary to introduce new products like RF power amplifiers.

Could you talk a little bit about this, how this strategy is playing out and what sort of a contribution you think this product line or these product lines could make in the future?

Hungary is at this point -- that is not to say it won't change in the future depending upon customer demand -- but at this point we are configuring Hungary to be a manufacturing center for wireless products and power systems/rectifiers.

And their volumes are growing as our wireless business is, but the factory is greatly underutilized at this point.

As these power systems or rectifiers come online towards the end of the year, it will begin to have a major impact on that facility.

The power amplification, same story, although we'll be getting revenue sooner from those product lines, enjoying growth from those through the whole year.

As a percent of revenue between power amplifiers and power rectification, in two to three years we expect combined that they will account for about 25 percent of our revenue stream.

Great, that's pretty good.

Thank you very much, Joe.

Steve Smigie with Raymond James.

Just following up, I was wondering if you could comment a little bit on the status of the Typhoon product.

For those that don't know, the Typhoon product is a DC/DC brick product line.

We like to think of it as the leading-edge product in the industry as far as density and efficiency.

That product was introduced call it six to nine months ago, and we are receiving design wins with it.

The volumes are still low, but that was to be expected.

Again, to remind people, it is about a 12-month cycle from the time we introduce a product and begin sampling production-ready modules before it hits volume production due to the customer's design cycle.

It has accounted, by the way, for a real change in perspective of Artesyn from a customer's point of view as far as a leader in DC/DC technology.

And I think it is very fair to say the vast majority of our customer base -- these are communication customers and computing guys -- would acknowledge that this is the leading-edge technology and consequently Artesyn the leading-edge technology company in DC/DC.

So while I would love to tell you we are shipping 50 million a quarter, we are not.

But it is pretty much on plan from where we would expect to be.

Okay, great.

And just curious, you previously had an investment in Artesyn from Delta Electronics, and obviously that investment is no longer there.

But at that time, you had talked about some possible strategic relationships and codeveloping of some products.

With the removal of that investment, has that collaboration also ceased entirely?

The approach that we have taken now -- and I hold Delta in very high esteem -- the approach we have taken is to work closely with silicon companies as partners.

And our bandwidth, I think as any company's, is limited with how many partners in different areas can you work with.

And we have determined that we can get to market faster and with more products addressing far more applications with silicon partners like TI and Volterra, the two that had been announced so far, than we can by working with another power company.

And have you seen any of the Taiwanese companies continue to try to come up the value chain themselves or have they pretty much just been confined to the adapters etc.?

That is just like the manufacturing issue outside versus inside is the ongoing strategic discussion.

That is an ongoing strategic discussion, because they do have costs that would impact us.

While we think we would match that, it's still nice not seeing them in certain sectors.

So we still don't see them in the wireless sector, certainly not the two new markets we have entered, rectifiers and power amplification, and we really don't see them in the high end of the server area.

So are they trying to move up?

I would, but we are not seeing that be particularly effective.

Where they are extremely good as competitors is in the mid- and low-range server market.

We also don't see them significantly in the storage business either.

Great, thank you very much.

Alan Mitrani with Copper Beech Capital.

If I take your first quarter guidance, it seems like your orders were up 20 plus percent and your backlog was up about 18 percent sequentially.

Yet you're guiding -- and you already seem to have a good portion of your revenues in the first quarter -- you're guiding only to flattish revenues in the first quarter.

Can you give us a sense as to what you're seeing so far in the first quarter that leads you to be that conservative?

Alan, after having been through three years of what our marketplace and consequently ewe have been through, I think just as our customers are attempting to be cautious in their outlooks for the businesses until they their -- call it a more solid footing, we are taking the same approach.

And while demand is very robust right now and the first month of the quarter seems consistent with what we have been talking about, I think it is prudent on our part to take it slow and easy, if you will, as far as building expectations looking into this year.

That's fair.

Also, I appreciate that conservatism.

And the other thing is, if I do you assume you do flattish revenues, that almost applies -- if I take your guidance for the year of high single digit and low double digit, that almost implies flattish revenues the rest of the year.

And judging by the seasonality that you normally experience, doesn't seem to be the case.

So glad to see that it is conservative.

Right?

I should look at that as conservatism?

Well, I'm not sure I understand what you just said.

If I take the first quarter and just use $100 million in revenues, flattish, you're guiding us to high single digit, low double digit for the full year, correct?

That's right.

So I take 356.871, let's say grow it at 10 percent.

That gets me to 392.

If you are already going to do 100 million in the first quarter, that implies declining sales the rest of the year, which you normally don't see given seasonality, which is better in the second quarter and the fourth, right?

So can I just chalk that up to conservatism given where you are?

We would expect to see sequential revenue growth through the year.

Thank you.

That's what I am looking for.

The other thing was, can you talk about -- how much of your growth is built in from the perspective that you have rectifiers and others coming towards the end of the year?

I think it is all built in.

Any project, for those that have been following us over the years, they appreciate there is a ramp stage.

And when products initially hit production, the volumes then take off a quarter or two quarters after that.

And I missed -- you now have just the convertible debt, correct?

You paid off 10 million of debt this quarter roughly?

Right.

We have availability under our arrangement with Fleet, but we have nothing drawn under that facility.

And the shares actually were higher.

Were there options in here that come in?

What is a good share count to use for this coming year, assuming you're going to be profitable every quarter?

We would have to predict a share price, which we are unwilling to do.

But we would say that diluted shares for next year will be 40 to 41 million.

Lastly, if I can, to understand why it is that you think you're only going to be breakeven to slightly positive in the first quarter, even if R&D is going to go up.

It seems like this quarter you almost did 5 cents, if I normalize for a little bit of a lower share count.

Shouldn't you get a bit of the benefit from higher gross margins rolling through and then just operating leverage?

Again, as I tried answer this question earlier, it is very difficult when you are trying to address the earnings expectations, to refine it as detailed as 1 cent, 2 cents, or 3 cents.

So I think that the approach that we are recommending is the correct one, which is it is about breakeven to modestly profitable, to expect managers to -- I think to give guidance more precise than that would be inappropriate.

That is fair.

If I could ask one more.

Your gross margins moved up nicely.

Some of this I guess is because of the closing of the plants that you did in the couple quarters last year.

How much of the gross margin improvement in the fourth quarter was due to shutting the plant in the third that you did versus how much is just better operations and getting the leverage?

Off the top of my head, Alan, I do not know the answer to that.

It is a combination, because we enjoyed the benefit of reduced costs in Ireland over several quarters as it was ramping down.

Okay, thank you.

Good numbers.

Alan Shane (ph) with J. Goldman (ph) and Company.

I just want clarify the revenue expectations that you were talking about.

In the press release you talk about single to low double digit revenue growth for 2004, and I am just trying to reconcile that with the sequential revenue growth that you spoke of in the previous question.

Over the year, we are pretty comfortable that it will be high single digits to low double-digit growth.

I did say sequential.

I'm not sure in fact that that was a correct answer.

I think that what we want to look at is that over the year, we are going to start the first quarter at 100 million, and over the year we are going to see growth somewhere in the high single to low double digit range.

So is that from the first quarter through the fourth quarter?

It is for the year in total.

Using the 100 million as the base, that is what the context was of that comment, yes?

That's right.

Okay, thanks a lot.

Thank you.

It appears there's no further questions at this time.

I would like to go ahead and turn the time back over to the Company for a closing comment.

Thank you for joining us on today's call.

We appreciate your continued interest and support in Artesyn and invite you to listen to our first quarter teleconference on April 20th.

Thank you.

This concludes today's conference call.

Thank you for your participation.