Flex Ltd (FLEX) 2003 Q2 法說會逐字稿

Hello everyone and thank you for joining us for today's teleconference.

I would like to remind all parties on the line will be in a listen only mode until the question and answer portion of this call.

Also, this call is being recorded at the request of Flextronics.

Should you have objections, you may disconnect at this time.

I would like to hand the call over to the Chairman and Chief Executive Officer of Flextronics, Mr. Michael Marks.

Sir, you may begin.

Okay, ladies and gentlemen, thank you for joining the conference call to discuss the results of the second quarter, ended September 30, 2002.

On the call with me today are Bob Dykes and Tom Smach, we are all in different locations this afternoon so bear with us when we get to the Q&A.

To help communicate the data, you can view the presentation on the internet.

Go to the investor relations section of our website and select Earning Announcement Presentation.

You will need to click through the slides, so I will give you the slide number I am referring to.

Slide 2, please note this conference call contains for the looking statements within the meaning of the Federal Securities laws including statements from expected results in operations and financial positions, trends in our industry, new and existing customer activities, end market demand, relationship with key customers, earnings leverage, operating results, profitability and restructuring activities.

The statements are subject to risk that is can cause results to differ materially.

Information about these risks is noted in the earnings section at the end of this presentation and with our SEC filing.

Slide 3, as announcing the press release, we had $3.3 billion, which represents a 3% increase from a year ago and 7% sequential increase.

Pro forma net income before amortization and unusual charges rose 33% sequentially to $40 million or eight cents per diluted share.

We had no restructuring charge and pre-tax amortization amounted to $5.9 million or one penny per share.

Slide 4, on a sequential basis, gross margin improved to 20 basis points in the quarter to 5.5% while SG&A declined $4.8 million or 40 basis points to 3.3% of sales.

Operating income increased 38% or $19.9 million in the quarter.

Other expenses increased by $8.9 million as a result of a $4 million increase in net interest expense resulting from $437 million of payments made from our previously announced acquisitions.

In addition, as a result of volatile intra-quarter currency fluctuations in Europe and Japan, we experienced a $4 million foreign currency loss in the quarter versus a $1 million gain in the prior quarter.

We currently hedge over $300 million foreign exchange exposure and while we may experience some quarterly fluctuations in foreign exchange gains and loses, we have come close to parity on an annual basis.

Return on invested capital improved 160 basis points to 6.2%.

Slide 5, at the end of the quarter, we have $499 million in cash and a 20% leverage ratio.

Appreciation and amortization was $85 million and capital expenditures were $56 million.

We expect quarterly expenditures to stay in this range through the rest of the fiscal year.

Liquidity exceeded $1.1 billion, which we feel is sufficient to support the business needs for the foreseeable future.

Slide 6, pro forma cash flow from operations was $195 million in the quarter.

We expect to be able to continue to generate positive pro forma cash flow from operations for the remainder of the fiscal year.

Slide 7, we continued to deliver an industry-leading cash conversion cycle.

Inventory turns increased to 9.2 times last quarter to 9.9 times in the current quarter.

DSL improved by four days from 52 days last quarter to 48 days this quarter.

Accounts payable decreased from 61 days last quarter to 58 day this is quarter.

I think we can further improve the DSO's, we believe that we have achieved a satisfactory cash conversion cycle.

Slide 8, as we discussed, customers continue to require us to improve production and as a result Asia has begun growing quite rapidly.

Slide 9, communications infrastructure was 15% of revenues, major customers in the segment were Ericsson, Motorola, Nokia, Siemens and Telia.

IT infrastructures was eight percent of second quarter revenues, major customers in this segment include Alcatel, Dell, EMC, Anterasis, Fujitsu Siemens and Hewlett Packard.

Our key infrastructure includes products like network switches, HUBS, routers, servers, tape and disk drive, storage systems and main frames.

Computer and office automation were 30% of the second quarter revenue.

Major customers in this segment include 3Com, Dell, Hewlett Packard, In Focus, Microsoft and Xerox.

We continue to win marketshare in new programs from most of these customers.

Consumer devices were listen 11% of second quarter revenue.

The Microsoft X Box is the largest customer in this industry segment.

Hand held devices were 29% of second quarter revenues.

Major customers are Alcatel, Motorola, Nokia, Palm, Siemens and Sony Ericsson.

Lasty, industrial, medical and other was about 7% of revenue.

Slide 10, the current quarter, HP and Sony Ericsson represented 17% and 10% of total revenues.

Our top ten customers accounted for approximately 70% of total revenues.

We've experienced a one-time benefit during the September quarter from HP's substantial new product introductions over the summer.

Slide 11, the second quarter was solidly within our range of expectations and the December quarter is also expected to be in the range of our previous guidance which is for revenue of approximately $3.4 to $3.6 billion and 9-12 cents of pro forma EPS.

The higher end of the range would represent record quarterly revenues for Flextronics.

We have limited visibility into the March quarter as it will be largely depending on end market demand after the Christmas sell through.

Our business mix has shifted towards consumer and hand held devices resulting from the weakness in the communications market and as a result investors should expect a higher than a historical seasonal decline for the March quarter.

Our current view of the March quarter is similar to what we experienced in the September quarter with revenue in the range of $3 to $3.3 billion in sales and five to eight cents of earnings with a conservative buy towards the low end of the ranges based on what we say are admittedly preliminary projections from customers.

Results at the higher end of the ranges can happen if Christmas is relatively strong or if we get improved performance in the circuitboard business.

As previously discussed, the multech printer circuitboard businesses represented a substantial loss in the June quarter of approximately five cents per share.

In the September quarter, revenue increased sequentially by over 15% and the loss declined to under four cents per share.

We continue to win new business the competitive environment with regard to pricing and mix is slowing the return to profitability evens revenue increases.

Key customers continue to recognize that multitask staying power and the most attractive state-of-the-art footprint in the industry.

Our multifacilities in Asia are doing well, but most of the other factories are under utilized.

While our current circuitboard capabilities continue to play a larger role in our vertical integration strategy and remain strategic to the company's long-term strategy, we will be forced to reduce cost to optimize the bottom line.

It is interesting to note there is a clear trend in the market place for customers to switch to suppliers who can clearly survive the current turmoil.

This is true in the printed circuitboard and in the enclosures business where many companies are in serious financial difficulty.

It may even be true in the assembly business.

This trend clearly is benefiting Flextronics with increased marketshare and will almost certainly lead to improved pricing if the trend continues.

Your first and last name, please.

Wait.

Please take that offline.

Over all we are quite pleased with the performance over the second quarter.

With end demand in terrible shape, we continue to increase our marketshare, while driving some of the best financial metrics in the industry.

Our balance sheet and cash flow are strong.

The current turmoil in the industry is creating many new customer opportunities and as has been the case, we expect to continue to win our fair share.

For example, in Europe alone, we have more than $1 billion in new business this year that comes from a variety of sectors like automotive, medical, test, storage and computer and as well as many other product categories.

Slide 12, investors asked me recently about a couple of issues I would like to address.

There is obviously a concern about end market demand, about current and future restructuring, and about the value of the industry on a long-term basis.

Let me provide some texture on these issues.

About in demand, we know what you know.

Most markets in which we operate are weak, period.

Datacom and telecom continue to suffer, consumer and handhelds are stable, but not growing.

This time will pass, but for now our customers are struggling.

The EMS industry has the ability to [INAUDIBLE] new outsourcing opportunities, while our customers can do very little to offset the downturn.

In terms of restructuring, they were out in front, repositioning ourselves for the current environment.

All the business segments are in good shape and little or additional restructing should be required.

With [INAUDIBLE] while we like our current footprint capabilities, we have only so much tolerance for losses.

It is possible that we will decide to close one or two additional circuitboard factories if demand and pricing don't improve.

Our competitors are clearly going through ir own restructuring.

I believe there will be more.

Contrary to the perception of many, I view this as healthy.

The industry is becoming real lined to current demand.

The process is unpleasant for employee and investors, it is essential tote health of our business.

Every new restructuring announcement brings us closer to a healthy supply and demand situation.

And that brings me to the final issue.

This is a vibrant industry going through wrenching changes.

Our customers need us more all the time.

They've expanded outsourcing for manufacturing to design and logistics.

They can no longer operate without a number of healthy EMS suppliers and I believe this holds quite well for the future.

I am confident we will look back time and wonder how companies ever sold at or below tangible book value and while I don't expect magic in a few quarters, I am betting the future is bright and I am betting with my own money as you are probably aware.

Slide 13, there are real risks of operating this business as investors should appreciate and we have laid out some examples here.

Please pay attention to this slide in light of current market conditions.

With that, let me turn over to the operator to poll for questions.

Limit yourself to one question and one follow-up.

Operator?

At this time we are ready for the question and answer portion of today's call.

If you have a question, press star one on your touch tone phone and we will announce you prior to your question.

Once again, if you have a question, please press star one now.

The first question is from Lou Mesiseca.

Go ahead, your line is open.

Hey, Mike, I was wondering if you can talk about your SG&A control.

It looks like in the quarter you all did a pretty good job.

Should we flatline that number going forward or drop it a little bit because of the restructuring?

Yeah, thanks for pointing that out.

I am thrilled with the financial matrix.

I mean, 3.3% [INAUDIBLE], that's probably as well as we have done and with the mix of business we had with design and printed circuit board and all of that, we always had a long-term target of 3% and never thought we could get there with this mix of service offerings.

We are doing a terrific job in my opinion.

I don't know, it will fluctuate to a certain extent.

The December quarter I will expect it will decline because revenue will go up.

In the March quarter I think it will increase again cause revenue will go down.

This is probably a good base line.

Our long-term plan is still 3% and we will do everything we can to get there and have it be that way in good revenue quarter and bad.

That was one of the notable achievement and the other being inventory turns.

I'm pleased with the operating performance and both are good.

I can add that we have additional operations in the December quarter that are [INAUDIBLE] G&A expenses.

With the closure of Casio and [INAUDIBLE].

That will contribute to some increase.

The percentage of revenue may even go down in the December quarter and climb up in the March quarter.

Great.

One quick follow-up.

I guess it has been some indecision as to how good the pipeline for 2003 just for the industry and not necessarily guidance for Flextronics.

I know talked about it a little bit at the analyst meeting, but you can give us your view and people have talked about the pipeline being from $10 to 15 billion about a year ago and others are put together in the $5-10 billion range.

Will there be deals over the next quarter and 2003 or because of the difficulties that they're having worldwide will come out slower?

I think that I would say maybe it will come out slower in terms of the big deals.

We feel like our pipeline is robust.

Maybe it's not as dramatic in terms of the size of the deals, but as I go through our pipeline, I would say it's probably as healthy as it has ever been.

There is all kinds of new stuff going on, new for Flextronics, so I'm not sure if I can speak for the industry as a whole.

You know we are getting a greater penetration into automotive markets and medical markets and industrial markets.

Some of our smaller operation that is don't get a lot of attention, I just did a tour of factories and Europe and they are filling up nicely with lost of 10 and 15 and 20 and 50 million pieces of business and the pipeline looks to me as good as it has been for us.

When you look at the big deals like the Lucent thing which has been in the news and [INAUDIBLE] Philip and stuff, as you said many times, there is plenty of opportunity here, but the OEM's are struggling, the deals are uglier and it's clear that it's good news for us, for the industry, and for the investors that you some of the excesses in the deal that is have taken place in the past are going away so that EMS players, the large guys like FLEX are not pursuing transactions that come with a lot of factories and bad things.

The unraveling of the Siemens deal and the unraveling of the Lucent deal, these are all healthy trends in my opinion, because the deals that will be done will be better deals.

Since I don't think any of us are chasing for revenue sake, there is plenty of good, healthy pipeline and I think the Xerox deal and the Casio we did, there is that stuff in the pipeline.

You have to remember a lost stuff has come out and people ask this and it takes awhile to build a pipeline [INAUDIBLE].

You look at the Flextronics deals that have been done, we are closing the Casio deal now and that's $100 million a year, that's a pretty big transaction.

There is plenty there and I'm not concerned about it.

Great, thank you.

Our next question is from Steven Savvis, your line is open, sir, please state your company name.

Goldman Sachs.

In the quarter that Microsoft released.

They talked about X-Box shipment delays in the order of 500,000 to a million units.

I was wondering if you can comment on the volume you produced in the September quarter and there for it might be an additional pent up demand you see in the December quarter?

To answer your question, I haven't seen that.

They didn't discuss that with I can't give you much detail about that.

We are still the only provider of that product and how well that will do is important issue to us and an important issue to Microsoft, but we are entering the selling season and I don't know what it will look like and what will happen after Christmas in that product.

I can't give you specific numbers around any customers.

A small quick question on good will.

Are you doing your impairment review and is that by fiscal year end?

Bob, you want to answer that?

Yeah.

We are required to do an impairment review by fiscal year end.

As you know, it looks at the total market cap of the company instead of stock price.

We need to do the review by then and we can do it earlier if there is a need.

We can't make a judgment call on that, but it's at the end of the year.

Thank you.

Our next question is from Jim Savage, your line is open, sir and please state your company name.

Thomas Weisel Partners.

Can you talk a little bit about the expected revenue contribution for the Casio deal in the next couple of quarters?

Casio is between 400 and 500 million.

Annually?

Annually, yeah.

It will be less in the December quarter.

That will be relatively stable business.

Like the rest of our business, it will drop some in the March quarter and be stronger in December, but we are just take together over now.That will be around 100 million as a reasonable projection per quarter.

The numbers haven't changed from the original which was in the low 200 millions annually.

So between the two it's around $150 million a quarter in incremental revenue?

That's right.

Which would indicate you are not seeing the normal seasonal upkick for December at this point?

That's spread between September and December.

The September numbers were in the high end of the range and we're pretty good.

You get a fair amount of build up and products for the holiday season start in September.

They die in December.

When you think about how the quarters are, September and December, December quarter has more seasonal ups, but September is also seasonal up and nothing happens in December, basically.

Right and you have weakness in the March quarter partially because of the Chinese New Year and the seasonality?

More seasonality.

Chinese New Year is smug produce around and doesn't have anything to do about demand.

I will make a comment about the March quarter.

We will probably be at the low end, but nobody really knows. [INAUDIBLE] that may not be the case.

We are not really depressed about the business.

We talked about the analyst meeting in the last conference call.

Things are stable out there and we have more orientation than in the past.

We expect a bigger seasonal drop in the March quarter than will be normal for us.

It will be around that and not the Chinese New year.

It will be what and it is will be a respectable quarter.

Should you generate cash in the December and March quarters?

Absolutely.

Talking about cash generation, we will be profitable in the December and March quarter.

We will have capital expenditures less than depreciations.

That's the baseline.

Then there's working capital changes.

We are doing a fine job in capital changes.

We have DSO where it belong and inventory turn where it belongs.

We can increase that a little bit that will generate cash and payables are pulled in the way they should.

At 61 days we were out there more than we should, but 55 to 58 days is probably normal in the environment.

In the December quarter you will will use up working capital because revenue will go up.

In the March quarter we will add from a decrease in working capital.

I expect both will generate decent cash flow.

One question while you didn't announce it directly, you are hinting very broadly that there will be a restructuring charge on PCB's or likely to be one.

I will address that openly because it's more than a hint.

It's our direct thinking.

Asia factories are in good shape.

We grew revenue more than 15% quarter to quarter in a business where revenue is not growing.

We are encouraging about that and we have a decent pipeline.

The Asia factories are profitable and we are losing money in Europe and North America.

We have good factories and good General Managers in these locations.

It is a hint in the sense that hate losing money.

We're losing almost four cents a quarter in the business, there's only so much we can stand, that's exactly what I said.

That's what I meant.

In a sense, you are losing almost $20 million a quarter.

You might as well have a restructuring charge you should hear what I'm saying that is there no more factories we want to close.

We would have already if we wanted.

We are talking to customer and watching what's happening with the competition.

We are taking cost out of the facilities and we would like to keep them open.

If we think we will continue to lose $20 million a quarter, we won't keep them open, it's that simple.

This is an intensive process at our company because of the various issues we would like to fix.

Working capital is under control and we are making money over all and we are losing more than we would like to lose.

We're having a hard look at that right now.

If we think we need to make a restructuring there, we will, but we are hoping not.

It's not like the business is getting worse.

It's getting better.

We have to project that out and see where we want to be at the end of all this.

Thanks, Michael.

The next question comes from Michael Morris, go ahead, your line is open.

Good afternoon.

Michael, over the course of the summer and we used the word stability or stable.

I was wondering if you can tell us about the course of the quarter.

It seem that things got less stable in September into October from where we said.

I was wondering what you saw and if it varies by geography [INAUDIBLE].

Sure.

I will give you the texture that I can.

One of the nice things about the industry is there a lot of things not to like.

One of the things to like is where we sit where Flextronics and the other big guys operate across the segments.

I think you have seen in our numbers over the last year or so, we make the high end of our December range and we will be at record revenue and clearly this has been a lot of shifts geographically and by industry segment and we have been successful.

When I talk about stability and when I have talked about it over the summer and at the analyst meeting, there the usual puts and takes.

If you look at industry segments, we had -- even by segments it's stable.

Not so much within companies.

There is market share gains and losses taking place, but you look through the quarter and July, August, September and looked at the forecast that we roll-up every month.

The numbers stayed about the same.

That's what we like.

We can tell you what we think will happen.

We are comfortable about that.

Within those numbers, however, there continue to be changes.

Companies are as you see from Lucent's announcement and some of Ericsson's announcements, the business continues to deteriorate in the quarter.

The businesses deteriorated during the quarter and we had upsides.

It's interesting to look at the upside and maybe this will help when you think about the industry.

Some customer who is reported disappointing revenue numbers were giving us up during the quarter.

I find that an interesting set of metrics because basically what that tells you is that the operations people who are placing orders have been very conservative in the forecast and assuming that sales wouldn't happen.

In fact, as the quarter went on, we saw upsides from the customers as it turns out and sales were better than expected.

Even though the companies announced disappointing results.

You have all this stuff going on with people second guessing what is going to happen and it makes for a little bit of confusion.

But to answer your question, our quarter was stable through the quarter and December looks the same as a few months ago and the quarter looks [INAUDIBLE] and yet there is some deterioration.

If you look at it by geography, the U.S.-based beta com and telecom, we are struggling in U.S. operations.

We don't have that many, but we are struggling to have them filled.

Asia is booming as it has been and will continues to boom.

Europe is improving quite a bit we won businesses from smaller considering the business in Europe has been improving.

The customers themselves are a bit more stable than the American technology companies.

That's about the best I do.

I hope that answers your question.

It does, that's helpful.

Let me switch gears on you here and ask the obligatory handset question.

I will try to cover that.

There is clearly a transition from monochrome and 2-G to color screen and fancy phone and cameras.

Can you talk about how you see your franchise transitioning?

It appears that you are leveraged to that on the newer phones.

You can talk about that and I know you get ask about, and I know you get asked all the time about the competitiveness of the Asian ODM and EMS companies, but can you differentiate their ability to compete on the low end phone versus the newer generation phone?

I don't consider it obligatory.

Handhelds are 29% of our business and you guys have got to drill down a bit, that's fine.

We are pretty bullish about that.

I'm not sure about the company view or if the company has a view.

But I'm pretty bullish about the business.

What you have here is market share shifts.

Everybody reports market shares and you know who is gain and lose and we are doing enough business that it's a stable business for us.

Hand set sales will be about the same this year as last year as compared to some of the other segments, so that's awesome.

There is two basic changes going on in the business.

One is that there is lower end product coming available, mostly from the ODM and Flextronics.

We are comfortable that we will participate in that shift at least as well as the others if not better.

Then from the standard ODM, they're coming out with more fully featured phones, color, cameras and the prices are coming down.

They will be good.

There is a lot of buzz about them and the newest ones are too expensive and the prices will drop.

Between the two activities, between lower end phones that can expand the market, and more fully featured phones that can give people something new to be excited about, we think that will be a very robust sector going forward.

We like this phone.

We are not concerned about the sector and think we will participate well.

A large portion of the phones we build have color screen and 2.5 G capability.

Thanks.

Our next question is from Alex Blandon Go ahead your line is open and please state your company name.

Ingalls and Snyder.

Michael, I would like to go back to the pipeline question.

I think this keeps coming up on different conference calls.

When you talk about the pipeline and you talked about 10-15 billion in the past and 13 billion in the another case.

You are including organic as well as asset divestitures are you not?

Absolutely.

This is total business available, organic and inorganic.

Where as [INAUDIBLE], they talk about the pipeline, they talk about only asset divestitures.

They said the pipeline is lower and it's like in the $5 to 8 billion range and that's a totally different pipeline than what you are talking about.

That's correct.

I wanted to clear that up.

I think it has been confusing on different calls.

I can sort this out a little bit for you.

When you talk about organic pipelines, that comes in two flavors also.

New opportunities, new customers or product lines with an existing customer that you are not already penetrated into and new programs that will effectively replace existing products.

I don't know how you want to define this.

I think a pipeline of 5 to 8 billion like in divestitures is probably, I would think that is a rational number.

We see another 5 to 10 billion in these other categories.

We don't make a big deal about the numbers.

It's plenty.

We can continue to replace business deteriorate and grow the business.

It's plenty.

Would you agree that some of these plants for sale before have been taken off the market because they are not selling?

Nobody wants to buy them and they're not for sale anymore.

That lowers the pipeline for the asset purchases.

It doesn't mean the stuff won't be out sourced.

You hit it on the head.

Part of the reason is a lot of us are saying don't even think about this.

That may drop out of the immediate divestiture pipeline, but for absolutely sure it moves into the organic pipeline.

It's not all of a sudden they decide they want these [INAUDIBLE] but they have to close them and move the business out.

That's why there is plenty of pipeline there.

One other thing.

I missed the percentages on your 10% customers.

It was 17% for Hewlett Packard in the September quarter and 10% for Ericsson and in December the HP will drop.

That was a higher number than is sustainable.

They did new product production and ramped stuff up in the September quarter.

In the printer area?

That's right.

HP is a big customer for printers and the primary sector, but we do work in design and logistic and enterprise.

It's a robust customer, but the ramp up was in new printer products.

Thanks.

Our next question is from Thomas Hopkins.

Sir, your line is open and please state your company name.

Behr Sterns.

Can you give us a sense of, we went through a period 12 months ago where the OEMs were most noticeably Cisco and HP consolidating in their [INAUDIBLE] or talking about going from 12 to 6 or 10 to 4 and then it died down and seems like it resurfaced.

What's your sense on the top 20 hardware OEMs, high end and low end.

If they settle on the number of the providers they want or if they are still moving things around, I am talking about core programs of yours and other competitor and if they are shopping them around, not the new stuff, but core programs.

I would say not too much movement.

I will give you texture about that as well.

There is new discussion about the OEMs cutting down number of suppliers, but that has to do with businesses have gotten smaller.

Particularly if you look at the telecom companies, whatever they are, when a company said we are going to four, most of that is past us.

Then they find out the business is 30%or 50% less than they thought and they are re-evaluating whether is the right number or going to two.

I think that's not an unhappiness as much its recognition that there is less business to go around.

That's happening at the supply base and circuitboards and enclosures.

Not much movement.

You have factory acquisitions.

They were down a few years ago and coming up for renewal.

That tends to get shopped.

Not moved, but shopped.

You have a bit of that and this is also reasonably stable.

Okay.

Secondly, you have a good relationship with Microsoft over the last four or five years or so.

A couple of new product introductions which they seem to prefer the Taiwanese 4 and the tablet PC and they mentioned the Microsoft cell phone which won't be for 18 or 24 months or so.

And Flextronics hasn't been mentions which could be big volume products like the X-Box.

You probably don't have the correct reading of that.

We have a superb relationship with Microsoft.

They say that about us too.

It's a very good relationship.

On the tablets, we are not just in the notebook business, period.

Haven't ever been, maybe some day, but we never built a notebook computer and it's obvious they use a different supplier there.

We are comfortable with this project and all of that.

Microsoft is doing more and more work in hardware area and we are engaged in all kind kinds of stuff.

We will be there plenty.

No reason to read into those particular announcement that is we are out of state from them.

Far from the truth.

Do you have insight into cell phone efforts?

Probably, but we don't make comments about what companies are thinking about doing in the future.

Great.

The next question is from Todd Copeland.

Please state your company name.

Good evening.

CIBC World Markets.

Could you quantify how much you think HP will drop in the December quarter?

I expect a 10% customer, but we are noting to predict an exact percentage.

We wanted to point out that there was a bunch of new product introductions that was a good volume and I didn't want anybody to think when it went down that it was more meaningful than that.

Still likely to be our biggest customer.

I should point out that that's all in the guidance which is 3.4 to 3.6 billion per quarter.

That's right.

Great.

Coming back to the seasonality for a moment, probably one of the largest swing factors is on the hand set side.

When will Flextronics know whether or not you got upside or downside sell through from a hand set perspective in the quarter?

I don't think we will really know or have meaningful information until towards the end of the quarter.

People sell hand sets year round.

Stuff heavily Christmas is December Orient and a lot of it late December.

People will be -- our customers will be assessing how they did versus expectations in the planning cycles.

That will be early in the March quarter, probably in January is when we will get a sense.

We will tell you that.

That's why people have to know how Christmas will be and March quarter going to be.

How can we know that?

The customers don't know and nobody does.

People are pessimistic about this Christmas, but we may be fooled.

Hope we are.

We probably won't know until January the impact on March.

I will take two more questions.

I have to catch a plane.

The next question is from Michael Walker.

State your company name.

Credit Suisse First Boston.

My first question is to the gains of the restructuring flowing through already or expecting upsides to the market structuring as a result of the restructuring?

We are expecting to increase the margin and some has come in for sure.

This isn't our plan for 5.5% gross margin going forward.

We expect we will continue to have improvement overtime.

My follow-up is on the IT infrastructure.

That seemed to be surprisingly strong for the quarter.

Is that a result of organic win or about there being upsides to the weaker customers?

That was probably mostly new business wins.

I don't think we had a lost strength in that sector in the quarter.

Thanks.

We had new customers.

Your next question is from Chris Whitmore, your line is open.

Please state your company name.

Deutsche Bank, good afternoon.

I wanted to understand assumptions better on the circuitboard business that's built into this guidance.

Are you anticipating this continued rate of losses?

We are.

Yes and no.

As I said, we lost five cents in the June quarter and less than four cents in the September quarter.

We are going to get improvement to that in the December quarter, but we have under utilized operation and we are running out of capacity in some of the Asian locations.

We have underutilized factories in North America and Europe.

We are losing money in those.

Those are primarily high end computing and high end datacom products.

If we don't get improvements in the end market segments, we continue to lose money in those facilities in Europe and North America.

We can get improvement as we fill up China, but they are getting filled up anyway much our current look is without pricing improvements, we will continue to lose two to three cents a share and that's not acceptable.

I will say we gained share in the quarter and there is a lot of instability among the smaller and actually the bigger suppliers and the outlook can change positively pretty quickly if we get a bankruptcy here and the customers are getting more and more service.

That's why we were able to increase revenues in September quarter.

We don't want to take capacity out and find out a couple of guys will go broke and we have no place to put the business.

This is a tough decision for us.

We may tough it out.

We will have to say that's why we are talking to customers to see what they will do.

Our revenue is growing.

It will grow in December and get less.

We are not happy about losing money, period.

We have to look at that pretty hard.

There are losses projected in the guidance for the next couple of quarters and of course an improvement in that area we hope our gross margins are going forward where we see a longer term basis when they are held and we have more utilization there to get back to the gross margin?

That's right.

I actually have to go.

We did have a long analyst meeting here not to go ago.

If you have additional questions, follow-up as usual.

That's the basic drill.

Just to recap, we thought it was a solid quarter and December will be a solid quarter.

We have to wait and see for March turns out Metrics are good and we are running the company effectively and improving the cash flow position and improving inventory.

Mike Maranera's team is doing a good job of getting coordination around the world.

We have plenty of pipeline and the sales guys are busy and active in the market and given the world around us, we are feeling good.

We will work pretty diligently to get the operating profit and gross margins up so we can have some upsides next year.

That's the stuff we are working on and over all we are comfortable with where we sit.

Thanks for calling in and we will talk to you mid-quarter.