Flex Ltd (FLEX) 2009 Q2 法說會逐字稿

Good afternoon, and welcome to the Flextronics International second quarter fiscal year 2009 earnings conference call.

Today's call is being recorded, and is the copyrighted property of Flextronics.

Any rebroadcast of this information in whole or in part without the proper written permission of Flextronics is prohibited.

At this time for opening remarks and introductions I would like to turn the call over to Mr.

Warren Ligan, Flextronics Senior Vice President, Investor Relations and Treasury.

Please go ahead.

Thank you, operator.

And good afternoon, everyone.

Welcome to Flextronics conference call to discuss the results of our fiscal second quarter ended September 26, 2008.

On the call today is our Chief Executive Officer, Mike McNamara; and our Chief Financial Officer Paul Read.

The presentation that corresponds to our comments today is posted on the investors section of our website called calls and presentations, we will refer to each slide number so you can click to the appropriate slide.

In today's call, Paul will review our financial results and discuss our current liquidity position and debt profile.

Mike will give his view on the quarter and current business climate as well as provide guidance for the upcoming quarter.

Following Mike's comments we'll open up the call for your questions.

Please turn to slide two.

We note that this presentation contains forward-looking statements within the meaning of the US Securities laws, including statements related to revenue and earnings guidance, future cash flows, ROIC, SG&A, and capital expense levels.

Our expectations regarding our business and the current economic environment, the expected benefits from our geographically diversified businesses, and our broad-based product, service, and component technologies offering expected improvements in inventory management and our expectations regarding tax benefits, after tax intangible amortization, stock-based compensation, and our ability to generate expected free cash flow.

These forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from those anticipated by these statements.

Information about these risks is noted in the earnings press release on slide 21 of this presentation, and in the risk factors and MD&A sections of our latest annual report as amended, filed with the SEC as well as in our other SEC filings.

These forward-looking statements are based on our current expectation, and we assume no obligation to update these forward-looking statements.

Investors are cautioned not to place undue reliance on these forward-looking statements.

Throughout this conference call we will reference both GAAP and non-GAAP financial measures.

Please refer to the schedule to the earnings press release, slide 10 of the presentation, and the GAAP versus non-GAAP reconciliation in the investor section of our website, which contain the reconciliation to the most directly comparable GAAP measures.

At this time I would like to turn the call over to Paul for his comments.

Paul.

Thanks, Warren, and good afternoon, everyone.

Please turn to slide three in the presentation.

Our second quarter revenue increased 59% from the year-ago quarter to a record second quarter high of $8.9 billion which represents an increase of $3.3 billion over the year-ago quarter.

Adjusted operated profit increased 72% from the year-ago quarter to second quarter record high of $295 million.

Please turn to slide four.

Quarterly revenue for all the market segments increased on a year-over-year basis.

Revenue from the infrastructure segment comprised 32% of total September quarterly revenue, $2.8 billion represents an increase of 88% over the year-ago quarter.

We continue to view this segment of our business as being stable and have established the prime objective in increasing its asset velocity.

Revenue from the computing segment comprised 16% of total September quarterly revenue, and increased 175% over the year-ago quarter.

We continue to be very excited about the new program wins in this segment.

Consumer digital segment comprised 17% of total September quarterly revenue, and increased 12% over the year-ago quarter.

The mobile segment comprised 21% of revenue for the September quarter, which was an increase of 18% compared to the year-ago quarter.

Together these segments represent 38% of our total revenue compared to 53% of our total quarterly revenue a year ago.

Thus reflecting a more balanced end market diversification portfolio.

Finally, the industrial, automotive, medical and other segments together comprised 14% of total revenue, and increased 105% over the year-ago quarter.

These segments now represent approximately $1.3 billion in quarterly revenue.

We continue to believe these businesses will have consistent growth as we continue to expand into new product categories within these segments.

Please turn to slide five.

Our segmented business approach has resulted in more balanced end market diversification model.

As a percent of total revenue the combined consumer related segments of consumer digital and mobile has decreased significantly compared to one year ago.

While infrastructure is increased nicely, we are very pleased with the progress of our portfolio in this area as we believe the diversification positions us better to weather end market, customer, or product down turns.

Please turn to slide six.

Here we show the trend of declining concentration among our 10 largest customers of the past nine quarters which reflects our continued assets to diversify our customer base and expand our product categories.

Our top ten customers now only account for approximately 53% of revenue in the September quarter and Sony Ericsson was the only customer that exceeded 10%.

Please turn to slide seven.

Adjusted gross profit of $516 million and adjusted operating profit of $295 million established record second quarter highs increasing 64% and 72% respectively from a year-ago quarter.

On a margin basis, both adjusted gross margin and adjusted operating margin improved year-over-year by 10 basis points and 20 basis points respectively.

During the past quarter we experienced increased costs as we ramped several large scale programs both in Eastern Europe and in Latin America.

Additionally during the quarter we were continually challenged with increases in freight, energy, and labor costs.

Please turn to slide eight.

Selling, general, administrative expenses as a percentage of revenue declined to 2.5% in the September quarter as we worked hard to offset operating cost increases with improvements in SG&A efficiency.

We continue to believe that our management and control of SG&A expenses is a competitive advantage.

Please turn to slide nine.

Adjusted net income was $230 million representing a 57% increase compared to a year ago.

This resulted in a second quarter adjusted earnings per diluted share of $0.28 which is a 17% increase over the year-ago quarter and the 10th straight quarter of positive year-over-year growth.

Please turn to slide 10 for our quarterly GAAP reconciliation.

As a result of the current macro economic environment and associated credit market conditions both liquidity and access to capital have become heightened concerns and the are clearly impacting numerous companies globally.

We have taken an increasingly conservative approach to managing our exposure with our customers and reassessing the financial condition of many of our customers and suppliers to anticipate problems and minimize risk and exposure for Flextronics.

We have identified situations where customers are filing for bankruptcy or otherwise experienced severe cash and credit crisis.

As a result, we have recognized approximately $125 million in charges for provisions of accounts receivable, the write-down of inventory, and recognition of related obligations for these distressed customers.

It is important to recognize the considerable amount of judgment required to assess the ultimate realization of these assets.

We will continue to monitor and reevaluate this situation.

Also during the September 2008 quarter the Company recognized after-tax intangible amortization and stock based compensation of approximately $43 million and $19 million respectively, compared to $15 million and $11 million respectively in the year-ago quarter.

The significant increase in both amounts is primarily due to the acquisition of Solectron which we closed in October 2007.

I would like to highlight that during the September 2008 quarter the Company completed its valuation of the identifiable and intangible assets acquired from this acquisition, and as a result incurred an incremental one-time $17 million after tax catch-up adjustment.

For the December quarter we expect after tax intangible amortization to be in the range of 25 million to $30 million and stock-based compensation of approximately $19 million.

After affecting these items GAAP net income was $38 million compared to $121 million the year-ago quarter.

GAAP earnings per diluted share were $0.05.

Please turn to slide 11.

During the quarter ended September 2008 we repurchased approximately 30 million ordinary shares at an average price of $8.73 per share totaling $260 million.

The repurchases were made under a previously authorized share repurchase program and had a neutral impact to the Company's diluted earnings per share for the quarter ended September 2008.

At our recent annual general meeting on September 30, 2008, shareholders reauthorized the repurchase of up to 10% of outstanding shares.

As of the quarter ended September 26, 2008, we had approximately 809 million shares outstanding.

Please turn to slide 12.

We have been consistently building on our operational success and that has been reflected in our steady improvement in return on invested capital.

This quarter return on invested capital improved 10 basis points to 11.3% from 11.2% one year ago.

Please turn to slide 13.

Our cash conversion cycle improved significantly to 21 days from 26 days last quarter.

Our inventory turns improved to 7.4 in the September quarter compared to 7.3 in the June quarter.

Inventory management continues to be a significant area of opportunity for us to further expand and enhance our working capital metrics.

We have placed a greater emphasis on inventory management for the next six months as we see significant opportunity to increase our inventory turns by driving significant reductions in our inventory balances.

Days sales outstanding improved four days sequentially to 37 days, while days payable outstanding was flat at 65 days sequentially.

Please turn to slide 14.

Over the last ten quarters our cash conversion cycle has significantly increased mainly as a result of the Solectron acquisition in the December 2007 quarter.

In June 2008 it peaked at 26 days and has declined to 21 days this quarter.

We are aggressively managing this aspect of our business and strive to improve this metric and our liquidity as a result.

Please turn to slide 15.

Our cash flow from operating activities generated $756 million during the quarter which includes the use of approximately $114 million of spend associated with our restructuring and integrated related activities.

Our capital expenditures were $146 million, our depreciation and amortization totaled $142 million for the quarter.

As a result, we generated approximately $611 million in free cash flow which we used to repurchase $260 million of our ordinary shares outstanding as well as reduce our bank borrowings by $284 million.

For the remainder of fiscal 2009 as demand softens and we intensify our efforts to reduce working capital, capital expenditures, acquisitions, and other discretionary spend we're targeting to generate significant positive free cash flow.

We continue to target generating approximately $800 million in free cash flow for the fiscal 2009.

However this does have a significant range around it given their lack of visibility at this time.

Beyond fiscal 2009 if demand remains soft our business can generate significant positive free cash flow since the need to invest cash in working capital, capital expenditures, acquisitions and other discretionary spend will significantly diminish.

Please turn to slide 16.

We ended the quarter with $1.7 billion in cash.

This represents a $695 million increase compared to one year ago.

Total debt was $3.4 billion at quarter end which is down from $3.7 billion in the June quarter.

Net debt which is total debt less total cash is $1.7 billion at quarter end.

Including the availability under our revolving credit facility our total liquidity was approximately $3.2 billion, and our total debt-to-capital ratio improved to 30% from 31% in the June quarter.

Please turn to slide 17.

Here we show our debt profile at the end of the quarter on September 26, 2008.

Our $2 billion credit facility with only $200 million drawn as of the end of September expires in May 2012 and is provided by a syndicate of over 25 banks.

We have worked closely wit our revolver banks to ensure that our revolvers remains strong and available during these challenging times.

We do not foresee a deterioration of our revolver lender's ability to fund advances, in particular given the recent favorable legislation support in the banking industry.

With regard to our financial covenants, in practice the two most restrictive covenants have been the debt to last 12 months EBITDA and the fixed charge coverage ratio.

The first is applicable to both revolver and the term loan while the second is applicable only to the revolver.

Under the debt to last 12 months EBITDA covenant we have a maximum debt to the last 12 months EBITDA of 4.0 to 1.0.

Our most recent estimate is that our maximum debt capacity is approximately $4.9 billion with our current outstanding debt balance of approximately $3.4 billion.

We have $1.5 billion additional debt capacity.

Under the fixed charge coverage ratio covenant we are required to have a maximum coverage of 1.5 to 1.0.

Our most recent estimate is that EBITDA could deteriorate by as much as 54% before this covenant would become an issue.

Our conclusion is that we believe we are comfortably within the limits of our most restrictive financial covenant.

For your convenience we have posted on our website a brief summary of our liquidity and debt structure which can be found on the Investor Relations section.

Please turn to slide 18.

The graph on this slide provides a quick visual on the debt maturities listed on slide 17.

We have limited near term maturities which only have $195 million of our total debt due within the next year.

After that, the next maturity includes $500 million due in calendar 2010 and then no additional debt due until calendar 2012.

We're extremely comfortable that the Company with its existing cash balances, together with its anticipated cash flows from operations, and the additional liquidity available under its revolving credit facility has more than sufficient liquidity to meet its needs.

We remain confident yet conservative in the management of our liquidity and consider it a differentiating strength during these uncertain times.

Lastly, under US GAAP accounting standards we are required to evaluate goodwill for impairment at least annually including periods when the carrying value of the Company is greater than its market capitalization.

To date we have not recognized any impairment of our goodwill but we are monitoring the situation in the event we need to perform an interim task for potential impairment.

If we determine that we need to perform an interim test and it's the test results in a goodwill impairment, then we would record a charge during December 2008 quarter.

In that event we would be required to record an impairment of goodwill.

The noncash charge may have a significant effect on our reported GAAP results but would not likely have any effect on the Company's liquidity and financial covenants.

Thank you, ladies and gentlemen.

As you turn to slide 19, I will now turn the call over to our CEO, Mike McNamara.

Thanks, Paul.

Let me first -- let me start first by discussing our September quarter performance.

Our achievement of the September quarter revenue of $8.9 billion and adjusted earnings per share of $0.28 were both within our range of guidance.

As we mentioned in the beginning of the year and consistently since then our organic pipeline continues to offset some of the sluggishness we have seen in orders from existing customers.

This past quarter we offset softness in certain market segments with new business wins.

For 15 years we've been building our Company to have scale, geographic diversification, and product diversification.

We continue to believe that our diversified model will deliver more predictable and stable results over the coming quarters and years and we'll gain competitive advantage as a result of this down market.

We cannot control the macro economy, however we are intensely focused on managing all areas we can influence internally.

In the September quarter we improved our SG&A expenses by 20 basis points to 2.5 from 2.7% last quarter.

Our cash cycle improved to 21 days.

We reduced our outstanding shares by approximately 4% by repurchasing shares.

We continue to maintain a healthy financial condition with over $3 billion in liquidity and improved our debt-to-capital ratio to 30% from 31% sequentially.

We are very focused on driving down inventory balances, improving liquidity and generating cash.

We expect these metrics to be our main drivers for the foreseeable future.

On our earnings call last quarter we indicated that the market was becoming more challenging.

We have been working hard to mitigate a confluence of trends that have resulted in some head winds now and for the foreseeable future.

Demand has slowed in many of the industries we serve.

The cost of doing business has increased in certain areas particularly energy, labor, and freight costs, and we anticipate some of these costs will continue to impact future operations.

We have been working to charge these costs back to the customer.

We are also focused on recovering capital costs on those customers that consume excess capital dollars.

And we do expect some cost benefit in calendar 2009 from freight reductions, currency changes and commodity cost reductions.

As the world demand becomes more distributed our strategic rebalanced geographic operations will have a distinct advantage.

We are growing in Europe and experiencing very significant growth in Mexico and Brazil.

For years we have talked about the value of geographic diversification and that it would increase in value over time as the world's consumption becomes more distributed.

This will be a growing competitive advantage for our Company.

Our medical business is extremely well positioned and has a robust pipeline.

Our industrial business continues to make strong progress by winning new and nontraditional types of business.

Automotive end demand is down relative to earlier expectations and we expect continued softness yet revenue is still anticipated to remain flat for the year with the strong calendar year 2009 pipeline.

Our mobile business has grown its revenue over 10% year to date and we expect to the exhibit growth for the year which has been primarily driven by customer diversification and the expansion of portfolio of products enabling us to participate more broadly in the available market.

In light of a softening base of business our consumer business is showing positive growth for the year which I expect comes as a surprise to many.

This growth is due to new customer ramps and new product categories for the Company.

While this is impressive in a weak consumer market, it is also challenging from a profit standpoint as we ramp down old business and start up new business simultaneously.

However, as we look to next year this bodes well for customer diversification within those markets as both the type of products and the quality of the customers reflects a higher quality business portfolio.

Our infrastructure business is superbly positioned and we are very proud of the ability to compete and win in this market.

We expect to see moderate revenue reduction in this segment as we shed our exposure to underperforming businesses.

The objective for infrastructure segment is to prioritize asset velocity which reflects a consistent strategy that we first discussed a year ago at our fiscal 2008 analyst day presentation.

And finally, we expect our computing business to continue to grow and be a significant growth driver for us next calendar year.

As Paul indicated we established a provision for distressed customer accounts which includes accounts receivable, inventory, and related costs on those accounts.

This put in step had a disappointing impact on this quarter's GAAP results.

However, we believe it represents the reality of the deteriorating macro economic trends and difficult credit environments where both liquidity and access to capital have become heightened concerns and are clearly impacting numerous companies globally.

We are consciously reevaluating the credit we extend to our customers and are working aggressively to mitigate our exposures and recover from those distressed customers.

Additionally we are actively working with our suppliers to try to anticipate inevitable problems that could potentially disrupt our supply chain.

For those who remember the impact of the Internet bubble and the 2001, 2003 recession in the EMS industry that followed it bears mentioning that the industry does not face the same rink today.

The conditions that characterize that period are different from those that exist now.

For example, during the bubble period, there were seemingly unending demands which caused tremendous capacity expansion and companies regularly double ordered components.

EMS companies were predominantly in the business of datacom and telecom with less diversified portfolios, excessive capacity existed in high-cost regions, when it become obsolete it created enormous restructuring and impairment charges.

These conditions do not exist today.

Customers have been more disciplined with demand for years and excess capacity and high cost regions are minimal.

The EMS companies have matured and are much more diversified, especially Flextronics.

While we expect to see continued softness from today's demand environment we simply do not believe that the likelihood of a massive adjustment period that we had back then exists now.

From a Flextronics perspective we are exceptionally positioned from a geographic standpoint, from a capability standpoint, and a product diversification standpoint, having established a strong ability to provide complex product solutions for our customers globally.

Going forward distractions from restructuring activities will be minimal.

Thereby affording us the ability to focus on the needs of our customers, provide them with our exceptional service and optimize Flextronics internal operations.

In fact, we have closed many factories in the last 12 months which required significant management time and effort that has virtually come to a close.

As a management team, we are optimistic about what we can do as we refocus that same effort on internal efficiency, inventory turns, cash generation, operational execution and away from these restructuring and integration activities.

As we have described very consistently over the past years, it is our vision to build a Company that is broadly diversified to weather down turns and provide predictability in all environments.

As a result of the steady work we have done to achieve these goals we expect our efforts to deliver real results as we move into a more difficult environment.

We have added product categories such as TVs, notebooks, power chargers, power systems, smartphones, disposable nonelectronic medical devices and numerous new industrial product categories.

It is our objective that these new incremental business works will expand our available market and offset demand reductions from the current customer and product base during recession times.

We expect significant reductions in capital expenditures over the next several quarters and should spend significantly less than depreciation levels.

We also expect inventory turns to improve over the next several quarters with the significant reduction in absolute dollars and inventory starting with the December quarter.

As demonstrated in the past in the slowing environment we believe we will generate solid cash flow.

This coupled with our available liquidity should provide us with significant flexibility and competitive advantages.

As Paul mentioned we spent $260 million of our cash in the December quarter to repurchase approximately 30 million shares.

During our previous earnings call we communicated our Board -- during our previous earnings call we committed our Board authorization to repurchase up to 10% of our then outstanding shares.

At our recent annual meeting, shareholders approved a plan with -- which authorizes us to purchase up to 10% of our current outstanding share amount.

Going forward, we will look at all of the capital deployment options available to us and consider what best maximizes returns for our shareholders.

Next I would like to share our guidance for the December quarter.

We expect December quarter revenue to be between 8 billion and $9 billion and adjusted EPS in the range of $0.21 to $0.27 per share.

Given the volatility of the credit and the financial markets and certainly of the demand environment we believe a wider range for revenue and adjusted EPS guidance is warranted for the December quarter.

December quarter revenue has historically been sequentially higher due primarily to the holiday season for the consumer segment and annual budget completion for the infrastructure segment.

However, we anticipate that softening of demand that we saw in late September will continue.

Our new business pipeline while easily offsetting softness in the September quarter is not expected to fully offset what we view to be a muted December quarter.

Alternatively, we do not expect a big seasonal adjustment following the December quarter going into the March quarter so basically at this time we are adjusting our operations to a very slow December going into a mild sequential adjustment in March.

The wider adjusted EPS range reflect the same uncertainty of the end market.

Forecasting in this environment is very challenging.

While we have seen some regions and segments displaying signs of strength we continue to see overall softness and believe it is prudent to take a very conservative view.

Our adjusted EPS range reflects the minor uncertainty of the cost pressures we discussed earlier, the expenses of strategically transitioning into new business and simultaneously making adjustments resulting from demand reductions in the base business.

Quarterly GAAP earnings per diluted share are expected to be lower than guidance provided herein by approximately $0.06 for the intangible amortization expense and stock-based compensation expense.

In closing, while the current market is particularly challenging, we are well prepared to execute in this economic environment as a result of what we have completed over the last several years.

As mentioned throughout this call, we have all the tools, both financially and operationally to live through a difficult time, and we look at this as an opportunity to further improve our competitive position, improve liquidity and create shareholder value.

We have repeatedly said that scale, geographic diversification and product diversification was necessary for long-term competitiveness and that diversification and continuous expansion of the available market to us would buffer us in a down recessionary environment.

Unlike many of our competitors we have aggressively invested over the last several years while the economy was healthy and we will expect those investments to pay off in the coming quarters.

We are pleased with our leadership and believe that our effective management of our worldwide system has a distinct competitive advantage and we are extremely confident in how we manage the controllable aspect of the business.

We are comfortable with our liquidity and financial condition and view our position as a competitive advantage.

Finally, we want to remind everybody that we will be hosting a fiscal year 2009 analyst day in New York City on November 19, 2008.

We hope you can make it and look forward to seeing you then.

I will now turn the conference call over to the operator for questions.

We ask that you please limit yourself to one question and one follow-up.

Thank you.

We will now begin the question-and-answer session.

(OPERATOR INSTRUCTIONS) And our first question today comes from Lou Miscioscia with Cowen and Company.

Your line is open.

Thank you.

When you look at the charge that you just talked about, where the $0.21 to $0.27 in guidance, and I haven't had a chance to put any of the numbers into my model, and when you compare to a year ago when you look at the high end what's the big difference in that we're $0.03 below year ago when you compare the high end of both?

Compared to the year-ago charts?

Yes.

It was chart 20 where you did $9.069 billion and had $0.30 worth of earnings, and this year at the high end, and you give a range from 8 billion to $9 billion but the EPS was $0.21 to $0.27?

Yes.

Mostly we -- there's an element of conservativeness in our models as we mentioned just because of the uncertainty.

We continue to be never of us about what the future brings us.

A lot of that nervousness hasn't come through in terms of forecasts and such, but we'd be silly not to think that there's more negativity not coming.

So there's a number of things that drive the margin target in the center of that range down.

Part of it is just the flow through of the material coming across a very, very heavy freight expense in the September quarter.

So even though oil has been down for quite some time -- well, not quite some time, but it's been coming down, we still need to reset those contracts and get those parts bought into our inventory and actually shipped before we can recognize the benefit of those things.

We're up a little bit in R&D expenses for a number of reasons, but we're continuing to invest going into the future.

We have continued to have a very difficult increase in China, particularly in China where the cost of labor has gone up substantially, and when you put all those -- the one other thing is the -- we're actually in more transition than you think.

Even if you look at the September quarter with $8.8 billion in revenue, while the pipeline is strong and new business is coming in, there's a general sluggishness and slowness to the rest of the base business, and what we're doing is simultaneously bringing in new business to offset continually softening business in places that are running very nicely.

So best example I can give you on that is, while mobile phones will grow the business this year, we're ramping down reasonably significantly in the cell phone operation in Malaysia, and ramping up very significantly a cell phone operation in Mexico.

So while it looks from your standpoint that the revenue is roughly the same, alternatively it ends up being -- that transition creates quite a stress on us.

We actually think that -- so anyway, the combination of those factors ends up just putting some pressure on.

Great.

One quick follow-up is on foreign currency.

How do you feel about obviously the way that the dollar is strengthening?

Does that represent an additional risk that maybe -- that you might have already hedged for, or do you think it's manageable?

Lou this is Paul.

In fact, the strengthening of the dollar for us outside of our hedging program certainly represents an opportunity for some margin accretion for us.

In Europe with the euro at 1.28 yesterday to shore our local costs cheaper in dollars we suffered when the euro was at 1.55 on the way up so we hope to benefit on the way down, just as an example.

Thank you, guys.

Thank you, Lou.

Our next question comes from Kevin Kessel with JPMC.

Mike, you were mentioning earlier that the new wins were helpful in terms of offsetting some of the base business sluggishness that I assume you said was becoming more apparent in the month of September.

Is there any way at this point to kind of look at the new wins that you guys have amassed over the last couple of quarters and what's expected or scheduled to come into the fold next year and give us some sort of qualitative sense on that?

Yes.

I think what I first need to say is, boy, it's hard to give visibility just because of the unknown that's out there.

But even if we look into our March quarter, we have -- we literally have six out of our seven segments that are anticipating to be growing revenue over last year's March quarter.

So even right now we're expecting pretty good strength.

That's one of the reasons I made the comment that we should be only down mildly in the March quarter.

That being said, there's a tremendous amount of uncertainty out there.

We even think we might be able to have all seven segments growing relative to our last year March.

So it's really kind of a broad based pipeline.

Some of the more significant ones that have been mentioned are going into the TV business which will continue to expand significantly next year.

We talked about going into the computing business as being a huge growth driver for us.

We continue to believe that we have the potential to add well over $1 billion or even $2 billion in business in that area.

But really across the board, even our automotive business we expect to grow pretty significantly.

Our medical business has an extraordinarily strong pipeline, anything beyond the pipeline, booked business that will hit.

So when we look out we actually see a pretty broad based pipeline -- not even a pipeline.

I mean, one business that we think is going to offset a lot of the deterioration that we see next year.

The challenge we'll have is, while it might look good on the revenue line, it kind of depends on where it is and if you are doing the simultaneous ramp down and ramp up then that's going to be a challenge.

Alternatively, per Lou's last comment, there's a lot of positive head wind for us because freight costs are going to help us, the continuous reduction in commodity costs are going to help us.

The currency, we're real positive on.

We have some places where it's hedged, so it won't make as much of a difference, but a substantial portion of the business we think is going to be affect positively by currency.

And so there's just a lot of positives out there.

Now, the challenge is, is how much negative macro economic downturn we see.

But certainly believe we have many billions of dollars already booked to offset what's coming at us from a firm macro economic downside.

Okay, great.

Then just as a follow-up, Paul, the slide that you had, what you mention, $756 million in cash from operations, you said 611 or so in free cash flow, you said that included the cash cost of the final restructuring for Solectron?

Yes, correct, it includes $111 million of restructuring in the quarter for the Solectron acquisition.

Not just Solectron, but predominantly.

111?

Yes, 111.

I thought I heard 146, but maybe I was wrong.

The 146 was the CapEx.

Oh, sorry.

So then at this point, going forward, we should no longer -- there are no more cash charges to be recognized for Solectron?

No, no, like we said last quarter this will probably last about 12 months, and we have approximately 200 million to $250 million left.

So there's still another 200 to 250 left?

Yes, for sure.

But the GAAP charges are?

All the GAAP charges have been taken.

This is just in certain jurisdictions around the world as you lay off people, it takes some time and payments go out over time.

And just on the last topic on charges, with the reassessment of the goodwill on the books, obviously bringing in market cap as part of the criteria that's used, you said you don't think it's going to affect liquidity?

Is that something that you know with certainty, or is it something that still has to be further fleshed out?

What I'm referring to is just whether or not a covenant would be triggered by anything.

We don't believe at this stage that there would be any trigger on the covenants.

We don't know to be exact because we're still early stages of doing the evaluation of an impairment, but our early indications and tests are that there's no effect on liquidity.

Okay.

Obviously all noncash that you are assessing, inter the charges?

Right, exactly.

Thank you.

Our next question comes from Amit Daryanani with RBC Capital Markets.

Just had a question on the $129 million of inventory and AR write-offs.

Could you just talk about how much of that was for inventory versus AR?

And the set of customers that you took this write-off for do you have any inventory on your books right now for those customers, or ARs?

Yes, approximately 70 million to $90 million of inventory, if I remember rightly, and so that's predominantly what it is, which is inventory on hand as well as inventory on order and some noncancellable, nonreturnable parts that we have within that mix, the balance being accounts receivable.

This should be hopefully the final one for that set of customers.

Would that be reasonable?

For that set of customers we'd hope it to be final for sure.

We've done pretty extensive and exhaustive troll through our top customers, and that's what we've come up with, been very prudent and conservative, obviously, but these are issues that have only just come up over the past few weeks.

These are not things that have been out there for many, many months.

They're literally end of quarter and just a couple weeks after the quarter some customers filing bankruptcy, et cetera.

Also just want to make a statement that the inventory piece of that is only inventory specifically associated to those customers as opposed to any kind of general inventory provision.

So these are just -- we looked at the customers and we looked at the cumulative exposure and said there's reasonable due cause for concern and as a result have established this reserve.

Got it.

Just a follow-up.

Could you just remind us what your expectations are for cash flow from operations for fiscal '09?

Given the fact we're getting into softer end market environment would you expect to curtail the $450 million plus CapEx number you talked about in the past?

Yes, in the script, just a moment ago, I made a point that our target of $800 million for the year, free cash flow, is still our target.

There is a significant range around that, of course, because visibility of the December March quarter is limited.

However, we are enacting a number of measures aggressively to reduce particularly inventory balances that will generate significant cash for us.

And then just, Paul, on CapEx, any plans to take that down from the 145, $150 million it's been running at?

Yes.

Maybe -- I want to address that.

Predictably what you should see from our Company is that the June and the September quarters are going to have a little bit higher CapEx than the December and the March quarters.

Just the way that customers release their products and manage around peak times and year end and back to school and Christmas.

So that's like a typical -- a more typical flow of what you are going to see.

For the year, we have always we said we'd be between 400 million and $450 million which is about what our depreciation -- I think our depreciation level is about 400.

This year we'll for sure be at the low end of that range and would certainly expect the next two quarters for that to be substantially below $100 million, both for the next two quarters, and if the economy stays soft, for the foreseeable future.

So at this point in time, even with a soft economy we'd expect to beat depreciation pretty significantly going forward.

Got it.

Thanks.

And our next question comes from Jim Suva with Citi.

Thanks very much.

Can you give a little more detail?

I know you talked about the $129 million write-down on the Q&A a little bit, but a little more detail.

In the back of the press release, in footnote number 2 there it also talks about a write-down in an investment of one of your customers.

Did you like buy some stock in a customer or some type of minority interest?

How should we think about that?

On these account receivable inventories am I correct to say it's multiple customers as opposed to one customer and if it all happened in the past few weeks it seems like even the past few days things have gotten worse.

What has really changed?

I normally thought that you signed contractual agreements with your customers to own the inventory that they would own it, has someone gone bankrupt, or how should we think about these things?

There's quite a few questions there.

Let me take you back a couple minutes.

So the one that's -- you picked that in the footnote is indeed a very old investment of ours in a company that was both an investment on a cost basis, so therefore a minority interest, and also later on a customer of ours.

And that situation has recently, very recently in the quarter, gone upside down for that customer, the market is deteriorating for that customer, and therefore, there's obviously a need for us to further provision for the -- not only the investment portion but the working capital associated with that customer.

So that's the first one.

Yes, there is more than one customer, of course, in the mix.

There's a number of customers, and having trolled -- we have over 1,000 customers, but 90% of our receivables is with our top 75 customers.

So we trolled approximately 100 of our top customers and were looking for signs of weakness in what would appear initially as profitable customers with pipeline of products and orders.

However, with liquidity issues, given the current credit environment of being able to continue in business.

Some of them towards the end of the quarter were filing bankruptcy and some of them were in the first two weeks of this quarter filing bankruptcy.

And so there were a number of triggers later on in the quarter that forced us into obviously increasing the reserve for these customers and the working capital associated with these customers.

Okay.

Forgot the other question.

The other part is inventory.

Maybe just talk about inventory a little bit.

While we do have provisions with customers that they're responsible for inventory to the extent that we don't buy beyond the committed agreement, when a customer goes bankrupt that inventory becomes stranded, and while we're contractually covered or not it doesn't matter if the Company literally doesn't have money to give us for that inventory.

So that being said, we'll work to mitigate these -- the risks.

We'll work to mitigate the inventory balances.

Obviously we have a lot of channels to go work on, and we'll go work on those things.

But just to be clear, we started seeing some softness literally just in the last couple weeks for a couple of customers or some warning signs last couple of customers, so we proactively went out and said let's go through every possible weakness.

We identified them and we put them into this pool so we did what we thought was an inevitable possibility given the difficulty of the credit markets.

We put -- we identified these customers, we put them into the pool, now we need to go back and work it.

Doesn't mean we won't get recovery out of bankruptcy, it doesn't mean we can't sell off inventory.

It doesn't mean some of these customers might be okay.

It just means in this environment we just thought we'd be very very conservative and as long as we saw the warning signs of a few starting to happen we went through our whole base and just did what we thought was a real good cleanup.

Okay.

Then as a follow-up can you talk about the interest and other line went from $36 million last quarter to $48 million this quarter.

Was there something in there like foreign exchange or something like that, and what should we expect going forward?

Jim, and so when comparing sequentially in Q1 we had had in the other category, not interest, in the other category, we had some one-time investment gains and to the tune of roughly $10 million.

Which has not repeated itself, of course, one time in nature, in the second quarter.

Interest has increased.

Cost of borrowing has gone up but also the amount of borrowing mid quarter last quarter increased just through the timing of certain events, share repurchase, et cetera.

So that actually did go up as well for the balance of that difference.

Some 3 million to $5 million.

So 48 is a good run rate.

Well, approximately 45 is a good run rate.

Okay.

And housekeeping, $129 million write-off is a eye popping $0.16 per share if I do that right.

Can you break it down into the four buckets of inventory write-down, accounts receivable write-down, contractual obligation write-down, and this old investment?

Yes, certainly.

The old investment is approximately $10 million.

The inventory is approximately $70 million.

And then the balance is accounts receivable.

Great.

Thank you very much, gentlemen.

No problem.

And our next question comes from [Ron Keith] with Baker Avenue Asset Management.

I just want to say that I thought that was a pretty good quarter.

Clearly on the revenue line and the ROIC line above what I had had modeled.

Two quick questions, or question and a follow-up.

In talking to some of the big customers in the EMS space clearly some of the guys like Cisco and some other people have been out there really doing there homework both in the EMS space and one level down in supply chain looking at balance sheets and risk factors and stuff.

From what I am hearing it seems like maybe some of the benefit of that is going to accrue to guys like yourselves with stronger balance sheets than some of your larger competitors.

Are you seeing any actual movement of product or conversations with customers around moving product from one EMS supplier to another EMS supplier?

Yes, I think that's pretty good observation.

I think without question there's two things that are happening in this time.

One is people are trying to understand they are going out to all their suppliers and trying to understand what is the strength of the balance sheet, not only the strength in the balance sheet but also additionally they are going out and trying to understand if they are going to survive the downturn, because this could be a protracted downturn.

Nobody really knows.

But both those are advantageous for us because we have the money to fund inventory and growth and allow the growth for our customers.

At the same time I think with pretty much certainty we've been able to prove that as the market consolidates or some companies don't really make it through the downturn here, there are some companies that are going to come out much stronger, and I think Flextronics is going to be one of them.

But the important thing is, per your comment, I think the customers are recognizing that now.

So we actually, I guess I was probably a little bullish about our pipeline earlier, and it's more than a pipeline.

It's booked business that we anticipate hitting next year.

I think a lot of that is the redistribution of work as a result of understanding who the survivors in the marketplace are going to be and who are not the survivors in the marketplace.

So I don't think it's just credit.

But I think that's one major factor.

But I think the other thing is people understand that coming out of a downturn the weak get weaker and the strong get stronger, and our position we believe is good, and I think we are seeing the customers really recognize that.

So quick follow-up.

You mentioned here possibly a redistribution.

Terry Goe on High Precision Fox Com made some pseudo public statements couple wakes ago about the acceleration of a large award coming out of one of the Asian OEMs.

I believe it was actually in the mobile space but I'm not sure about that.

He said -- he indicated the thing was in excess of 2 billion and that Fox Com fully expected to get half of that.

I was very surprised by your comments about, as I read the lack of the normal downturn in March, what you called a mild March adjustment, does that imply that there is some new business factored into your March to accommodate for your normal seasonal downturn?

Well, do have a lot of March business going in.

We have a lot of mobile business going in.

In fact, right now we actually did last December or last March quarter, last year in the mobile business we did $1.4 billion.

We're actually modeling about $2 billion right now, and that does not include any revenue associated with the account you are talking about because I think I probably know which one it is.

Because I saw those announcements.

And we have other announcements as well.

We talked about the notebook business growing pretty rapidly.

The first notebook win starts shipping in December.

We have a second notebook win shipping in February.

Then we have about four or five notebook wins shipping in April.

So there's a lot of -- and just a general pipeline, whether it's industrial, new product categories, our component business is expected to grow about 40% this next year.

So there's just a lot of pieces that are growing nicely.

None of those estimates have what is potential of a big Asian OEM doing a broad based outsourcing program, and if that, in fact, comes to bear, we would hope to participate in that.

If they are looking for a big worldwide multi-billion-dollar program it's pretty likely that we have a footprint and have a capability that would be attractive and we'd certainly hope to participate in that but I think it's premature to comment on who that is and whether or not that's booked.

We'd more look at that as being upside for us.

Thanks, guys.

And your next question comes from Brian White with Collins Stewart.

Your line is open.

Yes, just looking at your guidance revenue at the midpoint looks like sales will be down sequentially.

Going back historically I can't ever remember a time when sales have actually declined in the December quarter.

Is there any market that could actually potentially rise sequentially?

Are there any markets that are rising sequentially?

In the December quarter.

You mean the March segment -- I mean our market segment?

Yes.

Let's check that real quick.

Yes.

Computing.

Which ones?

Let's see.

Well, industrial, medical, and automotive will -- we expect to rise.

The mobile business currently is expected to rise.

The infrastructure will be a little bit soft.

The industrial business will be higher.

The consumer digital business will be relatively flat to September.

Computing business will be flat, probably a little bit down for a number of reasons, and our automotive business will probably be a little bit up.

So it's kind of a mixed bag, but I think the way to think about September, is we had a pretty significant adjustment with one of our major customers, and without that very, very significant and major adjustment in the December quarter relative to September and relative to last year, we probably have a significant growth year going in in December.

So it's really not a broad-based softening, believe it or no.

It tends to be driven by even two events.

One of our very, very large customers that is struggling a little bit in the marketplace, and it's driven a lot by the Nortel, to be fair.

Nortel was a pretty significant part of our business a year ago.

We talked for the last year that this would be reduced in size significantly, both because we were about 90% of their business, we were uncomfortable with that, they were uncomfortable with us being 90%, and that's the result of the Cyclon acquisition and just year on year with Nortel we're probably down about $200 million of business.

So between those two events, we're off -- without those two events, and even dealing with -- trying to be negative with the economic impacts that we're having, we would have a pretty substantial growth year this year.

So it's really not as broad-based as you think, even though we're trying to take our numbers down, because our -- we're just getting a lot of other sales that are offsetting the slowness in the economy, because it is a pretty balanced pipeline of growth.

Since we acquired Solectron about a year, a how much business -- you told everyone when you acquired the company some businesses are going to roll off, like the Nortel business because there's overlap.

How much business has gone out the do, do you think?

Nice round numbers, probably a billion.

And I'll bet it's about 80% Nortel.

It's very -- our planned -- you can look at the September quarter and get a good feeling.

The September quarter completes one full year into it.

We ended up doing $8.8 billion.

Solectron last September quarter probably did $3 billion or so.

Flex did about 5.4 or so, 5.5.

We actually had a growth year in September even without taking that 1 billion of business out of Solectron.

So our pipeline continues very very strong as you can see by the $8.8 billion in September.

So we always anticipated that Nortel would be a little bit of a casualty.

It's a little bit of a mutual interest because, like I said, we're too big for them, and they were too big for us, and we're actually pleased they're probably down more around 3 or 4% of our revenue, and that's a very, very comfortable level that we can work with that makes sense, and I think it's a comfortable level for them.

So it's surprising that the adjustment in the December quarter is mostly a large customer coming off some very significant revenues last year and also some of the Nortel adjustments.

Finally, one of your PC OEMs is out there trying to divest assets and outsource business.

Is that interesting to Flextronics?

Well, not so far.

We already have a very, very significant and robust worldwide footprint.

The operations that we have in these low-cost regions are of pretty significant scale.

Additionally the business that would be coming across is pretty high revenue generating business with not too much value add.

So when we look at putting that into our portfolio and look at the fact that we already have big worldwide operations, we can't quite get it to be a fit to get interested.

Okay.

But thank you.

Our next question comes from Alex Blanton with Ingalls & Snyder.

Your line is open.

Good afternoon, Mike.

My question regards your stock price.

You have described a situation where it looks as if you are going to earn something in the neighborhood of a $1 a share this year, which is virtually flat with last year.

Despite, which was $1.02.

Despite horrendous problems in the worldwide economy for the second half of that year.

And you have told us why, and you've told us about the new business you are winning, four or five notebook contracts, you're shipping in April, on top of another one in December and another one in February.

That's six or seven new wins in notebooks, a brand-new area for you, and lots of potential for the future and so on, and your stock closed at $3.74 today.

How do you feel about that, and why do you think that is?

What can you do about it except buy it?

We obviously feel bad about it, but there's a lot of stocks that are down, so we have a lot of misery there.

We look at our free cash flow of $3.74 stock, and we're probably up around -- we're probably close to 25%.

One of the things that we said we were going to do for the last couple years, we've said repeatedly we were going to continue to work to expand the available market, and that as a result of expanding the available market we are going to be able to continue to grow and drive more and more business into that Company and continue to diversify.

We've seen the customer charts that show more and more diversification.

We've seen more and more diversification across industry.

The investments we made last year were specifically and purposely done in order to continue to be able to grow and expand the Company even in down markets.

So if you think about some of the investments last year we went heavy after power systems and power surges.

We expect that business to grow 80% next year, and there's so much uncertainty that maybe it's not 80.

Maybe it's 50.

We went after disposable nonelectronic medical products through this (inaudible) acquisition.

The integration of that Company has been outstanding, and we are going to overachieve the expectations in terms of cost synergies and as well as revenue growth.

We expanded into the notebook market which we said would expand the total available base by roughly 30%.

Went after things like new product categories.

We said in a consumer electronics business, we'll actually even be able to grow in a down consumer electronics market which we are.

We actually are having a growth year in electronics largely because we're picking up new product categories.

Then there's just a whole host of investments that we've made in the industrial space, whether it's into solar or -- you mentioned the list last time, Alex, about kind of a mechanical lift that we were building.

And there's just a tremendous amount of those opportunities that we're bringing into the Company.

And all those things are offsetting the expected sluggishness in the economy that led up to September quarter being 8.8.

If we didn't have a really slow in September we probably would have done more.

So the base of business is, is difficult, but it has been our strategy and our objective to bring in enough new product categories to offset the downside, and the downside from a profit standpoint is you kind of have to ramp up those new things in light of things ramping down, and that's not as good as just ramping things that are already running, but alternatively, we expect this to kind of carry us over for the downturn, and we'll see if it happens, but we're pretty pleased about the position.

Simultaneously we're going out and generating cash.

One of the benefits of doing all those investments last year is we don't have to do them this year.

So we're actually -- and we've said in the last call, our product portfolio is in great shape.

We don't have any gaps, we don't have any real product gaps, we don't have any real component technology gaps.

So what we said is we're going to lock and load and we started -- what I mean by lock and load is we're going to hunker down and now generate cash because our investment profile is over and we can take advantage of our market position.

We've started that with a share repurchase last quarter.

We're obvious disappointed we bought shares at $8.70 but alternatively this is a long-term program, and the fact that the shares are at $3.74 will give us -- it's an opportunity for us.

So the way we look at it is we'll get positioned real strong and a lot of our managers have went through the last recession, and we are 100% engaging all known techniques to manage through the recession.

We're being conservative about identifying which accounts may be bad accounts and get them on the table right away so we're like going through the most -- and I think one other thing in terms of positioning is we did a lot of work last year on the integration of Solectron and closed like 20 factories, more than 20 factories.

That's put us into a great shape and great position to go compete going forward because that work is pretty much out of our system.

So there's just a lot of positives that are available to us.

The negative is, the -- from a market competitive position we're in great shape.

The negative is we just don't know how bad the economy can get, but however it is, we expect to go less deep into the ditch than others, and we expect to come out of that ditch a little bit faster than others, and be stronger as a result.

Okay, fine.

One clarification on your analyst day coming up.

I believe you said November 19, but isn't it November 18?

That's what--?

Yes, November 18.

Sorry about that.

November 18.

And our next question comes from Matt Sheerin with Thomas Weisel Partners.

Sir, your line is open.

Thanks.

Mike you talked about the opportunities for new business in the March quarter and then going forward, particularly in mobile and computing.

Just trying to get a feel for the leverage there, particularly as you ramp those new programs, you talked about some margin pressure there.

So should we assume then that gross margin would be relatively depressed for a couple quarters as you ramp those?

And then on the SG&A side, is there -- is there much to take out in terms of costs there, or will we see leverage and SG&A as revenue continues to grow through 2010?

Yes, so on the SG&A side, in terms of actual dollars, we do think there's more leverage there.

We think we are going to start seeing some of that -- sorry, on the SG&A we expect to see some of that leverage mostly occurring in the March time frame.

So it is -- we are just nonstop after those SG&A dollars.

And we do know one more spot of SG&A that we can go work which we're in the process of and we think we can deliver another 0.2 of a point so we'll be on our way to try to hit that 2.3% number next year in the September quarter.

But it's getting pretty efficient and it gets harder and harder to dig it out, but I think we've got another 0.2 of a point next year and that's what we're driving our Company to.

On the margin standpoint on these other businesses, for sure any kind of start-up cost that puts a little bit of pressure, and additionally, if we do too many mobile phones, too many computer products that has the potential of pushing down margins a little bit.

We've been targeting to get in the 3.5 to 4% range and the good old macro economy is going to derail that for sometime, probably.

Maybe not.

That's still our target.

We run the risk, we are actually having so much success in other parts of the business that it's tipping our scale again, and we are going to be real careful about how many of those programs we take on that have lower gross margins, because the opportunity for our cash right now is awesome.

As you know, cash is king anyway in this market environment.

Some of our bonds are trading in the 70s.

We have -- we'd like to keep working on our debt equity position and keep taking a tenth of a point out of that on a continuous basis, and, of course, there's stock.

So he we just have so many opportunities of what to do with our money that we are going to be real careful about not chasing business just to chase revenue, and have it inappropriately burden our cash.

So I'd say, yes, those programs, any new programs, especially on those volume programs will drive margin down a little bit but we are going to be particularly sensitive about the use of our cash given the alternatives.

Okay, thank you.

Our next question comes from Steven Fox with Merrill Lynch.

Sir, your line is open.

Hi.

I don't believe I still have a question after all this, but I'm going to ask one anyway.

So just real quickly on the gross margin, so last quarter you had had some inflation head winds and this quarter looks like gross margins nudged down a little bit on higher volumes.

Can you just talk about if you made any progress, and then as you look out to this December quarter, given where currencies and materials are, what do you see is the benefit if these things stay around these levels?

Yes.

Well, maybe the way to talk about is those head winds and tail winds.

The head winds are that the costs in China and some other economies have gone up and are going to stay up, so we don't view these things as something that's going away.

Work rules have changed, minimum wages have changed and it's just a more costly place to do business.

While we don't have the largest exposure in China like a Fox Com we have a significant exposure.

That's a head wind that's not going to go away.

And we've had some very significant head winds all year, which is currency and freight and in some cases commodity costs.

Most of those things have changed, so they've switched.

The tail winds now are the freight costs, the currency coming down, and the commodity improvements.

So as soon as all those effects roll through our inventory dollars, which we think roll through our inventory this quarter, we think we're going to -- we think there's a potential positive there.

Now it's awfully volatile and we don't know where currency is going to go but when we look at we're extremely pleased with how it's shaping up and we're looking forward.

So we view that as a real tail wind as we go into these coming periods.

But some of the things have to work through our inventory system as you know and ship, and -- but we're encouraged by the costs that are coming out.

And the one other thing I will add is interest expense has gone up, LIBOR has gone up over the last little bit, but even that is starting to mitigate.

We lock in our LIBOR rates beginning of the quarter so those higher LIBOR rates are going to stay with us this quarter but again going into the March quarter we would expect to see some improvement there.

So I'd say overall, the head winds, our costs in China, labor escalations around the world, and the macro economy, but the tail winds are also turning significantly more favorable.

Thank you.

Our next question comes from Sherri Scribner with Deutsche Bank.

I just wanted to get at what you think your capacity utilization is right now?

You have mentioned that you've done a lot of restructurings and that you don't anticipate having more restructuring going forward, but I'm trying to get a sense of if the economy does continue to be a drag and things get worse than most people are expecting, how much excess capacity do you have, and is there a possibility that we would see another restructuring?

Well, there's -- in the due course of our business, we have like 100 factories around the world.

We will always tweak capacity here and there.

Right now we actually don't have a whole lot of capacity anywhere, to tell you the truth.

We came off a record September quarter which means, first of all, if we didn't need the capacity, we already took it out as part of the Solectron integration restructuring but came off the September quarter real high.

We have what looks like to be a pretty strong pipeline going into the coming quarters.

We actually are not hopefully planning on restructuring right now.

So we just don't see it yet, and it's more what we anticipate.

We keep looking across our base of factories and things, which we've been through this before, and we were thoughtful about what we left after the Solectron integration activities, and we thought we left what was good enough to go through, and we just think we're in pretty good shape, but right now we're mostly utilized.

That will change a little bit, because once you get past the November period, there's some consumer products that drop off pretty significantly, but they do every single year even in a great economy.

If you don't ship them by Thanksgiving they're -- once you get to Thanksgiving it goes pretty soft in some of the factories, but that's going to happen in the most robust of economies.

So we're actually pretty well utilized.

Okay.

And then I guess just sort of going along with that, trying to think about worst-case scenario for you, have you broken out what you think your break-even revenue might be or how we should think about the fixed cost in your COG line -- in your COGS line?

Break-even would be a long -- it would be hard to see break-even to be honest with you.

Our variable costs, if I use micron numbers, materials is 80%, that's 100% variable.

Trade in maybe 1.5 points.

That's 100% variable.

Things like direct labor might be 5%, and that's variable within 90 days.

I mean, you go through all the costs, and you are probably looking at a fixed cost line of 7%, 6 or 7% or something.

It's very, very low.

So it's really -- you can adjust down to the right level, I believe reasonably quickly, but again, we're pretty highly utilized already, but the variable costs in this business is very significant.

Okay, that's very helpful.

Thank you.

So let's take one more question, please.

And our last question comes from William Stein with Credit Suisse.

Sir, your line is open.

Great, thank you.

Regarding the write-down, can you give us an idea how many customers are related to and what end markets they participate in?

Will, we're not going to disclose any details around this provision that we've taken.

It's across multiple markets, and it is single digits number of customers.

That's probably all I can say.

Does it include only customers that have actually filed, or does it include some--?

The majority is having filed and very few in terms of going to file.

Okay, great.

And then just real quickly on the number of notebook programs that you mentioned before, were those programs or customers?

I think you mentioned--?

I think they're programs, I think they're predominantly across either three or four customers.

Okay.

I guess that does it for me.

Thank you very much.

Thanks, everybody for attending and we appreciate it.

We'll talk to you next quarter.

Thanks.