Flex Ltd (FLEX) 2014 Q1 法說會逐字稿

Good afternoon, and welcome to the Flextronics International first-quarter fiscal year 2014 earnings conference call.

Today's call is being recorded, and all lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Kessel, Flextronics' Vice President of Investor Relations.

Sir, you may begin.

Thank you, Erin, and welcome to Flextronics' conference call to discuss the results of our fiscal 2014 first quarter ended June 28, 2013.

We have published slides for today's discussion that can be found on the investor relations section of our website.

With me today on our call is our Chief Financial Officer, Chris Collier, and our Chief Executive Officer, Mike McNamara.

Today's call is being webcast live and recorded, and contains forward-looking statements which are based on current expectations and assumptions that are subject to risks and uncertainties, and actual results could materially differ.

Such information is subject to change and we undertake no obligation to update these forward looking statements.

For a discussion of the risks and uncertainties, see our most recent filings with the Securities and Exchange Commission, including our current, annual and quarterly reports.

If this call references non-GAAP financial measures, these measures are located on the Investor Relations section of our website, along with the required reconciliation to the most comparable GAAP financial measures.

I will now turn the call over to our Chief Financial Officer, Chris Collier.

Chris?

Thank you, Kevin.

Good afternoon to everyone, and we appreciate you taking time to join us today.

Please turn to slide 3. For our fiscal 2014 first quarter, we generated $5.8 billion in revenue, which was above our guidance range of $5.3 billion to $5.6 billion.

Revenue increased approximately $0.5 billion or 9% sequentially, driven by better than expected performance in three of our four business groups.

Compared to a year ago, our quarterly revenue declined $185 million or 3%, with the majority of the reduction resulting from broad softness in our telecom-related businesses.

Our first-quarter adjusted operating income was $137 million, up $31 million or 29% sequentially, driven by improved fixed cost absorption and a realization of cost savings, stemming from our restructuring efforts.

After recognizing restructuring charges of $41 million during the quarter, our GAAP operating income amounted to $87 million.

Adjusted net income for the first quarter was $112 million, up $26 million or 30% sequentially, and our adjusted earnings per diluted share was $0.18, which was above our adjusted EPS guidance range of $0.12 to $0.16.

Our GAAP EPS for the first quarter was $0.09, and reflects a $0.06 impact from the restructuring charges recorded during the quarter.

Please turn to slide 4. Adjusted gross profit dollars rose $34 million or 11% sequentially.

There were several key drivers for this increase.

First, we saw an improvement in our utilization rates and our overhead absorption, associated with the increase in our revenue.

We also realized approximately $15 million of incremental savings this quarter from our restructuring activities.

Additionally, we saw continued improvement in our Multek operations, which improved approximately $8 million sequentially, as we continued to make progress on its restructuring and streamlining.

Lastly, in support of our large ramp in HVS, we continue -- we incurred greater spend as we are positioning resources and capacity to fulfill the higher than anticipated volumes, both in the June and September quarters, which creates some dollar pressure on our margin until we have moved past our initial ramp phase.

The combination of all these elements resulted in the expansion of our adjusted gross margin to 6%.

Operating profit expansion is a core principle of our financial strategy.

This quarter, our adjusted operating income increased $31 million or 29% sequentially, to $137 million.

This rise was driven by the combination of increased gross profits and SG&A expense leverage.

Our adjusted SG&A dollars came in at $211 million, up a modest amount sequentially.

However, as a percentage of sales, our adjusted SG&A declined 30 basis points.

We continue to expect to operate our business with adjusted SG&A expense in the range of $215 million on a go-forward basis, which will provide for further expense leverage.

Our earnings expansion resulted in our adjusted operating margin rising 40 basis points this quarter to 2.4%.

We remain confident in our ability to continue to drive operating profit and margin expansion.

Our adjusted earnings per share totaled $0.18, reflecting a 38% increase sequentially.

Please turn to slide 5. Let me give you an update on our restructuring activities.

This past quarter we incurred $41 million in restructuring charges, marking the final realization of charges related to our program.

Overall, since announcing our program in January, we've incurred $268 million of charges, with $162 million or roughly 60% of that being cash-related.

The underlying activities and the associated cash outflow will continue through the end of fiscal 2014, with the majority of which will be completed and out of our system by the end of next quarter.

Our restructuring activities are estimated to generate roughly $160 of annualized savings, the majority of which are associated with cost of goods sold.

During the June quarter, we realized approximately $15 million in incremental quarterly savings, which brought our total cumulative quarterly savings to approximately $25 million.

We are currently expecting to realize a range of $5 million to $10 million in incremental savings in our September quarter, which is reflected in our guidance.

Exiting the December quarter, we anticipate our quarterly savings to be at $40 million, or essentially running at a full annualized savings level.

Please turn to slide 6. Net interest and other expense amounted to $20 million in the quarter, which was better than our anticipated range of $27 million to $30 million, and included the expected net loss of approximately $7 million from the sale of our Workday shares in early April.

The favorable performance against our expectations was primarily due to realization of stronger FX gains.

We expect our quarterly net interest and other expense to be in the range of $20 million to $25 million as we go forward.

The adjusted operating expense -- I'm sorry, the adjusted operating tax expense for the first quarter was 4%, which was favorable to our expectation of 8% to 10%, due to the realization of certain discrete one-time tax benefits as we negotiated a favorable settlement on an outstanding tax audit.

We continue to expect that our operating effective tax rate will be in the range of 8% to 10% absent any discrete items.

Now, looking into the reconciling items between our GAAP and adjusted EPS, in the quarter we had restructuring charges amounting to $41 million.

We recognized $9 million of stock-based compensation and intangible amortization totaled $8 million.

We also had a tax benefit of $4 million on these items, resulting in the combined impact on EPS of $0.09.

Please refer to the investor section of our website for a detailed reconciliation of our GAAP to non-GAAP financial measures.

Our weighted average shares outstanding for the quarter was 640 million shares, down from 664 million last quarter.

This is a reduction of 24 million shares, or 4%, reflecting our share repurchase activity.

During the June quarter, we repurchased 29 million shares.

We completed our 10% share repurchase authorization during July, with additional purchases of just over 6 million shares.

We announced today that we've received Board approval to repurchase up to another 10% in the upcoming year.

At our upcoming July 29 annual general meeting, we are requesting shareholder approval for the same 10% authorization.

Please turn to slide 7. We continued to maintain a strong discipline over working capital management.

Inventory turns improved to 7.4 times from 7.1 times in the prior quarter, and 7 times in the June quarter last year.

Overall, net working capital as a percentage of sales rose modestly to 7.5%, up from 7.3% in our March quarter.

And while we anticipate greater investment in net working capital to support our projected revenue growth, we remain completely confident in our ability to manage working capital within our targeted range of 6% to 8% of sales.

Our cash conversion cycle is 25 days, down one day sequentially, and five days from the prior year.

Please turn to slide 8. We generated $198 million in cash flow from operations this quarter, increasing from $109 million in the prior quarter.

We generated over $1.3 billion of operating cash flow over the trailing 12 months.

Our net capital expenditures amounted to $141 million for the quarter, resulting in free cash flow generation of $57 million for the June quarter, and $796 million over the trailing 12 month period.

As discussed at our May 30 Investor Day, we are expecting to make larger investments and CapEx early in this fiscal year, and consistent with that, we anticipate spending around $150 million next quarter in CapEx.

I'd like to highlight that our expectation for fiscal '14 CapEx has now increased, and will be in the range of $500 million, as we continue to strategically invest in our business.

I want to be clear that nothing has fundamentally changed in our cash generation model, so while we anticipate their to be some interchange of cash flows between periods as we invest in our growth, our overall fiscal '14 estimate for free cash flow does not change from the roughly $400 million previously stated.

We will continue to be disciplined in working capital management and anticipate offsetting the incremental CapEx with higher cash generated, through improved working capital performance.

During the quarter we paid $215 million for the repurchase of our ordinary shares, and for the past five quarters we have now spent approximately $537 million repurchasing 12% of our shares.

We also paid $188 million for acquisitions during the quarter, primarily for the assets and inventories purchased in conjunction with our Google-Motorola partnership.

Please turn to slide 9. Our total liquidity remains very healthy at roughly $2.8 billion, with our cash totaling approximately $1.3 billion.

Our debt-to-EBTIDA level ended the quarter at 2 times.

Our capital structure remains solid, and combined with our cash flow generation, we believe we are able to support our current and prospective business needs.

Lastly, before I turn the call over to Mike, I wanted to highlight that we are pleased with our progress towards the financial plan as outlined at our investor and Analyst Day.

We do not foresee any major issues that would impact our ability to meet our near-term plan.

Our management team, together with the support of over 200,000 employees, is intently focused on our execution.

We're fully committed to increasing shareholder value and we will continue to drive and execute according to the financial guiding principles we have previously discussed.

So with that, I will now pass the call over to Mike, our CEO.

Thanks, Chris.

We made solid progress this quarter executing on our plan.

The macroeconomic environment continues to be stable.

We are improving our margins, revenues are expanding, and our last challenged business unit, Multek, is making steady progress.

We continue to invest in our business to strengthen our position as a supply chain solutions company, supported by a powerful platform offering that is geared to address customers' most pressing supply chain challenges.

Last quarter, we highlighted some signs of stability from our customers.

We are encouraged that the stability has persisted during the June quarter, and that we've also begun to see small signs of improvement across our business.

More specifically, three out of our four business groups outperformed their revenue guidance and our fourth business group, IEI, was in line and grew revenue sequentially.

Despite these positive data points, we still remain cautious.

Excluding a few large new product introductions in our HVS group, generally second-half seasonality remains muted from our vantage point.

We believe it is too soon to call a trend from the small improvements we've experienced, or to gain any meaningful conviction that the macro economy is poised for sustainable growth.

Instead, we prefer to direct our collective efforts as a Company towards designing and executing supply chain solutions that can help Flextronics secure new customers and relationships, while simultaneously expanding our presence within our existing customer base through incremental services.

We are actively investing to help companies with regionalization, rationalization, and optimization of their supply chains.

This is leading to success providing our customers with solutions and improve their cost structures, increase their supply chain velocity, and reduce supply chain risk through the breadth and depth of our platform of supply chain solutions.

This remains increasingly important as consumption becomes more geographically distributed, and customers need solutions with more regional operations to fulfill these new demand patterns.

The most notable example this is the large mass customization assembly facility that we have created for Google-Motorola.

We are thrilled that our worldwide system is very well positioned for this significant eco-system shift.

Please turn to Slide 10 where we review our revenue performance in more detail.

Our integrated network solutions or INS business group totaled 44% of our sales during the quarter.

Revenue rose sequentially by 3% to $2.5 billion in the quarter, which was slightly better than our expectations of flat, as we experienced modest sequential growth.

Our INS subsegments of telecom and networking grew single digits sequentially, with telecom providing the strongest sequential growth at 5%, due to strength in wireless offerings.

For our next quarter, we expect these modest improvements to continue, and INS to grow in the low single-digits, led by strength and networking from recent market share gains.

Industrial and emergent industries, or IEI, amounted to $906 million or 16% of total sales.

Revenue rose 2% on a sequential basis, which was in line with our expected revenue increase of low single digits as new programs with new customers began to ramp, and semiconductor capital equipment saw some improvement.

Next quarter, we expect similar low single-digit growth as new program ramps continue in the appliance subsegment of IEI.

Our high reliability solutions group, or HRS, is comprised of our Medical, Automotive and Defense and Aerospace business, and grew 4% sequentially, and 20% year-over-year.

This performance was ahead of our expectations of flat performance as Medical and Automotive both exceeded forecast and grew sequentially.

HRS's quarterly revenue surpassed $800 million for the first time in its history, and put it on track to surpass $3 billion this fiscal year.

Overall, while HRS continues to go double-digits year-over-year, we expect it to be flat sequentially, and in line the historical five-year seasonality for this business group.

Our High Velocity Solutions, or HVS, quarterly revenue totaled $1.5 billion, and comprised 26% of our total sales.

HVS increased 31% sequentially, well above our expectations for a low double-digit increase.

This outperformance was a result of a higher than expected initial quarter contributions from our new Google-Motorola partnership, combined with growth in our consumer electronics customer group.

For next quarter HVS is forecast to grow 25% to 30% sequentially, resulting mostly from growth in our Google-Motorola partnership and normal HVS seasonality.

Before summarizing guidance, let me briefly touch on our Multek and Power business.

We expect to close our Multek factories in Germany and Brazil by the end of the September quarter, which is important to reducing Multek's breakeven, and ultimately getting it back to profitability, which we see as being achieved in this December quarter.

It will also be key to realizing the remaining cost savings we've outlined from our overall restructuring plan.

Multek's operating loss declined, as its revenue level rose over 10% sequentially.

Power recorded its third straight quarter of positive operating profit and saw its margins expand sequentially.

Revenue continues to expand, margins are at target, bookings are fairly strong and diversified, and our IP portfolio continues to expand.

We are very pleased with the performance of this business.

Now turning to guidance on slide 11.

Based on our current visibility and the expected sequential growth in three or four of our business units, we believe that our September quarter which show continued sequential improvement.

Our September quarter revenue is expected to be in the range of $6.1 billion to $6.4 billion, this reflects a sequential growth range of 5% to 11%, or 8% at the midpoint.

Our adjusted operating income is expected to be in the range from $150 million to $175 million, which is 19% higher at the midpoint than the $137 million earned this past quarter.

This equates to an EPS guidance range of $0.19 to $0.22 per share.

Quarterly GAAP earnings per diluted share are expected to be lower than the adjusted EPS guidance that I just provided, by approximately $0.03 for intangible, amortization expense, and stock-based compensation expense.

With that, I would like to open the call for Q&A.

(Operator Instructions)

Our first question comes from Shawn Harrison with Longbow Research.

Your line is open.

First on the Google-Motorola win.

With revenues ramping here earlier than anticipated, is there any change in terms of the peak revenue expectation for the December quarter, or the 2% EBIT margin target associated with that business?

Yes, Shawn, I think it is hard -- it is still hard to say.

As you know, there is a pretty significant refresh of products that occur every year at this time for a lot of the Mobile customers.

So the visibility is still pretty limited for us.

We continue to believe that we are going to be in the multiple billion dollars for this quarter, or this year, and remain on track for that.

And if the same time from a margin standpoint, we always anticipated being -- not hitting our margin targets for the first six months of the program, ad then after that we expect it to be roughly at HVS target margin.

We actually still anticipate all those targets to be on track, but again, there are new programs and we will have to see as it unfolds through the course of the year.

Okay.

And then second just on the increased CapEx investment for the year.

Chris, maybe if you can detail what markets those are targeted towards?

Shawn, the increase is probably really spread across mainly all the segments.

There was a focus primarily in machining and some of our mechanicals.

I'd say the lion's share would be aligned to the HVS segment.

Okay.

Thanks so much, and congrats on the quarter.

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

Your line is open.

A couple of questions for me.

One, maybe you can talk about the September quarter guide, and really on the margin expansion it looks like despite the uptick in revenues, conversion margins are going to be fairly light.

I get it to be around 5% and that's despite the $10 million of new search, which it doesn't have.

Maybe just talk about what's leading to the lower margin expansion despite the take-up.

I realize mix is in an issue, but anything else you would add to that?

Amit, the midpoint of our guidance suggests around a $25 million increase, or a 19% increase in our operating profit, so we will continue to drive operating profit expansion.

In terms of margins, the levers that we should be considering the impact at, obviously mix as you just stated.

Additionally, we've estimated restructuring benefits in the September quarter to range between $5 million to $10 million in incremental benefits.

So this range is heavily dependent on timing of our actions across multiple locations, so the quicker we can close on those elements, the quicker we can get those costs out of the system, the greater we will hit a net savings, and you would see that incremental impact to profits as well as margin.

So between the 5% to 10% range, that's roughly 10 basis points of a margin impact.

And lastly, I would say our operational execution of our Multek business could also provide some benefits to the margin profile.

That's helpful.

And I guess regarding the capital allocation, the buyback program.

If I understand correctly, you can start the buyback program after the July 29 approval potentially?

I recall last year, you guys try to get approval for 20% from the [theme of procurement] I guess eventually did get approved for, but did you try to get an increase of the 10% number this time?

Yes.

We continue to be waiting for the Singapore government to issue their finalization around raising the limitation beyond the 10% that's already in law.

In our proxy is one of the proposals I'm it is allowing us to seek shareholder approval to the 10% that's already in law in our proxy, as one of the proposals.

It's allowing us to seek shareholder approval to the 10% that's already in law, as well as if the extension goes beyond the 10% threshold.

So yes, we are awaiting the follow-on for the 20% and it is also embedded into our proposal.

And finally on that front, do no you know what time and when you could potentially get that approval from the Singapore government?

We've been waiting for a while on this.

Our ability to predict when governments make motions to change their internal laws on how they manage their companies has been not so good.

So I think we will keep pushing them, we keep having -- we have an objective of getting it where we can control our capital structure and not be constrained by an artificial 10% limit.

And we will keep pushing.

But in the meantime, we've been disappointed in how long it has taken.

So minimum 10% buyback, potentially 20% if you get all of the right approvals, right?

It is 10% or greater, could be a 20% threshold, the government will come back with its own determination on what they would extend that limitation beyond the 10% already in law.

Got it, thank you.

Our next question comes from Jim Suva with Citigroup.

Your line is open.

Congrats to the team there.

When you look at that variance from what you thought the quarter was going to turn out to actually how it turned out I think the biggest upside really came from the high velocity.

When you think about that, I'm just trying to understand and get my arms around your ability to predict and manage that business.

For example, I believe that Motorola, that you actually closed it around April 16 you get guidance around April 30, and to see that big upside, can you just help us really understand your ability to deal with that type of volatility, or is this going to bring inherently more volatility into the Flextronics model, because you were able to, since you got all the sales in, but we just really wonder since it was a new conception of the first quarter, the integration of the Google-Motorola, is there some uncertainty there?

Jim, first thing I'd say is we build to our customers forecasts, so our customers forecast what their marketplace looks like, and then we do our best job to look at those numbers, manage them the best way we can to make sure that our variability is minimized, and we manage to that.

So it is hard for us to take over a multi-billion-dollar business on the 16th and be accurate with what that forecast looks like on the 30th.

The other thing that we have going into this is we have a lot of variability.

Because Motorola, as you know, is releasing new parts into the marketplace.

They've made several announcements over the past six weeks, and these are new products going into new places, so which carriers they end up selling those into, what deals they make, what price points they sell it at is all a function of what they decide to do.

The key thing is that we maintain the flexibility, they respond to those changes in a pretty proactive way.

So when we think about HVS, we think about managing our business to be able to respond to that variability.

So we have the ability to respond to upsides that occur in the September-December quarter and then adjust pretty rapidly in the March quarter, either through overtime, moving the equipment around, the inventory itself flushes very, very rapidly because it typically runs -- we have less than 30 days, so that flushes a very, very quickly.

And so I think what we do is, we will go manage that high velocity or high variability business as best we can.

We will have to deal with seasonalities, we'll have to deal with new product ramps.

Those are going to be a determinant of our customer, as to how they manage those and forecast those, but I can tell you we've been very, very aggressive putting in a system that can react both up and down, so that we don't get caught with any kind of residual overhead.

But particularly on this particular one, you've got a new products coming in the marketplace.

It is going to be very, very hard to predict for the next few quarters.

Great, and maybe a follow-up question might be a little bit better for Chris, since it is kind of financial, but Chris, you mentioned that you're going to be doing a little bit more CapEx, and that sounds like that is aimed towards high-velocity exclusions.

Is that aimed even moreso towards the Motorola-Google or is it aimed more towards the other consumer devices that you -- like XBox and things like that and also the top customers, and what percent they are?

Okay, I will start with -- there's no top 10 -- does no customers that's a 10% customer this period, and the top 10 amounted to roughly the same as it's been, around 52% of our total revenues.

As it relates to the CapEx, yes, it's aimed, the lion's share at the HVS.

And that's aimed to address the volume increases that we are seeing, and in fact, part of it will be earmarked to the Google-Motorola ramp.

Additionally, we've been highlighting a lot of other underlying development within HVS such as in wearables, as well as other programs, so some of the other CapEx is associated with some of those other businesses around the mechanicals and other attributes associated with those programs.

Great, thanks, and congrats to you and your team.

Our next question comes from Brian Alexander with Raymond James.

Your line is open.

Thanks and sorry for background noise if you hear it, but maybe a follow-up on a couple of questions earlier.

On the buyback if you do get approval for up to 20%, I'm just curious what your appetite would be to buy back potentially up to that amount?

Could you see yourselves actually buying considerately more than 10%, if you do get the approval?

And then on Multek, I think you said the loss narrowed by $8 million, so if I remember back the last quarter, I think you lost $19 million, so you are losing about $11 million this quarter.

How much of the improvement was volume leverage on the revenue growth, how much was restructuring savings?

And where do you expect that business to be once you are done restructuring?

How should we think about the margin profile at Multek?

I'd like to start off and address the 20% allocation issue a little bit.

I want to make sure, the 20% is not so that we can buy 20% as soon as we get that allocation.

The 20% is because we have an artificial threshold of 10% that we cannot buy over.

Over the last couple years we have bought roughly 10% of our stock back and we were capped.

To meet the reason to go to 20% is to free up the flexibility so that we can manage our capital structure however we want, and not have it bound by an artificial constraint that was created, that we don't think has any purpose.

So I want you to think about it as being -- that's not an indication that we are going to buy 20%, that is so that we have complete and total flexibility to manage our capital structure, to do whatever we choose to do, and do the right thing in the interest of the shareholders.

So I want to make sure that clear of why we are trying to get this 20%, and what we intend to do with it.

So as far as Multek, I would jump in a little bit and then let Chris follow-up.

We do get a lot of volume, and we did a 10% increase in revenue in our operation which is largely fixed cost, you have a pretty significant flow through, and the flow through can be easily as high as 30%.

So out of that improvement that you mentioned, a good 50% is probably from volume change, and the other 50% probably from restructuring benefits.

We expect those restructurings to be complete, or all the cost associated with the restructuring actions to be done in the September quarter.

And what we then expect is that December quarter, we expect to be profitable, and we expect to be pretty pleased with the business, based on the some of the bookings we are seeing today.

I would only add to that, so we will be out of our German and Brazil factories by the end of September.

So what that does is it's going to eliminate a burden of significant operating losses that we are having to carry.

And the completion of this closures will ensure that we have eliminated a significant variability out of our Multek business.

So as Mike alluded to, we are on track.

We are progressing nicely with that business.

As we go through the restructuring and rationalization, and we anticipate achieving the completion of that and moving into a profitable business in the December quarter.

And then just looking back, Brian, I was going to give a little more color, just over the past three years, we repurchased approximate 170 million of shares or roughly 25% of our shares, and in fact, as I mentioned earlier, we've been a buyer of our shares throughout the month of July as we captured another 6 million shares to complete the authorization.

So we've had a commitment to this share repurchase program, and I would anticipate you seeing us remain committed as a key feature of our capital allocation strategy.

That's good to hear.

Just a final clarification.

Just the confidence level in getting operating margins close to 3% level as we exit the calendar year.

I think you're going to be around 2.6% in September per your guidance, and it looks like the restructuring savings a relatively modest after the September quarter.

I know you can't mix shift towards HVS, which could skew the margins downward.

Just where are you, in terms of confidence on getting back to 2%?

How quickly can you get there?

Thanks.

Okay, so for us, execution is our theme, and we continue to progress nicely to our plan that we set out, and that I talked to at Investor Day.

There's multiple levers as we moved to that target range in the December quarter.

A component was our restructuring benefits, which we are on track to achieve the targeted levels.

Then there is the Google-Motorola ramp, which we also indicated is progressing as intended.

Then there's the overall mix.

So the mix will play a part in what that operating margin level is, but we remain highly confident in our ability to drive the operating profit up to the $200 million-plus level, which is roughly 88% of that increase as we move throughout this year, so you'll see us stepping up in our margin each period, up to that target level.

Our next question comes from Amitabh Passi with UBS.

Your line is open.

Maybe clarify comments you made previously.

If I go back a few years when consumer was a fairly reasonable portion of your business, we typically used to see a big September ramp, more muted ramp in December, and then a double-digit decline in March.

I'm just trying to figure out, are we back to the days where that's the kind of seasonality we should see?

It's particularly confusing given the fact that you've got a couple of these programs ramping as well?

Yes, I would say we have two pretty significant seasonal ramps going on right now.

One with Google, which is new, that's entering into our business, and the other one I think that's probably significant is our XBox program.

As you know, we have a significant percent of the volume in XBox.

There is a product refresh as well as the volume kick for the seasonality, so you have two effects that are occurring, going on over the next couple quarters.

And I think it really depends on -- what we end up seeing is that significant seasonality isn't HVS as you say.

Last year we ran that business at roughly 20% or so of high-volume business.

This year we expect to run it at about 35% overall.

We may take around 40% in some of the quarters, but on average, we are going to be a 35%.

We've been as high as, you go back five, six, seven years, we've been we've been as high as 70% in HVS, so it is still significantly less than in the past.

We continue to emphasize, and all of our M&A is geared around those businesses, and questions like HRS, which you saw grow 20% year on year.

We expect to have continued growth of IEI through the course of the year.

All these businesses we end up trying to dilute the effect of that seasonality.

So while we will have some seasonality associated with things like XBox and Motorola at the same time, where we are putting our M&A dollars and our resource emphasis is a lot in these other business units, which we hope to have above average growth rates.

So we are going to do our best to try to keep them in balance like we always do.

We kind of said in the Analyst Day, we probably run this business this year between 30% and 40%, or the high velocity business between 30% and 40%, and we will keep -- and our allocation of M&A dollars won't change, we will continue to spend those dollars in the non-HVS segments to try to balance it out.

Mike, just a follow-up on that.

Do you anticipate the lines accelerating through December or is September the main peak in terms of sequential growth, and then it starts to moderate from there?

I'm trying to get a sense --

Our historical seasonality from December to September has been about 1%.

Actually not as much is normal because a lot of the shipments, a lot of the volume occur actually before the December quarter.

Mostly because October and November tend to be very high-volume months, but the December quarter tends to be a lower volume of because you kind of miss the seasonality if your shipping product from Asia in December.

So I think this year might be different.

We do have -- once again I will go back to the Motorola piece.

It is hard for us to interpret exactly what their volumes are going to be when it is new leadership, new Company, new ways of attacking the marketplace in terms of everything from pricing and marketing strategies.

We don't know what those are exactly going to be, so it might be different than normal, and we will just have to wait and see.

I think the key point is we have not lost sight of the continuous drive to balance our portfolio and balance away.

That's what we will do.

Then just real quick follow-up.

You acquired two facilities from Motorola.

I believe one in Brazil, one in Taiwan, but you are ramping I think predominately in Texas.

Jury is what are you doing in the facilities that were acquired, just what absorption and utilization rates are on the acquired facilities?

From a people standpoint I'd call them 100% utilization.

From an equipment standpoint, I would call it near 100% because we only took the equipment that we need to do to build the forecast.

So I would call those facilities in balance.

In fact as we go to the course of the year we raised our CapEx to over $500 million because we actually don't have enough equipment across the Company to meet the volumes that are coming at us.

So in both those cases I'd call them very, very strong, and as far as utilization of the facilities, it is not relevant from a financial standpoint, to tell you the truth.

The cost of those facilities significantly lower it doesn't even -- doesn't even show up.

Okay, thanks.

Next we have Matt Sheerin with Stifel.

Your line is open.

Just a follow-up in the last question, just terms of visibility through the December quarter.

Earlier this year, I think you talked about 30% to 40% revenue growth between the March and December quarters, which would imply that you get close to a $7 billion revenue run rate.

And it sounds like the visibility, particularly in the high velocity business, is somewhat limited now.

I know you are ramping an incremental customer in the networking space.

It sounds like you've got a pipeline in other business, but how should we think about hitting that kind of number?

Yes, that's what we've been saying for a couple of quarters.

We continue to target going after that $7 billion number so we think that still in our sights.

This more things than just Motorola.

We mentioned Applying Steel, and that was pretty significant in the Analyst Day in May.

You know about Juniper, we are in the process of ramping.

There is a new product that's is just came out yesterday from Google, I'm sure many of you saw it, the Chromecast.

We will be the exclusive manufacturer of that product.

There's a lot of wearables products that we've talked about over the words of last couple months, so there's a lot of different things that provide enough comfort for us that as we think about what the possibility of Motorola having a downside, with these other pieces, we continue to be pretty comfortable that we can hit that $7 billion number.

Okay, that's helpful.

And then on your manufacturing in Texas.

Can you just walk us through the economics of hitting their 2% or higher EBIT margin target for HV in Texas when lots of companies still have challenges hitting those kind of margins in the lower cost regions?

What we are doing is, we are building a business model in our HVS business that we try to target a 2% kind of minimum.

Once we start to flow the deal in Dallas-Fort Worth we have the same kind of expectation.

We anticipate that it will run like any other facility, so we expect the first two quarters to be challenging from an operating profit standpoint as we bring in people and we bring them up to speed.

As we've opened that facility we've already hired 1,100 people, so it is a significant investment in people to go be able to drive the volumes.

But we're pretty confident.

We know the product as well.

We've now been engaged with that for several months.

And we've got to know the product, we've got to know how it performs, and we are still pretty comfortable that after the six-month learning curve that we will be at our standard margins.

Okay, thanks.

Next we have Sean Hannan with Needham.

Your line is open.

Just was looking to see if you could perhaps talk a little bit about the degree of interest you have today on the acquisition front.

Obviously, end markets have really been not all that robust.

You talked a little bit about still being a little cautious in the back end of the year.

There have been some businesses you picked up, as well as some assets.

Your balance sheet can obviously handle a little bit more, and so just want to get a perspective from current point in time, and if you can also, when answering, share some of your thoughts on the degree of interest that a components solution would have, as thematically, I don't think components have been working incredibly well for you the past few years in aggregate, so any additional color on that would be helpful.

Yes.

We already have are pretty powerful portfolio.

We're at scale with virtually any component that we do.

But we will continue -- we believe in order to maintain a continued balanced portfolio, that continued effort and focus towards that HRS business group continues to be where we will probably put some acquisition dollars.

To the extent it comes up, to the extent it doesn't, we are still growing it nicely.

Organically.

But we will continue to look at acquisitions in that place, and when we look at the acquisitions, they are really not for volume or scale.

We have a lot of volume or scale, but they are probably going to be for technologies or customer access, or some new way of being able to penetrate the automotive, aerospace, and defense, and medical market more directly.

So we still have an interest in those businesses are collect a set, I think they tend to be small.

I think they tend to be capability oriented and that's where focus is going to be.

As far as the components go, if it's components we already have, it might be interesting.

Do we have an interest in building a broad-based component portfolio like we did back some time ago, when we were looking at displays and camera modules and many other things?

We actually don't have an interest in doing very much of that.

So our focus is more to balance the portfolio, to reduce the risk to build out longer product lifecycles, and to invest in acquisitions that are going to give us capabilities that can drive to higher-margin kind of businesses.

That's kind of the focus.

Okay.

That's helpful, Mike.

And then next, you have hit a few times tonight on Multek.

Just wanted to see if you can elaborate a little bit more on specifically what that business is seeing presently, in terms of general demand, bookings, and you've talked a little bit on the cost front of how we are improving that for the course of the year.

Wanted to understand what you are thinking about, on the top line how that comes in that mix of business.

Thanks.

I mentioned last quarter alone we had a 10% increase in revenue.

I don't know if we will be up 10% for the year, but it is possible.

Our bookings tend to be pretty broad-based right now.

We're getting a lot of very nice bookings, with a lot of products that are pretty relevant on the marketplace today, and a lot of new product announcements that have come out.

We are using some of the Multek business.

That's half of the businesses, the higher-velocity kind of business.

The other half of Multek is really built around telecom, datacom, and the high-end boards, and that has been and continues to be very, very stable over the course of the year.

That part of the portfolio is in very strong shape.

Highly diversified and stable.

And the bookings in the other half of the portfolio which is really more around the Mobile and the more dense boards has been very strong.

Hopefully that will hold.

What's key for us, as I mentioned earlier, is we actually really, or maybe I didn't mention earlier but we are actually working hard through the restructuring actions that we took, is to create a Company that has substantially less variability.

So by taking out our Germany factory, taking out the Brazil factory, taking out some of the LCD initiatives we had it actually took out quite a bit of variability and performance, where we now think it is going to be able to perform at a much more predictable rate.

Not only is it simpler, easier to run, it has less variability, and right now, our revenues and our bookings have been very, very good, which we are really pleased with.

But we are hoping we access them by December quarter, but we will have to wait and see.

It has disappointed us often in the past and we are not going to declare victory until hit quarters that look really good.

Great.

Thanks so much for answering the questions.

Next we have Sherri Scribner with Deutsche Bank.

Your line is open.

I was hoping to get a little more detail on the INS business.

I know you talk about the telecom and networking piece and telecom being up about 5%.

I know server and storage is also in that segment.

Wanted to get some thoughts on how that business is trending, and maybe you can update us on approximately how big that business is, within INS?

Yes, I'm going to say that business is roughly $2.5 billion, out of nice round numbers, $10 billion.

So it is about a quarter of it.

But the reality is I find the INS business to be reasonably uninspiring.

It went up a little bit.

We were up 3% in the overall segment, so I don't think there's a lot going on.

It seems to be relatively flat.

People talk a lot about telecom going up, but you really have to be able to get the right telecom.

A lot of the people talk about telecom, and some of the excitement they're having is around China doing the 4G build-out.

The timing of that is still to be determined, and the amount that the Chinese vendors end up is getting out of that telecom award will be a huge determinant of what the rest of the business looks like.

We tend to have pretty good strength in networking.

We've seen networking might be up about 5% this year.

We have some added growth as result of Juniper coming in.

But on average, I view it as a pretty stable -- and the same thing with server and storage, you started with the server and storage.

It is been very flat of us lately, up this last quarter.

But I think overall it is a reasonably flat to up 2 points kind of market.

So nothing very inspiring, and nothing that we can see that's going to move our needle that much.

Okay, that's helpful.

And then Chris, just a quick question for you on the SG&A line.

I think you said in your prepared remarks about $215 million in SG&A on an adjusted basis going forward.

How long can you keep SG&A at those levels if we are possibly doing $7 billion in revenue in December?

Do you have to add some SG&A?

Thanks.

No.

Hi, Sherri.

No, as we discussed at the Investor Day, we've actually been pre-positioning resources and technology in to support our anticipated revenue growth across the program.

We anticipate staying at that $215 million level throughout this year.

And I think that is a good level to be considering us to be able to manage the business at.

Great, thank you.

Our next question comes from Wamsi Mohan with Bank of America Merrill Lynch.

Your line is open.

Mike, I appreciate the color that it's hard to predict the our orders for the Google-Motorola business, but can you give us maybe a little bit more specific update on what's the revenue assumption embedded in the guidance for next quarter?

And will you be running about breakeven in that business next quarter, as you are ramping?

Yes.

When you say next quarter you mean the September quarter, correct?

Yes.

Yes.

We expect to be really slightly over breakeven, but not much higher than breakeven.

So as we ramp that up, but in terms of one of the specific revenue guidance, one of the things that we don't want to do and can't do going forward is tell you what revenues are for specific customers.

It is not right for us, to be talking about revenue guidance and then telling us back saying it went up or went down -- we need to be reasonably discreet as it relates to our customers trying to launch their product lines and how they want to message and manage their business.

So I don't want to give any more details than I already have.

We've been in it now for three months, and we are quite confident that after the six month learning curve that we will be hitting HVS targets.

We expect it to be a $2 billion.

Like I said, which carriers they book and what kind of specials they are running, and how much marketing dollars they throw in, there is still a huge variability associated with that, so we are going to make sure that we maintain a workforce and an investment profile that is very, very flexible so we can respond both up and down, so that Flextronics ends up at HVS margins.

At target over the course of the year.

But we are pleased we are on track.

We on schedule to get the six-month learning curve behind us coming soon, but I don't want to give any more color in terms of the very specific revenues by quarter on that customer going forward.

Okay, thanks, Mike.

And Chris, you did better on your op margins, 2.4% versus straight line 2.2%.

The question dovetails with what some others have asked here.

It seems like even with the higher revenues, the implied margin is 2.6%, versus Street was expecting 2.7, so I guess sequentially people were hoping for 50 basis point improvement.

We're going to end up with 20 basis points of a higher level.

Is the profitability the low-hanging fruit in terms of -- I wish we could lying, you have done a lot of hard work to get the margins where it is, but is that the ramp-up profitability just gets tougher here, from here to 3%, or is it just a matter of higher HVS mix that's causing the ramp to appear a little slower?

I think your last point -- that you just highlighted a contributing factor.

The mix definitely has an impact there.

As you look to margin, again keep going back, we continue to drive operating profit expansion.

And also in the guidance, we actually highlighted, there's a range and the restructuring benefits of $5 million to $10 million.

On the higher end of the benefit range you are going to see about a 10 basis point change there as well.

Clearly, the early-stage volumes as a ramp in these larger programs is going to contribute to some challenging, and as we also alluded to, we will get to our, once we are fully through this ramp phase, we're going to be at our targeted margin profiles for those HVS programs.

So mix is an impact.

We can see some improvement on the restructuring benefits that can contribute like a 10 basis point change, and we will be roughly right around where that modeling takes you to, around 2.7.

Okay.

Thanks, Chris.

Next we have Christian Schwab with Craig-Hallum Capital Group.

Your line is open.

Congratulations on a solid quarter and earning back some credibility, one quarter at a time, as you suggested you would at your Analyst Day.

You talked at your Analyst Day about your biggest win ever with Hewlett-Packard.

Has that begun to ramp yet?

Any measurable volume?

I guess -- Hewlett-Packard?

That's what I have in my notes.

I know everyone talks about Juniper, I'm wondering if there's something -- I think I have Brazil mentioned.

Okay, you are talking the biggest went from Hewlett-Packard that we've had.

Not necessarily the biggest one Flextronics' had.

Absolutely.

No, we do have a significant win with Hewlett-Packard.

A large of it is Brazilian-based, so we will be doing multiple product categories for them in Brazil across a number of different service categories, both assembly and repair and others.

That is in place.

We have not yet ramped that, and we will do that over time.

Okay.

Great.

At your Analyst Day, you talked about $6.9 billion being your target range in walked through new products, and Google and seasonality to get there.

You mentioned, a couple people talked you into $7 billion earlier.

Do you feel comfortable with that $7 billion, given the strong start of your new relationship with Google?

Or how should we'd be thinking about that?

We still think we are roughly on track.

We talked a little about that earlier.

There's more than just Google, there's Juniper, I mentioned the Chromecast, and obviously, the Motorola.

We've got some seasonality, some new product launches with Microsoft and their XBox, and we talked about some appliances and -- you talked about Hewlett-Packard just now.

There's a lot of different elements to that, and a lot of different pieces, and they all seem to be on track for us.

We continue to be comfortable chasing that target.

Excellent.

As we think about the capital allocation plan, and in the buyback program, if we look at the last two years, just on a yearly basis on the weighted average share count, you purchased about 58 million to 59 million shares.

On the average it is gone down on an a weighted average basis.

Should that be what we should assume as a minimum, as we model for 2014 and 2015, and if we see a 20% type of approval for the Singapore government, whenever that may or may not come, that it might be even more aggressive than that?

I would say that we continue to be committed to a share repurchase program and as you alluded to, we've been talking up to near the 10% allowance level over the last several years.

We've been a buyer of the shares all the way through July.

And I think it's going to remain a key feature of our capital allocation strategy as we move forward.

Great.

One last question if I may.

On the capital allocation front, have there been any in-depth discussion about possibly expanding the capital allocation plan to a dividend and a share repurchase program?

Or are we pretty happy with just a share repurchase program for the time being?

So really there's no update since I last spoke on this.

Dividends are clearly a key component that we must be considering.

We have a strong financial condition, we generate sustainable cash flows, so when we think about returning value to shareholders, it is an element that must be evaluated.

Obviously, we are in the growth phase right now, and we believe our share repurchase has been valuable to our return profile.

So we will continue to evaluate inclusion of a dividend and at what level and at what time, but for now, there's really nothing more concrete to discuss on that.

Okay, Operator, we've run a little bit past our time here, so we are going to end the call now.

I want to thank everybody for joining us on the call today.

This will conclude our conference call.

Thank you for your participation on today's call.

You may disconnect your lines at this time.