捷普科技 (JBL) 2002 Q4 法說會逐字稿

Good afternoon.

My name is Mitch and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Jabil Circuit fourth quarter 2002 earnings release conference call.

All lines have been placed on mute to prevent any background noise.

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

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

If you would like to withdraw your question, press the pound key.

Thank you.

I would now like to introduce Ms. Beth Walters, Vice President of Corporate Communications and Investor Relations of Jabil Circuit.

Ms. Walters, you may begin your conference.

Good afternoon.

Thank you for joining us for our fourth quarter of fiscal '02 conference call results.

With me today are Tim Main, our President and CEO -- Tim is actually joining us from our Auburn Hills, Michigan facility -- Chris Lewis, our Chief Financial Officer, and Forbes Alexander, our Treasurer.

During the course of this conference call, we will be making forward-looking statements regarding the anticipated outlook for our business, our expected first quarter fiscal 2003 earning results, the consummation of proposed acquisitions, and our long-term outlook for the company, our industry, and our customers.

These statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.

Please refer to our most recent 10-K filed with the S.E.C.

November 28th, 2001.

All of our S.E.C. documents filed contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections and forward-looking statements.

Our results for Q4 '02 on revenue of $988 million, operating earnings, excluding amortization of intangibles and non-recurring charges for the quarter were $38.5 million.

Cash earnings per share were 15 cents.

On a year-over-year basis, this represents a five percent growth in revenue, and a 10 percent growth in operating profits.

Specifically for the fourth quarter, our revenues increased 16 percent from Q3.

Production levels in the automotive sector increased eight percent above the previous quarter, due to seasonally lower levels of production, but offset by just about one month of initial production from our recent Valeo acquisition.

The computing and storage sector increased 69 percent from the third quarter, reflecting a stable demand environment, and a significant increase in production with server and storage assemblies.

The consumer products sector increased by 13 percent in the current quarter, reflecting higher demand -- principally in

production.

The instrumentation and medical sector increased 11 percent sequentially, due to new program

with existing customers.

The networking sector increased by 17 percent in the current quarter, due to initial production of our recent Alcatel acquisition, along with stable to increasing levels of production with other programs.

The peripheral sector increased by 20 percent in the current quarter, reflecting a relatively stable demand environment, and a more normalized production to sell-through rates.

We also commenced production of new assemblies in this area during the quarter.

The telecommunications sector decreased by two percent sequentially, reflecting continuing decline in demand for these products.

Excluding the impact of some parts-related sales, this segment actually declined about 12 percent on a production basis.

This sector represented less than 20 percent of revenues for our fiscal fourth quarter.

Our final segment breakdown for fiscal '02 by segment was: automotive, seven percent; computing and storage, 13 percent; consumer sector, eight percent; instrumentation and medical, five percent; networking, 30 percent; peripherals, 10 percent; telecom, 23 percent; and our other sector represented four percent of our overall revenues.

margin for the quarter was 9.7 percent of revenues, compared to 9.9 in the third quarter.

SG&A decreased to 5.6 percent of sales, compared to 5.8 in Q3.

In absolute dollars, SG&A was up 5.7 million to 55.1 million.

R&D was consistent at 2.1 million of the quarter.

Intangibles amortization for the quarter was 4.6 million.

Cash operating income increased 32.4 million to 38.5 million, or 3.9 percent of revenue.

Excluding non-recurring charges, it's compared to 3.8 percent in the previous quarter.

We recorded 3.9 million in integration and acquisition related costs in the quarter, and 28 million in non-cash charges relating to rationalization costs at our

plant.

Net interest expense for the quarter was 500,000, compared to 700,000 in interest expense in the third quarter.

Income tax rates were 20 percent of income, excluding non-recurring charges.

And net income after taxes, excluding the acquisitions and restructuring charges and amortization of intangibles, was 30.3 million, or 15 cents earnings per share on a cash basis.

We're pleased by the operating performance for the quarter.

We executed to the mid and high range of our EPS and revenue guidance respectively during the quarter.

We are also pleased to have generated 105 million in positive cash flow from operations.

This represents seven consecutive quarters of positive cash flow from operations.

I'll turn it over to Forbes Alexander, who'll take us through the balance sheet.

Thank you, Beth.

Good afternoon.

Accounts receivables increased by 97 million to 446 million in the fourth quarter, as compared to 349 million in the third quarter.

Consummated day sales outstanding was 41 days, with collection experience of 37 days.

This compares to 37 days sales outstanding in the previous quarter, with collection experience of 34 days.

Inventories increased by 71 million to 396 million, compared to 325 million at the end of May.

Calculated inventory

were nine, compared to 10 in the previous quarter.

As a result, our sales cycle for the quarter was 37 days.

Fixed assets increased by 50 million to 741 million, reflecting 95 million in capital expenditures, offset by 45 million in depreciation.

Approximately 60 million of these capital expenditures related to our acquisitions completed during the quarter.

Cash and cash equivalent balances were 641 million, compared to 759 million at the end of the third quarter.

Our return on invested capital for the quarter improved to 10 percent from nine percent in the previous quarter.

The company's debt to capitalization ratio was 19 percent at the end of August.

Before the quarter, our average return on assets was five percent, with an average return on equity of eight percent.

Over the past five quarters, we have generated over $700 million in positive cash flow from operations.

With cash balances and existing committed credit facilities totaling $1.5 billion, we have ample capital to fund our recently announced acquisitions and the increasing levels of production on an organic basis.

And now I'd like to hand it over to

, who will give you a business update.

Thanks, Forbes.

Our current forecast indicates increasing production levels in our November quarter by an estimated two to five percent.

We are guiding to an overall range of one billion to $1 billion 40 million for our first quarter.

This excludes any contribution from Philips.

Our cash operating income is expected to be approximately 3.6 to four percent of revenue, depending on levels of production.

We expect gross margins will be 9.3 to 9.7 percent, reflecting our current mix of business, while taking into account impact from our acquisitions.

We expect a higher level of SG&A costs in our first quarter, but a comparable amount is a percentage of sales, as we expect higher production in our November quarter.

We estimate interest expense for Q1 to two million, and a slightly lower tax rate to 18 percent, compared to 20 percent in the previous quarter.

Reviewing our cost reduction activities, we have reviewed our overall capacity requirements for our next fiscal year through this past quarter.

Based on our estimates for our first quarter and throughout our next fiscal year, we have elected to reduce a portion of our capacity, principally in high-cost locations.

We expect to continue to finalize our plans as we move into this fiscal year, and estimate that we will incur approximately 60 million to $80 million in non-recurring charges in order to reduce our high-cost capacity.

Significant portions of these charges are estimated to be recorded in our November quarter.

These actions will involve plant-closing activity along with headcount reduction, and certain charges related to our tangible assets.

We expect to take these actions in the first and second quarter of this fiscal year, with savings occurring by the end of our second fiscal quarter, and increasing through the remainder of the year.

Based on our current plan, we expect this to be the end of our restructuring activities.

We estimate the cash cost associated with these charges will be 15 to 25 million.

The impact from these reductions are estimated to save approximately four to six million dollars quarterly, with full impact of these reductions occurring by the end of fiscal '03.

During the quarter, we commenced the

plant consolidation activity, and recognized a charge of approximately 28 million.

This resulted in a zero cash outlay to the company.

A positive note on

during the quarter --

reached an agreement on its financial restructuring, and is expected to have a balance sheet that is appropriate to its current business outlook.

We additionally incurred in our fourth quarter approximately $4 million in integration costs relating to our three acquisitions, consistent with our previous expectations.

Our integration costs in our first quarter are estimated to be three to $4 million of integration and acquisition related charges relating to the Shanghai and Philips acquisition in our November quarter.

Excluding estimated non-recurring charges; we estimate cash earnings per share to be 14 to 16 cents in our November quarter.

Reviewing revenue by sector -- Q1 '03 production levels, again, are anticipated to grow by two to five percent, or approximately one billion to one billion, 40 million.

The consumer sector is expected to be up over 10 percent in our first quarter, reflecting seasonally higher organic demand.

The automotive sector is estimated to have over 50 percent sequential growth, based on production, increases from lower summer levels, along with our first full quarter of production from our Valeo acquisition in France.

The computing instrumentation, medical, and networking segments are estimated to have consistent levels of production in our November quarter.

The peripherals sector is estimated to decrease five to 10 percent in our first quarter, as this segment moderates from previous sequential growth of 20 percent in our August quarter.

The telecom sector is estimated to decline by nine to 10 percent in our first quarter, representing a continuing difficult end-market demand in this portion of the business.

This estimate includes some initial production of our Lucent Shanghai acquisition in the first quarter, offsetting some of the organic decline.

Tim will now take us through a business summary.

Thank you, Chris.

Jabil's risk profile today is substantially lower than it was one year ago.

fiscal 2002, we worked to address the higher risk elements of our competitive positioning in order to put our company on a stronger platform for profitable long-term growth in a post-internet bubble economy.

I think we've made excellent progress in this area, and I'll take the next few minutes to expand on my statement.

Entering fiscal 2002, the primary risk elements to Jabil's business profile were: one, our exposure to

, communications industry, generally; two, the transition of business from higher-cost to lower-cost manufacturing locations, and our ability to manage the transition of our capacity as this movement transpired; three, our ability to integrate O.E.M. divestitures without disrupting a well-run business, and without forgoing our traditional emphasis on organic business wins; and four, our ability to resume growth in revenue and earnings to our traditional trend line of a compound annual growth rate and operating income of 30 percent or better.

We have been fortunate throughout the year in that our challenges have not included the more traditional business and recessionary-induced risks of large-scale mergers, high debt levels or funding pressures, distended inventory positions, poor cash flow and operating earnings, or dominant product concentration risk.

Our task was simply to reduce our risk profile, improve our competitive position, and to establish the resumption of growth.

Our industry sector diversification will be much improved in fiscal 2003 relative to previous years.

By the end of fiscal 2003, we expect networking and telecommunications combined will comprise 30 percent of our overall business, with networking comprising 25 percent, and telecommunications reduced to 10 percent of our overall business.

We expect consumer electronics to comprise 20 percent of our business, while computing and storage, medical and instrumentation, peripherals, automotive, and other, to comprise 15, five, 10, 10 and five percent respectively.

We expect our customer concentration metrics to be consistent with fiscal 2002, with our top five and top 10 customers comprising 54 percent and 70 percent of our business respectively.

We expect three customers to be 10 percent or more of fiscal 2003 sales.

They are Cisco, Hewlett Packard, and Philips.

Each of these companies are in separate industry segments, are investment grade, and overall represent a qualitative improvement in our customer concentration profile.

Our improved diversification in fiscal 2003 reduces Jabil's risk profile substantially, and at the same time opens new market opportunities in a broader portfolio of industry segments.

In particular, while the growth in the consumer electronics segment is obvious, we anticipate seeing new opportunities to emerge from historically vertically integrated segments, such as industrial controls.

Since the onset of the 2001 technology recession, there has been a large-scale transition of business from the U.S. and western European production locations to low-cost locations in Asia, Mexico, and central and eastern Europe.

The capabilities of low-cost locations continue to improve.

Barriers to free trade continue to fall.

And the digitalization and standardization of hardware products continues to drive

of product lines.

During the year we reduced headcount and infrastructure in the U.S. and Europe, and we announced our intent to close our operations in Boise, Idaho, and in Liverpool, United Kingdom.

Business from these sites will be consolidated among existing Jabil facilities in both

and low-cost locations.

As a result of these efforts, and the charges we discussed for fiscal Q1 of 2003, we expect our site portfolio to be much better balanced in fiscal 2003, and at this time, we do not expect to incur additional restructuring charges or plant closures during the year.

In fiscal 2003, production in the U.S. will comprise less that 20 percent of our overall revenue.

We expect that approximately 22 percent of our output will be produced in Asia, 23 percent in Mexico and Latin America, and 35 percent in Europe, with an increasing concentration of our European output being produced in lower-cost central European locations.

During fiscal 2003, we will see low-cost capacity rise to 70 percent or more of our overall capacity.

Higher-cost infrastructure absorbed through our O.E.M.

activity is either highly specialized, or has substantial downside or risk participation on the part of our customer.

Furthermore, over 70 percent of the production capacity absorbed is in low-cost locations, and approximately 20 percent of the revenue associated with these transactions is organic, and we'll be going into existing Jabil sites.

We do have some key competitive strengths in higher-end, higher-complexity products and services, which give us good reason to believe that while we will continue to grow our low-cost footprint, our higher

sites in the U.S.A. and western Europe will continue to be needed, and an important part of our overall solution.

The conclusion we draw from our capacity balancing experience is that far from being victimized, we are proactively leading the rationalization of global supply/chain practices, with the objective of providing our customers with the appropriate solution, and the appropriate location for any products they sell, anywhere in the world they sell it.

We are very confident in our ability to transition and integrate all of the O.E.M.

activity we have engaged in in the past year.

We began focusing and enhancing our ability to successfully manage this process, following our H.P. experience in 1998.

We have stand-alone teams of some of our best functional personnel, completely dedicated to every plant transition and integration effort.

These teams number as many as 15 per site, and we have approximately 80 people dedicated to this activity within the company.

We also rely on our existing regional

plants to provide training and key personnel for specific event-related activity.

Using dedicated, highly specialized transition and integration teams insulates our existing customers in operations from the stress and performance risks associated with the transitioning of operations.

Furthermore, by the time we integrate the Philips operations, all other operations -- such as those for Valeo and Alcatel -- will have been completed.

And finally, for perspective, since 1998 we've done a total of 12 transactions.

Our largest competitors have amassed well over 50 apiece, many of which were done during the frenetic days of the internet bubble economy, and were not core E.M.S. businesses.

In contrast, our appetite has been quite modest.

We have been selective, disciplined, and focused on core business areas.

We expect all of our transactions to be accretive.

The benefits of customer, industry, and footprint diversification, expansion of market opportunity and accretion far outweigh the relatively low level of execution risk we anticipate.

Concurrently, we have continued to press on organic growth with existing customers and new customers in targeted industry segments.

For example, during our most recent quarter, we are very pleased to have established new relationships with Toshiba America Consumer Products, Andrew Corporation, and Advanced Fiber Communications.

During fiscal 2002, and thus far in 2003, we've added a total of 15 new customers: two in computing and storage, seven in the medical and instrumentation sector, three in communications, two in consumer electronics, and one in automotive.

Only two of these new customers have come through O.E.M. divestiture transactions.

Furthermore, these new customers are established, strong companies, all of which have substantial electronic content to their businesses.

Priority number one at Jabil is always doing a great job for our existing customers, and deriving growth from the expansion of market share with our current partners.

Two recent examples are a new system assembly relationship with H.P. relating to LaserJet production, and with Quantum Corporation, a new program to provide final assembly for their tape drive products in Penang, Malaysia.

Both are complimentary service and market share extensions with long-term customers.

The

global economy has driven many O.E.M.s to focus on cost and to reduce their vendor base.

In most cases, we have been the beneficiary of these vendor consolidation efforts in our core customer base.

In summary, we have one business plan of disciplined and profitable growth, and two methodologies to achieve success -- organic and acquisitive growth.

All of our efforts are directed toward returning to our trend line of a compound annual growth rate and operating income of 30 percent or better.

As we've said in the past, the secular trend outsource is what drives this long-term trend line for Jabil, as well as the other E.M.S. companies.

This secular trend is in good shape.

We returned to sequential growth in our third fiscal quarter of 2002, and expect that trend to be continued throughout our fiscal 2003.

In the end, we expect our growth earnings will substantially exceed the long-term trend line of 30 percent, and that this momentum will carry forward into fiscal 2004.

In closing, Jabil's risk profile as a business has been reduced, our opportunities for growth have been expanded, and we approach the market in fiscal 2003 from a position of strength.

expectation for growth -- we're very excited about the future.

Thanks, Tim.

Operator, we're now ready to begin the question and answer period, and if you could go ahead and poll the questions.

Certainly.

Ladies and gentlemen, at this time I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad.

If you are using a speakerphone, please pick up your handset before asking your question.

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

Your first question comes from the line of Tony Boase with A.G. Edwards.

Thank you.

In lieu of

announcement, can you comment on what the first few weeks of September have been like for you?

Sure, Tony.

This is Chris.

Again, we just gave our guidance on our quarter and we expect a relatively linear quarter in September, October and November -- I mean they all look pretty solid, relative to us producing in that range of, again, a billion to a billion, 40 million in revenue for the quarter -- so, no big changes in September.

And, what was the contribution -- as far as revenue -- from Compaq, Alcatel, and Valeo in the quarter.

Well, we said before that the contribution of revenue from acquisitions was expected to be 50 to 75 million in the quarter, and we were probably at the high range for the quarter for Q4.

And when we look at inventory and receivables -- how much did those acquisitions add to those accounts, and what would D.S.O.s in

have been without the acquisitions?

The D.S.O., Tony, are obviously a function of what our receivable balance is at the end of the quarter, and Forbes went through that.

I think our D.S.O. was 40 days, which is pretty comparable to where we've been, so not a big change from the acquisitions.

The inventory, itself, was nine turns.

If you did take the acquisitions out, we were probably 10 plus turns in terms of organics.

Again, that's our challenge as we take on O.E.M. divestures to the extent that inventory's not turning 10 times -- that's where we want to head.

But, I was pleased to see that even in the aggregate we were a solid nine turns in the quarter.

Thanks a lot.

Sure.

Your next question comes from the line of Thomas Hopkins with Bear Stearns.

Everyone.

Chris, could you--just want to be clear.

The guidance you gave so far does not include Philips for your November quarter.

Is that correct?

That's right,

.

We just wanted to be clear on that.

And your ...

There's been no change in our expectation that we expect Philips to contribute to our February quarter for about a couple of months of production.

We just wanted to be clear on that.

OK.

Could you estimate, guesstimate, the integration expense or charge related to Philips, if there's going to be any?

I think there's going to be some, but I don't think it's going to be any big significance and, again, our estimate for integration, including Shanghai and some initial startup on Philips, is 3 to 4 million in our November quarter.

OK, and then could you go over, you know, for the next quarter to where you see the, you know, the variables in the Delta and the operating margins, you know, just looking at the gross and the SG&A.

The guidance we gave, again, was for Q1 of gross margins 9.3 to 9.7.

Our opportunity longer term in our fiscal '03 is to leverage our SG&A base, which we plan to do.

But, with the guidance right now, it's really a fairly comparable revenue, gross margin and operating income impact in our first quarter.

You know, as we get into our second quarter, we'll continue to update people.

But we clearly have opportunity in our Company to leverage our SG&A this year.

And Philips should not change that SG&A target or profile that much?

Well, again, Philips will come in in our February quarter and we'll update everybody.

We expect, in terms of contribution, for Philips to be neutral to our February quarter and be accretive for our full year and we'll update everybody when we get to that point.

OK, thanks, Chris.

Sure.

Your next question comes from the line of David Parrish with RBC Capital Markets.

Yes, good evening.

If you could just give us a sense as to revenue contribution from Alcatel,

and Compaq for the current quarter?

Sure, we talked about it before.

The contribution from the acquisitions was at the higher range of our previous guidance, which was $50 to $75 million for our August quarter.

OK, and then how about for November?

The November quarter the guidance is, again, our overall revenue is growing two to five percent.

A portion of the acquisition revenue is in organics and what we'll see most of the incremental contribution will come from the

acquisition.

We talked about production being a month.

It was really only, in effect, about a couple of weeks with August being a seasonally slow month.

In our guidance for automotive we expect the incremental revenue growth to be over 50 percent in the first quarter and that is the French plant coming on with a full quarter of production.

So of the three, that's the one that's really incrementally adding the most revenue.

So are we looking at, you know, something like 100 million in incremental revenues for the current quarter?

No, I think if you looked at the automotive incremental growth, and again, this is something like $30 or $40 million quarter-on-quarter, but again, it's difficult to break that out because, from an organic standpoint, we're seeing an increase from our August quarter in that a portion of this acquisition is moving into one of our lower cost plants, in fact, a pretty significant portion, as well as our core automotive business, as is typical, is rebounding into our November quarter.

So it's kind of all three of those factors causing our growth in automotive in our first quarter.

And what was the close date on the Alcatel transaction?

We closed it in July, around mid-July, I believe.

OK.

Given the restructuring program and the integration of the Philips transaction, what do you think operating margins might look like exiting fiscal '03?

Again, our guidance is through the first quarter and, you know, at this point in time, we're just leaving it with the first quarter.

But we've mentioned we expect contribution from Philips in the latter portion of our fiscal year and I think we're all in a position to say that we expect to have a very good fiscal '03.

But, at this point in time, we're limiting the guidance to our first quarter.

OK.

Expectation for cash flow from operations as we look out over the next couple of quarters?

We expect to continue to generate positive cash flow.

I think if you look at the last seven quarters, that's what we've done.

So we've done it for seven straight quarters, in the aggregate that's been almost $800 million.

There's no reason to think we won't continue to generate positive cash.

Any sense as to the magnitude?

It's something that really is just dependent on where our revenue takes us, but we're in a position to continue to generate positive cash flow and it's not really a metric we follow other than just continuing to have a good sales cycle as a company and continue to increase our profits.

OK, great.

Thank you.

Sure.

Your next question comes from the line of Alex Blanton with Ingalls & Snyder.

Hi, Tim, good quarter.

I wondered why your revenue came in five percent higher than your mid-range guidance during the quarter.

What were the things that were surprising.?

Alex, this is Chris.

All the

we did go past our guidance, if you look across all the segments.

I mean, the consumer segment, for example, is just surprises, I mean, there's some seasonal increases in that, we had guided to a flat quarter and, in fact, it increased by 13 percent.

Networking we saw stable to increasing levels of organics and that was a few percentage points ahead.

Computing and storage was, again, probably a little bit conservative.

We were a few percentage points ahead there.

So I think it was that factor and we had some part sales in the telecom side, it might have been around $20 million.

On a pure production basis, we were probably closer to the 960, 970 range, but, you know, we had a real strong quarter.

Almost in every segment.

What do you mean, a pure production basis?

If we excluded some parts-related sales in the telecom segment, which were about $15 to $20 million.

What are those?

They weren't produced?

Yes, those are just programmed into life and just some part sales.

On material.

Any margin on those?

Those typically carry a lower level of margin.

So you're really close to the top end of your guidance, rather than above it?

Yes.

Alright now, going into the first quarter, you're looking for a lower gross margin on higher sales?

Is that a mix thing?

Yes, I think, you know, if you just look at our mix, and let's just exclude Philips for a second, I mean, we're taking on just--we've got the acquisitions but, just generally, we're also performing more systems assembly in our work which carry a lower gross margin but, again, our mix in the aggregate is still producing what I would say are very good gross margin in the range of 9.3 to 9.7.

So most of what is driving that is mix.

Alex, I'd also say that we're ramping additional organic business into the facilities and the OEM divestiture acquisitions, you know, it takes--will typically take a couple of quarters to really start to tune the engine there, so, you know, I'd expect the business to be a little less profitable in the first quarter or two of significant organic ramp, as well as acquisition ramp.

Telecom was down two percent?

Did I hear that right, for the quarter?

That's correct.

And excluding the part-related sales, it was down 12 percent relative to our guidance of being down nine to ten percent.

So pretty much along the lines of our expectations.

And you won't have any Philips sales until the second quarter, right?

That's correct.

OK.

Finally, the

business you haven't said much about.

There was no release from you on that, I think it was from

.

Can you give us some more details on that?

What the size of that is, when it kicks in, you haven't mentioned that as a factor in the quarter.

Yes, systems assembly, which is the final build of our printed circuit boards, we're doing that in Penang.

Our Penang operation is generally growing in a lot of different areas.

As far as production on that, we'll start that--we'll start the beginnings of it in the latter portion of this quarter, so we'll have full production by the end of our second quarter, our February quarter.

And I think we're seeing the same thing.

We saw another new piece of business from the systems assembly side and just part of what Tim's talking about.

We're going to have some start-up in our November quarter with the HP systems assembly and we'll have that full production by the end of February quarter, as well.

And how big is the

business?

I thought I read there were 900 employees.

Yes, there's a good amount of employees and ...

They have ...

... it's a good increase to the relationship, that's for sure.

They have 900 employees, but that's not what we're taking on, Alex.

What are you taking on?

Two or three hundred.

But you haven't given us a dollar amount.

No, Alex, we typically don't break out the revenue in the individual customers.

It probably doubles the size of the

business, but

will still be less than a five percent customer.

OK, thank you.

Your next question comes from the line of Lou Miscioscia with Lehman Brothers.

Yes, I was hoping that you could

and talk a little bit more about the pipeline.

If I heard it correctly, I think

said on their call yesterday that they thought the pipeline of new business possibly coming out over the next 12 months was a little bit smaller than it would have been, I guess, a year ago.

It sounds like your comments at the pipeline was pretty vibrant.

Are you all looking at the same business, do you think?

Or just some general comments here would be helpful.

Well, I think you've got to really split that into two pieces.

You know, with all that telecom divestiture ramp, divestiture stuff is kind of out of the way, so we're looking at OEM divestiture opportunities that are Japanese companies, historically vertically integrated businesses like continuing consumer electronics and industrial controls and some other opportunities are out there.

And the organic new business win side is, you know, it's OK, but there's really not any end market thrust to the business, so it's really about vendor consolidation.

I think they said that the pipeline is smaller than it was a year ago, but it's still, you know, got stuff in it, and I agree with that.

If there's still a pipeline out there, I think we're all a little bit more reticent to take stuff on at this point.

If it's plenty of capacity out there, we'd much rather give a really competitive product cost and build it in existing factories or focus on low-cost areas.

That's not always what OEMs who are trying to invest operations have.

Very often they have high-cost facilities or facilities that--what they're really kind of up to is trying to transition to a low-cost location.

And, you know, that's not the most attractive value proposition for the EMS provider, nor is it really the most attractive value proposition for the OEM.

So, I think you're seeing somewhat of a reforming of this whole OEM divestiture process.

More downside protection if you do have high-cost locations, a better mix of organic, as well as acquired revenue, so, again, I want to mention that about 20 percent of the revenue associated with the divestiture activity that we've engaged in the last year is moving into existing sites.

So you see more of a hybrid model and more of a model that's geared toward, "let's get the cost out of the product and, you know, let's do what's right for the supply chain."

So, it's going to look a little different, Lou.

OK.

If the pipeline typically had been described, I guess, as 10 to 15 billion or somewhere in that range, where do you think it is now? 5 to 10, maybe midpoint of 7 billion?

It's probably--you know what, that $10 billion pipeline, based on what's happened in telecom, it wasn't 10, it was more like 4 or 5.

So, I can't really size it for you.

You know, I think totaling that stuff up and telling the market what a giant slug of business is coming down the pipeline, and I don't really think that's productive.

So, there's plenty of opportunity out there.

I think it'll be reformed to a more balanced value proposition and it might take longer to get.

OK.

I know you're not giving full-year guidance here, but could you give us some help--I mean, if we could get some numbers from you on the size of the Philips business.

So, we just take what you are suggesting for first quarter and sort of flat-line that for the whole year and just roll in the Philips business and maybe some thoughts, also, on

and keep it on that or is there more organic stuff coming, too?

I don't--Lou, this is Chris.

I don't know what to tell you on that.

I mean, we've got a number of organic wins that we just talked about on the call, we have our acquisitions that we brought into the Company, we have Philips coming on, so we definitely expect to grow the business throughout fiscal '03.

There's just a lot of business that we've brought both organically and with the acquisitions where we're in a great position to grow by a good margin in fiscal '03.

And would you mind suggesting a number or range?

Well, I can't, Lou.

I mean, it's again, what we talked about is we're giving our first quarter guidance and that's really the only guidance I can give you at this point in time.

OK, last quick question.

Capacity utilization, I guess, and where you think it will go after the restructuring?

I think the United States will move up, you know, way past the 50 percent, I mean, that was our toughest spot across the world.

The rest of the world is more in a range of 60 to 70 percent, trending up.

So, you know, with the consolidation occurring or with the closure of Boise that will occur through our November quarter and probably spill over into December, that will probably improve our U.S. loading by 10 percentage points.

The other thing that is occurring and, again, this will take time, but we've booked some nice incremental business for our U.S. domestic plants and, again, this takes time, but that will help loading as we go throughout fiscal '03.

OK, thank you.

Sure.

Your next question comes from the line of Steve Savas with Goldman Sachs.

Good evening, thanks.

I'm going to ask about guidance, but I promise it's not full-year guidance.

Just for next quarter, does that include Lucent and what--the Shanghai facility and kind of what level that you're expecting to come in from that acquisition?

Yes, that includes Lucent.

The production on that will be essentially about a month and a half to two months, I mean, I know we closed it on the beginning of the quarter, but we've got the start-up in the month of September and some sell-through with some finished goods and things like that that won't be on a production standpoint.

We'll have a full quarter of production with that acquisition in our February quarter.

In terms of revenue, we haven't given any guidance that will help in the telecom segment.

Without that, the telecom segment probably would have declined, you know, by another five or six percentage points, something like that.

OK.

And then, also, in the telecom segment, could you just comment on the August quarter, where Marconi was?

Did it slip below 10 percent?

Yes, Marconi is below 10 percent.

In our fourth quarter we had two 10 percent customers.

That was Cisco and HP.

Marconi, along with a number of other customers in '03, we have probably seven or eight customers that will be in the three to five percent range in terms of revenue.

Marconi included?

Yes, they'll be in that category.

OK.

Thank you.

Sure.

Your next question comes from the line of Jerry Labowitz with Merrill Lynch.

Yes, can you just tell us on the tax rate, low tax rate this year predominantly due to China?

For fiscal '03 or the first quarter, Jerry?

Yes.

Yes, that's a combination of a number of lower taxed areas, but it's really China, Penang, as well as Hungary.

How much of your business do you expect to do in those three areas?

Well again, we gave some overall regional guidance for '03, but there's good growth occurring in Asia.

Asia representing 18 percent of our business in fiscal '02.

I think Tim talked on the call about 22, 23 percent for '03.

We've got a lot of growth in Europe.

A lot of that is in Easter Europe, or low-cost locations with a low tax rate.

So it's those two places principally that are continuing to keep our tax rate lower.

Thank you.

Sure.

Your next question comes from the line of Roger Norberg with J.P. Morgan.

Good afternoon.

Chris or Tim, could you help me out just a little bit.

The guidance on the peripheral segment for next quarter is, I think, flat to down, but you're also talking about adding HP as a systems assembly customer and based on--how should I think about that?

I mean, you do quite a bit of circuit card work for those programs already and I would think that the laser printing on a systems assembly would add quite a bit of revenue.

So, how do I rationalize it

quarter in peripherals?

That is more value add intensive to begin with, Roger, but that'll start to contribute in the February quarter.

We'll bring in some of the costs in our November quarter but, and I mentioned it before, in terms of revenue, that will be more so in our February quarter.

And then peripherals, generally we guide it to a sequential increase of 12 percent and in the fourth quarter we ended up at 20.

We had a number of new programs that we were working on and this is just moderating a little bit, but there is good opportunity.

It's just in our November quarter, you know, we're looking at more of a five percent decrease, or something like that.

But you're right, once we start the peripherals--or, excuse me, the systems assembly side of it, that alone will cause some good growth.

Is that systems assembly a one-for-one with all your electronic assemblies?

No.

OK.

Second, on the server business with HP Compaq merging and you stepped into the Compaq side, are you comfortable post-merger now that the people that are going to call the shots on the outcome of these platforms that you're fairly secure with what's going on in the recently acquired site for the next 12 months?

Yes, I think we're in good shape, certainly through the next 12 months.

You know, that was primarily about alpha servers that will have a fairly long tale to it and I think we're comfortable that our relationship will broaden in the segment, as well, to include other platforms.

So it really isn't just about the alpha servers, it's about the servers in general there and I'm pretty comfortable based on a relationship with Hewlett Packard and the server people that that relationship will broaden.

In the meantime, our Scotland operations are in pretty good shape.

We've got pretty decent

and actually new business going into Scotland.

So, about that for more longer than the next year, I mean the next couple of years, at least.

OK.

And it's--well, just one more.

If you look at longer term to try to normalize everything given that there's an awful lot of geographic shift taking place and then there's an awful lot of end market exposure shift taking place.

When you normalize all this, will your future margin potential be similar to the past if the gross in operating line are materially different.

And what about your overall turns on the business?

Is it going to be a fast or slower turn business or about the same when you blend it all together?

Roger, it really depends on, you know, the type of business we take on and our goal is to grow the operating income 30 percent a year and have an appropriate return on the capital that we deploy.

I would say that generally

, as well as some of the other EMS providers, are doing a great job on the sales cycle driving that down and every piece of business we look at, we do look at the sales cycle and the return and an operating level on the assets we take on.

So, that is--continues to be more and more focus in that regard in the industry, but that's something we've always had for the last six or seven years.

But, you know, predicting what the operating margin would be would just be real difficult.

It really depends on our mix from year to year.

OK, thanks.

Your next question comes from the line of Michael Schneider with Robert W. Baird.

Good afternoon.

Could you give us a sense of what the balance sheet, and cash balance in particular, would look like post-Lucent payments and Philips payments?

Trying to get a sense of what the truly unrestricted cash is.

We plan on probably having about $500 million in cash after we fund Lucent and Philips.

With that we'll probably draw on a portion of our credit facilities, maybe 200 to 250 million.

We've kind of been surprised that we're kicking out so much cash from operations that we'll have to watch that.

We might actually have a lower amount of debt levels, but we plan to carry about, as a range, $4 to $5 hundred million in cash.

We're just generating really great cash every quarter, $80 or $100 million.

So there's, you know, be lots and lots of liquidity even after those two fundings.

OK, and then, just for clarification, the estimate you gave for fiscal '03 market mix, does that include your estimation of what you'll take on in additional OEM divestitures and organic wins or is that the business today as you have it in-house, extrapolated out to the year?

That's the business that we see today extrapolated out.

OK.

We're kind of full on the divestiture side for a little bit.

We want to make sure that's all under control and we don't have any additional big plans for acquisitions or mergers and it's kind of based on the current book of business that we see.

Great, thank you.

Your next question comes from the line of Kevin Denney with Brean Murray.

Good afternoon.

Most have been asked, but I had a question.

The low-cost issue continues to be brought up and some of your competitors have discussed customers asking them to transfer programs overseas to Asia.

Are you experienced that and did it cost you anything during the quarter?

Kevin, we've been transferring business to low-cost for years now.

I mean, it's our model allows for the business to go where it needs to go and I think that's why we built the footprint that we did over the last couple of years and there's no doubt we need to continue to move towards a lower cost footprint.

But, for us, that's really been occurring over the last couple of years.

There continues to be changes in our business plan every quarter or six month period, but nothing so dramatic other than I would say, and this is something that we've struggled with over the last two or three quarters, is the U.S. side of it.

And we held on for as long as we could but, you know, at this point in time, we've made the decision to close our Boise plant.

But again, there's been no big abrupt change with our customers.

This is something we planned with them over a number of years.

OK.

And then, could you speak to just the recent state of acquisitions.

What has changed from your strategy?

And then, could you speak to, I guess, the competitive bidding process out there?

Is it price or whatever factors have gone into your ability to log on so much new business when it would seem that most EMS companies would like to have it?

There's been no change to our business strategy.

It's one business strategy to provide stable long-term profitable growth.

In our prepared remarks, I mentioned we have two fundamental ways to deliver that to shareholders.

One is organic growth and the other is acquisitive growth.

During the heyday of the '99, 2000, early 2001 period, we could put up 40 to 60 percent growth rate on organics alone and, left to our own devices, we would prefer to grow organically in all cases.

In a slower growth world economy, you have to be selective and disciplined, but there are significant opportunities to grow via this OEM divestiture process.

I think we've done that in a balanced way, we've done it in a way that not only brings existing factories across, but delivers loading to our existing factories.

And we're doing it at a time, economically, where valuations are more sane and the expectations for growth are more rational.

Right.

So, in terms of the competition's ability to get at it or not get at it, you know, I don't know what to say about that.

We've won some, everybody else has won some.

There's a lot of opportunity out there for all of us.

So, there's no reason that

shouldn't be winning a good portion of deals and there's no reason that the other major players won't either.

They've announced deals in the past here, too.

So I think it'll continue to be a decent opportunity to get back on a resumption trail now that we can put some of the collapse of the telecommunications over-capacity and spending behind us, that a number of us will be able to get back on a consistent, predictable, long-term growth rate that is 25, 30, 35 percent year-over-year on a consistent basis again.

I think that's available to several players in our bracket.

OK.

And then, just a couple of housecleaning issues.

Cap ex, ex-acquisition?

It's 30, 35 million for the quarter.

OK.

And then, how much inventory do you guys expect to result from both the Lucent and Philips integrations?

The purchase price on Philips is estimated to be 235 million euros.

OK.

And Lucent will be in the range of $50, $75 million for the total purchase price.

And then, inventory for, say, the next couple of quarters.

How much of that do you expect to

on as a result of taking on this ...

That's included in those numbers, Kevin.

I just don't have a breakout of the specific Philips inventory or Lucent.

No problem.

Thanks, guys.

Sure.

Your next question comes from the line of Jim Savage with Thomas Weisel Partners.

Hi.

A couple of things.

You had previously announced some wins with both Hewlett Packard and another major server company.

Do you still anticipate that there will be growth in your server business during the year on an organic basis with new programs starting up?

Yes, I would expect we'd see some growth there.

Those programs are still in place.

They're still in place?

Do you have any timing as to when they might start up?

We do, but to get into specifics on it, Jim, I really don't want to go there.

I mean, obviously, in this type of economy, things are a little bit slower and a little bit smaller than our original expectations.

But, they're still in place and have, you know, great expectations for them.

And that's in your expectations for the 15 percent computing and next year up from what it was this year?

Yes.

OK.

And with the additional

work that doesn't have to do with the acquisition of the plant, do you have any sense as to when that starts to kick in?

Jim, that'll take a period of time, but it's probably February, March, it's probably four to six months.

So it's probably in your fiscal third quarter?

Yes, and it's a good, oh, 40 percent plus of the business.

Of the overall

business, so that's incremental revenues starting up in the May quarter?

Well, that'll be brought in throughout the course of fiscal '03.

It just takes time to move it into our plant.

OK.

And if we go back to the--you can't quantify for us the near-term impact on the corporate margins of what is acquisition-related and what can be--what, eventually, you will be able to get back in terms of the margins as ...

... was a comparable operating margin in our first quarter.

That does include all the acquisitions to date.

Yes, I know.

What I'm saying is that, generally, when you first make an acquisition, they're less efficient than they are after a couple of quarters.

Yes, I don't have anything that I could give you today on that.

That's generally true, Jim.

I mean, that's clear, we've talked about that.

You know, in terms of the consumer electronics rolling into the margin structure, you know that will be--consumer electronics, by nature, will be lower gross margin, like Chris talked earlier in the call that we expect to compress SG&A expenses this year as a percentage of our overall revenue, our operating margins that should still be fairly healthy, and the asset velocity and that type of thing should be maintained as we go through this.

But, clearly, in the first quarter or two of an acquisition or organic business ramp, profitability could be lower than after you've had three to six to nine months to tune the engine.

OK.

Do you feel comfortable at this point that--so secure that the Philips acquisition is going to close that we should start to model in something for the February quarter?

Well, that's really--Chris, I'll let you answer that but, in terms of we're very confident it's going to close, I don't see any obstacles to getting it closed.

But, having said that, things can always go bump in the night or you can discover something you didn't anticipate.

But right now, things are proceeding very smoothly.

And you're still assuming that it will be neutral to

for a couple of quarters and then positive after by about the third quarter?

Jim, yes ...

After the close.

... neutral February quarter and start to contribute in our May quarter.

Start to contribute in your May quarter.

OK, great.

Thank you.

Operator, we have time for one more question.

OK, your final question comes from the line of Jeff Rosenberg with William Blair & Company.

Hi.

Chris, when we look at--I'm just trying to understand on the acquisition front, you said 30 to 40 million for

and then it seems as if there's some contribution from a couple of the others during the quarter.

That seems to take you up to the high end of your range for the quarter.

Other than some communications and maybe some of the peripheral giving a little bit back, I mean, is there anything more we should be thinking about in terms of what's happening organically there?

Not in the organics.

If you looked at it, Jeff, in the quarter, if you break out the acquisitions our organics probably grew four or five percent.

So we're probably at the high range of what our expectations were.

I'm talking about the current quarter.

For the November quarter?

Right, I'm saying if you take the 30 ...

Yes, most of the incremental contribution, or a good portion of it, will come from

.

But I don't really have a breakout of organics and, again, some of this will be going into our plant.

What we did give a breakout on was a lot of our segments are expected to have level production, so it's kind of similar production levels between our fourth quarter and first quarter, if that helps you at all.

OK.

And is that--I guess I'm looking at it from what you have been saying in terms of the effort to drive operating income forward to each quarter and it seems like that's flattening out a little bit this quarter.

And, I guess, I wouldn't be surprised if there's incremental revenue predominantly coming from acquisitions that that would be the case.

But, is there something in your outlook that weakened across, as a broad statement, across your various different end markets that isn't giving you the operating income lift you might have sought, or is that not ...

No.

I would say that, you know, first of all, the acquisitions are providing contribution to the Company.

But, in terms of operating income, we need things as far as looking at our costs and reducing that that probably are having some bearing on our operating income, maybe 20, 30 basis points.

But, those are the types of things that we're going through to correct to produce incremental operating income, but I don't think there's been some big change other than the, you know, by a couple of million dollars.

Something along those lines in terms of operating income.

And as we look out to the quarter and beyond, is there anything that creates sort of an inflection point where you're back on a more significant--bringing it to the incremental operating income as you ...

Yes, I think there's, I mean, there's several things going on, but it's the organic ones that we announced, both the extension with our existing customer base and the three examples we gave with Andrew, Toshiba and AFC, and those are all starting to occur in our February quarter.

We're continuing to work on our cost structure that will drive incremental operating margin and, again, with the Philips acquisition and improving our operating efficiencies and the other acquisitions, we have a lot of opportunity through the course of fiscal '03.

OK.

Thanks a lot.

Ladies and gentlemen, this concludes today's Jabil conference call.

Thank you for participating.

You may now disconnect.