捷普科技 (JBL) 2010 Q1 法說會逐字稿

Good afternoon.

I will be your conference operator today.

At this time, I would like to welcome everyone to the Jabil first quarter fiscal year 2010 earnings call.

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

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

(Operator Instructions).

Thank you.

Ms.

Walters, you may begin your conference.

Thank you.

Welcome to our first quarter of fiscal 2010 fiscal year call.

Joining me on the call today are President and CEO, Tim Main, and our Chief Financial Officer, Forbes Alexander.

The call is being recorded and will be posted for audio playback on the Jabil website in the investor section, along with today's press release and a slide show presentation on the first quarter results.

You can follow our presentation with the slides that are posted on the website and begin with slide one now, our forward-looking statements.

During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected second quarter of fiscal 2010 net revenue and earnings results, our long-term outlook for our Company and improvements in our operational efficiency and in our financial performance.

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

An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31st, 2009, on subsequent reports on Form 10-Q and Form 8-K, and our other securities filings.

Jabil disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Please now turn to slides two and three, results for our first quarter of fiscal year 2010.

On revenues of $3.1 billion, GAAP operating income was $66.3 million.

This compares to $240 million GAAP operating loss on revenues of $3.4 billion for the same period in the prior year.

Core operating income, excluding amortization of intangibles, stock-based compensation and restructuring charges for the quarter was $106.5 million, or 3.4% of revenue.

As compared to $101.2 million or 3% for the same period in the prior year.

Core earnings per diluted share were $0.32, as compared to $0.30 for the same period in the prior year.

On a year-over-year basis for the quarter, revenue declined 9%, while core operating profits increased 5%.

On a sequential basis, revenues increased 10% while core operating income increased 63%.

Please turn now to slides four and five for a discussion of revenue by division and sector for the first fiscal quarter.

Starting with the EMS division, it represented approximately 54% or $1.67 billion, sequential growth of 2% as compared to the fourth quarter of fiscal 2009.

Core operating income for the division in the quarter was 3.4% of revenue.

Sector movements are as follows.

Computing and storage increased 2% from the fourth quarter, and represented 9% of revenue.

Industrial instrumentation and medical sector increased 8% from the prior quarter as a result of growth across a broad number of customers, the sector represented 20% of revenue.

The networking sector level of production decreased by 4% from the previous quarter, as a result of demand reduction from a European customer and material shortage that gated our production.

This sector represented 15% of revenue in the quarter.

Telecommunications sector decreased 5% sequentially, and represented 5% of revenues.

Turning now to consumer division.

The consumer division represented approximately 40% or $1.2 billion in the first fiscal quarter, a sequential increase of 27%.

Core operating income for the division in the quarter was 2.7% of revenue.

Sequential sector movements are as follows.

As we discussed on our last quarter's call, we have combined the management of our displays and peripheral sectors, and these are reported as one sector, digital home office.

This sector increased by 22% from the fourth quarter and represented 16% of revenue.

Mobility sector increased by 30% from the prior quarter, and represented 24% of revenue in the quarter.

And finally, the aftermarket Services division decreased by 3% from the prior quarter, and represented approximately 6% of overall Company revenue in the first fiscal quarter.

Core operating income for the division in the quarter was 8.2% of revenue.

In the first fiscal quarter, two customers accounted for more than 10% of revenue and our top ten customers in the quarter accounted for approximately 58% of our revenue.

Selling, general and administrative expenses increased by $800,000 to $117.6 million.

Research and development costs were $7.7 million in the quarter.

Intangibles amortization was $7.1 million for the quarter.

Stock-based compensation was $14 million in the quarter.

Restructuring was $19 million, including a $15.7 million loss on the sale of our French automotive subsidiary.

Net interest expense for the quarter was $20 million.

The tax rate on net core operating income in the quarter was 20%.

I'll now turn the call over to Forbes Alexander, who will cover our balance sheet and ratio trends.

Thank you, Beth.

Good afternoon, everyone.

I now ask ask you to turn to slides six through eight.

Our sales cycle in the first quarter was consistent with last quarter of 16 days.

Days sales outstanding were also consistent at 41 days.

An increase in days in inventory of three days was offset by an expansion of accounts payable days.

We are very pleased with the overall level of working capital performance and the revenue growth environment.

As a result, we continued to generate cash flow from operations, producing $74 million in the first fiscal quarter.

A return on invested capital increased from 11.5% in the fourth quarter, to 19.8% in the first quarter.

Cash and cash equivalents were $852 million at the end of the quarter, with no sums outstanding on our $800 million revolving credit facility.

Our capital expenditures during the quarter were approximately $39 million.

This level of expenditure primarily reflecting investments in our clean technology businesses, information technology, and maintenance capital investments.

Depreciation for the quarter was approximately $66 million.

Core EBITDA was approximately $172, million or 5.6% of revenue.

A seasonally driven revenue growth returned in the first quarter.

We successfully continue to manage our working capital and operational cash generation.

We are very pleased with this result, and this positions us well as we move through the remainder of the fiscal year.

Let me now update you on our restructuring activity.

During our last earnings call, I discussed our continuing efforts to rationalize the economic performance of our automotive sector.

And the intended divestiture of our automotive electronics manufacturing subsidiary in Western Europe.

During late October, we concluded the sale of our French subsidiary, realizing a loss on sale below the low end of our previous guidance, or $15.7 million.

$3 million of which was cash related.

With this divestiture, the remainder of our automotive relationships are on a sound footing in lower cost geographies.

I'd also like to thank our employees in Meung-sur-Loire for their dedication and commitment over the last eight years and wish them every future success.

During the fiscal quarter, we also recorded charges of $3 million associated with our previously announced restructuring plans.

While cash payments associated with these plans were $9 million.

Through the first quarter, we have recorded charges of approximately $57 million, and cash payments of $36 million.

We expect cash payments to be approximately $17 million in our second fiscal quarter.

In summary, we are very pleased with our performance in the quarter.

Executing to the midpoint of our revenue guidance, while core operating income levels and core earnings per share were at the high end of our previous guidance.

The addition of additional revenue across our fixed manufacturing cost base has continued to deliver operating income margin expansion.

Sequentially, $0.14 of of operating margin expansion added per revenue dollar for a core operating margin of 3.4%.

Positive cash flow from operations is also very pleasing, and a double-digit revenue growth quarter.

Positioning us well for continued positive cash flows through fiscal 2010.

Overall, positive steps in our path to returning the capital to our long-term targeted return levels.

I now ask you to turn to slide nine.

We'll give you a business update.

Overall Company guidance for our second fiscal quarter of 2010 is as follows.

Revenue is estimated to be consistent to decline 6% for the first quarter or a range of $2.9 billion to $3.1 billion.

At the midpoint of our range, our expectations for the second fiscal quarter reflect an overall decline of 3%.

The EMS division is expected to grow 5% sequentially, while the consumer division is expected to decline 15%, reflecting a seasonal decline for consumer-based products.

The aftermarket services division is expected to have consistent revenues with those of the first quarter.

Core operating income is estimated to be in the range of $75 million to $105 million.

The midpoint of our guidance reflects revenue growth of $113 million or 4% on a year-over-year basis, and core operating income growth of $39 million or 76% growth on a year-over-year basis.

As a result, core operating margin will be in the range of 2.6 to 3.4%.

And core earnings per share is expected to be in the range of $0.20 to $0.32, per diluted share.

Selling, general and administrative expenses are estimated to be $116 million in the quarter.

Research and development costs are expected to be approximately $8 million in the second quarter.

Intangible amortization is expected to be $7 million.

Stock-based compensation in the quarter is expected to be approximately $14 million.

And interest expense is estimated to be $21 million.

Based upon the current estimate of production and income levels, the tax rate on core operating income is expected to be 20% for the quarter and the full fiscal year.

Capital expenditures for the second quarter are estimated to be approximately $80 million, reflecting investments in our clean technology businesses, information technology upgrades, consolidation and expansion of our Jabil Green Point mechanical sites in China and maintenance capital expenditure levels.

I'd now like to hand the call over to Tim Main.

Thanks, Forbes.

Well, what a difference a year makes.

We are really delighted to conclude our first fiscal 2010 quarter with good momentum in new business, solid operational performance and an improving macroeconomic environment.

I'd like to draw a few observations that I think are pertinent for investors as they evaluate Jabil.

Year-over-year, Jabil earned $5.3 million more in core operating income on $295 million less revenue.

This is particularly gratifying, because the cons officer business actually increased to 40% of our overall revenue over that same period.

The sequential story was positive as well.

We produced incremental core operating income of $0.14 per revenue dollar, core operating margins of 3.4%, and core EBITDA margins of 5.6% are indicative of the earnings power of our Company.

I think it also demonstrates the fundamental economic model is still in good working order.

A few key elements of the improvement, and what we're thinking about going forward.

Number one, the Company is very focused on lean manufacturing, cost control, and improving our overall operational efficiency.

We are committed to strengthening our focus in this area, even though economic conditions appear to be improving.

We will take proactive steps to ensure the structure is well positioned and highly competitive.

Two, emphasis on industrial instrumentation and medical sectors led to significant growth and an increase in the share of our business.

This is now our second largest sector.

Three, continuing to emphasize our end-to-end service capabilities inclusive of our aftermarket services division, and world class mechanics capabilities through Jabil Green Point gives us command of a broader value chain and make us a more valuable partner to our customers.

And finally, four, we continue to effort toward a time when we will be regarded as the undisputed leader of our industry in fundamental execution with superior capabilities.

We will be investing in our business over the course of the next few quarters.

These investments will be focused in our key growth areas such as industrial instrumentation and medical market, as well as clean tech activities.

We are expanding capacity of our Jabil Green Point operations to accommodate some higher volume new business later this year.

We are also condensing and consolidating operations to be a more effective and efficient partner to our customers.

Although these initiatives will require some additional capital and expense, we continue to expect to drive significant operating leverage with revenue growth beyond our second fiscal quarter.

In summary, we're off to a good start and on a solid trajectory to an excellent fiscal 2010.

If this nation economic recovery is sustained contained through 2010, then this good start should develop into a welcome finish to the year.

Operator, we're ready for the question-and-answer period.

(Operator Instructions).

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

Your first question comes from the line of Amit Daryanani.

Thanks.

Amit Daryanani, RBC Capital.

Congratulations on the quarter, guys.

Just a question regarding the guidance.

It seems to be down a lot less than what you would normally expect.

Could you just talk about maybe the EMS segment being up 5% in the third quarter.

Is this some specific new programs that are driving that and what's the underlying seasonality that you're seeing in the third quarter?

Yes, I think we're embedding a little less than typical seasonality in the consumer side and with the EMS division expected to grow sequentially 5%, we're definitely seeing a broad-based recovery here.

Particular strength in the industrial instrumentation, medical sector that was up 8% quarter-to-quarter in Q1, continuing to see solid strength there, particularly in the recovery of semiconductor markets.

We actually categorize our clean tech activities which is inclusive of everything from metering and solar panels and everything in between, that's been a very robust activity for us, as well as the medical business, seems to be recovering both in terms of our ability to generate market share as well as overall general market recovery and the enterprise, Amit, you probably have been very in touch with this.

The enterprise markets have been very strong since August and were it not for component gates and some supply chain discount annuities over the last three or four months, I think that would have been demonstrated in the results as well and we expect to see a solid order pattern for the enterprise markets right through the quarter.

Got it.

And I guess, inventory looks like it was up about 15% sequentially, can you just talk about what's driving that.

I assume some of that's consumer shipments for the month of December.

Are you starting to essentially stock up on some components that might be in short supply right now.

A combination of things, Amit.

I'd say that while we -- our objective for the quarter was to be under $1.4 billion of inventory.

As the end of the day I kind of feel that was decent performance.

You mentioned that consumer continues to ramp the December quarter.

Investors sometimes forget that.

There's still inventory positions to continue to ship through December.

With the material gate that we've had in the enterprise areas and the industrial space, medical sector in some areas, we've really had a bit of a bulge.

Waiting for that last component to arrive to be able to ship product.

I think the Company in terms of expectation, having the Company continue to operate in an eight to nine inventory turn until we can really dial it in and get to nine or above, then that's a reasonable expectation for investors.

From a cash flow standpoint, I'd say that we thought we might actually see negative cash flow from operations this quarter and that would not have been unusual and we actually had $74 million in cash flow from operations.

So from that standpoint, and actually since we spent less on CapEx than maybe anticipated, actually had free cash flow in the quarter with very, very strong growth, so pleased with that part of it.

Just my final question, could you maybe quantify how much revenues you have left on the table because of these material shortages, especially on the network side.

I knew you guys would ask that.

I really don't have a quantification.

It's not a huge number.

It's not $200 million.

But I just a guess would be 50 to $75 million probably revenue that was left on the table.

Fair enough.

Thanks a lot and congrats on the quarter.

Okay.

Thanks, Amit.

Your next question comes from the line of Lou Miscioscia.

Okay.

Thank you.

Hey, Tim, maybe you could go into a little more detail about what you're doing in the clean tech area.

You mentioned that a couple of times now, and maybe comment as to whether some of that stuff that you spent for CapEx there is transferable to other areas or does it have to stay within the clean tech area?

When I talk about clean tech, I'm really talking smart grid, renewable energy, smarter appliances, that type of thing.

We have activity in all of those areas.

Generally, for things like metering and smart grid activity, the capacity is the same type of capacity that we would use to manufacture routers or cell phones.

In the case of some renewable energy areas, in particular, solar, we are investing in some new manufacturing properties that while they're easily transferable to other panel manufacturing operations, it's new to our business so that has the impact of increasing our CapEx and that's a relatively new manufacturing process for us.

I'll say that we are now in our -- I think our third full quarter, mass production and things are going very well there.

Okay.

Great.

You mentioned component shortages.

Can you call out things specifically that are in shorter supply?

At my own risk we'll call out specific things.

It's actually worsened a little bit over the course of the quarter to include things that you wouldn't think about like passives and actives but really, I mean, primarily it's the semiconductor capacity issue and I'll just leave it at that.

I'll also say that things seem to be abating a little bit and the supply constraints seem to be easing a bit but they're definitely still there.

Okay.

So sounds like from that comment that as we get into the seasonally slower period, things will then be able to catch up with itself?

Yes, if it ends up being a seasonally slow period.

I think our guidance, our guidance brackets a typically seasonal quarter to something which isn't seasonal at all.

From a macro standpoint, things turn out not to be seasonal, I would expect to see continued supply constraints right into spring or summer.

Okay.

Thank you.

Your next question comes from the line of Shawn Harrison.

Hi.

Good evening.

I wanted to delve into the consumer business in two aspects.

I think, Tim, you mentioned a little bit earlier that you're seeing less than typical seasonality.

Seems that maybe part of it is the market driving through December here but are you also picking up market share?

Because I think a statement in the prepared remarks suggested that you're putting some nice CapEx to winning a new program or to a new program that you won and will be ramping in the second half of the year as well.

Okay.

Well, in terms of seasonal activity, it is normal for us to have December sell-through.

I think that based on our history, you would see revenue declines of anywhere from 20 to 30% in the consumer areas, and we're at the midpoint we're looking at 20 -- I'm sorry, 15.

So that's a little bit less but it's still seasonal.

In terms of market share, there are some significant mechanics programs that we intend to begin ramping in the spring, early summer.

I wouldn't point to big market share shifts there, but a continuing ability to build up our capabilities and, again, the comprehensive end-to-end service offering from design to mechanics, assembly, distribution, fulfillment and service, is an attractive end-to-end solution and something that I think just a few large scale global players can provide the most you attractive customers in the world today so I think we're benefiting from that movement.

In that ramp, or those ramps, are those with existing customers or will those be new customers coming to you?

It will be with existing customers.

Okay.

And my follow-up question is I guess the capital budget for the year, now that $80 million in the second quarter, what should we be modeling for the full year and will it trail off I guess after here, the second quarter?

Forbes here.

You're probably see, very much depending how we see overall demand beyond mechanical in terms of recovery in the back half of the year, you'll probably see numbers relatively consistent with other Q2 for Q3 and then you'll see that tail off in Q4.

So somewhere between 200 and $250 million type number is reasonable at the moment.

And I think, Forbes, you said you think you'll still be cash flow positive even with this higher CapEx number.

Absolutely, yes, we will.

Thank you.

Your next question comes from the line of Wamsi Mohan.

Thank you.

Now that you've broken past sort of the $3 billion revenue, and comfortably sort of 3% operating margin levels, what's a realistic revenue level at which you can hit sort of closer to 4% operating margin level and how much incremental investments would you need to achieve that revenue level?

Thank you.

Complicated question but straightforward question but a complicated answer.

The degree to which we can drive operating leverage, I think we talked about $0.10 to $0.15 of operating leverage through the $3.3 billion to $3.4 billion per quarter range.

After that, we'll continue to see leverage of the OpEx line, so SG&A will expand at a much slower rate than revenue above the $3.3 billion to $3.4 billion.

So when you start looking at revenue levels in the $3.7 billion to $3.8 billion range, I think then you'll start to see the incremental margin performance be a little bit less.

Depends a lot on the mix of the business and we do everything we can to grow our business a methodical way.

We focus on diversification.

We have mobility and the patient medical sectors, our two largest sectors.

That shows good diversity.

Our top ten customers are 58% of our revenue, that shows good diversity.

As hard as we try to balance our approach, if a set of customers decides that they really like us, consolidate their business with us or we have significant new program launches or expenses associated with program launches then from quarter-to-quarter we could see some margin dilution.

And also depends on where it shows up in the world and where we have to invest in capacity but all other things being equal, I'd say that once we get above the $3.5 billion, $3.6 billion per quarter range we should be getting much, much closer to the 4% operating level.

Thank you.

And as a quick follow-up, recognizing -- to the inventory question.

Inventory up 15% quarter-over-quarter, heading into seasonally weak quarter, understand December has three pretty strong weeks.

Do you expect to sort of work off most of that by the end of December and inventory levels sort of normalize post that and are you seeing any meaningful atypical changes in December so far?

Yes, hi, Wamsi.

Forbes here.

We would expect to work that off as we move through December here.

December is tracking as we expect here into the third week.

So yes, we would sequentially I would expect to see revenues decline more in line with the seasonal second quarter.

So no real surprises there.

Okay.

Thanks a lot.

You're welcome.

Your next question comes from the line of Amitabh Passi.

Hi, can you hear me?

Yes.

Thank you.

Forbes, my first question was for you.

Just on the margin, if I look at the negative leverage in the second quarter, at the midpoint of our guidance range it seems to be just a little higher than the $0.10 to $0.15 drop through that you talked about before.

Just wondering if there was anything unusual or if you could maybe elaborate a bit on what might be explaining the slightly higher negative leverage.

Nothing unusual.

We typically see somewhere in the range of that $0.15, $0.18 on the down side.

We do have some investments going on with this mechanical expansion.

But nothing untoward in that regard.

As we do see seasonal decline in the consumer space, that tends to bring down or accentuate some of that leverage a little bit.

But again, if one goes back historically, Q1 to Q2 sequentially is typically in or around about that range.

And as I say, $2 million or $3 million worth of expense associated with some mechanical expansions brings that back into that higher end of that range, $0.14, $0.15 on the dollar.

Okay.

Great.

And then just a quick question on some of your EMS end markets.

If I look at computing and storage and telecom, I know you talked about networking being impacted by some component shortages.

Just wondering if you could elaborate a bit on what's going on in the computing and storage side and telecom, both of them fairly weak this quarter.

Computing and storage is up 2% sequentially and so I didn't think that was particularly negative.

And again, when I think about computing and storage, networking and telecommunications in total, we've actually seen some pretty robust demand there overall.

And the networking area, there's really one customer that distorted the results, European customer that is confronting some hyper competitive activity in their marketplace which has essentially really created a trough in revenue for us.

That was a European customer and not in our top ten, and that distorted the number a little bit, so.

Keep in mind, one of the thing that's happened in the enterprise area, particularly the high end, the volume's going up and the unit prices are down because the customer base has done a good job of fundamentally reducing design and really making these products higher volume products.

Standardizing platforms and getting better penetration, so our actual unit volume's up substantially in these markets and I think the enterprise markets will be -- show very good strength through the balance of the year.

Great.

Just one final question.

Forbes, you had previously thought that you were going to use cash from operations in this quarter, great performance.

I'm just wondering for the second fiscal quarter, should we expect some usage of cash from ops or do you still think you could have a positive cash flow quarter next quarter?

I would absolutely expect a positive cash flow in the second fiscal quarter and for that matter, continuing through on a quarterly basis, through fiscal 2010.

Yes, we did a good job in the first fiscal quarter maintaining days, overall days there at 16 days.

So very pleased with that result.

We're certainly -- again, if we arrive at the midpoint of our guidance, sequential decline of about 3%, we should certainly continue to generate cash flows from operations and frankly in excess of the number we generated in the first fiscal quarter.

Okay.

Great.

Thank you.

You're welcome.

Your next question comes from the line of Sherri Scribner.

Hi.

Thank you.

I was curious if you could maybe give us some detail on what you've seen so far in the month of December, in particular in the EMS side of the business?

I guess my question is sort of focused on what do you typically see in the month of December?

Does business tend to be strong throughout the month or does it slow down in the second half?

And are you seeing this year that demand is continuing through the second half of the month?

Sherri, we typically are not descriptive on a monthly basis for the quarter.

I think we've -- in our guidance, we've attempted to do the best job we can of handicapping the risk and the benefits that we see in our business and Forbes said earlier today that December is tracking normally and to what our expectations are.

Okay.

And would you typically see a falloff in demand in the second half of the month or would you typically see that demand is strong throughout the full month, just in general, not this year?

Again, December's tracking normally.

You'll have some customers who shut down for Christmas season.

For the most part people are on calendar year ends and they're going to continue to ship product right through the month.

I think what we see is a normal pattern.

Again, we tried to handicap everything that we know today.

Things could happen that we don't know about tomorrow.

But we handicapped everything we can into the guidance, everything that we know today, all the risk associated with it and everything else.

Okay.

Because I guess I'm just trying to get a sense of how demand is tracking so far.

You seem to be relatively optimistic with the guidance that you're giving for the EMS business.

And it sounds like things are healthy and I'm trying to get a sense of is that because you're seeing healthy demand so far into the end of the year?

Some people have commented that they've seen healthy demand into December.

Or is it more a commentary about the forecast that you've gotten from your customers for the full quarter?

Well, we try and bring the full course of our combined knowledge about the past, present and future into our guidance and based on what customer activity has been like through Q1, what things look like in Q2, their forecast for Q3 and Q4, and doing some checks on you how things are tracking before we get on calls like this.

So I think we've tried to do as much as we can to handicap the guidance and evaluate the trend analysis and we think our guidance is appropriate.

Okay.

Let me maybe ask a different question.

Do you feel that your visibility has improved for your business over the past couple of months?

Would you still say you have about a quarter of visibility or do you feel that that is maybe elongated?

Well, Sherri, we've always had annual visibility with customers and the truth of the matter is, though, that that shifts around based on what sell-through rates are like.

So I wouldn't make any comment about the length of visibility.

I'd say the confidence in our ability to -- our customer's sell-through rate, our confidence in the visibility they're providing us, the forecast they're providing us has improved a great deal over the last two or three quarters.

A year ago, we were handicapping our customer's forecast to Jabil 10 to 15%.

At this point, we've seen sell-through rates come much closer to what customer forecasts are so our confidence level is improving.

Okay.

That's helpful.

And then maybe if I could just ask -- I have three very short housekeeping questions.

One is, why did your share count go up in the quarter?

Two, why was CapEx a bit lower than you had expected?

Maybe that's just movement of CapEx into 2Q.

And also where is the automotive business?

Is that in other?

Last one first.

Automotive is in other.

Okay.

In terms of the share count, let me try to walk you through that.

Effective the first of September this year, there was a new accounting guidance out there that relates to participating shares or participating securities.

What that basically means is if an enterprise or an organization has performance related restricted shares, okay, which we as an organization grant performance restricted shares to our management team and employees, so the only advance upon successful completion of various performance criteria.

But those shares, as we're a dividend paying organization, carry a dividend.

This new accounting pronouncement now deems that those shares must be fully included in the diluted share count, the calculation of earnings per share.

This accounting standard is also applicable retroactively so what you will also see is on our press release on the income statement, you'll also see our share count is approximately I think -- don't have it in front of me -- about 213 million shares versus roughly 209 if you pulled our press release as of a year ago.

So what that does is have an impact of reducing earnings per share by $0.01 from the first fiscal quarter of 2009.

So adds about 5 million shares okay?

Okay.

So what you'll see is any organization that pays a dividend that has performance restricted stock or performance restricted securities will be impacted by this accounting standard.

And then in terms -- I think the last question was CapEx, why that was a little bit lower.

I think we guided for around about $50 million.

No particular reason.

I think just the way that the particular capital expenditures came into the Company.

As I say it's an estimate at the time we give these calls so I think some of that just sliding around a little bit, but no particular reason in that regard.

Okay.

Great.

Thank you.

You're welcome.

Your next question comes from the line of Matt Sheerin.

Yes, thanks.

So I have a question regarding the handset business.

You talked about new business coming on in the second half and obviously you're doing very well with RIM.

So the question is how diversified is your wireless business now and what steps are you taking, if any, to ensure that going forward?

And then just regarding margins and return profile in that business, is it pretty consistent across your customer base or is that driven by either mix or type of customer, particularly customers that are involved with Taiwan Green Point?

Okay.

Great question.

So in terms of diversification of the customer base in mobility, I think we've talked about this in quarters past.

We do business with virtually all of the leading companies in that space, so certainly the top five or six handset mobility OEMs in the world, we do business with today.

From a revenue standpoint, I think in our 10-K obviously there was a disclosure of RIM being a 10% customer.

So from a revenue standpoint, particularly in electronics, assembly areas, we've historically called engines, that carries with it higher revenue, higher revenue with it, so there's a little bit more revenue concentration but good diversification in terms of who we do business with.

Again, the leading companies of the world we do business with.

In terms of the margins in the business, I wouldn't attribute the margins to anything except this.

The amount of value add that we have in the revenue stream persist.

So in pure electronics activities, the material content in that revenue stream can be between 85 and 90%.

So really a 10% value add, if you will.

And in the mechanics area where there's greater technology, more fixed assets, lots of differentiated activities, that type of thing, the material content can be anywhere from 40 to 60%, depending on the type of product and the complexity of the product and what we're doing.

So that would tend to carry similar return on capital metrics but different operating margin metrics.

So we're looking to invest in areas that give Jabil technology differentiation, genuinely enriches our value proposition for customers, makes us a more valuable partner and ultimately delivers much stronger shareholder value and accretion to our shareholders.

Okay.

And then in line with that, Tim, have you been looking at any potential vertical component areas?

You've done obviously well with Green Point.

I know you stayed away from some drill-down component segments but what's your physician philosophy about having some of those capabilities going forward?

Gradual, incremental small steps that will develop from the strength that we have in the current business and continue to look for opportunities that we can generate from our internal capabilities, so extensions of our capability, near adjacencies and things like operating agreements or alliances to enrich our value proposition.

So as an investor I would look at it as gradual, incremental smaller movement to higher value add activities.

So we'll continue to do that and bring different activities into that capability but again, they'll be less noticeable from a capital acquisition standpoint.

But hopefully, a heck of a lot more noticeable to our customers.

Okay.

Great.

Thanks.

Your next question comes from the line of William Stein.

Thanks.

Tim, just a question on the alternative energy or solar part of the business.

Am I correct in assuming that business would be perhaps higher inventory, lower turns, higher margins kind of business?

And if that's correct, has the investment in that area played out more or less in line with your expectations or have there been surprises around the margins or inventory turns?

No surprises.

It has played out about as expected.

It's actually a very high volume, low mix business.

Okay.

So the inventory velocity should continue to be very high.

Great.

And then one more small one.

We talked a bit about inventories.

I don't want to beat that yet again.

But can you give us an idea about how much of the increase was driven by shortages in a particular component where you get, you know, the majority of the material in but not the last component so you kind of get hurt by that?

That's really tough to do.

I said earlier that a guess would be 50 to $75 million of revenue was foregone because of supply constraints, so the inventory associated with that would be 40 to $50 million, roughly.

Depending on the product and the customer and that kind of thing.

Got it.

Thanks very much.

Your next question comes from the line of Jim Suva.

Thanks very much and congratulations to everyone there at Jabil.

Truly a year difference is great change.

When I look at your EPS guidance, it looks like the range of it is a little bit bigger range, it looks like it's about a $0.12 range for the guided February quarter.

Last quarter or last year it looked like it was about a $0.04 guidance range.

And last quarter, about $0.08.

So looks like the EPS range is much wider.

Despite the revenue range being very consistent.

Can you help us understand the difference about why a wider EPS range?

Jim, so if we talk operating first, and I'll get to EPS.

The operating range is the same, so I think it's really to do with the share count.

Now we're up with 215 versus 209.

I think what that does is add a couple of pennies there.

Okay.

So nothing else?

No, because the -- the tax rate's the same at 20% and the interest expense is around about $20 million also.

So --

Q1 guidance was $3 billion to $3.2 billion and 85 to 105 in core operating income, so kind of a $20 million -- $15 million handle on each side.

Okay.

I got it.

So mostly math rather than anything else going on below?

Yes, absolutely.

Got to do with things further down the P&L.

I just was wondering if there was any one-off thing that helped.

No, pretty consistent.

And then on the mobility side, if we were to look at the mobility as one piece of your Company's business and say that piece of the pie, is it fair to say there's a customer there that represents more than half that business, back to the question about diversification of the mobility, can you speak to that a little bit?

Yes.

I don't have that information in front of me.

Again, we've talked about higher revenue concentration in the electronic assembly area and we talked about who 10% customers are.

But we've got very good diversification in terms of who we do business with and what areas of the business actually are profitable and accretive to the Company and what aren't.

So actually better balance below the covers than above the covers.

I guess maybe you can just help us better understand the concern wherefore those of us who have been following your Company for five years or something, remember probably the same statement could have been said back in the day when one of your European handset companies was really the bulk of it there.

Can you help us understand?

That's a great question, Jim, and I think fundamentally the biggest solace that investors should take or the most pertinent fact, that customer, that European customer was vertically integrated and competed against our suppliers and the customers that we have that were engaged in electronic assembly today have no vertical capacity, or very little.

And so we're competing against people in our industry, not against the customer for their own capacity.

Great.

Thank you and congratulations and Happy New Year, everyone.

Thank you.

Thanks.

Your next question comes from the line of Alex Blanton.

Good afternoon.

Hi, Alex.

Tim, how much do you --

Please don't give me a hard math question.

I'm not.

This is not a math question.

How much do you -- or how close are you to what's really going on in the end market?

Because in looking at other companies, there are a number where the Company's a forecasting substantial increase in their sales in 2010, but they're also saying that the retail sales are probably going to go down at the same time and the reason is that last year their sales went down much more than the end market because end markets were reducing inventory.

So now, even to get back to where retail sales are going to be at a lower level than last year, their sales have to go up substantially.

And so how much of that is happening in your business and of course it's a big question is how much is happening in the overall economy as well.

Right.

I guess it's a valid question, Alex.

We wring our hands about that ourselves.

I think from an economic recovery standpoint, we are embedding an expectation that the economic recovery will be sluggish but sustained.

And so we don't anticipate any third or fourth dip in economic activity.

So we need a sustained, even if it's sluggish, economic recovery.

If you look at our Q1 revenue, all right, we were 200 -- I had it in my prepared comments -- $280 million or something like that lower revenue than the previous year period, and in our second quarter, if we hit the midpoint of guidance, we'll only be $100 million above Q2 of '09.

So we have -- and over that period of time, we generated additional market share, we penetrated new customers, we added new business, so we had to pedal the bike really, really hard to get to that point.

And so through the combination of chopping wood vigorously and really focusing on efficiencies, cost reduction, lean manufacturing, which we'll continue to do throughout the next couple of fiscal years, actually, we're able to generate more income on these modest revenue levels.

So I think from a Company performance standpoint, we're not relying 100% on the economic recovery here.

I think it's the bottom line.

We're driving efficiencies, consolidation of operations, lean manufacturing.

We've weeded the garden somewhat in terms of the sectors and customers we do business with.

We're really focused on generating market share, our performance, and so modest revenue levels will deliver a disproportionate amount of incremental income for our Company.

We said that consistently.

I think it's the most gratifying thing for us isn't that let's have a big party because the recession's over, it's the most gratifying thing is that modest levels of revenue growth which we think are reasonable in a sustained, albeit slow economic recovery, will deliver inordinate returns for Jabil and shareholders.

So we're happy to kind of present that thesis to the investor base.

Well, that sounds good.

On that theme, the second follow-up question, and you mentioned before that your results this year are a little higher than last year even though your sales are down almost $300 million.

And you attributed this to being leaner and more efficient and so on but you've been doing Lean for I don't know, 15 years, at least.

You would think that you had become pretty efficient by now.

So my question is this.

Is there something else going on here?

I mean, is there some tightening of the pricing, for example, in the industry, so that part of this improved earnings is -- is it or any of that due to that, to tightening up of margins overall for everybody?

Do you mean a more severe competitive environment or an easier?

Well, less.

Less.

In other words, you could be earning more on lower sales that would because competitors have dropped out or there's less competition or everybody's decided to get more -- to look more at profits and less at volume and so on.

I day dream about that type of environment.

I'd say that the competitive environment is just -- my color would be it's not anymore hyper competitive this quarter than it's been for the last 10, 15 years, but it's still very competitive out there and there's the food supply has gone down so only the most efficient people can compete and provide the type of pricing that the market requires and still make a buck.

And yes, we've had Lean for a long, long time.

This is not a flippant comment but we are getting better at it and we are seeing better results from it today than we have in the past.

There are a couple other things going on.

I mentioned them in the prepared remarks.

The emphasis of the industrial instrumentation medical sector has led to some significant growth and year-over-year I think that sector, in terms of share of our business, is up 2 or 3 points, percentage points.

So that's important.

Continuing to emphasize this end-to-end capability that we have through aftermarket Services and Jabil Green Point has led to some beginning to get some decent traction and the aftermarket Services, for instance, the epicenter of our business is up a point or two year-over-year.

So that's very helpful.

And when things are slow and the environment's very severe, I mean, we get refocused, thankfully refocused on cost, quality and delivery and fundamental execution.

We have that in our muscle memory very well and we're able to exercise that and hopefully we'll be able to press that to our advantage this year.

It is a combination of factors , but nothing easy.

It's all based on hard incremental

Okay.

Thank you.

Thank you, operator, and everyone, for joining us on the call today.

We'll conclude our call and Happy Holidays to everyone and thanks for joining us.

Have a safe and prosperous new year.

Thank you.

This concludes today's conference call.

You may now disconnect.