捷普科技 (JBL) 2010 Q4 法說會逐字稿

Good morning.

My name is Crystal and I will be your conference operator today.

At this time, I would like to welcome everyone to the Jabil fourth quarter and full fiscal year 2010 earnings conference call.

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

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

(Operator Instructions).

I will now turn the conference over to Ms.

Beth Walters.

Please go ahead, ma'am.

Thank you.

Welcome to our fourth quarter of fiscal 2010 call.

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

This call is being recorded and will be posted for audio playback on the Jabil website, Jabil.com, in the Investors section.

Our Q4 and fiscal year 2010 press release and corresponding webcast with slides are also on the website.

In those slides, you will find the financial information that we cover during this conference call, as well as additional financial metrics and analysis that you may find helpful in the appendix.

We ask that you follow our presentation with the slides on the website and begin with slide 2 now.

Our forward-looking statement, during this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected first quarter of fiscal 2011 net revenue and earnings results, our long-term outlook for our Company and improvements in our operational efficiency and financial performance.

The statements are based on current expectations, forecasts and assumptions involving risks 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 31, 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.

Today's call will begin with some comments and highlights from Forbes Alexander on our fourth fiscal quarter and full fiscal year, as well as some forward guidance on our first fiscal quarter of 2011.

Tim Main will then follow with some macro-environment and Jabil-specific comments about our performance, our model and our current outlook.

We will then open it up to questions from call attendees.

I will now turn the call over to Forbes.

Good morning, everyone.

I now ask you to turn to slides 3 through 6 and follow along to my comments on the results of the fourth quarter and full fiscal year 2010.

On revenues of $3.9 billion, GAAP operating income was $103 million.

This compares to $43 million of GAAP operating income on revenues of $2.8 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 $157 million, or 4.1% of revenue as compared to $65 million, or 2.3% for the same period in the prior year.

Core earnings per diluted share was $0.52 as compared to $0.16 for the same period in the prior year.

On a year-over-year basis for the quarter, revenue increased 38% while core operating profits increased 142%.

On a sequential basis, revenues increased 12% while core operating income increased 19%.

Revenues for the fiscal year 2010 were $13.4 billion with GAAP operating earnings of $328 million as compared to revenue of $11.7 billion and a GAAP operating loss of $910 million in fiscal 2009.

Core operating income, excluding amortization of intangibles, stock-based compensation and restructuring charges for the fiscal year, was $491 million as compared to $247 million in fiscal 2009 resulting in core diluted earnings per share of $1.52 versus $0.62.

I will now ask you to turn to slides 7 through 9 and I will turn the discussion to revenue by division for our fourth fiscal quarter and year.

Our EMS division grew $205 million sequentially, or 10% better than our expectation of 8%.

Revenue was approximately $2.3 billion, representing 60% of total Company revenue in the fourth quarter.

Core operating income for the division was 5% of revenue.

For the full fiscal year, revenues represented approximately $7.9 billion, or 59% of total Jabil revenues, year-over-year growth of $1.1 billion, or 15%.

The full fiscal year core operating income for that division was 4.6% of revenues.

The Consumer division represented approximately 35%, or $1.36 billion in the fourth fiscal quarter, a sequential increase of $205 million, or 18%, versus an expectation of 25% as a result of lower than anticipated volumes in our mobility sector.

Core operating income for the division and the quarter improved to 2.4% of revenue.

For the full fiscal year, revenues represented approximately $4.16 billion, or 35% of total Jabil revenues, year-over-year growth of $0.5 billion, or 13%.

For the full fiscal year, core operating income was 1.6% of revenues.

And finally, the Aftermarket Services division represented approximately 5% of overall Company revenue, or $200 million in the fourth fiscal quarter.

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

For the full fiscal year, revenues represented approximately $0.8 billion, or 6% of total Jabil revenues with year-over-year growth of $0.1 billion, or 12%.

For the full fiscal year, core operating income was 8.5% of revenues.

In the fourth fiscal quarter and full fiscal year, two customers, Cisco and RIM, accounted for more than 10% of revenue.

Now our top 10 customers in the quarter accounted for 60% of our revenue and 59% for the full fiscal year.

Selling, general and administration expenses were consistent with the previous quarter, $124 million and represented 3.2% of revenue.

Research and development costs was $6.6 million in the quarter.

Intangibles amortization was $6 million in the quarter.

Stock-based compensation was $36.6 million in the quarter.

Approximately $23.6 million of this expense was related to incremental expense recognized under US GAAP as a result of a change in estimate of the expected vesting percentage of these awards based on actual and future Company performance.

Of the $23.6 million of incremental expense, $8.4 million is related to shares that will vest in October of 2010 based on fiscal year 2010 performance.

The remaining $15.2 million of incremental expense is related to anticipated performance in fiscal years '11 and '12 with performance-based restricted stock granted in previous fiscal years and this expense will be reversed if the performance criteria are not actually met in those future years.

Our net interest expense for the quarter was $20 million and a tax rate of net core operating income in the quarter was 18%.

Now I would like to turn to a review of our balance sheet and ratio trends and ask that you now turn to slides 10 through 12 as I provide some commentary.

Our sales cycle in the fourth quarter improved by three days from the previous quarter to 13 days as a result of a $1 billion improvement in inventory and a two-day improvement in days payable outstanding.

We continue to generate cash flow from operations, producing $285 million while revenue grew 12% sequentially in the quarter.

For the full fiscal year, cash flow from operations was $427 million.

Our return on invested capital in the quarter improved by 4% to 26%.

Cash and cash equivalents was $744 million at the end of the fourth quarter and no sums were outstanding on our $800 million revolving credit facility.

Our net capital expenditures during the quarter were approximately $150 million as we continued to invest in infrastructure to support our targeted markets and capabilities.

Depreciation in the quarter was approximately $65 million and core EBITDA was $222 million, or 5.8% of revenue.

During the fourth quarter, we recorded a loss of $9 million associated with the conclusion and the divestiture of our operations in France and Italy.

This transaction consisted of the sale of four sites, approximately 1500 people with annual revenues associated with this transaction totaling $300 million.

I would like to thank those employees in these sites for their years of service to Jabil and wish them success in their new organization.

We are now very comfortable with our remaining Western European footprint and are pleased to report that these sites, along with our US sites, remain profitable.

In summary, we are extremely pleased with the quarter's and full-year's results -- sequential revenue growth of 12%, achieving core operating income of 4.1% in the quarter with full-year revenue growth of 15%, or doubling core operating income dollars, and overall 3.7% operating margin for the year.

Working capital management continues to remain well under control at 5% of annual revenues and with EBITDA levels pacing at an annual rate of approximately $900 million, we remain well-positioned to produce free cash flows of 25% to 35% of annual EBITDA dollars as we move into fiscal 2011.

I would now like to take a moment to update you on our new reporting structure.

Over the course of the last few quarters, we have been discussing with you our plans and goals around continued revenue, operating income, EBITDA, return on invested capital and free cash flow [divested] in growth.

Our strategy has been successful given our achievement of a 4.1% operating margin and 26% ROIC.

On a year-over-year basis, we have been building an industry-leading presence in markets such as industrial, healthcare, aftermarket services and materials technology, producing year-over-year revenue growth of 44%.

We are in a very strong position to continue to expand this operating performance during the course of fiscal 2011.

And with this in mind and to continue to assist you in understanding and reviewing our ongoing strategy, we shall now provide you with revenue and core operating income in a new reporting structure that reflects alignment to our overall long-term strategy, including sustainability of revenue, operating income, EBITDA, return on invested capital, our capital investments and our compensation metrics.

To assist you in this view of our prospective business strategy, slides 14 and 15 detail our new reporting structure.

These groups are as follows -- Enterprise and Infrastructure encompassing our computing and storage, network and telecom sectors; secondly, our Diversified Manufacturing Services group, which will now include aftermarket services and Jabil Green Point, to be known as specialized services, clean technology, defense and aerospace, healthcare and life sciences, industrial and instrumentation sectors; and finally, High Velocity Systems, encompassing automotive, displays, electronic assembly and mobility products, point-of-sale products, printing and set-top boxes.

We shall be providing you with revenue, core operating income percentages and capital expenditures for each of these three groups.

Our revenue will also be further detailed within the Diversified Manufacturing Services group into three areas of specialized services, industrial and clean tech and healthcare and instrumentation.

In the appendix of this presentation, we have provided fiscal years 2008, 2009 and 2010 revenue in this new reporting format, along with core operating income margins for the fourth fiscal quarter of 2010 and the full 2010 fiscal year.

We believe this shall provide you with a better clarity around our overall strategy and continued progress in delivering superior operating returns.

Now I would like to provide you our first-quarter fiscal '11 guidance and ask you to turn to slides 16 through 18.

Our strategy over the last year of constraining rates of growth in certain consumer-facing or High Velocity group markets combined with higher rates of growth in Enterprise and Infrastructure and Diversified Manufacturing Services has come to fruition, and resulted in lower rates of seasonality, which we would expect to prevail in future periods.

Whilst revenue in the first quarter is estimated to grow sequentially in the range of 1% to 4%, or $3.9 billion to $4 billion, the Enterprise and Infrastructure group is expected to decline 2% sequentially.

The High Velocity Systems group is expected to grow 3% from last quarter while our Diversified Manufacturing Services group is expected to grow 7% sequentially.

Core operating income is estimated to be in the range of $165 million to $175 million, the midpoint of our guidance, reflecting revenue growth of 28% on a year-over-year basis and core operating income growth of $63 million, or 59% growth on a year-over-year basis.

As a result, core operating margin is expected to be in the range of 4.2% to 4.4% and core earnings per share in the range of $0.53 to $0.57 per diluted share.

Selling, general and administrative expenses are estimated to be 3.2% of revenue; research and development costs, $7 million in the fiscal quarter; intangibles amortization is expected to be approximately $16 million (sic - see slide presentation, slide 18); stock-based compensation is estimated to be $16 million and interest expense, $20 million in the first fiscal quarter.

Based upon the current estimates of production, an income level tax rate on core operating income is expected to be approximately 20%.

Inventory levels are expected to improve through the balance of the year as component shortages abate.

We are targeting eight turns as we move into fiscal '11 given our continued growth in the Diversified Manufacturing Services group characterized by higher complexity and lower volume assemblies.

Our capital expenditures are estimated to be $100 million in the quarter.

This level of expenditure is reflective of $80 million associated with investments in Diversified Manufacturing Services, $10 million in High Velocity and $10 million of IT infrastructure costs.

I will now ask you to turn to slide 20 and I shall hand the call over to Tim Main.

Thanks, Forbes.

Could everybody please turn to slide 20?

First of all, I think it has been a superb end to a record year for Jabil.

The year was outstanding and we are very pleased to close the year with core operating margins of above 4% at 4.1%.

I think we have achieved investment-grade balance sheet metrics, driving trailing 12 months EBITDA to total debt to a 2 to 1 ratio and really driving some good metrics in the balance sheet area.

And return on invested capital at 26% exceeds our long-term targets of 20% to 25% and we can see our business over the next few years that could run an ROIC upwards of 30%, which I think would be outstanding for investors.

We have seen continued growth in targeted markets, 14% sequential growth in the healthcare, instrumentation, industrial area.

That part of our business now comprises 25% of our total business and it is now a part of the diversified manufacturing services, but investors can continue to look forward to a real level of focus in that area and continuing to grow our presence there.

We have talked in the previous calls about a significant new program in Jabil Green Point, that after a somewhat rough start in Q3 and Q4, we exited the quarter with excellent results, throughput yields and we are very pleased with the successful ramp of a very large new program in Jabil Green Point.

We see an extension of the success and continuation of the metrics and our progress into F Q1 of fiscal '11 and throughout the year and we continue to think that Jabil is uniquely well-positioned for sustained growth and positive financial performance.

Please turn now to slide number 21.

We have really sustained our focus in improving returns.

The margin expansion that we have seen over the last five quarters we think will continue into the first fiscal quarter of 2011.

Net margin expansion is now moving from a leverage-driven model to a structural-driven model.

In the beginning quarters after our trough quarter in Q3 '09, it was really about providing loading to manufacturing assets.

Our margins bounced back smartly from 1.1% into the low 3%s by the beginning of fiscal 2010 as we enjoyed significant leverage.

And now you're seeing the structural benefits of a focus in Diversified Manufacturing Services and constrained methodical growth in High Velocity and Enterprise and Infrastructure, along with a real focus on cost efficiency lean manufacturing.

So this is a real structural change in the business.

This would be the second consecutive quarter in which the trailing 12 months for Jabil has been a record 12 months and the fifth consecutive quarter of improved results for Jabil and provided that we hit the numbers in the first fiscal quarter will be the sixth consecutive quarter of improving results.

We have talked about ROIC, an investment-grade balance sheet, that is very important as we look forward to a moderating economic environment and look to grow the business aggressively.

We have adequate capacity on our balance sheet to support that growth.

And as we look forward into fiscal 2011 based on last quarter's First Call estimates EBITDA of $900 million to $1 billion, free cash flow yields of 25% to 35% is something that we think is manageable in the next few years and certainly look forward to generating free cash flow in our business.

If you turn now to page 22, with all of that in mind, I think it is time for a real change in perspective and the way that investors look at our business.

First of all, some of the areas that we think will be significantly different, we do think the next three years will have a more stable environment than the previous three years.

That seems like that should go without saying, but I think it is worth noting that recovery process is, kind of when we look back at it, happening exactly like we said it would.

We thought this would be a long-term shallow recovery in the United States, probably better on economic activity in emerging economies in China, Southern Asia, Latin America and that is exactly what we have seen -- a few stops and starts, a bit choppy as we come out of the deep recession.

But we certainly think, based on the progress that has been made over the last three, four quarters and the stabilization of economic activity, the next three years will be a more receptive environment than the last three.

Secondly, Jabil's approach to the business is very differentiated and I think it is clear now that our thrust into growth markets that are contained now in the Diversified Manufacturing Services sector has been successful and does indeed deliver significant benefits to the Company.

We are getting strong profit contribution from target markets.

In the appendix of the presentation, you will find some comparison on Diversified Manufacturing Services, Enterprise and Infrastructure and High Velocity segments of our business and what margins have looked like relative to historical patterns and the Diversified Manufacturing Services sector delivered right around 7% operating margins in the fourth quarter of fiscal 2010.

The moderating economic environment, we believe, will provide a backdrop, so it will provide more than adequate stability to provide an extraordinary growth opportunity for Jabil and we expect to outpace the macroeconomic activity as the trend towards leveraged manufacturer model on services and target markets continues.

Turn now please to slide 23.

This should be familiar from the previous.

Just to remind you, in last quarter's conference call, we provided this same pie chart with how our business splits out today and where we are going long term.

The names have changed, but the percentages and the balance of our business is really very, very close to what it was before, so this is not -- should not be a significant or surprising change in nomenclature and how we are looking at the business.

It does a much better job of aligning how we report and how we report and talk about our business with what our internal strategic plan is and how we are managing the business internally.

So it does a much better job of that.

So you can see that the high-growth Diversified Manufacturing Services business makes up about 36% of our overall revenue with High Velocity Systems and Enterprise and Infrastructure making up about 64% of our business.

And moving to slide 24, the long-term strategic plan of the business is to drive Diversified Manufacturing Services to 50% of our business, supporting an expected long-term growth rate of 20% to 30% for this portfolio of opportunity that we have with the Enterprise and Infrastructure and High Velocity Systems, long-term growth rate being a much more modest 5% to 10% depending on the year and the conditions.

So very consistent with what we have communicated in the previous quarter call.

To talk a little bit about the nature of these businesses, turn to slide 25, please.

The Diversified Manufacturing Services business, some of the attributes, characteristics of this business -- one is certainly managing global complexity for a broad range of very quality-conscious customers.

They're very highly complex products, very high mix products.

Part of the Diversified Manufacturing Services area includes regulated industries like defense and aerospace and healthcare.

Much higher value add services in value engineering and bringing together the capabilities that we have as a company.

It gives us significant exposure to very favorable global trends and we believe this exposure to the global trends provides us an outsized opportunity for growth in earnings.

One, of course, is what has historically driven the Company's growth, which is the trend to a leveraged manufacturing model, which has continued to show up in healthcare and other interesting areas of the business.

Renewable energy and clean tech, we have a pretty strong business there, aging populations in developed regions, additional healthcare devices are necessary, an explosive need in an emerging market.

Also innovating across markets that we play in.

For example, in fiscal 2010, we introduced a portable ultrasound product for one of the top three healthcare companies in the world.

This employed a number of attributes, including value engineering design.

Also employed a high-end polycarbonate housing, injection molding and really utilized a number of our strengths, not only in high mix, high complex regulated industry manufacturing, but encompassing other areas of our business, for instance, mechanics and displays and other areas that are more closely or more commonly associated with consumer electronics.

Made a very, very high level of contribution to this product.

And so a product, which employs a number of our strengths and gives us a great opportunity in emerging markets, as well as in healthcare.

This Diversified Manufacturing Services will see a more significant capital investment as we move forward and we are certainly broadening our services beyond our historical boundaries of more electronics manufacturing.

Look at page slide 26, please.

In Enterprise and Infrastructure and High Velocity Systems, very important to our business today.

Less market-focused and so much less of a market focus and much more of a customer focus and capabilities focus.

Highly integrated, low cost, leaner operations.

We are seeing very complex global order fulfillment.

Management services are extremely important in this area.

We think there are fewer fully scaled multidisciplinary competitors in this marketplace.

We think there has been a flight to quality over the last three years with the vestiges of the credit crisis along with Jabil's ability to continue to invest in a significantly advanced, sophisticated IT backbone and operations around the world has really helped us to strengthen our position in this area.

The cost and total value management continue to be a key success factor and market concentration here is expected to continue.

Move now to slide 27, please.

I think in terms of talking about Jabil, I think we need to talk about a more sustainable earnings model and why we would make that assertion.

We have dramatically reduced dependency on our 10 largest customers.

This graph depicts the profit, the percentage of profit associated with the 10 largest customers.

And in fiscal 2006, we can see that almost 75% of our total profit dollars were earned by our top 10 customers, our 10 largest customers with over 50% of the earnings associated with High Velocity Systems -- customers in the High Velocity Systems and really two major consumer electronics companies were a part of the earnings stream then.

If we go to fiscal year 2010, we can see that less than 50% of our profit dollars are associated with our 10 largest customers and dramatically improved diversity within those top 10 customers.

So good balance between Enterprise and Infrastructure, High Velocity Systems and Diversified Manufacturing Services and we see that trend continue in fiscal '11 with Diversified Manufacturing Services comprising a larger part of our top 10 customers, our 10 largest customers and continuing to drive down the profit associated with the largest 10 to well below 50%.

This diversification reduces risk and enhances our sustainability.

Move to slide 28, please.

I think focusing on the top 10 and significantly reducing our dependency on the 10 largest customers, take a look at our business in terms of total profit dollars earned in the three major areas for the entire customer base.

And looking in fiscal year 2006, 40% of the Company's earnings were earned in the High Velocity sector in fiscal year 2010; that has been reduced to 24%.

And very significant progress in Diversified Manufacturing Services and that was by far the smallest area of earnings for the Company, 18% in fiscal year 2006 and in fiscal year 2010, that has ascended all the way to 40% -- 47% of our business.

So this is a much better balance.

We are getting growth from competitively advantaged areas where Jabil has real differentiation, real opportunity for innovation and technology and we think this is a much more resilient and sustainable business model going forward.

Let's go to page 29, please.

We really believe that, not just Jabil, I think I need to say this is true of our industry as well historically, but particularly true for Jabil that we can really set the pace for growth and that our growth will significantly outpace GDP activity.

And this is a graph that indexes revenue -- Jabil's revenue growth in red, USA GDP growth in blue, and a combination of Flextronics, Plexus, Benchmark, Celestica and Sanmina as the green line and what the revenue growth has been since 2006.

And you can see that Jabil's growth has significantly outpaced GDP growth and peer group growth.

That is really a continuation of trends that have been established for the last 20 years, but we think that is very important.

And I think really investors tend to obsess a bit on what has been going on in the US economy.

I think it is important to point out that the world has changed quite a bit and so has Jabil.

The size of the USA economy, the euro zone economy and Japan combined amounts to about 56% of the world GDP, which means that 44% is coming from Asia, from China, from India, from southeast Asia, from Latin America.

And 10 years ago, and if you wanted to talk about how much of Jabil's production was actually consumed in areas like Asia and Latin America, it was 4% or 5% and today, 15% to 20% of our output is consumed in those regions and we see that continuing to grow.

So we are a global business supporting brands that have global businesses with very significant penetration into these emerging economies and we think that is a very important part of our growth formula going forward.

Turn now to page slide 30, please.

This is a review really of the previous quarter's top five drivers of sustainable growth.

This is a business that is founded in operational execution and performance.

Everything, the Jabil bell tolls in a very tinny way unless we are executing well and this focus on performance and execution, lean manufacturing has really given us a better position in our marketplace.

Accelerating growth in targeted market sectors, we have talked about early virtualization process of healthcare and some of the other target industries and the really powerful trends, a global trend in smart energy generation, healthcare and some other areas of the world.

Sustainable expansion of advanced IT and communications infrastructure, the trend towards total lifecycle management and we do think that increasing global complexity favors fully scaled and sophisticated service providers like Jabil.

So in summary, we have aligned our business areas with our strategic plan, including compensation systems and how we look at the business.

I think it is clear to see that our growth engine is shifting to the Diversified Manufacturing Services area.

The improving diversification of our business in sources of income lowers risk and enhances our sustainability.

And I think that is a very important aspect of Jabil today versus Jabil of five, six years ago and an important change in perspective on our business.

We think the moderating macro-economic environment really ushers in a refreshed period of superior growth and returns for our Company.

We will continue to focus on our customers, our costs, our capabilities in all markets and all customers that we serve and we are very excited about our future.

Operator, we are now ready to begin the question-and-answer period of the call.

(Operator Instructions).

Lou Miscioscia.

With Collins Stewart.

Can you go into talk about the quarterly performance a little bit more in the sense that the Consumer was below the expectations that you had and maybe the product areas or what caused that?

And obviously, it looks like that is now bouncing back for the November quarter.

I guess going back, all the way back to 2001, I guess the quarter-to-quarter growth in November is probably the lowest we have seen in almost 10 years.

I am just trying to understand why there wouldn't be more growth there.

Yes, I think we are looking at a business that is less seasonal, Lou, and more focused on Diversified Manufacturing Services and Enterprise and Infrastructure, which tend to be less seasonal businesses.

And we are really quite pleased to deliver superior economic performance and EPS growth in a slower revenue growth environment.

So I think it is appropriate to think about Jabil not as much in terms of seasonal revenue growth and much more on the quality of earnings and where our market penetration and differentiation really resides and that is in Diversified Manufacturing Services.

So it is really okay for us strategically to think about High Velocity Systems growth being mainly about increasing cash generation, improving return on invested capital, not really aggressively growing revenue in that area and really focusing on Diversified Manufacturing Services and continuing to do a good job on Enterprise and Infrastructure.

So yes, I can see where revenue might be a little bit light relative to where the analyst estimates were for Q1, but we are really pleased that we can deliver $0.53 to $0.57 of EPS and be pacing well above $2 a share in an environment where we are not seeing significant revenue growth.

So again, structural change in the earnings power of the business, a less seasonal, less volatile business because of High Velocity Systems and I think a much more differentiated and sustainable earnings model.

And just as kind of a tick mark, just a technical tick mark, remember that we divested operations in Italy and France.

Those Western European operations produced revenue of $300 million last year.

That is around $75 million a quarter.

So if you add that back into the revenue stream, we would be well over $4 billion at the midpoint.

So I look at it and revenue is not that light and we are really driving the business to be more profitable.

So it seems like things are in pretty good shape.

The revenue or the margins and earnings were very good (technical difficulty) regulation.

Just on the slide, I think slide 7 where you did have sequential growth, guided to 25%, it was 18, is it -- can you point to maybe the category in consumer or was it maybe just that consumer.

We do know consumers, especially in notebook computers have been light.

I know you don't do notebook computers, but just as an example.

So would you say that consumer demand was a bit below expectations?

Yes, again, we are not really focusing on consumer growth.

We were, I guess, a little bit lighter than maybe guidance, but no significant issues there and we are very pleased to continue to drive great growth in Diversified Manufacturing Services.

We had 14% sequential growth in healthcare, industrial and instrumentation and that is the real focus of the business.

Thank you.

Good luck on the new year.

Thank you.

Amit Daryanani.

Thanks, good morning, guys.

I just have a question on the operating margins.

You guys have obviously done a phenomenal job on that front.

In the past, I think you have talked about sort of incremental margin targets.

I am not sure if you want to give quantifiable targets right now, but just broadly speaking, can you talk about what are the drivers as we go forward that can sustain the margin expansion?

Because I think back in '04, '05, you were running at comparable margins and you did not have Green Point or the industrial and medical assets.

I think that is a great point.

We have hit the kind of the watershed 4% and we think that is sustainable as we go forward.

So where do we take it from here?

I think the structural changes in the business, continuing to look for growth from Diversified Manufacturing Services and areas like aftermarket services and our Jabil Green Point business, that we feel the structural changes in the business can continue to drive margin expansion.

We are not -- at this point, we don't think it is useful for us to articulate additional goal sets.

One big reason is is we think the economic model works extremely well where we are.

It is 20% -- 26% return on invested capital.

A $16 billion-ish year.

In 2011, we will produce EBITDA of almost $1 billion, $350 million in CapEx and the rest of the cash requirements in the business and we will drive free cash flow of anywhere from $250 million to $400 million.

So the economic model works well where we are, but we will continue to focus on growing Diversified Manufacturing Services aggressively and improving our efficiencies in cost and High Velocity and Enterprise and Infrastructure and certainly look for additional margin expansion long term.

And then can you just talk about the inventory rise this quarter?

It is up 9%.

What drove that?

And then also on the inventory line, I think this is the first time I have seen you guys call out net of $151 million in deposits.

I don't think I have ever seen that disclosed in the past.

What exactly does that imply and how much did you have as a percent in deposits historically?

On the first part of your question, inventories grew about $160 million or 9% in a way with the revenue growing 3 points faster than that.

So inventory in days actually improved a bit, so we are making progress whilst we are on the top line.

But certainly in this materials environment, there is still a lot of material constraints.

And as we move forward here, I think it is appropriate for investors to think about an eight turn model.

As Tim just said in his previous comments, we are performing extremely well with operating margins now above the 4% watershed and 26% ROIC.

So as we continue to grow the Diversified Manufacturing Services revenue and income stream, that is typically characterized by higher complexity, lower volume assemblies, which carry lower inventory turns.

I think if you look across the peer group, those organizations that are focused particularly in that type of area are turning inventory maybe four or five turns -- four or five times.

So between the blend in each of these specific groups as we move forward, we think an eight turn model is appropriate and we are working towards that.

So in terms of the first part of your question.

In terms of the second part, inventory deposits.

So our business model among investors that, under our business model, we take no risk on inventory.

So in this environment as customers have been asking us to bring inventory into our balance sheet, into our operations, as I said, we take no risk.

So in that case, we ask customers to share and in other words, provide inventory deposits.

This is something that is commonplace in our business model, has been in place for multiple years.

Values this quarter rose to, as you rightly point out, $150 million.

We thought it appropriate that we point that out.

That's about 7% of overall inventory.

Previous quarter, that has been running in the range of 2% to 3%, so I think (technical difficulty) $50 million.

And you know this is across multiple cost customers, typically somewhere north of 20 customers that we continue to operate within this model.

So nothing uncommon, but the fact that it is above 5%, we thought it appropriate to be transparent and point that out and just reinforce the business model around that we take no risk in terms of inventory and the model is in really good shape.

Perfect.

That was very helpful.

Thanks a lot, guys.

Steve O'Brien.

Good morning, thanks for taking my question.

Could I first ask a quick question on tablet computers?

Is Jabil involved in any current projects and were there any revenues that contributed in the fourth quarter or do you expect to see contribution in the November quarter?

I think you might be referencing a major mobility customer with a recent announcement regarding a tablet product and we can't comment on anything like that.

We participate in very high-end mobility products, especially in mechanics and the products specifically we participate in is highly sensitive and confidential.

Okay.

Could we talk maybe then about the Green Point, new Green Point facility contribution this quarter?

I think last quarter you gave some metrics around annual revenue contribution potential.

Is there any changes to that versus prior expectation and there is also some numbers around the loss in operating expense that that facility was going to contribute in the August quarter and expectation for it to turn profitable in November?

Has that changed?

We don't provide any visibility into specific plant sites because that could end up being associated with customers.

In terms of Jabil Green Point, I will give you this though.

Jabil Green Point in size will about double in 2011 and so we are seeing really explosive growth in that area of our business and so we are very pleased with that.

The major investment that we talked about for the May quarter and probably in the February quarter as well started to reference it, yes, that was a rough start.

We did not get very significant, probably a little bit rougher than we thought going in, both in the May quarter and the August quarter.

So a bit dilutive to earnings and looking forward, we think that will turn to something that is more accretive.

But the success of the business is -- the proof is in the pudding and again, we think Jabil Green Point is really doing very, very well right now.

Thanks for that, Tim.

And if I could, just one more point of clarification here on this same topic, which is I believe consumer markets -- margins are rebounding remarkably to 2.4% in the fourth quarter here.

Yet, the High Velocity Systems margins, if I looked at the number correctly, would have been 1.3% in this August quarter.

So what are the challenged areas I guess that when we look at the business lines that are getting pulled into the new High Velocity Systems category and how can Jabil improve those margins going forward?

I won't pick on any particular product area.

That margin performance is somewhat consistent with how the Consumer Electronics division was reported over the last year or so.

And virtually everything that is in Consumer is in that group today -- displays, printing, point-of-sale terminals -- which actually that is in addition, the electronic assembly, the EMS portion of mobility and set-top boxes.

And I think what we do there, for instance in the displays area, that was a $1.5 billion business at one time.

As recently as 2007, 2008 I believe it was a $1 billion business and we went after that.

We told investors that we would be emphasizing that part of our business, have reduced that to less than $300 million a year going forward and that is what you have to do.

You have to go in and be very decisive about businesses you want to be in and if you can get the returns that are adequate, you continue in the business and if you can't get those returns, you need to exit.

And we will be making decisive decisions about many areas of our business where we don't think our prospects to earn a return on invested capital is appropriate given the level of investment and risk that we take.

I will say that even at a -- most of the product areas that we are engaged in and most of the customer relationships, we are meeting our return on invested capital goals.

So I don't see any big near-term disruptions in that area, but it is an area where you focus on cost, efficiency, cash flow, cash generation and being decisive about relationships or product areas that you need to exit.

Operator, I guess you can go to the next question.

[Greg Hintonback].

Yes, thank you.

On the industrial, medical and instrumentation growth, can you discuss any new programs that are helping to drive that growth and are you seeing anything in terms of change of the size or number of programs going forward?

Certainly a change in the number of programs.

I mean it is proliferating dramatically.

It is a sector with the highest population count in terms of customers.

Very, very high mix, high complexity products, pipeline of opportunity has been expanding over the last few quarters and the number of new programs that we seem to be able to win has been increasing dramatically.

So no single big driver in that area.

Very well diversified and very pleased that it is really about differentiation, innovation and technology that really moves customers to source with Jabil versus cost and price.

Okay.

And if I can follow up on Green Point.

Your main customer there, and as well as a new program ramp, gets a lot of attention, but for that business to double this year, can you talk about the diversification and other -- penetrating other top-tier handset OEMs?

We continue our effort towards diversification.

We won't be as transparent as to provide customer concentration in that area, but we are excited about their ability to continue to support customers in the higher end of that marketplace in converge devices.

And as the geometries and spatial requirements become more and more challenging and the cosmetic requirements become a much greater part of the product formula, that really plays into their strong suit.

We are really excited too to get participation of Jabil Green Point in healthcare and other areas of the business.

I mentioned the portable ultrasound product and a very high-end polycarbonate process and injection molding, but Green Point doesn't actually produce that product, but the skill sets that we have in that area I think lend themselves very well to a further penetration of the healthcare, clean tech, industrial and instrumentation marketplaces.

So we will continue to diversify demand in that area of our business both in terms of customers within the high-end mobility area, as well as moving them into other targeted industry sectors.

Okay.

And if I could just follow up, Forbes, on wage inflation, particularly in China.

Have you seen any impact to your margins there?

And going forward, what are ways or things you guys are looking at to combat that?

No impact in terms of our margin structure with wage inflation in China.

We have been in China over a decade and that is part of doing business there is the way we look at that.

So no material impact to margins currently or prospectively as we move forward.

As Tim talked about in some of the prepared remarks, we have got a continued heavy focus on our [reen] activities, which is repeatable and sustainable.

So on multiple aspects here, not only in China, across our global footprint, we deal with cross revenue [idol] or wage inflation, however you might characterize that, on a global basis.

So we are very comfortable with our structure there and comfortable with the margin profile as we move forward.

And Greg, I think investors should really look at or entertain the notion that this is a big opportunity for the EMS industry.

So instead of looking at it as like it is a threat, an economic threat, it is a huge opportunity for the EMS industry to be differentiated from Foxconn and the ODMs.

The additional risk in China for wage inflation and cost escalation, it really plays well into those companies, mainly the EMS industry, the leaders in our industry, including Jabil and the other guys, the top guys that have invested in a global footprint that includes not just China, but Malaysia and Vietnam and India and big Mexican operations and operations in Eastern Europe, very strong IT systems and managing global complexity.

Huge opportunity for the EMS industry to regain market share because of our know-how and expertise in managing that complexity and offering customers a better portfolio of choices in a lower total landed cost of production than what people like Foxconn that are focused absolutely 100% obsessed with China only or ODMs that really don't have that global footprint.

So it really plays well into the hands of the EMS industry.

Thanks for the color there.

Thank you.

Steven Fox.

Hi, good morning.

Just two questions on your markets.

On the Consumer side with mobility in the past, you talked about diversification within customers.

With RIM being such a large portion of sales, can you sort of describe how diversified you are by programs within those customers.

And then secondly, with the industrial and instrumentation business, are you seeing any expansion beyond traditional or your traditional North American-based customers into more of an international flavor of opportunities now?

Or is that still a few years off?

Okay, I will try that, and Steve, if I don't really answer it unintentionally, you can have a follow-up.

So we can't really address -- we can't address RIM or specific customers.

I think our diversification in that area is improving.

Certainly, the product portfolios that we are -- part of our plan with each customer relationship is to have broad-based participation across our entire product line that further diversifies and reduces our risk of doing business with someone, both for the customer and for Jabil and that has been an effort with all of our customers, including those customers in mobility.

And just to remind you, we have segregated mobility EMS, so that part of mobility that is electronic manufacturing services, electronic circuit board manufacturing into High Velocity Systems and the mechanics part is in Diversified Manufacturing Services now.

You asked a question about industrial and instrumentation, healthcare being more of a global business and international flavor to it.

Absolutely, the brands typically are and continue to be European, North American brands and -- but when you look at emerging markets, I mean this is true for every single company in the world today.

We are looking -- the new normal is slow growth in the United States and Eurozone.

In Japan, if they can eke out any growth would be a minor miracle.

And so everybody is looking to the emerging markets, the big emerging markets in Latin America and China and India and Southeast Asia as their growth markets and we provide a significant opportunity, particularly for customers who don't have that global scale today, to take their products into these emerging markets and get a more rapid penetration and have a very, very safe pair of hands, build their highly complex and extremely high levels of quality in these emerging economies.

So it is a big opportunity for us.

We are seeing more and more of that in Diversified Manufacturing Services and I think that will gain some steam as we look forward in the next three to five years.

We also say that we -- in areas like in China and Taiwan, we -- in particular and other parts of the world as well, but we are doing more business with non-US, non-European, non-Japanese brand names than we ever have before.

And so we have a good network of people that are efforting to do business with the emerging brands around the world so that our position as a market leader can be sustained as we move into the next decade and we will see that we will continue to shift and shift in terms of where the important markets are.

Great.

That was helpful.

Thanks.

Brian Alexander.

Can you just go over what linearity was like during the quarter and if the quarter ended on any strength or weakness and did any end markets stand out in your view?

And then also can you just remind us, in a typical November quarter, what percent of revenue comes in each month or if it is particularly front-end loaded?

Thank you.

The quarter, as in June, July -- August was a little bit healthier than June and July, but no extraordinary lack of linearity if that is the right phrase.

But -- so much as we thought, which was consumer (inaudible) a little bit weaker as we went through the quarter, but nothing extraordinary.

In terms of the quarter we are moving into here, the November quarter, historically consumer-facing portions of our business were much higher and we have constrained that growth as we have moved through this fiscal year.

So in past quarters, you would have seen more of a -- more of a step function as we moved through the quarter, increasing revenues into that November period.

This quarter, we don't expect to see that given our very methodical and targeted constraint in the High Velocity areas as we move through this quarter.

We'd expect it to be generally much more linear.

Okay.

And then looking at your guidance, the midpoint implies a 15% sequential contribution margin.

You had previously said you expect the business model to deliver 10% to 15% until you got to $3.4 billion to $3.5 billion at which point the margins would drop to the low 3% to 5% range.

But we are at $4 billion right now, so what is driving that strong leverage?

Is it attributable to any one customer such as the large Green Point customer or something else?

Thank you.

That's a great question.

It is absolutely not due to any single customer and we really need to move the focus from big customers and big revenue generators to the structural changes in our business in Diversified Manufacturing Services and that breadth of capability that we have and the breadth of customer base, so I'd refer you back to some of the slides in the presentation that I made that disclosed the -- slide 27 and slide 28 in particular, in 2006, we had most of our profit dollars were concentrated in the top 10.

Most of that in High Velocity.

Today, that has dramatically changed.

Less than half of our profit dollars are earned in the 10 largest customers and what it is is very well diversified across Diversified Manufacturing Services, High Velocity Systems and Enterprise and Infrastructure.

And I would also ask you to kind of review the slide 21 that talked about sustained focus on improving returns and the margin expansion moving from being leverage-driven to being structurally-driven.

And that is fundamentally very important to the go-forward plan of the Company.

Thank you very much.

That is all the questions I have.

Amitabh Passi.

Hi, thank you.

Tim, my first question was for you.

You made the comment about November being slightly less than normal seasonality.

Would it be fair to extrapolate that comment as we move into the February quarter, like in general, are you expecting sort of less volatility in your top line?

I think in the February quarter, we have had -- I think the history of that quarter, we have had as much as 20% seasonality and as little as a couple of percent.

I think people should take a look at this data here for a second.

Yes, overall, it has been as much as 15% sequential change on Q2 and as little as 1% in terms of revenue.

I think we will continue to see some seasonality there, but it will be much more muted than in previous years.

And we are not providing guidance on Q2 at this point, but we think that the impact to the overall profitability of the Company would be much more muted than in previous years and we are actually very happy to have that set of conditions.

Got it.

And then just with respect to what you used to disclose as a Consumer segment, again in the February quarter, it has typically ranged between breakeven, plus one, maybe minus one.

Do you think that business could remain profitable as we move into the February quarter, I mean given the fact that you are showing some pretty healthy progression both in August and November?

The High Velocity area?

Correct.

I don't know.

I don't have the data in front of me.

That is typically a quarter where High Velocity customers would show negative profitability.

But we might have a shot this year.

The November quarter is a little less robust, so I am not really sure what we will see there in terms of seasonality.

We have got a shot at being profitable in February, yes.

Okay.

And then just any update on your plans for cash?

I mean if you do the 25% to 35% of EBITDA conversion to free cash flow, you probably generate greater than $300 million, nice healthy cash flow generation.

Any thoughts of share buybacks, maybe an increase in dividends?

Any update there?

No updates there at this point.

I think we want to focus on the balance sheet integrity first and then we will talk about how to return capital to shareholders.

Got it.

And then just one final question.

Your long-term strategic goal of 50/50 between -- the business split that you talked about, would you venture to guess or say when you think you might get there?

Is it three years, five years, just any sort of sense of timing?

I would say in that three to five-year time period is what we are targeting.

I mean to the extent we can drive that growth faster, we will take those opportunities.

We don't want to be reckless in the way that we make acquisitions and that type of thing, but it is a multiyear plan.

All right.

Thank you.

Shawn Harrison.

Hi, good morning, can you hear me?

Yes.

Okay.

My first question just goes back to a number of questions that have been on, I guess the margins within the new business descriptions, Diversified, Enterprise and High Velocity.

Late in the appendix, you kind of put out where the margins were for the fourth quarter.

I was hoping maybe you could describe if there is upside to kind of where the margins are right now by each of the new three business units?

It sounds like High Velocity, there may be some upside, but it requires some pruning of the business model while Diversified, it is leveraging some of the new CapEx that is coming on and fixing some of what sounded to be like yield issues you had in the August quarter.

But if you could maybe elaborate on where margins are right now in those three businesses and if there is potential upside and kind of what are the drivers?

I think Diversified Manufacturing Services performed extremely well in the fourth quarter.

I think Enterprise and Infrastructure performed consistent with where they have been in the last year and I don't see much upside there.

High Velocity Systems, there is always opportunities to improve through cost cutting and that type of thing, but I wouldn't see significant upsides there.

So I think in balance it's probably an unfulfilling answer for you, but looking at relative consistency going into the November quarter, November is forecasted, even with our guidance historically being relatively conservative, as really an outstanding quarter at 4.2% to 4.4% operating margins and $0.53 to $0.57 of EPS and we feel pretty good about that guidance.

Okay.

I guess to that point, maybe just targeting Diversified, it was a great quarter, substantially above kind of where you were for the year.

With the incremental CapEx, how many quarters does it take to kind of leverage that through the model?

The real question is is there further upside from here or is it just volumes through the model, is it leveraging the incremental CapEx or should we anticipate it kind of hangs around in the 7% range?

Well, I think in terms of upside, we are driving greater market share there.

So that is an area where we want to invest in.

It is not an area that we need to be very obsessed about driving margin expansion.

In Enterprise and Infrastructure, we need to be highly efficient and very good asset managers.

And in High Velocity Systems, we really need to focus on making sure that we are being decisive about businesses that we want to be in.

So in terms of overall Company performance -- and Diversified Manufacturing Services, remember that is a big part of the business now and pretty well diversified across aftermarket services, healthcare, a variety of areas.

So I think in terms of upside in Diversified Manufacturing Services, we aggressively pursue market share in that area.

Enterprise and Infrastructure and High Velocity Systems, we will focus on being efficient from a cost standpoint and sound asset managers.

Okay.

And then a brief follow-up, just maybe a clarification on Forbes' commentary regarding the inventory.

Within the November quarter, and I guess as you look out potentially even into the February quarter, are you expecting kind of a similar dynamic where you and customers are sort of sharing the burden of bringing on incremental inventory or how does that track in terms of your visibility over the next one to two quarters?

Does that normalize in terms of what you're holding on the books now in terms of say I guess buffer stock or for lack of a better term or does that continue in kind of the same dynamic?

Yes, I would certainly hope that it would normalize.

Frankly, that will depend upon the availability of some componentry, which is still constrained.

But certainly we believe, from our visibility into the marketplace, that that should abate as we move through, certainly through the balance of the calendar year.

Whether that all flushes out in the November quarter, we will have to wait and see.

But certainly I would expect, as we move towards the end of the calendar year, it would be back to more normalized levels given our visibility and the component constraints right now.

Okay, thank you very much.

Sean Hannan.

Yes, good morning.

So a question on the aftermarket services business, so this is a business that you didn't actually grow this past year whereas the rest of your business you did.

And you have this business and maintain some views of growing or adding similar types of business as part of your higher growth strategy in that Diversified group.

So based on what you just saw, what are some of the hurdles that you've faced that you folks need to overcome and how do you really accomplish this organically from a growth perspective so that it is not dilutive to that larger new group?

The aftermarket services group actually grew by 12% year-over-year, so adding just over $100 million worth of revenues.

So it is growing fairly compatible rates with (technical difficulty) growth rate.

But certainly as we move forward, there is opportunities to continue these types of growth at rates through exploring -- expansion of existing relationships, expansion of relationships across our manufacturing customer base.

Today, in fact, for our parts we have some overlap.

There is a huge opportunity here to move these types of service sets across our more historic manufacturing customer base.

Not only that, we continue to explore our new geographies as we move into more and more of a global economy where we are seeing additional sell-through throughout Europe, into Eastern Europe, into parts of Asia.

We are in the process of reviewing those types of geographies and in fact, exploring opportunities there.

Over the last couple of quarters, we have added Turkey, which has been successful for us and that is a good example there of opportunities as we move forward.

So we are very pleased and actually very excited and proud of the opportunities in the coming fiscal year and into another three to five years targets (inaudible) of our targets, but expectations are of moving this Diversified Manufacturing Services group to (technical difficulty) 50% of the business stream here.

Thanks.

I am sorry though, but it didn't actually grow in this current quarter and so from a growth perspective, it lagged the rest of the Company.

And so what I am trying to figure out is is there anything that actually was a negative factor, an issue that evolved there and why was this down year over year?

It just had a lackluster quarter and overall, the growth trajectory is still very sound for the business and so had a bit of a bad quarter, had a great year and we think the growth prospects look pretty sound.

That's helpful.

And then just a quick follow-up.

Can you describe the dynamics you saw during the quarter at least in terms of the changes of customer forecasts or whether they were stable all the way through or to what degree that they did change and how that may have occurred either on a segment or regional basis and do we think that we have reached some stability in these forecast changes?

I will give you kind of a CNBC, CNN kind of anecdotal what was the conversation or the dialogue or the narrative about all year.

Kind of started out with we are in a recovery, and material constraints in the marketplace and explosive demand and it is a V-shaped recovery now and revenue expanded, there was inventory replenishment and then we got into the summer months and gosh, it has continued to go up, but there is component constraints.

And then about July, August, people said we are going to go in a double-dip and all the stuff that was said the previous six months is all wrong.

And so the economy is going to fall through the floor and the component constraints started to ease up and the flood of inventory and blah, blah, blah.

None of it mattered because what we had here was exactly what people should have expected.

We had a shallow, choppy recovery in the United States.

It is going to take years for the US economy to become robust again and for things to level out and for us to sell 15 million cars a year and that kind of stuff.

We have got great growth overseas.

Total worldwide GDP growth will probably be in the 3.5% to 4.5% range and US GDP growth will be the 2% to 3% range and Europe and Japan will be less than that.

And that is kind of what we have and the changes quarter to quarter are really marginal.

I think when you look at what the narrative was all through the August quarter, we're definitely going into a double dip recession.

Demand is going to fall through the floor and we still did $3.9 billion over a $3.5 billion quarter the previous quarter, outstanding sequential growth and excellent earnings and really -- so markets are relatively stable.

We think we are getting what we bargained for a year ago and I am going to stop listening to the news so much because it is so melodramatic and so nuts that, again, we have got to just go out and make donuts.

And run the business appropriately and let the volatility of opinions abate and eventually rationality will come back in the market and people will get back focused on what really makes a difference.

Terrific, Tim.

So it sounds like stable and you folks are just managing your business and a new strategy?

Yes, I mean we can't manage the wild swings in expectations and opinions in kind of the hypermedia world that we live in today, but it is still fundamentally about going out and executing and choosing the right customers and being the right markets and innovating and differentiation and that is what we will continue to do.

And I think you're right.

I think we do see the marketplace being relatively stable and not a big robust recovery, particularly in the United States, but a relatively stable environment, which allows the attributes of Jabil's outsized growth opportunity to really become more apparent.

Great.

Thanks so much for your time.

Jim Suva.

Thanks and congratulations, especially on the really big increase in profitability.

I have a question for Tim and then a follow-up question for Forbes.

Tim, can you just help me better understand the Consumer segment was a bit softer than expected.

Was that mobility or the peripherals?

Yes, I mean the mobility sector was maybe a little bit light, but again that High Velocity Systems area that we historically call Consumer is an area that doesn't have the impact to our earnings stream that people expect.

So part of the point of the slides that I went through was to begin to change the perspective about what drives profitability at Jabil and move it from, it is the hot product or the high revenue customers that you really need to watch and get back to what is really fundamentally happening under the hood.

Great growth in Diversified Manufacturing Services, differentiation, technology, innovation for customers that are in growing markets and our profitability streams are less dependent on top 10 customers and much less dependent on High Velocity Systems as a driver of growth.

I think that might take a little while for people to cross that bridge, but we really need to start changing the perspective on what is important to the Company's growth profile and what is important to the Company's earnings stream.

And then, Forbes, if you can talk a little bit about CapEx.

I believe it was about $154 million and I thought the outlook was closer to $100 million.

So it seems like that was a lot higher and then there was a comment made earlier that you think Green Point could double in 2011 and I just wonder does that create some pressure on corporate margins or how do you think about CapEx and Green Point ramping and the impact of the Company?

Jim, CapEx was $50 million or so above the guidance I had provided and that is predominantly tied to the second comment there around -- we made reference to Green Point operations doing particularly well.

So there was some additional investments in overall infrastructure there on capability in the quarter that we accelerated a little bit.

But the key point here is that these investment dollars have been targeted at the Diversified Manufacturing Services as really a smaller line of the business going forward.

Continued infrastructure building, continued capability built-out in these particular areas with some focus on the Green Point capability as we continue to grow that into fiscal '11.

And what I will plan to do and I did it this quarter is provide you some more granularity around the (inaudible) capitals are being spent and that is appropriate as we diversify the income stream and revenue stream and one would expect to see the majority of those dollars generally over an annualized period being focused in that Diversified Manufacturing Services organization with more spotty type investments in our High Velocity area there where there will be more replacement type assets and also in our Enterprise and Infrastructure organization.

So overall, we are comfortable with those CapEx levels and as we move through fiscal '11, (inaudible) in the $900 million to $1 billion EBITDA, CapEx levels in that $300 million, $400 million type level, we certainly feel very, very good about producing free cash flow within that 25% to 35% level of EBITDA through fiscal '11.

Great.

Thank you very much, gentlemen.

Operator, we need to finish the call by 9.30, so we will go onto our next call.

[Will Fine].

Thanks.

Good morning.

I am wondering, Tim, if you can talk about the Diversified Manufacturing Services segment a bit.

In particular, the competitive dynamics I think there are a little different from the other segments and the set of players, the set of competitors are different.

I think the value proposition is a little different to customers.

Can you talk a little bit about the competitive dynamics and also Jabil's value proposition relative to others in that space?

Sure, it's a great question, Will, So first of all, what do customers want in that segment?

I mean in particular in areas like healthcare, they need high quality and that is absolutely the number one attribute they are looking for in a supplier is quality level.

Well, (inaudible) technology innovation and we see that show up a great deal in Jabil Green Point for instance, but also in areas where we provide real value engineering services.

And I mentioned again the portable ultrasound product for a top three healthcare company is a real exploitation of the deep technology and capabilities we have.

What else do they look for?

They look for know-how.

How do we penetrate these markets?

How can I establish a presence in India or in Southeast Asia?

How can I get this product launched?

How can I localize the supply chain?

Help me understand what is going to happen with currency changes.

What if wages do continue to escalate in China?

Is that really the appropriate place for me to be?

What else do they want?

What about reverse logistics.

Now that I am managing products all over the world, how can I better manage my repair infrastructure, my reverse logistics, how could I manage environmental concerns?

They are looking for very, very high integrity corporate social responsibility systems in place and we think that is going to become more important in the future, not less important.

So it is a different -- it is a different chemistry than what is typically needed.

It is a very diverse segment with a lot of different customers and customer needs there.

You are right in pointing out that the competitors that we face in that business need to be able to manage very high mix, low-volume products.

They need to be expert at new product introduction.

They need to have a presence around the world.

They need to have great IT systems.

They need to have a good customer management model.

They need to have financial systems that can really give them visibility into what is happening in terms of profitability.

So we think that is a relatively small set of competitors, potential competitors and we really like our competitive position.

And the trend towards globalization and international markets and where brand OEMs can look for growth in the world isn't going to change anytime soon.

It is going to be about emerging markets and maintaining your presence and your position in North America and Europe, but really penetrating these emerging markets and I think our ability to help customers do that is unparalleled.

Great.

And then one follow-up if I can.

I think you guided the Enterprise and Infrastructure, this new segment, down about 2% sequentially.

I think that is -- if I look at the old end markets or the end markets that have -- that would go there -- I think this is a little bit below normal seasonal.

Can you correct me if I am wrong and maybe give us some idea of which of the end markets within that -- within this new segment might be stronger or weaker going forward?

So the Enterprise and Infrastructure, it is actually looking back over the last four or five years, it is down to one of its lowest levels of sequential decline.

So that is really (inaudible) being caused by our divestiture, particularly in France, of our sites there.

Those sites were predominantly focused on Enterprise and Infrastructure type products.

That accounts for about roughly $75 million to $80 million a quarter.

But typical seasonality, if you call it that, as we move into the November quarter, ranges anywhere between 2 and 7 points over the last few years.

So overall pretty much as we had expected with the divestiture of our sites in France and Italy.

It's a fair call those are telecom-focused sites?

I think you acquired those a few years ago.

Am I thinking of the right customer?

Yes.

Yes.

Got it.

Thanks very much.

Sherri Scribner.

Hi, this is Kevin Lebuzz calling in on behalf of Sherri Scribner with just two quick questions.

The first is you had mentioned that seasonality would be different moving forward (inaudible).

Do you have any guidance or ways to think about that aside from just that it would be more moderate?

We don't have any core metrics to share with you since the growth of Diversified Manufacturing Services and maintaining a very strong position in Enterprise and Infrastructure that significantly dilutes the most volatile parts of the High Velocity Systems and even within High Velocity Systems, the most volatile consumer products that we have historically built have been home entertainment systems and TV displays.

That is a very, very small part of our business.

We don't do any home entertainment products at all today and the displays business is declining quite a bit.

So even within High Velocity Systems, I would look for that to be a little less seasonal than historical.

And I think the real message that we are trying to deliver is that, again, I refer back to how is profit driven in our Company and where does it come from?

We have a much lower level of dependency on top 10 customers, a dramatically lower level of dependency on performance in the High Velocity Systems.

In particular, if you look at I think it was slide 24, 25, in terms of the 10 largest customers, much improved diversity in terms of where profit comes from.

So to the extent investors are more concerned with earnings than they are with revenue, which I think they are, I think the level of risk and volatility will be attenuated.

There will still be some seasonality to our business and analysts should think about the February quarter showing some seasonality, but I think to a much lesser degree certainly than you have seen over the last three or four years.

And if I could follow up just quickly about the last question on Enterprise and Infrastructure, I noticed Cisco came out during their last quarter and they kind of said -- they sounded cautious about the funding environment going forward.

But from the answer to the last question about it, you made it seem like it was just about the divestitures in Italy and France.

So are you seeing normal demand there or what are you seeing in that segment?

In Enterprise and Infrastructure?

Yes, correct.

Pretty stable.

Pretty stable demand.

Yes.

Alex Blanton.

Hi, good morning.

It's Ingalls & Snyder.

Tim, could you, or Forbes, just clarify that statement you made about the doubling in Green Point?

Is that a doubling in absolute revenue contribution to the Company as a whole or is it just -- or is some of it replacing components that you might have been buying outside?

No, it is external revenue.

That is a good question, and it is a doubling in the absolute size of the revenue stream and externally built revenue.

Okay, great.

Now, I would like to say your remarks about the hypermedia reporting resonated because your quarter got reported as a miss, even though it was within your guidance and it happened to be 8/10 of 1% below what essentially are guesses as to the consensus.

And there was very little focus on the fact that it was 38% above the year before and the same thing goes with the first quarter.

Your guidance is 26% to 30% increase in sales and yet the media reported that, oh, you were below consensus by about 2%.

So I think the reporting of any of the reporters listening to this could improve, but what about the full-year?

If you reported 26% to 30% increase in the first quarter and revenue year over year, what does it look like for the full year and what is your kind of expectation going forward the next few years in terms of growth rate that you can sustain?

This has nothing to do with fiscal '11 because, Alex, we really can't provide guidance on fiscal '11 at this point.

But longer term, I think investors should look for 10% to 15% top-line growth, all on a consistent basis for the next five years with a higher level of growth in their earnings stream as we continue to structurally change the nature of the business.

I am glad you brought up the point about the reporting and the analyst community could do a great service to investors by making sure that it is understood they are not looking at our data.

Four of the last five quarters, we have actually been above the high end of guidance in core operating income and EPS.

And the one out of five, we have been at the high end.

So we live at the high end or exceeded guidance five of the last five quarters.

Three of the last five quarters, we have been at the midpoint of revenue guidance and two of the last five quarters, we have actually been above the high end of guidance in revenue.

So revenues declining is a -- and it is the most important driver of our profitability growth to be able to hit our target.

And I think it is a good point to bring out.

Yes, well, the media seems to focus on the analyst consensus rather than your guidance.

I think that is a mistake because, often times, the consensus is more or less a guess.

It is within your range, but I think that the media ought to compare it with what you said you would do, not with what the analysts think you might do.

And finally, are there any -- there has been a lack of emphasis in this industry in the last few years on individual wins and reporting wins and so on and you really haven't done much of that.

Is there anything you can tell us about specific business that you might have won or are the customers just refusing, as usual, to let you do that?

Well, customers are very sensitive, particularly big wins.

I mean customers continue to be very sensitive about that.

But I think a main point of walking through the business the way I walked through it, Alex, was to really make sure that it is understood that the level of dependency Jabil has on top 10 customers is dramatically declining.

And the business is big enough now that wins and losses and that kind of stuff on their own in isolation really don't matter.

And it is back to kind of the big picture, what are you doing in terms of broad markets and broad capabilities, your cost structure and how -- what kind of shape is your ship in relative to the rest of the market.

And quarter to quarter, these fluctuations and headlines around mobility customers or enterprise customers and what their CDOs may have said and may not have said and what that means to us, it really doesn't matter like it used to matter.

People still have the mentality of five, six, seven years ago and it is just not as meaningful as it used to be.

Thanks.

Thank you all for joining us on the call today.

We look forward to continuing to sharing the Jabil story with you and following up as necessary.

Thank you.

This concludes today's conference call.

You may now disconnect.