捷普科技 (JBL) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Jabil fourth-quarter 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. I would now like to turn today's presentation over to Mrs. Beth Walters, Senior Vice President of Communications and Investor Relations. Please go ahead, ma'am.

Thank you. Welcome to our first quarter of 2012 earnings call. Joining me today are our President and CEO, Timothy Main, and 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 investor section. Our fourth quarter press release and corresponding webcast slides are also available on our website. In these slides you will find the financial information we cover during this conference call.

We ask that you follow our presentation with the slides on the website, and beginning slide 2, our forward-looking statement. During this conference call, we will be making forward-looking statements, including those regarding anticipated outlook for our business, our currently expected first quarter of fiscal 2013 net revenue and earnings results, our long-term outlook for our Company, and financial performance. These 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, 2012, 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 our fourth quarter and full fiscal year 2012 results, highlights, and comments from Forbes Alexander, as well as guidance on our first quarter of 2013. Tim Main will follow on with macro environment and Jabil-specific comments about our performance, our updated long-term guidance, and our current outlook. We will then open it up to questions from call attendees. As a reminder, we cannot discuss customer-specific programs and relationships, and will not be doing so on today's call. I'll now turn the call over to Forbes.

Thank you, Beth and hello everyone. I'd ask you to refer to slide 3. Net revenue for the fourth quarter was $4.3 billion, an increase of 1% on a year-over-year basis. GAAP operating income was $144.2 million, or 3.3% of revenue. This compares to $165.5 million of GAAP operating income on revenues of $4.3 billion, or 3.9% for the same period in the prior year. GAAP diluted earnings per share were $0.39.

Core operating income, excluding amortization of intangibles, stock-based compensation, and a distressed customer charge, decreased 6% to $175 million, and represented 4% of revenue. This compares to $187 million, or 4.4% for the same period in the prior year. Core diluted earnings per share was $0.54, a decrease of 13% over the prior year. Please note that our GAAP operating results were negatively impacted by approximately $5.9 million during the quarter, as a result of charges taken connected to our solar business. These charges were isolated with one customer. Given the very difficult industry conditions, we are operating with an abundance of caution with any solar or solar-related opportunity, with strict contractual operating agreements in place.

I'd now ask you to turn to slide 4. In fiscal 2012, net revenue was $17.2 billion, an increase of 4% on a year-over-year basis. GAAP operating income increased 7% to $622 million, representing 3.6% of revenue. This compares to $579 million of operating income on revenues of $16.5 billion, and 3.5% of revenue in fiscal 2011. Diluted earnings per share was $1.87, an 8% increase over the prior year. Core operating income excluding amortization of intangibles, stock-based compensation, loss on disposal of subsidiaries, settlement of receivables and related charges increased 3% to $736 million, and represents 4.3% of revenue. This compares to $715 million or 4.3% for the same period in the prior year. Core diluted earnings per share was $2.40, an increase of 3% over fiscal 2011.

I'd now ask you to turn to slide 5, where I'll discuss our fourth-quarter segment performance. In the fourth quarter, our Diversified Manufacturing Services segment grew 14% on a year-over-year basis, driven by continued strength in Specialized Services, growth in Instrumentation and Healthcare, offset by softening of demand in Defense and Aerospace, and Industrial and Clean Tech. Revenue for the segment was approximately $1.9 billion, representing 45% of total Company revenue. Core operating income declined in the quarter to 5.3% of revenue. Our core operating income results were negatively impacted by a challenging ramp within our Specialized Services sector, and lower income levels in certain Diversified Manufacturing Services programs.

The Enterprise and Infrastructure segment declined 5% on a year-over-year basis. Revenue was approximately $1.3 billion, representing 30% of total Company revenue in the fourth quarter. Core operating income for the segment was 2.4%, an improvement of 20 basis points on a sequential basis. We expect to see continued positive progression during the course of fiscal 2013 with regards to operating performance. The High Velocity segment decreased 10% on a year-over-year basis, driven by continued weakness in handset volumes. Revenue was $1.1 billion, representing approximately 25% of total Company revenue in the quarter. Despite large declines in our handset business, core operating income for this segment remains at 3.8% of revenue.

I'd now ask you to turn to slide 6 for a discussion of our segment performance on a yearly basis. In fiscal 2012, our Diversified Manufacturing Services segment grew 24%. Revenue was approximately $7.5 billion, representing 44% of total Company revenue. Core operating income was 6.1% of revenue for the full year. The Enterprise & Infrastructure segment decreased 2% in fiscal 2012. Revenue was approximately $5.1 billion, representing 29% of total Company revenue. Core operating income was 2.1% for the full year. Our High Velocity segment decreased 14%. Revenue was approximately $4.6 billion, representing 27% of total Company revenue. Core operating income was 3.8% for the full year. Total Company revenue grew 4% with core operating income for the year at 4.3%. For the full fiscal year, there were three 10% customers, Apple, Cisco and RiM, and for fiscal 2013, we currently expect to have one 10% customer within our Diversified Manufacturing Services segment.

I'd now ask you to refer to slide 7, where I'd like to review some of our balance sheet metrics. We ended the fiscal year with cash balances of approximately $1.2 billion. This cash balance reflects $443 million of cash flow from operations in the fourth fiscal quarter, $500 million of proceeds from our recent 4.7% senior unsecured notes offering, and the subsequent paydown of $240 million of revolver and subsidiary debt. As a result of our successful bond offering, net interest expense will increase by approximately $20 million, or equivalent to $0.09 of earnings per share in fiscal 2013, versus that in fiscal 2012. In the quarter, our inventory decreased by approximately 5% to $2.3 billion, while inventory turns remained at 7. EBITDA in the quarter was $263 million or $1.073 billion for the full fiscal year, representing 6.3% of revenue, a 20 basis point expansion over the prior fiscal year. For the year, we purchased approximately 3.2 million shares, totaling $71 million. $29 million remains available under this stock repurchase authorization. Our GAAP return on invested capital was 22% for the full fiscal year.

I'd now like to take a moment on slide 8 to discuss our capital investments. Our capital expenditures during the fiscal year -- excuse me, our capital expenditures during the quarter were approximately $202 million, $481 million for the fiscal year. Of the $481 million, 70% was related to investments in our Diversified Manufacturing Services segment. Our fiscal 2013 expectations, the capital expenditures should be in the range of $400 million to $500 million, depending on levels of capacity and production. And consistent with fiscal 2012, 70% of this spend will be directed towards our Diversified Manufacturing Services segment. We currently expect minimum investments in our Enterprise and Infrastructure and High Velocity segments. For the first fiscal quarter of 2013, our capital expenditures are estimated to be in the range of $175 million to $200 million, depending on the timing of completion of our infrastructure and capacity expansions. Last quarter, I discussed expansion of our capacity within our Specialized Services sector. The additional square footage in Wuxi, China has been completed and shall be fully occupied in the coming weeks. As you will recall, we signed an agreement to establish a site in Chengdu, China. The first phase of this construction is anticipated to be complete late in the calendar year.

Referring to slide 9, I'd like to discuss our cash flows. We are pleased with our operating cash flow performance in fiscal 2012. Cash flows from operations for the fiscal year were $634 million, with cash flows after capital expenditures of $152 million. As a result of anticipated EBITDA expansions and continued working capital management, we currently estimate that cash flows from operations in fiscal 2013 will be $1 billion, with cash flows after capital expenditures in the range of $500 million to $600 million. From a liquidity standpoint, we are extremely well positioned to support the business with further investment, seek acquisitions that would enhance our capabilities in key areas, and return capital to shareholders via our ongoing dividend and stock repurchase programs. Our Board of Directors has authorized the repurchase of up to $100 million of shares during the next 12 months. This authorization is consistent with our fiscal 2012 actions to minimize the impact of equity issuance and diluted share count. I'd remind you that $20 million remains available on the previous authorization.

I'd now ask you to refer to slide 10, where we'll discuss our segment targets. Beginning in fiscal 2013, we feel it's appropriate to reset some of our long-term targets, to better reflect the current dynamics within our operating segments. The Diversified Manufacturing Services segment, we believe that 15% growth is an appropriate expectation on an organic basis. Our new core operating income target is 5.5% to 7%. For our Enterprise and Infrastructure segment, we are slightly reducing our core operating income target to 3% to 4%, with our revenue growth expectation for this segment being in the range of 0% to 5%. Conversely, we are increasing our core operating target for the High Velocity business to the 2.5% to 3.5% range, as a result of operational efficiencies and high levels of execution. Our revenue expectation for this segment is in the range of 0% to 5%. Tim will provide some further color regarding these targets in his section of the call. On an overall Company basis, we still believe a 5% core operating margin is obtainable and realistic, as the profile of our revenue continues to shift towards Diversified Manufacturing Services.

I'd now ask you to refer to slides 12 and 13 while I'll discuss fiscal 2013 and first-quarter guidance. We entered fiscal 2013 with the backdrop of a challenging macroeconomic climate. Consistent with our strategy, we remained well positioned to continue the growth momentum in our Diversified Manufacturing Services segment throughout the fiscal year. As a result, we would estimate year-over-year GAAP and core earnings per share growth to be in the range of 5% to 10% in fiscal 2013. For the first quarter of fiscal 2013, we estimate revenue on a year-over-year basis to increase by approximately 2%, in the range of $4.3 billion to $4.5 billion. GAAP operating income is estimated to be in the range of $140 million to $175 million, or 3.3% to 3.9% of revenue. GAAP earnings per share are expected to be in the range of $0.37 to $0.50, on a per diluted share basis. The diluted share count, 212 million shares. Based on current expectations, the GAAP tax rate is expected to be 28%. Core operating income is estimated to be in the range of $170 million to $200 million, and core operating margin in the range of 4% to 4.4%. Our core earnings per share are estimated to be in the range of $0.51 to $0.62 per diluted share. Based on the current estimates of production, the tax rate on core operating income is expected to be 22% for the fiscal year.

Finally, turning to our segments, and year-on-year performance, the Diversified Manufacturing Services segment is expected to increase 12%. Enterprise and Infrastructure segment is expected to increase 14% on a year-over-year basis and finally, our High Velocity segment is expected to decline 24% on a year-over-year basis. I'd now like to hand the call over to Tim Main.

Thank you, Forbes. I'll take a few minutes to discuss fiscal Q4 results and near-term outlook. I will then pull back to a more macro view to address our long-term growth and margin range changes, and our thoughts behind those changes.

We are disappointed with our income and margin performance for the fourth quarter. We are ramping a large-scale, complex program within our materials technology group. Although we expected challenges with the program during the start-up phase, quality and efficiency levels lagged behind our assumptions for the quarter. We intentionally widened our guidance range for fiscal Q4 2012 in order to accommodate some expected inefficiencies during this ramp. For fiscal Q4 2012, our mix shift was also unfavorable, as revenue was lower than expected in Diversified Manufacturing Services and higher than expected in High Velocity. Finally, income levels in certain DMS programs notably in defense and Clean Tech were lower than expected.

We are very pleased with our cash flow performance for the quarter and for the year. We produced $442 million of cash flow from operations and $240 million of free cash flow in our fourth fiscal quarter. For the year, we produced $643 million in cash flow from operations, more than adequate to cover our capital expenditures and return $136 million in capital to shareholders. We're also very pleased to reduce inventory levels by over $100 million in the fourth quarter. As we reach more mature levels of production on new programs, and as the balance of the business is stable to improving, we would expect operating income levels above $200 million per quarter in the second half of fiscal 2013. We would expect this to result in our fourth consecutive record year for Jabil in fiscal year 2013.

Turning toward our longer term outlook, we believe this is an appropriate time to review our long-term growth and margin targets for our three business groups. Looking back over the past three years, actual performance to our strategic plan has been very good. From fiscal year 2010 through fiscal year 2012, the Company has grown revenue and EPS at a compound annual growth rate of 13% and 55%, respectively. In Diversified Manufacturing Services, from fiscal 2010 through fiscal 2012, we have posted a compound annual growth rate in revenue of 33%, while earning margins in the targeted range. In fiscal 2010, the DMS business was $4.2 billion in revenue. By 2012, we expanded the business by $3.3 billion to a total revenue level of $7.5 billion. DMS now comprises 45% of our total business, and is our largest sector by far.

So with that success, why change targets? For one, we are working from a much larger revenue base, and we've learned a few things about growing this business, particularly in highly complex areas such as healthcare, for example. Balanced growth requires significant investment in engineering, design, quality, resources and capabilities. Our growth platform is premised on genuine differentiation, driven by unique capabilities. We will expand our capabilities and make the investments necessary to grow with a long-term view.

Over the next few years, that could mean brief periods at the low end of the new margin range, followed by periods where we have a realistic opportunity to perform at the high end of the margin range. Because we are working from a larger revenue base, and because individual program wins tend to be small with long gestation periods and very long product cycles, we will target a 15% organic growth rate. You can expect us to make strategic acquisitions in this area, which could periodically drive growth above 15%. One note of exception to this formula is our Materials Technology Group. MTG remains poised for robust revenue growth above the 15% target for DMS. Growth will come from its core mobility business as well as expansion into Healthcare and other strategic markets and initiatives.

Turning to Enterprise and Infrastructure, for the three-year period from fiscal year 2010 through fiscal year 2012, we have posted a compound annual growth rate of 7.4%. More recently, margins have come under pressure, partly from poor performance in Europe and more recently slowing momentum and growth. It appears to us that this business is undergoing fundamental change. Businesses and governments are spending less on hardware, and more on services and functionality. The reasons behind this go beyond the soft global economy and budget constraints. Computing power, bandwidth, hardware and technology have all advanced a great deal in recent years, further reducing the need for hardware spend. The movement to cloud computing is real and will continue. We believe Jabil will continue to play an important role with the world's best customers in this business area. If spending picks up, I think we would outperform the market, but with lower growth rates and standardization comes commoditization and lower margins.

Our expectations are similar for the High Velocity sector. Again, I would expect Jabil to continue to play an important role with strategic customers in this area. In 2010, this business operated with a margin profile of 1.2%. By focusing on lean manufacturing, new engagement models, and focusing on fewer key customer relationships, financial performance improved significantly. We believe that improvement's sustainable over the next few years. Our growth and margin expectations for High Velocity and Enterprise and Infrastructure are converging into a similar range. We think this will be the natural direction for traditional EMS markets over the next few years.

In the E&I High Velocity sectors, we expect to drive strong cash flow and financial returns appropriate to risk. We will certainly focus intently on lean manufacturing, operational performance, service excellence and key customers. Over the next three years, we will see Jabil move deeper and more aggressively into our DMS markets. If we continue to deliver on our strategic plan in this area, Jabil should continue to set the bar for our industry. We will focus less on top line, and more on the quality of growth and bottom line performance. For the Company overall, delivering on our promise of quality, long-term growth will further strengthen the business, and make Jabil a better supplier, employer, customer and investment.

Operator, we are ready to now take Q&A from our call attendees.

Your first question comes from the line of Brian Alexander with Raymond James.

Could you just provide more color on the revenue range required to get to your EPS target of 5% to 10% growth for fiscal 2013, and specifically, whether you expect to see operating margins expand, and if so, would that be more in the back half of the year?

I think if you applied the new growth rates that we've given you at kind of the midpoint, Brian, that would give you some guidance into the mid-$18 billion range. We're getting off, maybe to a little bit softer start, so I think your revenue levels would be a little bit light of that, based on the current macro environment and that kind of thing. So kind of look at it that way. I think from a margin expectation standpoint, again, we're starting off with a bit of a slow start in the first fiscal quarter in particular, as we're still handicapping in some under-performance in Specialized Services, and continuing to mend our E&I performance in some of the other business areas. But as I said in my prepared remarks, I don't think we're far from quarters where the Company's earning well above $200 million per quarter in operating income.

So the back half of the year looks very good on similar to slightly up revenue levels. Again, we started 2012 and went back and looked at the prepared slide presentation for 2012 at the outset. We called for moderate revenue growth in fiscal 2012. We got that and a little bit more. We started the year expecting a little bit better revenue growth than what we put up, but we think looking at fiscal year 2013, given the growth opportunities we have in DMS, and really resetting the bar to a macroeconomic environment that we expect to continue to be somewhat lackluster, we think a 5% to 10% growth is very, very doable for us.

And then on DMS, I know you can't talk about specific programs, but how comfortable are you that DMS margins bottomed in the August quarter, and how should we think about the progression from here? Thanks.

Well, I think we moved back towards 6% pretty rapidly. I don't know that we'll be there in Q1. We're still handicapping in some underperformance from DMS in Q1, but as we get into Q2, Q3 and Q4, I would expect us to be back in that 6%-plus range.

Okay. Thanks a lot.

Your next question comes from the line of Amit Daryanani with RBC Capital Markets.

I wanted to ask a question on the DMS margin as well. Could you maybe talk about if all the 120 basis points of degradation you saw in that segment on a sequential basis, was that all driven by the yield issues or were there other factors at play as well?

The way I'd handicap, not looking at that segment in particular but the Company overall, I think at a $4.3 billion revenue level, you would have expected us to be between $195 million and $200 million in operating income, so walking back down from that level, call it about $10 million to $15 million due to the Specialized Services ramps, some inefficiencies associated with that. About $5 million associated with the mix change, negative mix change. Diversified Manufacturing Services revenue was down, and High Velocity was up from expectations. So we called for a 17% increase in Diversified Manufacturing Services, and we put up 12%. We called for a 22% decline in High Velocity, and it only declined 10%. So negative mix change there, another $5 million. And then Forbes mentioned some poor profitability in particular areas, particularly Clean Tech, which has been soft with cutbacks in government spending. That's solar as well as some other areas, and defense and aerospace has been underperforming, so that's another 5. So that accounts for the $20 million to $25 million of lack of margin performance.

That's very helpful. If I just look at the DMS sector outside of Specialized Services, the Industrial and Healthcare segments, I think they both were up about 3%, 4% year-over-year in 2012. Could you talk why did you see such muted growth in these segments, and are you comfortable in the expectation of achieving higher, potentially double-digit growth within those segments in fiscal 2013?

Our Industrial and Clean Tech market incorporates solar, and the year-over-year revenue level was negative and declined over the course of the year. Purely industrial areas of the business grew in the low double-digit and so it was actually a lower growth year than we've had historically, but we're really comfortable with our progress there and think the industrial area continues to be a very attractive area for us. I think longer term, Clean Tech, if it doesn't include solar, Clean Tech will continue to be all the energy-related -- areas of industrial and energy, will continue to be attractive as well.

And then just finally, the $10 million, $15 million ramp-centric headwinds, I think your statements essentially imply that headwind will get smaller in Q1, and should be fairly neutral by the time you get to Q2, Q3 time frame. Is that the right way to think about that?

I think we should exit Q1 with much better results. Difficult for us to tell at this point how much recovery we'll get in Q1, and I think by Q2, we should be out of the woods.

Fair enough. Thanks a lot.

Your next question comes from the line of Craig Hettenbach with Goldman Sachs.

Tim, on the E&I business, understanding that it's slower growth and that's going to impact margins over time, any other levers to pull or strategies to potentially put in place, maybe parallels to what you did in the HVS side of the business that might be able to help E&I margins over time?

Yes, I think it's -- I indicated that a little bit, Craig, in the prepared comments, but a little bit of a convergence between High Velocity and Enterprise and Infrastructure in terms of the market pressures and forces. They are very different businesses, Enterprise and Infrastructure is much more complex in terms of the services that we provide, order fulfillment, very complex logistics, very complicated products in some cases, a little bit higher mix than High Velocity. But that said, seems to be kind of moving in the same general direction in terms of a traditional EMS marketplace. And we'll apply the same kind of playbook that we used to improve profitability in High Velocity, focus on key customers, cut back on non-value-add resources and investments that you, at one time, thought were strategic but customers don't actually use or want. Really focus on lean manufacturing, plant consolidation, the types of things that turned High Velocity from a sub-2% business to a plus-3% business. And I think we're on that path.

Enterprise and Infrastructure is also a little bit more material intensive. The products are more expensive. There's more material flow through the products so the return on value-add is still pretty good. But Craig, I think that's the right way to look at it, is that we applied a playbook to High Velocity that we can also apply to Enterprise and Infrastructure, even though that's a little bit more complicated business area by its nature.

Okay. And then just a follow-up on HVS business. With the weakness in handsets, besides that, can you just talk about the health of the business that you're seeing in HVS, and any potential growth drivers into fiscal 2013 by segment?

Business overall is pretty healthy. We have businesses in point of sale systems, in printing, set-top boxes, automotive has actually been a bright spot for us. We're seeing pretty good growth in automotive today with great quality and great results and high levels of customer satisfaction, so that's an area that we actually think we can grow. But overall, those business areas will not show robust growth in terms of end market activity, especially when you get into areas like set-top boxes, there's some exposure there. So I think a 0% to 5% type of growth rate is appropriate. The printing business is very solid, great customer relationships there, so that feels pretty stable and pretty strong.

Okay. Thank you.

Your next question comes from the line of Shawn Harrison with Longbow Research.

Just wanted to ask about DMS again, maybe in a different -- thinking about it in a different way. The all-in growth is low single digits sequentially. Are you expecting negative growth near term, continued within the non-specialized businesses on a sequential basis or is it more just flat going forward?

I think that what we'll see is growth in Healthcare and Instrumentation, and Industrial and Clean Tech over the course of fiscal year 2013, if that's where you're going with that question. Specialized Services will definitely pace growth for DMS throughout fiscal year 2013 the way it looks to us, but I think we'll get recovery in growth, higher levels of growth, particularly in the back half of fiscal year 2013 in the Healthcare and industrial areas.

Okay. But the first two quarters of the year relatively soft growth?

Relatively soft growth, yes.

Okay. And then just as a follow-up on the E&I business, you went through a lot of things, Tim, in terms of just improving the overall efficiency of the business but I didn't hear of maybe any manufacturing consolidation efforts, other than I know the one that I guess is in place. Is there something that could be on the horizon in terms of that, and do you think by the end of the fiscal year, you would be within the margin target laid out today for the business?

I think by the end of the fiscal year, we'll definitely be in the margin target. We presently do not anticipate any major plant restructurings or rationalizations to improve the profitability there. Okay. Thanks so much.

Your next question comes from the line of Steven Fox with Cross Research.

Two questions. First of all, just going back over the MTG ramp that you were talking about. Relative to where you thought it would be, how much is the inefficiencies caused by the actual scale of the ramp versus, say, issues within actually producing the component? And then within that, Tim, what is your confidence level about getting the margins to where you thought they would be, say, three months ago, what has to go right, and what do you have to fix? Secondly, Forbes, you're talking about $1 billion of cash flow from operations versus the $660 million you just did on like 5% to 10% of earnings growth. What else foots to the $1 billion, is it easier comparisons or better working capital turns, et cetera? Thanks.

Yes, sure. So in terms of the first part of the question, I don't want to get too close to the sun in terms of talking about individual programs, but it is both scale and complexity but we're pretty good at managing scale so the complexity of the product is probably a bigger element. I feel good about the progress that's being made, but realistically, it's going to take us over the course of the first fiscal quarter to really determine whether or not we'll master the process to the level that will drive targeted margins, and we've baked in some of that uncertainty into our forecast. So we've been through this before now a couple of times, and I believe that we'll make it happen, but it is a significant scale, and probably one of the more complex products that we've ramped in the Company.

And with regards to your cash flow question, yes, we do anticipate $1 billion of operating cash flow next fiscal year, based on our current estimates. And as I said in the prepared remarks, we would expect earnings per share, without diving into specific guidance on core operating income, but earnings per share growth somewhere between 5% and 10% in fiscal 2013 over 2012. So that implies an expansion in margin, expansion in EBITDA in fiscal 2013 over 2012, which brings additional cash flow. In addition to that, it's continued focus on our working capital management. If you look at fiscal 2012, our inventory performance was pretty poor overall. Its was very pleasing to see the $100 million come out in the fourth quarter and with continued focus I think we can improve our inventory performance by certainly a couple of days as we move through fiscal 2013. So I think continued expansion in EBITDA and inventory performance in 2013 gives us a real great shot of $1 billion in operating cash flow.

Great. That's very helpful. Thank you.

Your next question comes from the line of Wamsi Mohan with Bank of America.

Tim, can you perhaps talk conceptually about the differences in the ramp in Specialized Services this time versus last? Clearly, you alluded to it being a more complex product this time, the margins in DMS at 5.3% versus 6% last time. Should we not think that, as you build something more complex, that you are getting paid better for that product complexity that you're able to deliver? I'm just trying to reconcile that with the longer-term move down in DMS segment margins. Thanks.

Yes, I think in terms of DMS margin profile, we are not telegraphing hyper-competitiveness in that segment. In fact, I think we're pursuing areas where higher levels of differentiation are possible for us, and doable for us in Healthcare and Industrial and some of the other areas. We've taken a look back over the last few years and we've operated in the range of 6% to 8% but at the low end of that range. So having -- continuing to have 8% as the upper level seems a little bit forced, and frankly, we want to go out and aggressively grow this area, and as I outlined in the prepared remarks, Wamsi, we've learned a few things in terms of the level of Infrastructure that it takes, the engineering expertise that it takes. It's a lot of small programs in Industrial and Healthcare that you need to win and we don't want to impede the business development prospects that our people have to aggressively grow the business.

So the 5.5% bottom end of the range isn't telegraphing competition, price, they're not getting paid. It's telegraphing that's a very acceptable margin level in that business and telegraphing that we're going to go aggressively grow and get deeper and deeper into the EMS areas, and really look for more balanced growth. Our growth has been primarily driven, particularly in the last 12 months, by Specialized Services. We want to see better growth in Healthcare and Instrumentation, and Industrial, and we need to balance that growth out across all three of those sectors. So we're going to aggressively pursue that.

And frankly, I think at a 5.5% to 7% range, 8% may not have been achievable previously. I think we have a reasonable shot at driving the business to, in certain periods, closer to 7%. I think Forbes outlined that given the mix that we have here between E&I, High Velocity and the DMS margin structure, the Company can still put up a 5% operating margin at the type of growth rates that we're talking about, so we still feel very good about that, and our operating margins at 5% would be significantly above -- we would be Best-in-Class, our 6.3% EBITDA margins are already a couple hundred basis points against similarly-sized companies in our industry. So we're going to continue to really focus on margin expansion, cash flow generation, EBITDA margins, and really running a really healthy business.

Thanks for the color. Appreciate that. And Forbes, perhaps you could tell us in the fourth quarter how much revenue was there from the three 10% customers in aggregate and individually?

I don't have that at hand but in the fourth quarter, I believe it was one 10% customer.

Okay. Thank you.

Your next question comes from the line of Amitabh Passi with UBS.

Tim, first question for you, just on your E&I segment, you're guiding to 14% year-over-year growth. I think your long-term target is 0% to 5%. Should we assume 0% to 5% for fiscal 2013? And if that's the case, that would imply quite a bit of deceleration in the back half, so I just wanted to understand what's driving the strength in your first fiscal quarter and then how should we think about the progression through the rest of the year?

I think it's kind of an easy compare in terms of buckets. There will be some deceleration in growth over the latter half of the year, but there's not a lot outstanding. Gets a little bit tough when you're looking at year-over-year numbers. I don't think the -- sequential performance is not quite that dramatic, 3% growth on a sequential basis. So not huge growth.

Okay. And then maybe if I can just follow up, just the operating margin ramp for E&I, how should we think of that progressing through the rest of the year and then just on HVS, what takes you back to the 2.5% to 3.5% range?

Well, we don't have a margin progression for E&I. I think we'll continue to see progress there. We provided that for the last couple of quarters, and frankly, we missed the mark and so we're going to have to have some more diligent work there, and I think we'll make continued progress and by the end of the year, certainly be in the targeted range of 3% to 4%. I don't think there's anything extraordinary, Amitabh, that we would expect. High Velocity margins to plummet from where they are today to 2.5%, but these are long-term targets and we're handicapping in potential changes in mix, not that we think they're going to happen, but they could. If, for instance, if mobility EMS revenue took off and made up a larger percentage of the overall High Velocity business, that could have the impact of reducing margins. If things stayed as they are today, then we would expect to continue to operate in that range. We don't think it's realistic to think that the High Velocity business area overall will stay at a 3.8% level, even though we've successfully done that all year, I don't think it's realistic to think that's a sustainable level long-term.

Okay. Thank you. Appreciate it.

Your next question comes from the line of Matt Sheerin with Stifel Nicolaus.

A question on your DMS, specifically the industrial and the solar customers. You talked about a charge last quarter from one of your distressed customers. Looking at that space, and I know you've talked about having some controls in place, and being more -- perhaps more disciplined as you bring in more business, but looking at that space, do you see anything on the horizon in terms of other potential issues there?

No, I don't see potential other issues. It's a very difficult space. During the last three or four quarters, last two or three quarters, a lot of -- I'm talking particularly about the solar space, I think a lot of OEMs really struggling on a global basis, be they European, Asian or North American domiciled. So it's a tough marketplace and as I said, we are changing our operating model to some degree in many of those relationships, and being very, very cautious as we look into 2013 about further engagement in that space, until we see a return to, frankly, financial performance and growth from these OEMs.

The ironic thing is that panel volume is exploding. It's just -- it's really -- I think last quarter, the last 12 months have been a record by a significant degree in terms of shipments. But the industry's going from what was kind of a techie start-up, lots of capital flowing into the business, so lots of start-up companies in the industry, to a very concentrated business that was attacked aggressively by particularly Chinese suppliers and really drove pricing down and poly silicon is in plentiful supply, and the pricing has dropped.

I think long-term, to the extent that we can maintain the manufacturing capability and the process capability, that we'll be able to have a profitable business there longer-term. But we're going through this transition where these -- last five years ago, when all of the money really flowed into solar, these kind of techie start-up companies are just going out of business. They don't have the capacity, the scale, the investment to hang in there. So we're going through a transitioning customer base. I don't think that we have -- the way we look at it today, I certainly couldn't promise you that we won't have any more but we don't see any additional charges like that on the horizon. Hopefully we'll be able to keep that manufacturing capability together and do business with successful companies in the future, because the overall volume in that business is still increasing.

That was helpful. And then on the High Velocity business, where you had that better than expected quarter, did that come from any one specific customer? Was it across the board? I know you've got some incremental revenue, or potentially from a customer that has disengaged with some of the other EMS players. Was that part of it too?

Yes, that's the primary story. We forecast it to be down 22%. It was down 10%, something like that. So that was really the consolidation of our mobility business, which helped mitigate the down side in the quarter.

Okay. All right. Thanks, Tim.

Your next question comes from the line of Jim Suva with Citi.

Thank you there, and congratulations to you and your team at Jabil. Can you just maybe help me better understand one last time the difference between the year-over-year sales growth, both this quarter and the outlook with the year-over-year EPS decline, when you're supposed to be going after higher profitable businesses, solely attributable to this large ramp program, which seems like six months is a long time to resolve. Can you just help me clarify, you'd expect to see or hope to see, maybe it comes in the future, year-over-year sales growth with margin accretion and EPS growth?

I think we get to margin expansion and accretion and EPS growth, particularly in the back half of the year. It's unusual for a program to extend over two quarters. It's not really six months, Jim, it's really kind of an impact over a couple of quarters. I kind of ticked through the various elements of where you might expect us to be at a revenue level of $4.33 billion in Q4, and where we ended up, $10 million to $15 million in Specialized Services, because of the ramp, $5 million negative mix shift, $5 million in poor profitability in Defense and Aerospace and Clean Tech areas. We think that mends. We'll see where the mix shift goes and we think over the course of Q1 and certainly Q2, we'll hit targeted levels of efficiencies and quality in our Specialized Services group. So we would look for a rebound in margin performance, particularly in Q2 through Q4. Depending on revenue levels and levels of production, but we would look for rebound in margins over that period.

I'd also add, Jim, my prepared remarks I talked about continued capital investments this current fiscal quarter in the November quarter, so you know, we talked about last quarter, additional floor space being available. That is now available and in the coming weeks, we'll be laying down additional capacity to support these ramps. So that does extend the complexity, if you will, across a couple of quarters.

Great. A quick follow-up, maybe it's for Forbes. On the share count, I think I hear you currently say 210 million or 212 million. Does your EPS outlook for both Q1 and the full year include putting that stock buyback to work, or would that be additional upside?

So for the first fiscal quarter, Jim, it's 212 million shares. That does not include or contemplate usage of the $400 million of stock repurchase.

The increase quarter-over-quarter might just be some stock comp or something?

That's correct.

Great. Thank you, ladies and gentlemen, for your time. Thank you.

Your next question comes from the line of Sherri Scribner with Deutsche Bank.

This is Kevin LaBuz on behalf of Sherri. I just want to drill down into the E&I operating margins a little bit. If that business is at the low end of your long-term targeted range next year, so let's say it's flat, I'm wondering what do you think will happen to operating margins? What I'm interested in seeing is how much room you have on the cost side versus how much you have to see sales expand to get into that targeted range?

We're not counting on revenue growth to drive that improvement. We've lowered the revenue growth targets to 0% to 5%. That business is relatively stable, as you can see from the sequential growth rate from Q4 to Q1. So we think that business has bottomed out in terms of where it's been in the last year. I think in fiscal 2012, it actually contracted by 2% from fiscal 2011. That's in spite of some very significant market share gains that we enjoyed in Storage and some Infrastructure businesses, but the overall macro environment, as well as some of the things I mentioned and where hardware spend is going, more than offset those market share gains. But it looks like things have bottomed out there, and we look for a little bit -- very modest, 0% to 5% revenue growth over the course of the year. So the main lever there will be improving operational efficiency and performance.

All right. Thank you. And just on the large picture demand situation, last quarter you said demand was relatively stable. I believe you also said it was lackluster. It sounds like you downgraded your assessment of it this quarter. Just wondering what you saw between this quarter and last quarter that led to that new assessment?

New assessment in which area?

In terms of just general demand picture. It was stable last quarter, this quarter it seems like it's decreasing a bit. What are you hearing from your customers or what are you seeing?

I don't think there's much incremental change. The overall environment definitely softened mid-2012. I think you saw that reflected in our results and our outlook for Q3 and Q4, a relatively subdued outlook for Q1, although we are calling for revenue growth, $4.3 billion to $4.5 billion, which we'll take $100 million in incremental growth or $70 million, whatever it is, quarter-over-quarter. That's better than contracting. And there are really no incremental changes. There's just been no incremental positives, and in my experience, generally quarter-to-quarter there's a few negatives and a few positives, and they offset and things go on, just recently there haven't been many up sides. I don't think anything's incrementally changed though.

Again, I'm not pessimistic at all. I think the overall environment is relatively stable. When I look at our business geographically, Asia and North America have done reasonably well in this environment. Europe has been very poor, very poor. So to the extent Europe begins to bottom out, particularly as it relates to Enterprise and Infrastructure, then I think our business will be poised for some pretty good growth in fiscal year 2013. But we'll have to see how that turns out.

All right. Excellent. Thank you.

You have reached your allotted time for questions. I would now like to turn the floor back over to Management for any closing remarks.

Okay. Thank you very much for joining us on the call today. As always, we're available for follow-up calls or questions you might have on the quarter, the fiscal year, or our outlook. Thanks for joining us.

Thank you for participating in today's conference. You may now disconnect.