捷普科技 (JBL) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Jabil's first quarter fiscal year 2014 earnings conference call.

(Operator Instructions)

Thank you. I would now like to turn today's conference over to Beth Walters, Senior Vice President, Communications and Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to our first quarter of fiscal 2014 earnings call. Joining me today are CEO, Mark Mondello, 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 first quarter press release, slides and corresponding webcast links are also available on our website. In these materials, you will find the financial information that we will cover during this conference call. We ask that you follow our presentation with the slides on the website, beginning with slide 2, 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 second quarter of fiscal 2014 net revenue and earnings results, the financial performance for the Company, and our longer-term outlook for the Company. 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 link -- list of those risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2013, 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 opening remarks from Mark Mondello. We will then move on to our first fiscal quarter results, and guidance on our second fiscal quarter of 2014 from Forbes Alexander. We will then open it up to questions from all call attendees. I would now turn the call over to Mark.

Thanks, Beth. Good afternoon. I appreciate everyone taking time to join our call today. Before I begin, I would like to thank all of our people here at Jabil, thanks for their commitment and dedication.

As communicated in today's press release, Jabil has decided to sell our aftermarket services business to iQor Holdings for $725 million. IQor is a premier, global processing and technical support services company.

As we think about the next three to four years, Jabil 's strategy has management keenly focused on manufacturing. We look to expand our technical capabilities in an accelerated timeframe, resulting in even better and greater diversification.

Our AMS business, which today is heavily concentrated around depot repair for consumer electronics, should benefit tremendously from the complementary capabilities offered by iQor. The announcement of our intent to sell the AMS business reflects a diligent process, thoughtful long-term planning, and prudent negotiations. The end result is the selection of an exceptional buyer.

My belief is this strategic decision is in the best interest of our AMS employees, our customers, and most certainly in the best interest of our shareholders. The sale of this business illustrates management's willingness to capture value when a business is misaligned with our long-term corporate strategy, or simply worth more under different ownership.

I would now like to take some time to recognize our AMS team for their contributions. The team created and expanded this remarkable business over the past two decades. They delivered $1.1 billion in revenue to Jabil during fiscal year 2013. They provided 14 years of healthy cash flows, and they did all of this while taking great care of their customers. I want to thank each and every member of the team. I wish them the very best.

In addition to the anticipated sale of our AMS business, there have been two additional events which were unanticipated. Collectively, these three events will have a material impact to our fiscal year. The first unanticipated event was our disengagement with BlackBerry, which we announced during our earnings call in September. We moved swiftly, cut costs, and mitigated potential liabilities, all while maintaining an excellent working relationship with our customer. As we sit today, it appears that we will be firmly in the range of our previously announced restructuring. Restructuring, specifically related to this disengagement.

The second unanticipated event is related to demand changes in a segment of our DMS business. The impact resulting from the shift in demand, in and of itself is significant, but assumed to be temporary. We are well-positioned with this customer and our relationship is strong. We will reallocate assets and resources to different revenue streams for the same customer over the next two to three quarters. In doing so, we believe it is in the best interest of the business to leave a portion of the existing cost structure in place.

The fact that these three events have occurred nearly simultaneously has a significant impact to the absorption of our corporate cost structure, a multiplier effect, if you will. We simply cannot remove corporate cost fast enough to impact the next few quarters. Nor would it be prudent to do so, when considering the long-term outlook for the business.

As I stated during our recent Analyst meeting in Boston, not all of our businesses will deliver consistent results quarter-on-quarter or even year-on-year. My belief is, these businesses will deliver appropriate financial returns over the long-term. It is also worth mentioning that the key capabilities created within our DMS business, combined with our global scale are the catalysts which provide us the opportunity to participate in higher growth markets, markets such as intelligent lifestyle products and wearable computing.

Let me move on to other parts of our business. Our leadership team for enterprise and infrastructure continues to execute quite well, as seen by the 3% operating margin delivered in our first fiscal quarter. Overall, this business is well-diversified, and our customer relationships are in great shape. I would characterize outlook as stable and steady, as we navigate a macro environment that suggests continued caution.

In our high velocity segment, we see signs of optimism. The team continues to bring forward innovative solutions, while maintaining tight cost controls combined with exceptional execution. This recipe is delivering exciting new business opportunities, which will provide growth as we enter fiscal year 2015.

Last, but certainly not least, is our team in Cliinton, Massachusetts. Nypro continues to prove why their brand is so valuable. I could not be happier with the progress that is being made. We formed an outstanding service offering, and broadened our overall value proposition in the healthcare space. Our leadership team for packaging has an energy and passion second to none. Their long-term strategy is well-thought and highly achievable, providing tremendous opportunities over the next 18 to 36 months, opportunities in a packaging market which arguably is $50 billion to $100 billion in size.

Before I turn the call over to Forbes, I want to acknowledge that our guidance for Q2 is underwhelming and disappointing. As I mentioned in my earlier comments, we had multiple events occur within a very narrow band of time. In my opinion, Jabil's strategy is intact, and our long-term earnings power remains strong. We continue to maintain incredibly strong relationships with many of the most valuable and innovative brands in the world. With that, I will now turn the call over to Forbes.

Thank you, Mark. I would ask you to refer to slide 3 of our earnings presentation.

Net revenue for the first quarter was $4.6 billion, consistent on a year-over-year basis. GAAP operating income was $173 million or 3.7% of revenue. This compares to $170 million of GAAP operating income and revenues of $4.6 billion, or 3.6% for the same period in the prior year. Diluted earnings per share were $0.57 during the quarter.

GAAP earnings in the quarter included $21 million of restructuring charges, $8 million associated with the amortization of intangibles, and a positive impact of $25 million of income, reflecting the reversal of some $40 million of performance-based stock compensation expense, this as a result of the determination that vesting metrics shall not be met, and reflective of aligning compensation to Company performance.

Core operating income, excluding the amortization of intangibles, stock -based compensation, restructuring related charges was $177 million or 3.8% of revenue. Core diluted earnings per share were $0.51, core earnings per share being negatively impacted by an increased tax rate at 26%, based upon the geographic mix of earnings during the quarter, and expectations for the remainder of the fiscal year.

If you now, please turn to slide 4, for some discussion on our segment. In the first quarter, our diversified manufacturing services segment grew 5% on a year-over-year basis, as a result of the inclusion of revenue associated with our recent Nypro acquisition. Revenue for the segment was approximately $2.3 billion, representing 50% of total Company revenue.

I would also like to note that our newly-acquired Nypro business performed as we had expected. Core operating income for the segment was 4.9% of revenue. The enterprise and infrastructure segment decreased 6% on a year-over-year basis, reflective of the overall macro environment. Revenue was approximately $1.3 billion, representing 29% of total Company revenue in the quarter. Core operating income for the segment was 3% of revenue.

The high velocity segment decreased 5% on a year-over-year basis, strength in printing and set-top boxes offsetting reduced handset volumes. Revenue was -- excuse me -- revenue was $1 billion, representing approximately 21% of total Company revenue. Core operating income for the segment was 2.6% of revenue. I would like to remind everyone that given the continued wind down in our BlackBerry relationship, we expect the core operating margin on a go-forward basis in the segment to be negatively impacted.

If you would now please turn to slide 5, reviewing some of our key balance sheet metrics. We ended the quarter with cash balances of $769 million. That level has declined $130 million in the quarter, while cash flow from operations was $118 million.

Core EBITDA for the quarter was approximately $295 million or 6.4% of revenue, while core return on invested capital was 17%. We are off to a solid start with our cash flow from operations, positioning ourselves well for the remainder of the fiscal year.

For the full fiscal year, we would anticipate free cash flows, defined as operational cash flows less capital expenditures, to be in the range of $400 million to $500 million. Our net capital expenditures during the quarter were approximately $195 million, in line with my previous expectations. As I noted previously, our capital expenditures were front-end-loaded this fiscal year.

Capital expenditures for the balance of the year shall be muted, and total net expenditures for the full fiscal year are now expected to be approximately $250 million, at the low end of previously discussed ranges. I would also like to note that our Board of Directors has approved the repurchase of up to $200 million of our stock over the next 12 months.

I would now just like take a moment to update you, with regards to our BlackBerry relationship. The wind down of our BlackBerry relationship is moving forward in a positive and partnering manner, with significant progress made in mitigating and unwinding our working capital exposures. We expect to support BlackBerry through the first calendar quarter of 2014, and charges previously anticipated with this disengagement are expected to remain in the range of $35 million to $[85] million. $15 million of these restructuring charges, associated primarily with reductions in force were recorded in the first fiscal quarter.

Separate from these charges, we also incurred $6 million in the quarter associated with our broader manufacturing capacity realignment plan. For the second quarter, we expect total restructuring charges to be in the range of $25 million to $35 million.

If you now please turn to slides 7 and 8, I would like to discuss our second-quarter guidance. As a result of the announced intent to sell our aftermarket services business, commencing with the second fiscal quarter, all activity and results associated with this business shall be reported as Discontinued Operations. In addition, we shall no longer be reporting the sectors of industrial and energy, healthcare and instrumentation, or specialized services. These sectors will now be reported solely as diversified manufacturing services segment. We shall continue to provide some general high-level commentary on each of the end markets we serve.

All guidance we are providing and forward-looking discussions excludes any activity associated with the aftermarket services business. As a reminder, this business produced revenues in 2013 of approximately $1.1 billion, and operated within the long-term range of our DMS operating margin profile.

Guidance for the second quarter, we expect revenue on a year-over-year basis to decline approximately 17%, to be in a range of $3.5 billion to $3.7 billion. Core operating income is estimated to be in a range of $40 million to $80 million. Our core earnings per share will be in the range of $0.05 to $0.15 per diluted share, and our GAAP loss per share is expected to be in the range of $0.20 to $0.06 per diluted share. This is based upon diluted share count of 209 million shares.

Based on the current estimates of production, tax rate on core operating income is expected to be in the range of 25% to 30% in the quarter.

Turning to our segments and year-on-year performance, the diversified manufacturing services segment is expected to decline by 25%. Enterprise and infrastructure segment is expected to be consistent on a year-over-year basis. Finally, the high velocity segment is expected to decline 25% on a year-over-year basis, reflecting the wind down of our BlackBerry relationship, and typical, seasonal declines in other end markets.

In closing, I would like to turn to slide 9. Despite the reduction in our fiscal 2014 outlook, we still believe the targets we recently shared are achievable over a multi-year period. Jabil remains well-positioned, and our long-term strategic direction remains solid.

With our broad base of capabilities, we have an opportunity to grow our diversified manufacturing services segment at a rate of 8% to 12%, while generating operating margins in a range of 5% to 7%. The enterprise and infrastructure segment and high velocity segment are a growth opportunity in the range of 0% to 5%, while core operating income targets of 3% to 4%, and 2% to 4%, respectively, are very achievable.

Thank you, operator. We can now open the call for questions.

Before we begin, I would like to let all of our call participants know that in customary fashion, we will not be able to address any customer specific or product specific questions. And thank you in advance for your cooperation.

(Operator Instructions)

Your first question comes from the line of Wamsi Mohan with Bank of America Merrill Lynch.

Yes, thank you. You said a couple of times that were multiple factors that hit you at the same time. So I am curious, why are you doing this AMS transaction right now, when there are so many other moving pieces? And I have a follow-up.

Hello, Wamsi. Thanks, it is Mark. The issue for me is, is they are independent activities that happen to coalesce on us all at the same time. So it certainly wasn't planned this way and hence, the near-term impact to the Company. But I just strongly believe we have got a very good, strategic path. This AMS sale has been in the works for quite some time. We have had a long-term strategy -- I think I talked about in my prepared comments. I want the management focused on manufacturing. What we do for a living is, we build things. We are going to continue to aggregate capabilities that are similar to what many of you saw when we were up in Boston at Nypro, and our AMS team has done a tremendous job. We have owned that business since 1999, 2000, and the team has done a tremendous job. But as we move forward, I have a belief that you can only focus on so many things, and I want to our folks focused on building stuff.

I also think in the positioning of where the AMS business is today, I think for the employees, for the customers and whatnot, pairing this business up with the service offerings that iQor offers is really complementary. So I think in that deal, you kind of get one plus one might equal three. And again, some of the issues that happens in the near-term were unanticipated. I didn't feel righteous in slowing down the process for the AMS sale again. That has been in the works for quite some time. So unbeknownst us, everything would kind of collide in the business all at the same time.

Okay. Thanks, Mark. And of the follow-up there on DMS, you mentioned that you would look to reorient some of the assets. But re-orientating to me means that to a different program that you will be a net share gainer on the other program. What gives you the confidence that will happen, and what timeframe are you talking about in reorienting these assets? Thank you.

Yes, you're welcome. So I think I said in the prepared comments, it is a two to three quarter issue, and my confidence is based on the relationship we have with our customer. So again, I don't want to get into any more detail on that, and I know that is very unsatisfying, but we are well roadmapped, and we have a good relationship with the customer for which we will be redeploying the assets.

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

Hi. I am trying to I guess, bridge the gap from the EBIT generated this quarter to the midpoint of next quarter. If you could maybe walk me through, it looks to be three discrete buckets. So the AMS sale that by my back of the envelope math is maybe $20 million. But if you could talk about the BlackBerry impact in terms of the EBIT drag quarter-over-quarter. And then also, the DMS drag of the business falling off. And then I have a follow-up.

Yes, Shawn. So in very, very rough numbers, right? We, let me round the numbers, so I can do the math in my head. We posted the $180 million for our fiscal Q1. We are guiding the center point as $60 million in fiscal Q2. So let's take your math on AMS being $20 million. And then, we still had better than expected BlackBerry revenue in earnings in Q1. So let's take some of that out, and you are probably left with a number that is $85 million to $90 million, something like that as far as the GAAP. And then you do some math on DMS margins on a demand decline that we talked about. And I can't get into any details on that, but run some math on that and you end up with kind of a final delta. And the final delta that you are looking at, is really a combination of cost structure inside of DMS, and then corporate absorption. And I have a high degree of confidence that, again, all of that will get right-sized in relatively short order.

So you think within two to three quarters, you would be back to the same level of profitability within DMS?

I am not going to speculate on that, but do I think -- overall, do I think the business in two to three quarters is in good shape? I do.

Okay. And my follow-up was, was this a decision by the customer of changing, or was there an execution issue?

There was absolutely no execution issue at all.

Okay. Thanks, Mark.

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

Thanks a lot. Good afternoon. Maybe to just understand the DMS issue. Was it a market share loss from your side, or was it just the customer saying, I want product that you don't do, and but -- just hang on for three more quarters. When the new product comes out, we will use product B that Jabil manufactures? Is that generally what happened? And if that is the case, maybe I don't understand, but why would you want to take $85 million or $90 million of quarterly losses for the next two to three quarters till some new thing comes out that hopefully will sell better?

Yes, it is a great question. I am not going to comment on what drove the demand, and again, I acknowledge that is unsatisfying. I just -- we are -- as I said in my prepared comments, we have a couple choices here. And one thing that Forbes and myself and the other parts of the management look at is, is in looking after shareholders, as well as the business in general, we take a long-term view on things. When I think about valuation over the long-term, I think the decisions that we are currently making are pretty sound and pretty prudent for the business. So I would just leave it at that.

All right. Maybe while I am kind of thinking of it, is there a discussion where you say customer A, you got to pay us some dollars for the fact that we are going to have $200 million plus of operating losses, given that we have this idle capacity for close to a year from now. Is that a potential thing that could happen down the road, or it is the way it is, in terms of the operating headwind you will get in that segment?

Yes. I don't want to talk about anything to do with specific customers at all. But in general, I think Jabil has had an excellent track record over the years of amending terms and conditions when the business dictates. And I think we have shown that over the years, most recently with our BlackBerry wind down. And we have got great relationships with BlackBerry. But when we made the BlackBerry decision, I don't want to dwell on BlackBerry at all, because I have a ton of respect for their Company and their people and, but when we made that decision, it was difficult. But we had a substantial liability at hand.

BlackBerry has worked very, very well with us. And I look at the kind of amendment to terms and conditions based on business conditions in that example. And I said in my prepared statement that, as we sit today, we believe the BlackBerry wind down which will happen this quarter will be in the $35 million to $85 million range that Forbes had talked about, as far as specific to BlackBerry restructure. That as an admirable illustration and indication of how we end up managing the businesses based -- based on decisions that have to be made. My belief is that with any of our businesses, if they dictate changes to terms and conditions, or the way in which we work with our customers, we will move in that direction.

Fair enough. And if I could just follow-up, I think in AMS divestiture press release, you talked about the divestiture proceeds will be used for potentially more engineering intensive capabilities and acquisitions. Could you maybe -- when you get -- when you have the cash flow this year, plus the cash flow from the AMS sale -- you obviously are doing a $2 million buyback. Is the focus beyond this to do more M&A activity like Nypro, or is it more to return capital back to shareholders as you go forward?

Yes. So I think this topic came up with the Analyst meeting, and I forget what my exact response was. But for me just restating it, I think the best use of our capital is organic growth in the business. It is the least risky. It sets a great platform for growth. And when I think about valuation and long-term viability, again I love nothing more than to look at outstanding business plans by one of our divisions, and take capital and reinvest it back into the business.

Secondarily, to your point, acquisitions much like we did with Nypro, are of keen interest to us. Again selling AMS -- AMS was a tremendous business for us. But I want our team focused on building stuff. I want our team focused on manufacturing, and as we looked forward, the AMS business just didn't quite fit that. So my guess is, as Forbes announced the buyback in his prepared comments, for now that seems very reasonable to us. Let's see how things settle out with BlackBerry, let's see how things look for the year. There is potential we could increase that, but let's take it as $200 million of share buyback for now. And we also have some other ideas in the pipeline, as far as some strategic ideas, as well as adding different capabilities.

Thanks a lot, and best of luck.

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

Thank you very much. Mark and Forbes, as I understand your commentary correctly, it sounds like the negative operating leverage from the wind down of the different parts that are going on with your Company, and the excess utilization or the underutilization of being able to spread the fixed costs, that the EPS run rate is probably going to be somewhat closer to the guidance, say for the next one to two to three quarters? Is that correct, or is there something really hurting it this quarter, then your following quarter out we should expect a material increase like in the May quarter for earnings?

Jim, I don't think that I would -- I don't know that I think about a material increase. I would think about -- if we had -- first off, I would be very cautious in how you handicap the balance of the year. As I mentioned and Forbes mentioned, we had -- we have a lot of moving pieces. The structure of the Company is great. I love our strategy. I like where we are going. I would just be cautious in the back half of the year. I think if you extrapolate it out, Q2, with some level of modest growth that is probably reasonable, and I look forward to giving you more clarity on that during our March call.

Okay. And so, strategically, big picture, Mark, I believe it is probably pretty prudent then to say earnings growth for this year is just too aggressive for people to expect. It would be more looking at, this is a transition year for Jabil, and look for potential positive earnings growth in 2015? Is that a fair assessment?

That's fair. I mean, I hate it, because I feel like we have a job to do in delivering for shareholders, but that is the reality. And again, I also don't want anybody to take our comments that we are being -- we are actively assessing the situations that are placed on us. We are balancing -- I think the team is doing an exceptional job of balancing the next couple quarters with the long-term structure of the Company. And I think that we will have better color on that by the March call, and I feel like we will do a reasonably good job of taking out as much cost as we can take out. And the current data that you have in front of you suggests that is our plan. But again, we will provide, I think better color on that on the March call.

Thanks, and happy holidays to you and your team.

Thanks, Jim.

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

Yes. I was just curious, DMS margins missed again this quarter. Was it things started decelerating in the back half that affected the performance? I would like to get some color on that. And then, what gives you the confidence you can actually grow DMS back in 8% to 12% range?

Let me take that one. So DMS, if I start with the revenue in DMS in Q1, I think we had guided some growth about 7%. We came in at 5%, so just a hair underneath, and the operating performance was relatively consistent with last quarter. So there was a -- we are reasonably pleased with that, just given the demand environment that we saw, and just coming in a little light there in overall. What gives us confidence that we can get this back into the range of 5% to 7% longer-term? Naturally, our capabilities the way we are -- our relationships with our customer base here, and really some of the exceptional work that is underway with our Nypro team. So we will, once we start to see revenue growth coming back here. And as Mark said, reposition the asset base over the two to three quarters, we are very comfortable that we will start moving solidly back into the range of 5% to 7%. It is a matter of two or three quarters, and we feel very comfortable with our customer relationships, opportunity get there.

And then maybe, just as a follow-up. The issue with your customer within DMS, I mean, was it just you were overly exposed to a particular program, and how do you mitigate that risk as you move forward? Is there active conversations to try to diversify exposure across multiple programs? I would just like to get some incremental insight there.

Amitabh, I think that is a great question. You look at it on the surface, and you go, geez, what is going on? And it comes down to the cost structure that we had in place. And again, I feel very good about the customer relationship. I feel very good about our performance. I feel very good about how they feel about Jabil, and it was really about -- it is really about the cost structure we had in place, and I will leave it at that.

Okay. Thanks.

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

Thanks, good afternoon. Just a couple questions for me. I was wondering if you could sort of -- obviously, the volume assumptions have changed a little bit. But relative to what you had talked about last quarter, in terms of restructuring savings, helping earnings by $0.11 to $0.15, and Nypro helping by, I believe $0.16 to $0.22, and the BlackBerry drag of $0.28 to $0.34. In a vacuum, are all those numbers still intact or has that changed under some of the things going forward? And then I had a follow-up. Thanks.

Let me take that, it's Forbes. No, those are very much intact. We are very pleased as I said. Nypro is on track, a great team there, and earnings will be in the range that we talked about. Remember, we have just got one quarter under our belt, but so far, so good. In terms of our overall restructuring plan, yes, those will deliver. We talked about -- complementary to the EPS range, $40 million of savings in this fiscal year, that is still on track. A lot of that heavy lifting, if you will, underway currently and as we move into the beginning of the calendar year. But certainly, nothing has changed in that regard.

And I think the last point you mentioned, was the BlackBerry piece. Certainly, solidly in the range of $35 million to $85 million. So no material change in any of those items. As Mark said, the current situation is focused around an underabsorption of corporate overhead with a demand drop, and a cost base in place to support higher volumes.

Great. And then just as a follow-up, if I look at the DMS guidance for this quarter of down 25% year-over-year. If -- I understand you don't want to talk about any customers, but can you help us just to make sure we were backing out the correct amount for the benefit from adding Nypro versus a year ago? And then, the divestiture of AMS, is it just as simple as just dividing by the 4 dividing by the annual revenues by 4, or is there some seasonality that we should also think about to try and understand your organic growth?

Yes, there is -- there is not really much seasonality. I think directionally, if you divide by 4, you are pretty much there.

Okay. Thanks for the help.

Okay.

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

I guess, just to follow-up on Steve's question, just to make sure we are on the same page. If we add back in the AMS revenue to your DMS guidance of down 25%, you are still down double-digits year-over-year, and that is with the benefit of Nypro. So if we look at it organically and add back AMS, it looks like you are down somewhere around 25%. And I just want to make sure we are kind of in the right ballpark?

Yes, that is correct, Brian.

Okay. And so, I guess what I am still struggling with is, why this surprised you? You have talked about having a strong partnership with this customer. You have talked historically about having a pretty long lead time and good visibility into product cycles. And I think you have been putting a lot of CapEx into this customer in the last few quarters. So I realize you don't want to get too specific, but again it's not clear what exactly is happening here, whether it is market share related, and just why you were caught off guard in such a short period of time?

Brian, it's Mark. Fair question. I don't -- we have a good relationship. We have got good visibility on roadmaps, and we have got decent diversification. We, again, we had a fairly substantial [cost] space in place, some of that cost space is not transferable immediately. And why were we caught off guard? I just -- I mean, I can't comment on that. I just, again I would like to, but I need to be sensitive, and I can't comment on that.

And so, when do you think the earliest you can be back within a longer-term 5% to 7% range? It doesn't sound like that is in the cards for any quarter in fiscal 2014. When would be the earliest quarter you think that you could actually be back above the low end of that range?

Brian, I would like to -- I would like you to hold me to that in our March call. Let us work through what we are working through. Let us get some costs realigned. Let us get the AMS sale -- the AMS deal is supposed to close March 1, and BlackBerry will be wound down. So hold me to that in the March call.

Okay, I will. And final question, just maybe for Forbes. I think you lowered your free cash flow target for the year by about $250 million. You lowered your CapEx actually by $50 million. So that implies you are lowering your operating cash flow by $300 million. Should we assume that that $300 million is all coming from reduced core net income? And if that is the case, that would put your core EPS at about $1 in fiscal 2014. So I know you didn't provide a formal update on your core EPS outlook, but is that kind of the ballpark of what you are thinking for the year?

I am not going to comment on the year, Brian. As we have said, operating cash flow in the $400 million to $500 million range. I would remind you, obviously, we got an AMS divesture here, so that obviously carries an element of core operating income that leaves the Company for three quarters, given that we will be reporting that as Discontinued Operations. So there is certainly an impact from the aftermarket services area. But I am not going to comment on any EPS, excuse me, for fiscal 2014.

Okay.

Your next question comes from the line of Mark Delaney with Goldman Sachs.

Thanks very much for taking the question. For my first question, can you help us think about the implications to your margin profile, as you move more into manufacturing as opposed to services? I understand that there is a different op margin guidance between your different segments, and some of the manufacturing segments, and E&I and HVS have lower margins. So is there some sort of implication that your margins are going to be lower as you focus more on manufacturing?

Thanks, Mark for the question. This is Mark. I don't think so at all. I think if you -- one way to think about our business is in very, very rough levels. I think Forbes during his prepared comments talked about kind of an endorsement of our growth ranges, and our op income ranges for the three segments for which we report.

If you think about the business being 50% to 60% DMS longer-term, and then 40% Enterprise and Infrastructure and High Velocity maybe equally split, something like that, maybe Enterprise and Infrastructure a little bit greater, over time is -- and you run the weighted average math on that, I feel very comfortable that that's the margins and the margin structure long-term for the Company. I think that what we will be doing in expanding in the manufacturing side will be, again growing share in the three sectors, or the three segments that we report today. And I would envision that in the not too distant future, that we would be adding some additional reporting segments, or at least adding some additional divisions up under these segments. And again, I think they support the margin structure that Forbes talked about.

Okay. For my follow-up question, yes, as you are in the process of redeploying assets from some large handset programs, is there anything that you have learned that you can do, in order to maintain your returns over multiple quarters because of the volatility that is associated with some of these higher velocity programs?

Yes. I am sure there is stuff we have learned, and I just -- I don't want to get into it on the call. I mean, again some of it has to do with the customer. And overall, again it is disappointing that we are taking it down this path for Q2, and potentially a couple other quarters. But overall, what I would say in the light of some tough news, is historically we continue to do a nice job managing our business in the ebbs and flows. And I think this will be a case looking back on it, where we prove that we were able to do the same thing here.

Thank you.

We have reached our allotted time for questions. I would now like to turn the floor back over to management for any closing remarks.

Okay. Well, thank you very much for joining us on the call today, and we will be available for the rest of the week as usual for any investor calls and follow-ups that you have. Thank you.

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