捷普科技 (JBL) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Jabil's third-quarter 2016 earnings conference call.

(Operator Instructions)

Thank you.

I would now like to turn today's conference over to Beth Walters, Senior Vice President of Communications and Investor Relations.

Please go ahead.

Great.

Thank you so much.

Welcome to our third-quarter of 2016 earnings call.

Joining me today are our CEO, Mark Mondello, and our Chief Financial Officer, Forbes Alexander.

Our website provider had some technical difficulties today, so please be sure you have the June 15, 2016 third-quarter financial results presentation.

If you are not seeing the 2016 presentation, you may need to refresh your browser.

With that, this call is being recorded and will be posted for audio playback on the Jabil website, jabil.com, in the investor section.

Our third-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 fourth-quarter of FY16 net revenue and earnings results, the financial performance for the Company, and our long-term outlook for the Company.

These statements are based on current expectations, forecasts and assumptions, involving risks and uncertainties that could cause actual results and outcomes 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, 2016, and 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 statement, whether as a result of new information, future events or otherwise.

Today's call will begin with comments from CEO, Mark Mondello, and followed by comments on the quarter and guidance from Forbes.

We will then move on to question-and-answers for all of our call attendees.

I'll turn the call over to Mark.

Thanks, Beth.

Good afternoon.

I appreciate everyone taking time to join our call today.

As always, I'd like to thank our wonderful people here at Jabil and express my appreciation for the continued focus on keeping our employees safe each and every day.

I'd also like to offer our thoughts and prayers to the victims and families of the mass shooting which took place in Orlando this past Sunday.

The magnitude of this cowardly act of violence is hard to comprehend.

It hit so close to home for so many, especially those living in Florida.

I'll begin today by addressing our third-quarter results.

Our EMS business remained robust throughout the quarter, in terms of both revenue and margins, while our DMS business faced much anticipated headwinds from declining product demand.

Through it all, our team did a great job managing costs and executing the business at hand.

This resulted in $0.17 of core earnings per share on $4.3 billion in revenue.

I'm pleased with the results considering the current circumstances.

Forbes will speak to our forward guidance and highlight more detail around our Q3 results during his prepared remarks.

I'll now offer thoughts as to what's driving our business, starting with DMS and our Jabil Green Point business.

90 days ago, our forecast suggested a rebound of our handset business would occur in the June time frame.

We now anticipate this to occur in August based on the most recent, near-term demand signals.

Notwithstanding our teams exceptional execution, the large scale demand fluctuations will adversely impact our fourth quarter in a significant way.

Please know that our Green Point team is aggressively managing costs.

However, they are also navigating very complicated product ramps which are critical to our customer.

Jabil's fourth fiscal quarter typically exhibits deep investments and under-absorbed capacity within our Green Point business.

This year's no different.

However, the current decline in demand we've seen on existing products is more acute than in past years, thereby amplifying the negative impact to earnings this quarter.

The good news is, as we sit today, new product ramps are going largely as planned.

In combining this data point with the hyper operating leverage of the Green Point business and our unchanged market share position with the world's leading brand in this space, Jabil's well positioned for a snapback type recovery.

We believe this recovery should begin in the next five to six weeks.

Next, let me talk about our healthcare business.

Our health care business is accelerating.

We continue to benefit from broad technology disruptions in the areas of pharmaceuticals, medical devises, and patient diagnostics.

The hardware platforms and the ecosystems that support this space endeavor to be connected as well as optimized for cloud, data, and analytics.

This is all good news for Jabil.

Combine this with rapid advancements in wearable technologies and data science applications, we have a suite of catalysts for growth across products and services.

Quite simply, our healthcare team continues to deliver on its mission of delighting customers while improving the way in which people live.

Importantly, the acquisition of Nypro also brought forth the modest packaging business and offered a solid platform from which this business will grow.

Through steady focus, our growth in this business has been up and to the right for the past two years.

I'm also happy to report that the integration of our Plasticos acquisition is ahead of plan, giving us sufficient access to the European packaging markets.

The overall packaging space, coupled with our ability to cross-sell to the world's leading brands we already serve, makes this market highly promising for Jabil.

Moving on to our $11 billion EMS business.

The team's done a wonderful job of increasing core operating margins throughout this year, taking our structural margin profile from what was 2.3% to 2.4% five to six quarters ago to core operating margins solidly above 3%.

I firmly believe this new margin structure is sustainable throughout FY17 and beyond.

The current marketplace offers technology and business model transitions as well as secular trends that favor Jabil's EMS business.

So in summary, the scale, proven experience, and broad diversification of this legacy yet evolving business provides a stable foundation for our EMS business.

So what does all this mean as we head into the first half of FY17?

We have an EMS business which continues to perform to plan.

I believe this large scale business will grow 3% to 4% in terms of core earnings year-on-year when comparing the first half of FY17 to the first half of FY16.

Our healthcare and packaging businesses remain strong.

We anticipate their growth, first half to first half, to be in the range of 8% to 10% in terms of core earnings year-on-year.

So this brings us to our Green Point business.

The financial results for the first half of FY17 will be dependent on the overall product demand in the mobility market.

The Green Point team is outstanding and well positioned for the upcoming product ramps, product ramps around new products.

Our Green Point business exhibits a rare and valuable combination of capability, capacity, and what I would call optimal readiness at scale.

Moreover, I'll reemphasize that Jabil's market share with our largest customer remains very consistent.

This leads me to a final topic: capital allocation.

Management received Board approval to commence a $400 million share repurchase.

This initial tranche of share buybacks is a subset of our capital return framework for FY17 and FY18.

Let me explain.

Under this framework, we plan to return 40% of the Company's cash flow from operations to shareholders by way of dividends and share buybacks through FY18, with a cap not to exceed $1 billion in total for this time period.

To place this in appropriate context, this commitment doubles the magnitude of capital returned back to our shareholders on a percentage basis, moving from approximately 20% to 40% of cash flows from operations.

For the time being, we plan to leave our dividend unchanged.

Therefore, the entire increase in capital returned to shareholders will come in the form of share repurchases.

Our rationale for the significant increase of capital being returned to shareholders is underpinned by intense cost management, our confidence in sound levels of future cash flows, and our commitment to shareholders.

On a related topic, I'd like to confirm that management will host the Jabil analyst day on Tuesday, September 27, here in Florida.

We're excited to share with you a deeper look into our business.

We'll offer a comprehensive understanding of where we're headed, why we're heading there, and how we'll get there.

We'll drill down into the different businesses we steward and manage, businesses where we believe Jabil exercises a clear parenting advantage.

In closing, I acknowledge that the earnings in the back half of FY16 are disappointing, especially coming directly on the heels of a record first half, but I'd ask that we keep this in perspective.

As I've tried to articulate in today's prepared remarks, we're dealing with a single issue, albeit an issue that today cuts deep.

The Company is in great shape and we'll get past these product demand issues that emanate from one sector of our business, a business that's quite broad.

We're agile and the most cost effective operator of our business.

Management will continue to care for our customers and take great care of our shareholders.

We will make Jabil the most technically advanced manufacturing service company and do so in a profitable manner.

With that, thank you and I'll now turn the call over to Forbes.

Thank you, Mark.

Good afternoon, everyone.

I'd ask you to turn to slide 3 where I will review our third-quarter results.

Net revenue for the third quarter was $4.3 billion, a decrease of 1% on a year-over-year basis.

GAAP operating income was $60 million, though GAAP net income was $5 million.

GAAP net diluted earnings per share were $0.03 for the quarter.

Core operating income, excluding the amortization of intangibles, stock based compensation, and restructuring costs, was $87 million and represented 2% of revenue.

Core diluted earnings per share were $0.17.

Turning to slide 4 and our segment discussion.

Revenue for our diversified manufacturing services segment was approximately $1.45 billion, a decrease of 9% on a year-over-year basis, representing 34% of total company revenue.

This segment had a core operating margin loss of 1%.

Sequential revenue declined some $300 million and the resultant operating loss in the quarter are principally attributed to the declines in mobility product demand.

Our electronics manufacturing services segment revenue was $2.85 billion, an increase of 4% on a year-over-year basis, and represented 66% of total company revenue.

Core operating income for this segment was 3.5%.

Revenues exceeded expectation in the quarter, primarily as a result of strength in demand across our telecommunications customers, while operating performance in our EMS segment continues to show its strength.

The core tax rate for the third quarter was 37%.

Turning to slide 5, some other key metrics.

We ended the quarter with cash balances of approximately $900 million.

The quarter was a strong one from an operational cash flow perspective, with $416 million of cash flow generated in the period.

Our sales cycle for the quarter was seven days, an improvement of six days from the prior quarter.

Cash flows from operations for the year-to-date approximate $500 million and we are well positioned for continued strong cash flows in our upcoming quarter and beyond.

Net capital expenditures in the period totalled $201 million with a full-year capital expenditures estimated to be [$850 million].

Core EBITDA for this quarter was $261 million and for the nine months in the fiscal year, we have now generated $1 billion in EBITDA, representing 7.25% of revenue.

Our core return on invested capital for the quarter was disappointing at 7%, reflecting reduced levels of revenues and returns associated with demand for our mobility business.

For the full fiscal year, our core return on invested capital continues to be estimated above our weighted average cost of capital and is expected to be 14%.

I'd now ask you to turn to slide 7, where I'd like to discuss our business outlook for the fourth quarter and an update on the full fiscal year.

We expect revenue in the fourth quarter to be in the range of $4.15 billion to $4.35 billion and at its mid point, a decline of 9% on a year-over-year basis, reflective of continued demand reductions in our mobility business.

Core operating income is estimated to improve over the recent quarter and be in the range of $95 million to $125 million, with core operating margins in the range of 2.3% to 2.9%.

GAAP earnings per share are expected to be in the range of a loss of $0.02 to income of $0.19 per diluted share.

Core diluted earnings per share are estimated to be in the range of $0.15 to $0.35, this based upon a diluted share count of 195 million shares and guidance at its mid point assumes a tax rate for the quarter of 36%.

This now means the effective tax rate for the full fiscal year is estimated at 29%.

As a result this guidance, core diluted earnings per share for the full fiscal year are now estimated to be $1.85.

I now ask you to turn to slide 8, where I'll review our segment outlook for the quarter.

Our diversified manufacturing services segment is expected to decline 20% on a year-over-year basis, with the revenue estimated to be $1.5 billion, or relatively consistent with those of the third quarter.

The electronic manufacturing services segment is expected to be consistent on a year-over-year basis with revenues estimated to be $2.75 billion.

We now expect total Company revenue to be approximately $18.2 billion for the full fiscal year.

The diversified manufacturing services segment is expected to be $7.2 billion, growth of 1% on a year-over-year basis.

The electronic manufacturing services segment is expected to be $11 billion in the fiscal year, consistent with our estimates of earlier this year.

The year is reflective of strong operational performance within this segment, resulting in operating margins solidly in the 3% to 3.5% range, an improvement of some 50 basis points over FY15 and a profile we believe is very sustainable.

Finally, I'd like to make some comments with regards to shareholder returns.

As Mark noted in his prepared remarks, our Board of Directors have approved a framework to allow us to return 40% of cash flows from operations via dividends and share repurchases through FY18.

Most immediately, a $400 million stock repurchase program has been approved.

With continued discipline and working capital management, we are very well placed to deliver in excess of $2 billion of cash flows from operations through FY18.

Reduced levels of capital expenditures should still afford us the ability to support growth initiatives and opportunities in the business, this while maintaining an investment grade balance sheet.

Thank you and I'd now like to hand the call back to Beth.

Great.

Thanks, Forbes.

Before we begin the Q&A session, I would like to remind our call participants that in customary fashion, we will not address any customer or product-specific questions.

Thank you so much for your cooperation.

Operator, we're ready to begin the Q&A period.

(Operator Instructions)

Your first question comes from the line of Ruplu Bhattacharya of Bank of America Merrill Lynch.

Yes, thanks for taking my questions.

The first one for Mark.

Mark, I was wondering if could you talk about the portion of your Green Point business ex your largest customer.

How did that portion perform in the quarter?

And is there any reason to think that that portion can't continue to grow in the high single digits year-on-year?

That end of our business performed well, so as I think about FY17, I would say that portion of our business will grow 8% to 10% is a fair way to look at that.

Okay, great.

And then, when we look at FY17, typically the November quarter is a strong quarter for DMS margins.

Given what you're seeing in the mobility space, do you think that in the November quarter you can get to above 6% for margins in DMS, or is it too soon to say at this point?

Well I think that it's, again, as I said in my prepared comments, it's all going to be depending on the fall sell-through on the mobile products.

If the sell-through occurs at the rate we anticipate sitting here today, I think that 6% is achievable.

Okay, great, thanks.

And last one from me, for Forbes, after this CapEx spend in FY16, just wondering how much revenue can your existing infrastructure support?

And in the past, you've talked about free cash flow improving going forward.

So can we think that free cash flow in FY17 will be better than FY16?

Yes, so the first part of that question, the footprint and capacity we have in place could certainly support a revenue base of $20 billion to $21 billion, so we are very well placed as we look out through FY17 and FY18 and that's referencing my comments in the reduced capital expenditures as we move forward here.

And then I think the second part was around your free cash flows.

Yes, we expect a strong year of cash flows both in FY17 and FY18 coming up here.

We saw a strong quarter this quarter and I expect that to continue in the out quarters, very well positioned in that regard.

Okay, great.

Thank you so much.

You're welcome.

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

Yes, thanks and good afternoon.

Just a question regarding the EMS business, which you talked about being above expectations, and it sounds like the margins that should remain above the 3% level.

What are you doing specifically to keep those margins up when we're seeing some of your peer margins actually come down a little bit?

Is it just fall blocking and tackling, is it product mix or other initiatives that you have going on?

Yes, so I think it's a combination of all of that.

One thing to think about is our EMS business today probably comprises, and this is rough numbers, 130 to 150 customers.

So when I think about the diversification of that business, and again, a portion of our business is around running our factories efficiently.

We've got tremendous diversification.

And then when I think about the value proposition, when I think about some of the acquisitions we've made in the last 18 months and how that's changed some of our value proposition, I think all of that is adding up too.

We started talking some time in mid-FY15, and I don't remember the exact numbers, but in early FY15, the margins in that business were a hair above 2% and we started talking about different value propositions and solution selling in that, and across the EMS business, and today, we're seeing the results and I think that's quite sustainable for FY17.

Okay, great.

And on the healthcare business, you talked about the profitability growth opportunities looking forward but you don't yet break that business out specifically in terms of revenue.

Could you give us an idea for the revenue run rate and the growth rate you're seeing organically in that business?

Like I said on the call, I think it's fair to say we'll see that business year-on-year, FY16 to FY17 going forward at a growth rate of probably 8% to 10% in terms of core op income, and yes, we don't break that out and as that business continues to gain more and more scale from a revenue perspective, we'll give considerations about breaking that out.

Okay, thanks a lot.

You're welcome.

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

Thank you very much.

I have two questions.

One is probably for CEO, second one's for CFO, but on the first one, on the DMS, if I look correctly at slide 4, it looks like it operated at a loss for the quarter.

Maybe if I'm right or wrong on that, can you confirm?

And it looks like if it is right, that you have never had a loss in this segment before even with lower revenues.

So maybe if you can address a little bit about, Mark, has something structurally changed in this?

Is it a lot more capital intense today and what do we need to get to for a breakeven run rate or why wouldn't you just flex the model more?

And then maybe for CFO Alexander, maybe you can, Forbes, if you can mention a little bit on the stock buyback.

You'd mentioned, I think, the share count outlook you gave.

Am I correct that does not include you buying back any stock for this quarter or it does include some, because I believe what you guided is actually the share count to be above what you just reported.

Thank you.

Thanks, Jim.

I'll take the first part of that and then I'll turn it over to Forbes.

So in our DMS business, and specifically our Green Point business, again, we've put investments in and I'll tell you that there's two, I think there's two main catalysts or variables for 3Q, which we just reported.

One is, again, we took a hard hit in volumes that were abrupt and couldn't get out of some of the variable cost.

In addition to that, Jim, most of our cost allocation for our Cheng Du campus today is allocated to the Green Point business and the way we run our businesses is in a very strict ABC accounted methodology.

And so our DMS/Green Point business picks up a lot of that fixed cost capacity and so we've made investments to expand the footprint vis-a-vis fixed cost investments over the last 18 months or so.

The nice thing is if there ever were a downturn in the Green Point business or the DMS business long term, that square footage in campus is very fungible, but those are the two variables that impacted Q3.

Jim, in terms of the share count, yes, the guidance I gave, I assumed the normal accretion of shares.

It does not assume any share repurchases at this time.

As we move forward here, we'll clearly take a view on that.

Any repurchases that would be made in the fourth fiscal quarter would be relatively modest given we're a month through that.

Great.

Thanks so much for the clarification, gentlemen.

I appreciate it.

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

Okay, thank you.

This is Adam in for Brian.

Two questions.

Can you speak to how the EPS recovery and trajectory in FY17 should compare to the recovery in FY15, given the comments about a snapback expected in the next four to six weeks?

Yes, so, we're not going to provide any highlights or guidance for the fiscal year, FY17 that is.

When you triangulate some of the comments you heard on the call today, so I talked about EMS, so that's put in context, right?

Keep in mind our EMS business, I know everybody gets focused on our Green Point business and I understand the rationale for that, but our EMS business is an $11 billion business.

I talked about that year-on-year first half of 2016 versus first half of 2017 to be growing at 3% to 4% in terms of core operating income, so I think that's a good data point for your models.

I talked about our healthcare and packaging business growing more like 8% to 10%, first half to second half, in terms of core operating income.

Then when it comes to our Green Point business, again, I mentioned during my prepared comments that it's really about what happens with phone demand and phone sell-through through the calendar year.

And our first quarter being September, October, November is right in the middle of that.

So in terms of in Q1, as we sit today, we do expect a snapback, everything that we're looking at in terms of demand, the product launches on new products are going as expected and are on track, so hence my comments about the snapback for Q1.

Okay, and is there any change to your longer-term view on DMS targets that the 8% to 12% growth and 5% to 7% margins in light of the recent results in mobility or are those targets no longer valid?

I think those targets largely hold, but we'll talk more about that during the analyst meeting in the fall.

One other data point I'd mention to you to help you triangulate the models is I think during Forbes' prepared comments, when he was talking and kind of weaved it into the capital allocation framework that he was talking about, I think Forbes made mention that as we look at 2017 and 2018, we feel pretty good about overall cash flow from operations being in the $2 billion range.

So if you take a look at 2016, kind of figure out the growth rates that we talked about, the math is pretty straightforward on where we think cash flow from operations will be in 2017 and if you assume that 2017 will be slightly softer than 2018, you'll be able to back into a reasonable model for FY17 in terms of core op income.

Okay and just quickly on that topic on cash flow, can you just talk about how you're thinking about CapEx and capital intensity going forward?

Yes, sure, Adam, I'll take that one.

If you look over the last two years, if we take that as a proxy, we've actually invested about $1.8 billion into the business in terms of 90% of the cash flow from operations.

So as we move forward over the next couple of years, yes, we certainly expect that to be well south of that, as low as half of that.

So, significant drop off in CapEx, and as I said earlier, answer to a previous caller's question, we have appropriate capacity in place, a footprint and capabilities here to grow the Company to a revenue stream of $20 billion to $21 billion.

So yes, you're going to see us step down here as we move through 2017 and into 2018.

Thank you.

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

Hello, thank you.

I just wanted to ask on the buyback, what is your expectation for the pace of that buyback?

Is that something you plan to accelerate as we move into FY17?

Should it be front end loaded or should it be pretty consistent on a quarterly basis?

Hello, Sherri, it's Forbes.

I'd ask you to model that on a relatively consistent basis as we follow the cash flows here as we move through the fiscal year, so yes, I'd ask you to think of it that way and relatively modest here in the fourth quarter.

We're already a month into the quarter here.

Okay, and then looking at the margins with the negative margins in DMS this quarter and the guidance for 4Q, are we going to move back into positive territory for the DMS segment in Q4?

Would you expect us to be positive or do you think you'll still be negative?

Thanks.

I think there's an opportunity here to get it back, sell into breakeven and into the positive.

I think, as Mark said, we are in the process of some extensive ramps here and as we move into the August month, that certainly affords us that opportunity.

Thank you.

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

Yes, good afternoon, and thanks so much for taking the questions.

The first question relates, a two part question related to the DMS guidance for the August quarter.

The first part, can you clarify why exactly you're seeing a push out versus your prior expectations for the Green Point business?

And then the second part is can you help us bridge the 20% year-on-year revenue decline in DMS?

I think you already said you expect your market share to be consistent so is that all lower units or is there a pricing pressure that's maybe factoring into the 20% decline?

Hello, Mark, it's Mark.

So I think they are tied.

As I said in my prepared remarks, when we got together in March, we saw some abrupt declines that were somewhat surprising to us that impacted Q3 and, as we sit today, we saw additional declines, but let me clarify, those declines are on existing products.

So let's differentiate the fact that polls and whatnot in our DMS business have been slow and certainly more severe than, or lack of polls, than we would have expected.

But again, I'd contrast that with our current ramps in all of our development work on new product platforms is going as expected.

I think those same comments apply to why the revenue may be off, and at this point, when I think about market share and when I think about overall economics, nothing's changed.

Okay, and second question would be around the talk about having lower CapEx as you go from here.

Does that limit your potential market share or how much revenue you'd expect to generate in DMS in FY17 or FY18?

Sure, if we put it in perspective, our CapEx the last couple of years has been somewhere in the $1.8 billion to $2 billion range.

Going forward, we're still going to invest in the business, so when Forbes talks about the fact that CapEx is being pulled back, we still anticipate putting a $1 billion to $1.2 billion two into the business over the next couple of years and so we've got plenty of capital to continue to invest.

Our intent will still be to support all of our customers, but what's changed here is, quite simply, we've made some substantial investments over the last 24 to 30 months and we intend to leverage those investments because we're really well positioned to do so over next couple of years.

Okay.

And just one last one for me.

I think, Mark, you said you expect consistent share at your largest customer and, last quarter, the comment was Jabil's gaining share at your largest customer.

Am I reading too much into the wording change or has something actually changed on the market share?

Yes, nothing's changed.

Thank you very much.

You're welcome.

(Operator Instructions)

Your next question comes from the line of Herve Francois of B. Riley.

Hello, thank you very much.

Wanted to follow-up on, I think on the last call, you had said that there were like six to eight new programs that took place in the fiscal second quarter that potentially could ramp in the May and June time frame.

Can you give us an update on if those ramped and how those ramps are progressing?

And then secondly, I don't think you mentioned anything specific about new program wins in this fiscal third quarter that just wrapped up.

I don't quite remember exactly which businesses or under which context you're talking about the program ramps.

We've got a number of program ramps occurring and had occurred in our 3Q, largely around our EMS business.

We also have some program ramps in our healthcare and wellness business for sure.

And then we had just kicked off and started our significant large scale ramps towards the end of 3Q for our Green Point business that has escalated and picked up momentum as we've went into the fourth quarter.

And you're correct, we haven't talked about program ramps or program wins during this call.

That's not because they haven't occurred.

We just didn't mention it during the call and I would say that the amount of share of wallet and market share gains we're picking up as we sit today is very similar to where we were 90 days ago.

And the nice thing is I think the financial results will reflect that as we move into FY17.

Got it.

So I guess is the Green Point biz that has escalated here in the fiscal fourth quarter, is that the escalation that you were talking about earlier that ramps significantly in the next five to six weeks?

I think what I said and let me clarify if I was confusing.

So our Q4 typically is a quarter that we have under-loaded fixed assets and fixed capacity and we have a substantial amount of what I would call OpEx investment, and again, this year is no different.

The issue is we've had some demand cuts on some of those assets.

At the same time, our costs are up through development and program ramps.

What I said on the prepared remarks is that all of this correction that we've been talking about, we see to take hold probably just five or six weeks from now as both new product ramps and other demand comes back.

Got it.

Thank you very much.

You're welcome.

Your next question comes from the line of Sean Hannan of Needham & Company.

Yes, folks, thanks for taking my question here.

Just want to see if I could maybe get some perspective from you at a little bit of a higher level.

Over the course of the last year, you've drawn a lot of criticism in the degree of the investments that you've made, particularly in support of the mobility platform where we are getting this volatility.

We've also heard a tremendous amount about, at least in some aspects, share gains, as well as incremental diversification across all platforms with that main customer.

So as we stand here today, we've had two pretty notable estimate revisions downward for the year.

Just trying to understand where some of this diversification is coming through and ultimately, when do we think we can at least see something that is where we have a model that's at least able to withstand this a little bit better than what we're seeing today.

Thanks.

Thanks, Sean.

Fair question.

I think you'll see some of that diversification coming through in the first half of FY17.

But I'll tell you that with the diversification, so the diversification has occurred, there's a greater percentage of our fixed assets today that are diversified across different products, different product families, and products that are not connected directly to the mobile space.

But with all that said, if demand doesn't take on the mobility side, again, it has a fairly significant impact to earnings and financial performance, so that's what we're up against at the moment.

Okay, thank you.

You're welcome.

There are no further questions at this time.

I would now like to turn the conference back over to Beth Walters for any closing remarks.

Great.

Thank you so much, everyone, for joining us on our fiscal Q3 earnings call.

We will look forward to having conversations and meeting with you over the next several months and seeing you here on September 27 for our analyst meeting.

Thank you again for joining us and we'll talk to you soon.

Thank you for participating in today's conference.

You may now disconnect and have a wonderful day.