Littelfuse Inc (LFUS) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to the Littelfuse, Inc., third-quarter 2010 conference call.

Today's call is being recorded.

At this time, I will turn the call over to Chairman, President, and Chief Executive Officer Mr.

Gordon Hunter.

Please go ahead, sir.

Thank you and good morning, and welcome to the Littelfuse third-quarter 2010 conference call.

Joining me today is Phil Franklin, our Vice President of Operations Support and Chief Financial Officer.

As you saw in the news release, this was another outstanding quarter for Littelfuse.

We achieved record sales and earnings and cash flow for the quarter.

Sales were up 40% over the third quarter of last year and increased 4% sequentially from the second quarter.

Sales increased in all three of our businesses, led by electronics where strong demand drove increases in all geographies and end markets.

Our automotive business continued to improve, with increased sales in all regions, although we are still not back to pre-recession levels.

Power fuse demand continues to steadily improve from the low point of 2009, and Startco continues to perform very well.

So as you can see, this was an excellent quarter all around.

Our record earnings reflected the higher sales and, more significantly, the benefits of our improved cost structure.

This overachievement on profitability is one indicator that our four-year program to reduce our manufacturing footprint and consolidate production into newer, more efficient plants located close to our customers is generating superior financial results.

When we began this restructuring and cost reduction program, we established a target of a 15% operating margin over the course of the business cycle.

This is quite a stretch from where we were at that time.

And while we believed we could achieve it, we knew it would take time, good execution, and hard work.

Now, as we indicated in the news release, we are looking at exceeding that goal.

Our results confirm that the strategy we laid out four years ago is working.

After coming through the downturn, we are leaner, stronger, more efficient, and well positioned with capacity for continued growth as the global economy continues to recover.

On that positive note, I'll turn the call over to Phil Franklin, who will give the Safe Harbor statement and a brief summary of the news release.

Then I'll continue with a more in-depth review of our three businesses.

Thanks, Gordon.

Before we proceed, let me remind everyone that comments made during this call include forward-looking statements based on the environment as we currently see it and, as such, do include various risks and uncertainties.

Please refer to our press release and SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements.

Sales for the third quarter were $163.5 million, which was up 40% year over year and at the high end of our guidance.

Our strong growth has outpaced our peer group for most of the last year, as we have been successful with some new products and have executed crisply on our manufacturing ramp-up.

However, at least part of this outperformance is due to our high percentage of sales going through distribution in an environment where distributors have been replenishing inventory throughout the year to serve a strengthening in demand.

During the third quarter, we believe that several of our distributors, as well as a few OEMs, built inventory in excess of their near-term requirements.

We estimate that this resulted in approximately $4 million of additional sales for Littelfuse in the third quarter.

If not for this phenomenon, we believe sales for the quarter would've been in the middle of our range of sales guidance.

Adjusted operating margin for the third quarter increased to 22.7%, reflecting strong operating leverage, savings from the last phase of manufacturing transfers, and good control of operating expenses.

The tax rate increased to 31% for the quarter, reflecting more income earned in the US, which is our highest tax jurisdiction.

We expect the US to continue to be more profitable going forward, due to completion of the North American restructuring programs.

Earnings for the third quarter, excluding asset write-downs, were $1.13 per share.

This was well above the high end of our guidance and was the fourth quarter in a row where we have set a new record for earnings.

Cash provided by operating activities was $48.8 million for the third quarter of 2010.

After funding $8.6 million of capital expenditures, this resulted in over $40 million of free cash flow for the quarter.

Although this was an exceptional cash flow result, at least in part because we're not currently paying cash taxes in several jurisdictions, we firmly believe that this company, with its new manufacturing footprint and leaner cost structure, can generate consistently higher levels of free cash flow in the future than in the past.

As a result, we're pleased to initiate a quarterly cash dividend of $0.15 per share beginning this quarter.

This equates to an initial dividend yield of 1.4%.

After paying this dividend, we are confident that we can fully fund both our organic and acquisition growth opportunities, as well as periodic stock repurchases.

Furthermore, it is our intent to gradually increase the dividend over time.

The Company currently has board authorization to repurchase up to 1 million shares, against which it purchased 570,000 shares in the third quarter, and has made additional purchases in the fourth quarter.

Now I will turn it back to Gordon for some color on market trends and business performance.

Thanks, Phil.

Now let's move on to the third-quarter highlights for our three business units, starting with electronics.

This was a record quarter for the electronics business.

Sales of $108.2 million for the third quarter increased 52% from the third quarter of last year and 4% sequentially.

As I indicated, the strength was across all geographies and end markets.

The strongest end-market demand in the third quarter continued to be in the area of consumer electronic products, such as Apple iPad, popular e-book readers, set-top box, and smartphone applications.

Consumer digital and telecommunications equipment applications were also strong.

In addition, our shorter lead times generated increased sales to existing and new customers.

As we've discussed on prior calls, in many cases our lead times are significantly shorter than the competition, giving us a strong competitive advantage.

This too is a result of our manufacturing rationalization strategy, going from 16 plants to six around the world.

Those six plants are more efficient and were built with capacity to accommodate our future growth.

This additional capacity enabled us to quickly ramp up production to meet the sharp increase in demand that began at the end of the fourth quarter, putting us in front of our competitors.

The first half of the year saw significant inventory replenishment in the OEM, contract manufacturer, and distributor channels.

Our book-to-bill ratio of 0.8 for the third quarter was the result of a drop-off in the order rate, after several quarters of exceptionally strong orders where shipments remained strong throughout the quarter.

This was primarily in China, Taiwan, and Korea, which constitutes about half of our electronics business.

The third quarter was also successful in terms of design wins.

We've increased our penetration into a market-leading LCD TV manufacturer, with a transient voltage suppression device.

We expect to double our annual sales from $1 million to $2 million for this design due to the customers' need for a more robust circuit protection device.

A recent win for our small-footprint Nano fuse is with Eldor Corporation in Italy and Pulse in China.

Our fuse will protect the electronic ignition control in Volkswagen vehicles.

The Nano's small size, fact-acting capability, and high performance are a perfect fit for this application.

And this win will contribute approximately $600,000 in annual revenues.

Another design contributing to year-over-year growth is a power thyristor switching product that activates the water heater in a coffee brewer application.

Our technical support and flawless delivery performance has led this business to ramp up to approximately $3 million in annual sales to a leading coffee brewer company.

While not typically a segment that changes quickly, our customer's innovative design has allowed them to take share and grow, and our sales along with them.

Sales have ramped up from $300,000 in the second quarter to $600,000 in the third quarter for a thyristor protection device for a popular smartphone charger.

Our component is used as a failsafe device to open the circuit in the event the charger overheats.

Another win is in the telecom market for our small, high-current ceramic cartridge fuses.

Our fuses will be used by customers including ZTE, Huawei, and Datang for telecom network, base station, and power applications.

Our fuses are the smallest available for the 20-amp rating used in these products.

As these examples illustrate, our circuit protection devices are often the first choice of customers because of our extensive circuit protection expertise and our ongoing investment in new product development.

In summary, we've had six consecutive quarters of strong sequential growth in electronic sales and continued progress on design wins.

However, because we sell a large percentage of our products through distribution and our growth rate outperformed the industry as purchasing ramped up earlier in the year; we may experience a bigger decline than our peer group in the fourth quarter.

But even if the seasonal decline is more than we typically experience, we'll still have exceptionally strong, industry-leading growth year over year for 2010.

We're ready for growth next year, and we are confident our cost structure will enable us to deliver superior financial performance.

That brings us to our second business unit, automotive.

Third-quarter automotive sales of $31.7 million were up 18% year over year, but decreased 1% sequentially.

Car production in the third quarter is historically lower because of scheduled plant closures for model changeovers in many of our key regional markets.

Third-quarter global car production was down 7.6% compared to the second quarter.

So with our 1% decrease, we significantly outperformed the industry.

Although we are not back to the pre-downturn levels of 2008, our sales are steadily recovering.

Looking at sales by region, European car production declined about 19%, but our sales were only down about 8%.

This was primarily due to the ramp-up of recent new master fuse wins at Volkswagen and BMW.

In North America, car production declined just over 5%.

Our sales, however, were up 12%.

This overperformance versus the market was driven by multiple new vehicle launches where we have won new business.

One of these platforms is the new Volkswagen Beetle, which drove increased sales of our automotive blade and cartridge fuses.

At Ford North America, the launch of the new F Series and Explorer brought new master fuse sales.

And in China, car production was down about 9% sequentially, but our sales were up about 6%.

This was primarily due to the recovery in orders from one of our major distributors in China that had highly overstocked in the first quarter and returned to prior order rates in the third quarter.

We also saw increased sales of fuse-box fuses and our master fuse product at one of our major Tier I customers that is supplying a GM Daewoo program in Asia.

And we also outperformed the market in Southeast Asia as a result of a launch of a new Mitsubishi program where we are supplying the fuses for the fuse box.

In the rest of Asia, our sales tracked very closely with car production -- down in Korea and up slightly in Japan.

As we mentioned on prior calls, we are continuing to invest in the long-term growth of our business in Asia.

This market has excellent growth potential for Littelfuse, with an increasing number of vehicle manufacturers and an expanding customer base as more and more people pursue the dream of owning a car.

We also continue to invest in our off-road truck and bus business, which has rebounded strongly from the low points of 2009 and is up year to date almost 70%.

Moving to design wins, most of our design win activities have been focused around our new automotive micro-size fuses as well as our FLEC electrical distribution center for the OTB market.

We've been successful in getting our new Micro 2 and Micro 3 fuse designs, as well as our new MCase cartridge fuse, designed into several new future platforms.

Examples in North America include a new Chrysler program for the new Dodge Journey, which will start in the fourth quarter; new Ford business, which will start in late 2011 for the new Fusion, Taurus, and Edge models; and new GM business, which will start in late 2012.

We've also won new business in China and from Mahindra in India with our new MCase fuse.

This new business should start in mid-2011.

On the off-road truck and bus side, we're making very good progress with our new FLEC electrical distribution center at an agricultural vehicle manufacturer in North America as well as at a truck manufacturer in Europe.

While it's still too early to announce these as formal design wins, we are well into the process and hope to be able to provide more details next quarter.

Our profitability has also continued to improve following the completion of our last round of manufacturing transfers from Germany to Mexico.

Looking ahead, global car production is expected to be up just under 2% in the fourth quarter and up nearly 5% in 2011.

With our new products, global customer base, and strong manufacturing capabilities, we are poised to capitalize on this growth in the months and years ahead.

Moving on to the electrical business unit, the third quarter was another record quarter in both sales and operating income.

The third-quarter sales of $23.6 million increased 28% year over year and 8% sequentially.

The base fuse business was up 22% over the prior-year quarter and represents our strongest year-over-year comparison to date.

Industrial activity continued to remain strong, but nonresidential construction is continuing to show double-digit negative comparisons to the prior year, creating a negative drag on the overall fuse business.

You may recall that last quarter we talked about the challenges of price erosion in this environment.

But a price increase we implemented on September 1 has created some price realization and contributed favorably to the quarter.

The industrial production index was up 6.5% year over year for the third quarter.

We indicated last quarter that we thought this segment would slow down in the second half of the year, and we now believe this will occur in the fourth quarter.

However, this should not have a significant impact on our overall fourth-quarter electrical results.

The nonresidential construction segment is a different story.

Nonresidential contracts are still at historical lows.

We're planning another 11% to date through the third quarter versus the same period last year.

This is an additional drop from last year's numbers.

There are indications now that there will be little improvement in this segment until late 2012.

We continued to receive strong order flow from our industrial distributors in the third quarter.

We received a large one-time order for fuses for the nuclear industry, and we had a combination of orders in the solar, lighting, and irrigation market segments.

We also benefited from the price increase I mentioned earlier, as well as two large distributor conversions that occurred in the first two quarters of the year.

As with our other two business units, the core fuse business has also made great progress in design wins.

One win was with a manufacturer of power supply equipment for the industrial market for a fuse holder.

The customer selected our product because of its quick assembly, which provides added value.

This win will add about $250,000 to sales.

Another big win was for a custom fuse and fuse holder with a manufacturer of HVAC equipment for industrial and commercial markets.

And this opportunity is worth about $750,000 annually.

We have good opportunities with European manufacturers of solar inverters for industrial and commercial installation, as they open new manufacturing locations in North America.

We're successfully transferring design wins in Europe to orders at these new facilities.

We recently received our first order with one of the leaders in this market, worth $500,000 annually.

We expect the fuse business to continue to be primarily driven by the industrial segment in the fourth quarter and into 2011.

We believe our work in the OEM market, especially with solar OEMs, should be incremental above normal industrial market growth and enable us to grow faster than the general industrial market.

The other side of our electrical business is the protection relay and custom products business.

Our custom products business builds power centers that are used in underground mining, particularly potash mining in Canada.

Potash is a major component of fertilizer, and while the global economic recession had a short-term impact on farming, it did not derail the trends of population growth and improving diets that drive increased demand for fertilizer that improve yields.

As a result, prices for most key global crops are now well above their ten-year average.

In response to the rising worldwide demand for potash, producers are maximizing production and continue to expand their mining operations.

These expansions continue to support the growth of our custom products business.

We still have a significant backlog for our custom power centers, and as a result of our investments in expanded capacity, our production output remains at record levels.

In addition to the custom products business, we also offer a full line of protection relays.

A large percentage of these relays are also used in global mining operations.

There are numerous indicators that the long-term growth of mining operations will remain strong, providing continued growth opportunities for these products.

One of the most significant growth opportunities is in emerging markets such as China, India, Russia, Brazil, Indonesia, Mexico, and Turkey, where industrialization and urbanization are driving the demand for resources, particularly copper.

Global mining firm Rio Tinto recently commented that the copper market is forecast to move from a small surplus in 2010 to a deficit of around 400,000 tons in 2011 and will remain tight until 2020.

The largest market growth is expected to come from China, which currently accounts for 36% of global copper consumption, compared to North America, which accounts for 10%.

Recognizing these opportunities, we are making strategic investments to expand our sales efforts in these markets and have already begun to see returns.

We will continue to expand our sales reach in these emerging markets, and with strong demand projected well into the future, we are very optimistic about the potential growth for the mining segment.

We're already benefiting from the growth in mining through several new business wins during the quarter.

We secured two orders from our Chilean distributor for a newly developed ground-fault/ground-check monitor.

These two orders are significant because they originated from OEMs rather than directly from the mines for replacement purposes.

This means our products are now being specified by the end-user customer for expansion projects.

Up until this time, these products have been exclusively used as retrofits in existing equipment.

Another order secured during the quarter is for high-voltage, grounding resistor monitoring system for one of the largest coal mines in China.

This is the first order from this new customer, and we believe it very likely will lead to future business.

We also received orders from a major OEM and distributor in South Africa for ground-check and ground-fault monitors, and new motor protection relay orders for a refinery in Indonesia.

We've also received multiple quote requests pertaining to adding resistor monitoring for small, diesel-powered generators in northern Alberta oil sands operations.

Our relay and custom products business continues to consistently grow the top line and is well above our company average for profitability.

The investments we made in this business to expand capacity and increase efficiency are definitely paying off.

At the risk of repeating myself too often, I'd like to again tell you how pleased we are with the acquisition.

Startco expanded our product line into a related market, has helped the electrical business to achieve record sales, and provides a strong platform for further growth.

It's no secret that we would like to add other companies with similar attributes to our company.

We're optimistic about the growth potential for both areas of our electrical business -- relays and custom products for the mining industry, and the base fuse business in expanding markets such as lighting and solar.

In spite of the headwinds of nonresidential construction, the electrical business is achieving record results and is well positioned for continued growth.

So to summarize today's call, our new business structure, with its improved cost position, is continuing to produce strong results.

Our margins continue to improve, and our record third-quarter cash flow is an indicator of the very strong cash-generating capabilities we've achieved as a result of our strategies to simplify manufacturing, become more cost effective, and increase efficiency.

Littelfuse is a stronger global competitor, and we are poised for continued growth.

Last quarter, I mentioned our updated growth strategy, which incorporates three components -- organic growth, growth through acquisitions, and operational improvements through our global lean initiative.

In the last quarter, we rolled out our refresh strategy to our employees around the globe through meetings at every location.

The meetings were very successful, and our employees are well prepared to execute on our strategies.

As we discussed last quarter, some of the growth areas we've targeted include the solar and off-road truck and bus markets, as well as expansion into emerging and high-growth geographic markets.

Several new product lines have excellent growth potential, including protection relays and custom electrical products from Startco, our new Silicon Protection Array product family, and battery protection products and protection products for advanced vehicle power systems.

We're excited about the opportunities we have in these and other areas across our business.

The breaking news item in our earnings release is our intention to initiate a quarterly dividend of $0.15 per share beginning in the first quarter of 2011.

This major step reflects the substantially higher earnings and cash flow that we expect to continue achieving through the successful business model we've created over the past few years.

After funding our organic growth, acquisitions, and potential share repurchases, we believe we will have the cash available to fund the dividend.

The dividend is one more indicator of the confidence we have in our future and our potential for continued strong performance.

I'll now turn the call back to Phil, who will provide the outlook for the fourth quarter, and then we'll open the call for questions.

Thanks, Gordon.

The following is our guidance for the fourth quarter and a few comments about our outlook for next year.

After six consecutive quarters of sequential growth, sales began to slow as we entered the fourth quarter, consistent with our earlier prediction.

We now believe sales for the fourth quarter of 2010 will be in the range of $138 million to $145 million.

The sequential decline in Q3 is due to the aforementioned channel inventory build on top of normal seasonal weakness.

However, our guidance still represents 8% to 13% growth year over year.

For the full year 2010, our sales growth is expected to be over 40%, which would place us near the top of our peer group.

Operating margin for the fourth quarter is expected to be in the range of 17% to 19%.

This is up substantially from the prior year's 12% margin and is down sequentially due to lower sales and headwinds from commodity prices, partially offset by additional savings from manufacturing transfers.

Earnings for the fourth quarter of 2010 are expected to be in the range of $0.75 to $0.85 per share, assuming a 31% tax rate.

Capital expenditures are expected to be slightly over $20 million for this year and in the neighborhood of $30 million for 2011.

Although visibility into 2011 is rather limited, we believe that our end markets are fundamentally healthy and that our key growth initiatives are gaining traction.

While market growth rates have certainly slowed from the torrid pace of earlier this year, most forecasters are still projecting growth for 2011.

For example, iSuppli is projecting that the global semiconductor market will finish this year at 32% growth and then slow to 5% growth for next year.

We think this is a good proxy for our electronics business and consistent with our plan for moderate growth in 2011, despite what may be some lingering distributor inventory issues earlier in the year.

This concludes our prepared remarks.

Now we'd like to open it up for questions.

(Operator Instructions).

And your first question comes from the line of Shawn Harrison with Longbow Research.

Please proceed.

Morning.

I just wanted to follow up on kind of your last statement there, Phil, in terms of some distribution inventory lingering into early 2011.

If I look at normal seasonality for your electronics business, say in the December quarter, it looks like you're seeing an inventory pull down of distribution that may be 2x kind of what you saw in terms of an overbuild in the September quarter.

Maybe if you can just kind of correct me if I'm in the ballpark on that, and then just how much longer into the March quarter do you think kind of this de-stocking pressure could linger?

I'm not -- Q4 is normally seasonally down for us anyway.

So typical seasonal decline might be in the 6%, 7% range, sequentially down from Q3 to Q4, and then on top of that we have some inventory issues.

So I'm not sure it's 2x the $4 million.

I think it's -- $4 million is just an estimate on our part.

We do think it's a relatively short-term inventory issue, and as long as the end markets remain healthy, as they appear to be right now, we think we'll work through this relatively quickly.

But typically, inventory issues tend to linger a little bit longer than you think, so we are just hedging our bets a little bit for the first quarter, thinking that there could be some impact, certainly in the first couple of months of the first quarter as well.

Okay.

I guess the real factor here is lead times are normalizing or essentially have normalized throughout the supply chain.

Where do you think your lead times are versus normal?

Where are your competitors' lead times?

And the reason I ask that is it seems that you've definitely picked up a heck of a lot of share throughout 2010.

Is there any potential that you kind of lose some of that share back to peers as their lead times have normalized?

Well, I think we picked up -- I don't know about a heck of a lot of shares because of our lead times.

I think we picked up some share on the margin, is how I would characterize that.

And sure, there's always some risk, as competitors get their lead times back down, that they can come back after some of that share, although we're not expecting to lose share in 2011.

So right now our lead times are pretty much, for almost all our products, where we'd like them to be.

They're a matter of a few weeks in the fuse product lines, and they're probably out at eight to ten or 11 weeks in the semiconductor product lines.

And I would say our competitors who had been out at 20 weeks-plus in some cases on a few semiconductor products, those have definitely come back in, although they're not -- I think we still have a bit of a competitive advantage there even now.

Okay.

And just final question.

Incremental gross margins this quarter look like they're going to be I guess a little bit -- I guess nothing has been normal lately in terms of -- but it looks like you're going to see some commodity pressure in terms of the incremental gross margin.

Do you think you'll get pricing offset to push back the commodity increases to customers during 2011, or is that just something that you're just going to have to kind of offset with efficiency and anything else going forward?

That's a good question.

I think it depends a bit on where commodity prices go from here.

If commodities like copper and gold that have been on a bit of a tear lately continue to increase, we will absolutely be pushing pricing up in our products that are significantly exposed to those commodities.

If commodities settle down from here -- we're not going to get a lot of pricing help in the short term, but if we continue to see commodity pressures through 2011, we will absolutely try to recover some of that in pricing.

And in the past, we've generally been successful in recovering not all of it, but at least a portion of it.

Okay, thank you very much, and congrats on the quarter.

Thanks, Shawn.

Your next question comes from the line of Alek Gasiel with Barrington Research.

Please proceed.

Hi, Gordon.

Hi, Phil.

Great quarter.

Hey, Alek.

Thanks.

I guess I want to comment on the commodity impact on third quarter.

Can you provide any details on that?

Did you feel it versus what you're going to see in the fourth quarter?

I mean, certainly we started to feel some commodity impacts in Q3.

I think it's going to be a bigger impact on Q4, though.

We usually have a little bit of a lag 30 to maybe 60 days in terms of when the commodity price goes up and when we actually see it flow through our P&L.

So we have that impact, and certainly prices continued to go up pretty much through the quarter.

So I think although we certainly did have some impact on Q3, the bigger impact will be on Q4.

Now with the -- you've recently done repurchases and with the dividend initiative.

How should we think about capital structure?

Well, I think that -- I wouldn't expect a big change in our capital structure.

I think really the stock repurchase and the initiation of the dividend are really -- the reaction to our view of what our cash flow-generating -- our internal cash flow-generating capability is going forward, and the fact that we believe we're going to be earning more cash flow going forward than at least our historical acquisition program would require, as well as funding all our other growth initiatives.

We think just from our internal cash flow, we're going to have enough cash to comfortably fund a dividend.

And that's really without going to banks or without going to our revolver.

The decision really is just based on the ramp-up in cash flow that we see over the next several years.

Do you see the board implementing an additional repurchase down the road?

Because you said it's a million-share repurchase.

Right.

Our repurchase programs have typically been -- they've been more opportunistic in nature, not necessarily sizable enough to fundamentally change our capital structure, and that's never really the intent.

But I would expect that we would -- the board would -- when this authorization runs out, the board would give us another authorization to opportunistically buy back shares when we think it's an appropriate time and an appropriate value.

Okay.

And last question.

With the growth in the mining industry and with Startco, what do you see in the long run?

Possibly implementing a plant?

I guess in, let's say, China or in South America, is that something strategically you may have to look at?

Because I know the custom relay products can be -- are quite big.

Yes, that's a good question.

It's a possibility in the future.

If we find that we can benefit from having a plant close to a mining center like we have in Saskatoon, that is a distinct possibility.

We certainly, as we have learned more about the mining sector, see an increased need for electrical protection and a long, steady growth cycle, as I mentioned, for products like potash and copper.

So it's a distinct possibility that we continue to invest in that business, and it may mean the building of a facility somewhere other than Canada to build those custom products for other segments.

All right.

Well, thank you for taking my questions, guys.

Thank you.

(Operator Instructions).

And your next question comes from the line of Tony Kure with KeyBanc.

Please proceed.

Good morning, gentlemen.

How are you today?

Very good, thanks.

Hi, Tony.

Hi.

Just a couple quick questions.

I didn't hear if you called it out.

I apologize.

Growth on the protection relay/custom products side of the electrical business?

We didn't call it out in specific numbers, but we did say that it was -- that we had significant -- certainly significant year-over-year growth.

Is it safe to assume that it grew sequentially too, or is that not good to assume for the third quarter?

It may have grown modestly, but it wasn't a huge sequential increase.

I think we did say the overall segment grew sequentially, so I think you can assume that that segment probably contributed to that

Okay.

And then you talked about the proxy for electronics.

You cited that iSuppli study, 5% growth or so.

Just given that growth forecast, and then as I look across to automotive, we talked about production growth next year globally up I think 5% also.

But given your -- what seems to be content wins and product wins and new products there, I mean, wouldn't you be -- wouldn't it be a safe assumption or wouldn't it be good to assume that you could outpace that 5% in auto next year?

I think it's a possibility.

I think also that we give up a few percent in price increases, so we talk about a volume increase in car production of about 5%.

We'd expect to see a small increase in fuse and circuit protection content for vehicle, so growing more than that 5% of production.

And then we'd expect that we give up a few percentage in price decreases is the norm in those automotive contracts.

But I think it's safe to say that if we aimed in the middle single digits for our automotive business, I think that's a safe assumption for next year.

Okay.

And then I guess you talked about the 15% operating margin is going to be exceeded.

Would you care to take a swing at what -- I mean, are we talking 16% to 17%, or are we talking something beyond that through the cycle?

The answer to would we care to -- the answer is no.

We respectfully decline.

Okay.

Fair enough.

Thanks, guys.

Thanks, Tony.

And your next question is a follow-up from the line of Shawn Harrison.

Please proceed.

Hi.

I didn't expect to get back in so quick.

A few follow-ups.

In terms of the restructuring, maybe if you could just discuss kind of what's left on both kind of hitting the P&L, and then also just cash outflows as we look into the December quarter and into 2011.

Yes, Shawn, we're largely through at this point.

But the main piece that's left is the final semiconductor plant consolidation, which is our Taiwanese plant.

This was the acquisition that we did back in 2006 of Concord Semiconductor.

So we still have a plant in Taiwan that's making the majority of our TVS diode products, which has been a -- it's been a high-growth product for us since we bought it.

And we've had very strong growth this year, so we are -- we pushed out the transition date of that plan a little bit originally.

I think it was going to be right around the end of this year, and I think more recently we pushed it out to the end of the first quarter.

And I think now it looks like it's going to be -- it's going to be probably -- going to be a second-quarter 2011 event when we actually consolidate that plant into Wuxi.

Now, we'll start bringing -- we've already started to bring some of those products into the Wuxi, China, facility, but it'll probably be close to the middle of the year before we're completely through with that transition.

And that was a few million dollars of incremental savings.

Yes, exactly.

A couple of million.

Okay.

And then in terms of just modeling the cash outflows with the remainder of the restructuring, how much cash costs are left?

It's probably not a lot from here, I would guess, between now and the middle of next -- we still have some German costs yet to fund, since that isn't completely done, although it's mostly done at this point, and then it would be the Taiwan factory.

So it would be probably no more than $5 million that we would be spending on additional cash costs over the next three quarters.

Okay.

And then on the electrical business -- I'm sorry if I missed this during the prepared remarks -- I thought you said it may be seasonally slower during the December quarter.

I know it's typically down kind of mid-single digits.

Is there anything to expect that it's going to be worse than that this year?

No.

With regard to the electrical business, we've got good momentum.

I think I called out specifically that we still have a very weak nonresidential construction business, which is not -- this is a US business that is not recovering any time soon.

But to the rest of the business that we're making good progress with OEM business, and particularly in some segments like solar and lighting.

So not expecting anything -- more seasonal decline in the electrical business in the fourth quarter.

Okay.

And on the nonres side, I mean, built into kind of your early 2011 thinking, is it essentially a continued decline, or just no growth and the growth you would see within the electrical business is really tied to kind of what you can do with more your specialized products and then the mining markets and then any share you take because of new design wins?

That's correct.

We're not counting on any growth in nonresidential construction in 2011.

And all the initiatives that we have, as I mentioned, in solar and then, of course, all of the protection relay and new products that we have -- all of that is more than compensating for the flat part of the nonresidential construction part, which with the broadening of all of the electrical product offering with the Startco products, that dependence on nonresidential construction, which was about 40% of the original fuse business, has become a much smaller part of the business.

So much less impact on the total electrical segment, which we think will have good growth next year.

Okay.

Thank you very much.

At this time, there are no further questions.

I would like to turn the call back over to Gordon Hunter for closing remarks.

Well, thank you for joining us on the call this morning and for your comments and very good questions.

We are pleased with our performance in the third quarter, and we look forward to an overall strong performance for 2010.

So as always, we appreciate your interest and support.

Have a good day.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect, and have a great day.