Plexus Corp (PLXS) 2003 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Plexus Corp., call regarding its Second Quarter Earnings Announcement. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open the conference call for questions. The conference call is scheduled to last approximately one hour. I would now like to turn the call over to Mr. Kristian Talvitie, Plexus’ Director of Investor Relations. Kristian?

Thanks. Good morning and thanks for joining us today. Before we began, I would like to establish that statements made during this conference call that are not historical in nature are forward-looking statements. Forward-looking statements are not guarantee since they inherent difficulties and predicting future results and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of major factors that could cause actual results to differ materially from those projected, please refer to the company’s periodic SEC filings. Before we start, I would also like to note that we issued our press release last night after the market closed. We did that in order to make this process little easier for investors on both coasts. Please feel free to provide us any feedback regarding the new process after the call, you can feel free to give me a call. With that, I will turn the call over to Dean Foate, our President and CEO for some brief prepared comments and then we will open the floor for questions.

Thank you Kristian. Good morning everyone. With me hear today is Gordon Bitter, our Chief Financial Officer and Tom Sabol, our Chief Operating Officer. Yesterday evening we announced that sales for the quarter were $191m with an EPS loss of 12 cents. These results are in line with revised guidance we gave in our March 28th preannouncement. Revenues were down sequentially by $14.6m or approximately 7%.

Looking at our industry sectors, as expected, networking and data com was down 8%. This was driven primarily by the phase out of the Powerwave business which should be complete in the June quarter. We did see a small but encouraging up tick with a few leading customers in this sector. Medical is down 12%, which reflects the anticipated seasonal weakness. You may recall that medical was exceptionally strong in the prior quarter. Industrial/commercial was up 5%, reflecting some improvement coming after a terrible first quarter. Computing was down 15%, we expected some seasonal effects, but we experienced additional adjustments in customer forecast due to end market demand softness and continuing inventory burn down. Other sector was up 12% reflecting a slight up tick from a number of customers along with a ramp of expense programs emerging out of the NPI phase.

As we look out to the third quarter, the industrial/commercial sector is the only sector currently expected to be down sequentially, driving the anticipated improvement in the remaining sectors as a combination of share gain with existing customers, continuing program ramps, and new program wins. Our investment in sales and business development leadership and talent continues to build the opportunity pipeline. We have won four significant manufacturing programs. Three are with new customers along with the number of new engineering wins. Of the manufacturing programs two are in networking and data com sector, one is medical, and one is computing. Most of the engineering programs are medical with some on the networking/data com and computing sectors.

Now let me turn to our guidance. We currently expect the second quarter to be a top quarter for the year. We are initiating revenue guidance from the third quarter of $190m-200m recognizing the uncertain global economic environment and the fluctuation and market demand across all our industry sectors. Assuming this level of revenue, we expect an EPS loss of 10-7 cents for Q3 excluding the cost of the restructuring actions that I will now discuss. We announced the restructuring plan yesterday, which is composed of three elements. One, the closing of our Kentucky manufacturing facility, which has become increasingly non-strategic; two, the refocusing of our PCB design group to move away from non-strategic transactional business; and three, headcount reductions in both engineering and corporate staffing to better align our cost structure with expected revenues. These restructuring actions in addition to those previously announced are important steps in our commitment to return to profitability. Just as important, we expect these actions to sharpen our focus on the capabilities, technology, and global services that add value to the involving needs of our current and targeted strategic customers. I will now turn the call over to Gordon.

Thanks Steven. Good morning everyone. Let me first discuss the second quarter’s financial results and then provide you with some detail of the restructuring programs that Dean has described. Revenues for the second quarter were $190.8m and we had a net loss. It was equivalent to 12 cents per share, but these results were consistent with our preannouncement on March 20th. Revenues were down sequentially, that is, quarter-over-quarter by $14.6m or approximately 7.1%. The sequential sales decline reflects as Dean mentioned primarily the phase out of the Powerwave account during the second quarter as well as anticipated seasonal weakness in the medical sector. Against last year's second quarter, revenues were down $40.4m or 17.5% and this decline reflects the generally weaker end market demand across all sectors except medical. Gross margins for the quarter were 5%. This is below the first quarter 7.6% and well below the prior year's 8.9%. Against both previous bench marks the lower gross margin in the current quarter reflects both the effects operating leverage at lower revenue levels and generally lower pricing. SG&A for the second quarter was $16.8m, roughly the same dollar amount as the last quarter and about $500,000 or 3% greater than the comparable prior year period. The higher spending in this quarter against last year reflects primarily continued investments in our global IT initiatives. I should mention that building number five in Neenah is scheduled to be converted to the new system in the first week of May and this will be followed by Chicago. The effective tax rate for the quarter and year-to-date is approximately 30% and this low rate reflects primarily the write off of non-tax deductible goodwill.

Turning to the balance sheet and cash flow; Cash flow from operations was positive by nearly $15m as a result of strong cash collections. Accounts receivable at $80.9m reflects 45 days sales outstanding after adding back to the receivable balance the $15m utilized under the company's asset securitization facility. This compares favorably the 47 day's sales outstanding at the end of the first quarter. Inventories were up slightly over the prior quarter end, but as a result of lower revenues inventory turnover declined quarter-over-quarter from 7.7-6.9 turns. Inventories were essentially flat because of new customer wins and greater vendor managed inventories held on behalf of some of our customers. Capital spending for the quarter was $5.4m and this was less than depreciation for the quarter which was about $7m. We are still anticipating capital spending for the full year to be between $28m and $32m.

Let me now address the restructuring actions which were announced yesterday. First, the manufacturing side in Kentucky will be closed by the end of September and production shifted to other sides in the United States and Mexico. The Kentucky facility faced a difficult future competing with lower cost or more technologically advanced facilities. Approximately 250 people will be affected by this closure. Secondly, Plexus PCB design group will be more sharply focused to support important engineering and manufacturing accounts. They will no longer pursue standalone merchant design opportunities. PCB design locations in Nashua, New Hampshire, Kelso, Scotland as well as at some other smaller locations will be closed or significantly reduced. This action will allow Plexus engineering to focus on supporting strategic manufacturing accounts. Approximately 30 professionals and technical employees will be affected.

Finally, a reduction in force of the company's corporate staff will get primarily in Neenah Wisconsin; an engineering staff primarily in Seattle Washington will reduce employment levels by approximately 120. The total restructuring charge for these actions is estimated at $12m of which the estimated cash charge is about $5m principally for severance and the termination of short-term leases and software licenses. I should mention that the facility in Kentucky is owned, it's not leased, and the expected sale of the building will reduce the total cash outlay of the restructuring. The non-cash charges are primarily related to write off the fixed assets most of which are at the Kentucky side. Altogether as a result of all these actions approximately 400 people or about 8% of our workforce will be affected. We anticipate in achieving annual savings of approximately $6-8m, principally in lower manufacturing costs. Although some benefits will be evident in the fourth fiscal quarter, the full benefit will not be achieved until the first quarter of fiscal '04. At this point, I also think it is worth noting that we believe that we have learned from our missteps of last quarter with regard to estimating the cost and the timing related to transitioning customers and closing facilities. As a result, we have factored additional transition cost related to the Kentucky closure into our EPS guidance for the quarter. With that, I would like to open the call for any question you might have. Please limit your questions to one question and one follow up per person, operator?

At this time, if you would like to register your side for a question, please press the "*" then the "1" on your touchtone phone. To withdraw at any time, please press the "#" key. Once again, if you would like to register your side for a question, please press the "*" then the "1" on your touchtone phone. We will first go to the side of Michael Walker from Credit Suisse.

Thanks a lot. Just two questions, the first is do you have an estimate of what breakeven revenues would be like at this point?

Well it’s over approximately -- if you look at our numbers, our recently reported numbers, Mike, it’s approximately $200m per quarter.

Okay. And what are the expected capacity load factors that you would have at the end of the restructuring period and where are you now?

Yeah, for this quarter, we were at just below 50% from a manufacturing standpoint and upon completion, at the $200m assumed revenue run rate of breakeven, we would be somewhere between 55% and 60% utilization.

Okay then, [height] of this is, if you brought it up earlier, but what's the expected amount of time that the restructuring period will take?

It should be completed by the end of Q4, so we would see, as Gordon said, all of the benefit in fiscal Q1 of 2004.

Okay.

That would include the other actions that were previously announced that are currently in process, so that will be completed by that time as well.

Great, thank you.

Our next question comes from the site of Thomas Hopkins from Bear Stearns.

Yes good morning everyone. Could you talk about what you’ve seen so far, the first 3.5 weeks of April versus the June quarter versus March versus say last year or prior years, the kind of complexion that you see at the beginning of the June quarter?

We would say that the quarter has started out off of clearly a weaker end to the second quarter as expected, a mix bag of some upside from some customers already identified and some reductions in forecast, but nothing significantly different in what we have really probably seen here over the last 2-3 years. It’s a very a difficult environment, especially in networking/data com and computing.

Okay and secondly, what -- you have named some newer programs and customers here. What's the opportunity in terms of some of the organic outsourcing that’s out there or maybe even some of the OEM divestitures in terms of maybe some non-traditional Plexus markets? Are there any new segments or sectors you guys are investigating? And if so, how quickly can something like that come on 6 months, 12 months, 18 months?

Well, this is Dean. I will start with this and I will invite others to add to it. We are not necessarily pursuing business that’s been substantially disconnected from our strategy and our focus historically here on complex high technology products. Just to give you a sense of what we are seeing in our pipeline that we are currently pursuing, we have a number of opportunities here, three of that are in the over $100m pockets. So, in terms of size, in terms of past historical business for Plexus, we are seeing a pretty good -- the chunks business that are available. We have also got --

I am sorry, is that a $100m each?

Yeah we have three of them that are exceeding $100m each.

Okay.

We are working hard in our pipeline; we have got another three of them in $50-100m bucket and another five of them or so in $25-50m bucket. So, our investment here in upgrading our sales and marketing leadership and our field sales of assets is starting to pay off here in terms of giving a look at much bigger opportunity. All of these are -- I shouldn't say all of these -- most of these are traditional outsourcing, there are number of that -- that is moving towards the exit of manufacturing or reduction manufacturing as the facilities. But we are not looking at any facility acquisitions with any of these opportunities.

Okay great, thanks.

You are welcome.

We will next go to the side of Stephen Savas from Goldman Sachs.

Good morning. I guess, I wanted to get a sense of maybe progress of the ramp of some new business wins in the last couple of quarters, you had a quite a number of them, some of them on a larger side like in [NMS]. And I was wondering how did they track in terms of incremental revenues for March versus your expectations and how the outlook for the -- their incremental revenues for June?

Yes, the new opportunities that have been aroused with, you know, as you indicated [NMS] and a couple of others. In the networking/data com area, those continue to, you know, track at the low end of where we would have expected them to be. Our medical opportunities tend to be tracking as expected and ramping as expected. So, we would say that -- as Dean indicated, you know, the networking/data com was down in the quarter mainly due to the power rates. But, you know, we clearly had ramps there with new customer wins that helped us offset the loss of that even though there was clearly end marketing weakness in the networking telecom group.

Okay and then within medical, I mean, are you saying that Siemens was the only 10 plus percent customer for the March quarter? Some of GE, I know, coming down would be seasonality, is there anything else going on with GE like an end of life or product transitions?

No there is not.

Okay, So is it merely seasonality or is there anything demand related?

We would say all we are seeing from them is expected seasonality.

Okay. Thank you.

Our next question comes from the side of Alex Blanton from Ingalls & Snyder

Hi good morning. I have a little bit of problem with your gross margin in the quarter. Maybe you could explain it. Sales were up of about $14.6m sequentially and the gross profit was down about $5.9m sequentially. So that's about a 40% incremental. And you have indicated that breakeven would be $200m in the quarter or about $10m more than you did. But to get the breakeven you have to earn $7m more than you did. So I am wondering how would you get back to breakeven with just $10m more in sales quarterly since you have to bring the profits at $7m to do that. And also perhaps the answer is that the breakeven that you gave is after the restructuring. So could you address that?

There are lots of elements to your question. First of all, the current quarter's profitability was impaired from some of the incremental transition costs on the prior restructuring that we announced, specifically San Diego. There are some transients going through the second quarter.

In the gross profit line?

Yes, absolutely.

How much was that?

I don't think we have identified that specifically.

Though the original guidance was, you know, for us to be at a loss of somewhere between 3-5 cents and we had a 12-cent loss and the majority of that miss, while some of it was clearly sales and market related. The majority of the miss was inefficiencies and additional cost associated with the -- restructuring in Q2.

Which got charged to earnings, this is kind of like a one-time charge that actually got charged to earnings.

Yes, it is. Well, its inefficiencies and additional cost associated with that.

Yes.

Those were not treated as the one-time cost, those were charged to earnings.

But you didn't identify those as reasons for the dropping gross profit margin from the first quarter in your opening remarks. You said that it was operating leverage on lower revenue and lower pricing. But you did not identify these other costs.

Well, I did not break it out specifically; however, it's included as part of the operating leverage.

As part of the operating leverage. How much was pricing of that total?

I am not going to be precise on that.

Okay. One -- part of it was -- that's the breakeven of $200m, assuming that restructuring has been completed?

Yes, and that was included in the remarks, but after all of the restructurings and assuming a $200m run rate, we would expect to be breakeven.

Okay. Fine, one more thing, industrial/commercial, you said the only effect would be down in Q3. Why is that?

Well, this is what -- of course, the forecast volatility continues here and as we look out into our upcoming quarter, that is what we are achieving now for customer orders. We are seeing improvements in revenues across all the other sectors, some of it based on ramps of new programs, some of it based on demand improvements of our existing customers. And we continue to see quite a bit of volatility in commercial and industrial sector. It was a terrible first quarter for us, where it fell off dramatically. We have customers in that sector for us that have very different end markets, and I think many of those customers were surprised at their demand fall-of and I would just estimate right now that customers in that sector are being very cautious in the forecasting looking forward.

What are those end markets?

Some of it is industrial metering technology, some of it is, what I call, financial services, some of it is semiconductor equipment. It’s -- we have a very long list of customers that are end-market sub-sectors that will lump into that sector.

Okay. Thank you.

You are welcome.

We will next go to the side of Brian White from Merrill Lynch.

Hi guys. If you look at this new restructuring plan here, you said you embedded some additional costs into your restructuring charge. You are going take for potential cost overruns, but is the risk level of some of these programs -- transferring some of the programs in the Kentucky facility to other operations -- similar to what we saw in transferring some of the medical business from Wisconsin to another operation or is just something that can easily be transferred without delays?

We would expect this transition due to the less complex nature of the products to be more efficient, more effective to the other sites and, you know, the requirements associated with moving medical products from facilities to facilities; that would clearly be part of it.

And if we look at the number of customers at that Kentucky site and the type of product, can you give us a little color there?

It’s mainly industrial customers at that site, and there are roughly slightly less than a dozen customers at that site.

Okay. And can you add some light on, you know, recently Jennifer indicated that, you know, they are -- they have not got one [EMS] providers, and they have essentially gone to two. You indicated in January that you are going to maintain your existing business with the [Unix peer] program. But, do you think you could also benefit from this one [EMS] provider losing the [inaudible] relationship?

Well, I am glad you pointed that out because this has been one of those overhangs with us for some time as to whether or not we are going to hang on to our [Unix peer] business and of course, we confirmed that we would. They did announce that they were consolidating the business with two, and we would expect that that would benefit Plexus. But what they are asking is not to talk about any sort of specific program wins with them.

Okay great. Thanks a lot.

You’re welcome.

We will go next to the side of Shawn Severson from Raymond James.

Thank you, good morning.

Hi, Shawn.

Could you just touch into -- get on the three new pipeline opportunities, I guess, you talked about -- at $100m. Could you give us a more color on timing as when they are ramping and maybe in which categories?

Let me -- we have talked about new wins and then we have also talked about the pipeline, which is different. The pipelines are programs that we’re working to, to hopefully win. They are all in front of us right now. Those pipeline programs -- I talked about the three over $100m; we have got one each in our networking/data com sector, one in medical, one in our industrial/commercial sector. And now I will talk about the next big bucket here, which is 50-100. There we have one each in networking/data com, one in medical, and one in what we call are other category at this point. Let Tom talk a little bit about the new customer win and potential for impact with those looking forward?

Yes, on the new customer wins, one of them is a semiconductor equipment company, another one is a networking/data com customer, and third one is a medical customer. The semiconductor equipment company -- they are exiting some manufacturing and so that will ramp here over the next 3-6 months, as they exit a manufacturing facility. The networking/data com customer is a win away from a current tier 1 contract manufacturer; that is expected to ramp over the next 6-9 months as they transition away from their current supplier, and the third medical customer is also a transition from internal manufacturing that's actually moving over to Asia. That actually has already started and is in transition and again would be expected to ramp over the next 3-6 months.

Okay, and then just as a follow-up, on the engineering side, have you seen any change in customers' attitude towards outsourcing more there, engineering -- are they still underutilized, they've not had -- you know, internally that they are not really not open to that approach. I know that's going to be a big inflection point for you when they get busy enough to really start doing more work outside, I mean, where are you today in that process -- your customers in that process?

I would say there is certainly a willingness to outsource engineering work. I wouldn’t say that we at our inflection point now or they have an exceptional model work internally that's being funded that would force them to go out to the outside. But I would also add that we are being very aggressive on the sales front to take our services there and penetrate our existing customer base in an effort to accelerate winning some of these programs, and we do have a fairly decent pipeline of opportunities, but the closing process and [inaudible] process and time it takes to do that still has not changed.

Okay. Great, thank you.

You are welcome.

Our next question comes from the side of Michael Morris from Smith Barney.

Yes, thanks. Good morning everyone. My first question probably for Dean and Tom, I think this may pertain to events before Gordon took the reins. In the past 12-24 months, you guys have referred to a certain paralysis on the part of your customers in terms of willingness to act on new program ramps, on committing to production and so on. I was just going to ask you this morning, would you say that paralysis has gotten better, gotten worse, or is about the same as let's say 12 months ago?

Oh, let Tom gave give his perception. And I would say that my perception of it is that we are not -- I wouldn’t say there is a paralysis any more. I would say that the customers are very aggressively looking to outsource new program wins, but there is certainly what I would consider to be a very hyper-competitive marketplace. So the process that our customers are going through and the diligence they are going through to try to pick the right supplier for the business, try to get more competitive cost, certainly is dragging out the whole conversion timeframe.

I would concur with these remarks.

Second question -- back to the restructuring and I want to address it to the engineering division -- and after the restructuring could you tell us what you think utilization rate would be, what percentage of sales engineering would comprise, and will engineering be a breakeven or better?

Engineering would -- is and we would expect continue to be between 5 and 6% of revenue. Our goal would be that on the current revenue run rate that we would be at breakeven our close to breakeven in that group. I am sorry, Mike, was there a third part to that?

Utilization rate?

The utilization rate actually slipped a little bit this quarter to probably slightly below 70%, which was one of the reasons for taking the action that we did and with the reductions, Gordon, probably back up to around 75-80% after the restructuring within that organization.

You know, I think that’s about right.

Great. Thanks very much.

Our next question comes from the side of Roger Norberg from J.P. Morgan.

Good morning guys. Just to make sure I got that right, did you say that engineering was below breakeven right now?

Yes. We did.

Okay. So in terms of coloring contribution of the gross margin line, would I be right to say that manufacturing is doing relatively better in terms of supporting that 5% gross margin and engineering?

Yes. You would.

What about coloring that a little bit around the international boundaries, domestic versus international sites in manufacturing. Can you give us a little color on what the contribution is from your out of U.S. sites versus in US sites?

Yeah. The -- Mexico and UK continue to be good performers overall. Asia which is, of course, you know, overly but in the mix for about 18 months and clearly isn’t at the capacity utilization levels that we need them to be or at levels probably slightly below but again purely due to our capacity utilization issues, we clearly are working on new program ramps with current customers, as well as new customer opportunities that we would anticipate providing for those to be at or above the average on a go forward basis.

Okay and just another color question. The other day one of your large competitors reported, and their outlook on the call got so [giddy] that I had to check my calendar to make sure it wasn’t 1999 again. And they really are highlighting, I think a lot of the industries trying to highlight that they all want to kind of move into your backyard, all believing that there is massive opportunity to grow their businesses in medical and specialty industrial. I noticed that you cited one win in medical this quarter. Is that below normal and can you give us color on the landscape? Are there a lot of new faces showing up at the tables on these types of projects? And how do you defend and send them off?

Well, let me start by answering by approaching the medical sector from a competitive standpoint. We certainly didn’t expect that we were going to be the only significant EMS provider in medical from some points in the past until infinitum. Clearly there is an opportunity to make money in the medical sector and we see other competitors approach the medical marketplace in attempt to develop business for a number of years now. I would also say that there has been some success among some of our competitors beginning to kind of crack into that marketplace. But clearly we’ve got significant first [mover] damage in medical.

Some of the activity that’s going on out there in the market place with our competitors is helping, I think, to begin to turn some of the customers that have not historically outsourced a great deal all in all. It is getting to make them rethink their strategy and look toward outsourcing and when they do, they begin to go through a process to determine who has got the best processes and systems in history of supplying products to the medical marketplace and clearly we are in a leadership position when that happens. So I don’t know but I would say that one is above or below average. I think these program wins come in lumps and chunks as we move along forward in the marketplace and but I would also say that there is very nice pipeline of medical opportunities with existing customers that we have had relationships work for a long time in terms of capturing additional business and share. And the results of number of customers are opportunities there with other companies that have not significant outsourced in past that we are in a very good position with.

I think the one other significant advantage is the engineering -- front-end engineering that we have. This is I think was indicated or should have been indicated that more than 50% of our engineering revenue is in medical and a number of our new customer wins here in engineering have been medical and/or with the number of tier-one companies that we have not done business with in the past. So we clearly are seeing and believe that we will see some good growth in medical on a go forward basis as those programs move through engineering and in the manufacturing.

Okay and just one final question on staying on medical. I would appreciate opinion since you’ve been doing this longer than I think anybody in the substantial fashion in medical, do you think your competitors are properly estimating or over estimating the size of the medical opportunity, number one. And then number two, do you think based on what you see, in terms of the pricing and negotiations that they properly understanding what the support costs are in handling a medical customer such that it's properly reflected in the pricing.

Well, I don’t think it is difficult for us to answer what our competitors are properly estimating. I would say that that it is important for those pursuing business in the medical market place to recognize that the programs -- individual manufacturing programs tend not to be as large as programs in some other sectors, that the complexity in terms of supporting manufacturing processes and the design related processes is for their requirements -- there is additional cost there and there is additional technology that's required to do that. So whether they are properly estimating it, I don’t know but there – there certainly are some barriers there that could be recognized and priced into the programs.

Thanks guys.

You're welcome.

Our next question comes from the side of Rick Reed from Robert Baird & Company.

Hi good morning. I just wanted to ask again about the pipeline of business. Can you talk a little bit about how competitive it is from a pricing standpoint, in the likelihood of success standpoint, and then as you capture business how quickly would you expect to be able to convert that into revenue?

Well, I would say that the environment is hypercompetitive and we've even seen some what I would consider to be predatory pricing even on complex products in the mid-to-low volume programs. So we are seeing some of the competition of the price that starts nearly low levels. Sometimes we've even seen some direct -- only direct cost pricing in others, not fully absorbing overhead. So there is a little bit of insanity that occurs in the market place from time to time. We are not afraid to walk from business if the pricing gets ridiculous but when customers are intelligent about the process and they understand that there is more to price then just the cost of the product that will be China then we can compete well and we compete well on the total cost standpoint. So we are winning our fair share in terms of a conversion from when you win to when you see revenue and very significantly. Some of these programs are programs that are currently being dealt by competitors. When you transition programs, there is some inventory transition efforts that have go through competition. They have to burn down inventory for the programs to move over. Some of the programs we have won in the engineering stages, so that means time frame, [rent] to revenue is much further out in time. So it really depends – in fact it greatly dependent on the individual programs.

And just quickly of the new wins that you announced today. Is any of that slated for Asia?

Yes. One of the new win is slated for Asia.

Great. Thanks guys.

You're welcome.

We will go next to the side of Dave Miller from Kaufman Brothers.

Good morning. Could you just talk a little bit about your cash cycle days and inventory returns down a little bit kind of -- what you are going to reverse that going forward?

Well, we didn’t know there is specific cash cycle days. Receivables, as I mentioned, are in pretty good shape. DSL actually came down. Inventories were up a little bit, less than a million dollars but I will also invite your attention to customer deposits which were up about $4m, that's kind of an offset and to the inventory build up. We are seeing some increase in inventories. Really, mainly to support [Ramps] with new opportunities that are out there; and accounts payable as we've described elsewhere, we don’t believe in abusing our suppliers and we don’t like that as perhaps as hard as our competitors. We think that long term this is a real advantage to us.

Okay so in cash cycle days in high 50s -- 60 -- low 60s that's a good number?

Yeah.

Okay. And just I guess I will ask the requisite SARS question. You are talking about moving some programs over to Asia. Are you baking in any delays in travel over there? Have you seen customers cancel site business there is anything along those lines?

I was wondering when the SARS question is going to come up and it's really appropriate you have given the environment we are in. I would like to just run down a few things here to give everybody a sense of our exposure to the risk. First there are no employees at Plexus that have been detected with the SARS virus. We've seen no cases in the local areas where we do business. There has been no fulfillment impact today. There has been no disruption in the supply chain but I would say that there has been some inconvenience with travel and what that's really forcing us to do is conduct business as best we can with other communication technologies and to just to try to avoid travel, but we are seeing our customers travel. They are -- we’re routing them to different ports in order to get them in and out of the local regions there to try to avoid the hot spots where the SARS virus is growing. So, at this point, we are not expecting any impact to our business; however of course if this continues prolonged and it continues to spread unabated, it’s hard to predict what's going to happen to the end markets for our customers and what the overall impact would be to them to get product into those geographies. We are taking a number of initiatives to protect employees. We’ve got health advisories up. We are working with other companies in the area that share best practices and information. Plexus employees do not live in dormitories. So, we offer them advice on how to avoid cordoned areas, where there may be a better -- potential to catch the disease or restricting visitors to the sites. All the suppliers, they are not allowed in the facilities. They are conducting business over the phone. We are masking certain individuals, particularly the security guards. The people have the controlled access to the various sites. And we are also evaluating other -- the benefits of certain screening methods that you have seen from time-to-time more people are doing heat temperature checks and some of those, we are evaluating the potential to do those just to provide an additional level of protection but -- and then lastly just sort of [speaking] from business risk standpoint, only 5-6% of revenue overall, although its growing, its currently over there. At this point, we still expect the [real] transitional additional business there growing, but again it’s a little bit of uncertain future at this point and if it doesn’t move over to those facilities, we will have to work with customers to build it in either North America, either in United States or in Mexico for the time being until the risk subsides.

Okay, great. Thank you.

You are welcome.

Next we will go to the side of Chris Lippincott from McDonald Investments.

Good morning. I don’t recall if you had mentioned the potential revenue where the range at least in some of your new customer wins you announced this morning?

The ranges there for each of them individually would be in the $10m-$20m range with one being potentially double that amount based on additional outsourcing being anticipated by the customer.

Okay. That’s on an individual basis?

Yes, it is.

Okay. And just with regards to the program transfer costs going forward, I was wondering how we might expect the margins to improve going forward if at all concerning the fact that some of those might be embedded in the margin for next quarter. Might we see some of the better improvement actually impacting perhaps the December quarter? So can I get a sort of an idea of how this might progress?

Yes, its pretty complex but we will start seeing it in the third quarter and certainly in the fourth quarter, the benefits from the San Diego closure. Having said that, we will impair gross margins for the third and fourth quarter from the announced Kentucky closure. You should see some improvements -- a little bit of improvement in Q3 and a lot of improvement in Q4, and then a full effect of all the closures in Q1 of '04.

Okay and with your ERP rollout, I was wondering if you are seeing any benefits from that at this point or if you are seeing a little bit more expenses on the SG&A line or perhaps if that’s starting to benefit you?

We are certainly seeing the expense side in the SG&A line. I think the benefits -- the full benefits are in the future although we are seeing some benefits on inventory management already I believe.

I would just add that the benefit that doesn’t obviously drop to the bottom line in the new term is the benefit of our commitment to the technologies with the base ERP system and then the customer facing technologies that are attached to it and the benefit that it provides the customers in terms of winning new business.

And giving the fact that you are now in this headcount reduction, should we expect that all else being equal, they all should essentially balance out? We should see essentially a flat absolute dollar level for the SG&A?

Yes. It should be flat to down.

Okay, great. Thanks.

Our next question comes from the side of Carter Shoop (ph.) from Deutsche Bank.

Good morning. I have a couple of questions here. First one on restructuring. Sounds like the benefits from the original restructuring charge, the $50m $60m charge with original cost savings were assessed to be around $15m-$25m. It sounds like that restructuring will be wrapped up around fiscal Q4. I am just curious whether cost savings are still in target?

Yeah, Carter I think we estimated $15-20m and I would say, yes, we still are on target to achieve those. However, getting on them has probably been delayed a quarter, quarter-and-half.

So by Q1?

Yes.

Okay, great. And then I also have a question on Unisys here. You guys have mentioned earlier that consulting from three to two EMS players, [Unisys] at one point was 10% plus customer. I would assume that you are bringing up the new business here with the original [Unisys] program. I was curious if you expect them to pop up above 10% in anytime in the near future?

Yes. Carter, [Unisys] was never a 10% customer of ours.

Never?

No.

Wait a minute, I thought they were in 3Q of '01, 11%. No?

No. Top 10, not a 10% customer in any quarter. Again as has been indicated there, we would expect to win new business, but we have been asked by the customer not to discuss specifics associated with that type of activity with them.

Okay. Fair enough, but is it safe to assume that that business with [Unisys] would be increasing due to spender consolidation? Due to spiking rates of the company.

We would certainly expect to be competitive for gaining our share of that business.

Okay, great. And then with GE Medical, which I guess, fall off by 30% or so sequentially or at least. Would we expect a pretty healthy balance then in the next quarter here, around 20% or so from that customer?

We haven't really talked about specifically what is going on with GE Medical other than to say that overall sector has been down seasonally. So we want to be careful about implying any sort of end-market guidance for GE.

Okay, just based on the fact that 30% customer in last quarter there. Okay, great. And then, one last question here in regards to geographical breakouts. I think you guys usually give us that breakout by geography and percentage sales. I wonder if you could give that to us? The Asia, Europe, and the Americas?

In terms of our percent of revenue in the various geographies?

Yes.

Yes. United States is 80%, Europe is about 6%, Mexico 10%, and Asia will be the rest.

Okay, great. Thanks a lot.

Once again, if you would like to register your side for a question, please press the “*” then “1” on your touchtone phone. We will go next to the side of Keith Dunne from RBC.

Thank you. Good morning. Can you just name who your top five customers are at this point and if there has been any change in the last quarter or if you expect any changes in the next two quarters?

Well, The top five customers continue to be Siemens, GE, Juniper, Unisys, and Extreme Networks.

And do you expect that to be pretty consistent over the next quarter or two?

Yes, we would.

Okay. Can you split the saving that we are looking at -- the 68 here and the prior 15-20. When that is all said and done, can you give us a sense on how many of those savings will be reflected in COGS versus SG&A, and would you care to venture how much of those savings you might have to give back in terms of pricing that was alluded to earlier.

I will let Tom handle the second part of your question, Keith, but by 80%, I would estimate it’d be the same as in cost of goods sold. The rest would be in SG&A.

Tom, can you venture on the second one?

As Dean indicated, it is a very, very competitive market out there right now. Some predatory practices are being done. Our view is we are not going to get into winning business where we don't believe that it can be profitable, but on the flip side, we also believe that it is a very, very important that we have some strong relationships, and that most customers, current as well as potential customers, ultimately look through those decisions or offers, but clearly there continues to be pricing pressure.

Finally, I wanted to know two other items. The wins, it sounds like you said that several of the wins, three of the wins were in the 15-20 and then it sounded like one could be doubled with follow-on wins, so should we look at you know as it exists without follow-on wins, the total is something like at $75m opportunity?

Yes.

That's reasonable and you know you didn't mention what the end-market was for the existing OEM win, can you do that please?

That is networking data com, I apologize.

No. No problem. And I didn't hear what CAPEX was in the quarter. I think you said that but I missed it.

It was about $5m.

$5m, great. And my last question is can you elaborate a little bit more I didn't hear -- the other area was up on new program area, was that an [avionic] type of program or can you tell us a little bit more about what that program was?

Yes that was a -- that's a defense program that went at ramp.

And is it fully ramped at this point or is there more ramping going on as we speak?

There is more ramping going on as we speak. We would expect it to be fully ramped within the next 3-6 months.

Thanks very much.

Hello?

It appears we have no further questions at this time.

All right, well thanks everyone for listening today. Before we sign off I would just like to pass along our best wishes to our employees that will be displaced by our restructuring actions. These are good people who have provided a higher flow of service to Plexus and our customers. They have fallen victim to the evolution of customer needs in the most part but also a very difficult economic environment. So we want to pass along our best wishes to all and with that I want to thank you for participating in our call and your interest in Plexus. Thank you very much.