Sanmina Corp (SANM) 2003 Q2 法說會逐字稿

Good afternoon. My name is Anthony, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Sanmina-SCI second quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. In an effort to finish in a timely manner, we ask that you limit your questions to two questions. If you would like to withdraw your question, press star and then the number two on your telephone keypad. Thank you.

I will now turn the conference over to Mr. Jure Sola, Chairman and Chief Executive Officer of Sanmina-SCI. You may begin your conference.

Thank you, Anthony. Good afternoon, ladies and gentlemen. Welcome to Sanmina-SCI's second quarter 2003 conference call. Here with me today on this conference call is Randy Furr, Sanmina's Chief Operating Officer.

Randy Furr Good afternoon.

And Rick Ackel, Sanmina's Executive Vice President and Chief Financial Officer. Good.

Good afternoon.

I would like to start out by thanking you all for your support. The agenda for today is that Rick Ackel will review financial results for this quarter. Randy Furr will review operations and future outlook, and I will follow with additional comments relative to Sanmina-SCI's results and future goals. Rick?

Thank you. Prior to reviewing our financials with you, I would like to take a moment to read the following safe harbor statement. During this conference call, we will make projections or other forward-looking projections regarding future finance and future performance of the company. We caution you that such statements are just projections. The company's actual results of operations may differ significantly as a result of various factors, including economic conditions in the electronic industry, changes in customer requirements and sales volume, competition and technological change. The company's actual results of operations may differ significantly from those contemplated by such forward-looking statements as a result of those -- these and other factors we refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's most recent annual form report on form 10-K for the year ended September 20th, 2002, filed on December 4, 2002, and the company's most recent report on form 10-Q, filed on February 11, 2003. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. In addition during today's call, we will refer to certain pro-forma financial information. The corresponding GAAP financial information and a reconciliation from pro-forma to GAAP for such information is contained in our quarterly releases of results of operations, which are available on the Investor Relations section of our website at www.Sanmina-SCI.com.

I would like to start off by apologizing that the press release was released prior to the close of market. This was a result of the fact that our information was inadvertently posted to our website. We apologize for any inconvenience this may have caused.

Now, let's proceed to the results of the quarter. You'll note from the press release that we have, as is our custom, provided you with two statements of operations. One reports our results on a GAAP basis to include merger, restructuring costs, impairment, and other infrequent or inutile (ph) charges and includes the results of the SCI merger to the closing date. The other is presented on a pro-forma basis and is presented without these charges and including without the SCI merger for the entire period. On today's call, I will discuss operations, discuss balance sheet metrics and I will follow up with our guidance for the third quarter of fiscal 2003.

Let me first start off with regard to restructuring. We have previously outlined for you our Phase One restructuring costs related to the SCI merger during prior calls. During the March quarter, we incurred restructuring costs of approximately 18 million pursuant to this plan. 14 million will result in cash and four million will result in non-cash and 12 million of this was a P/L. We have completed our Phase One restructuring as there is only approximately $3 million to be incurred over the next quarter or so which we believe will be non-cash charges. With respect to Phase Two restructuring which called for approximately 250 million of restructuring costs to be incurred through the first quarter of fiscal 2004, our costs incurred during the March quarter breaks down as follows: Approximately 31 million of costs were recorded of which approximately 5 million will result in cash charges, total costs continue to track to our original cost estimate.

Now I'd like to turn this discussion over to the results of our second quarter of 2003. I will begin with presenting the results of operations and then I will fall to the balance sheet and finally, I will provide with you guidance of our third quarter. In general, for consistency, I will confine my comments to our results without charges and on a pro-forma basis to facilitate comparability to prior periods.

Sales for the quarter, which represented our second quarter of fiscal 2003, were 2.44 billion, which is in line with guidance. Our top 10 customers made up roughly 67 percent of the total sales this quarter. The second 10 made up approximately 11 percent of total sales, and our top 20 made up about 78 percent of total sales. We have two customers in the second quarter who sales were 10 percent or more of total sales, although one customer was approximately 10 percent, and those 10 percent customers were IBM and HP.

For the quarter, the mix of revenues as a percent of revenues breaks down as follows: Third-party, merchant, print, circuit board sales were approximately 3 percent, assembly and other EMS sales were approximately 97 percent.

Gross profit for the quarter was 104.7 million. As a percentage of revenues, gross profit was 4.3 percent. Selling, general, and administrative expenses for the second quarter were approximately 3.2 percent of sales and were approximately 77 million in absolute dollars. This represents a decrease over last quarter of approximately 6 million, or a 7 percent improvement.

Total operating expenses are selling, general, and administrative expenses with the addition of 1.6 million in amortization, bringing total second quarter operating expenses to approximately 79 million. We continue to focus on control of costs and our ability to cost effectively scale our manufacturing operations while maintaining our focus on our overall strategy. Depreciation was 56 million for the quarter. Cap-ex spending this quarter was approximately 16 million. Operating income, or EBIT, was approximately 26 million for the quarter, which equates to an operating margin of approximately 1.1 percent. Our EBITDA was approximately 84 million. Other expense net was approximately 32 million.

Our tax rate for the quarter was 33 percent and should remain at 33 percent going forward. Net loss for the quarter was approximately 4 million. This is in line with our guidance given at the beginning of the quarter. Cash net income for the second quarter was approximately 1.1 million.

Basic and diluted shares for the quarter were 509.7 million. Cash diluted shares were 511.7 million, giving a cash EPS of zero sets for the quarter, which is in line with guidance. Turning to our balance sheet, cash and short-term investments are approximately 1.4 billion. Accounts receivable at the end of the quarter were approximately 1.5 billion. Excluding acquisitions, receivables would have decreased over the prior quarter by approximately 75 million.

Inventories remained relatively flat this quarter over last quarter in absolute dollars with a balance of approximately 1.1 billion after consideration of acquisitions during the quarter. If you carve out the acquisitions, inventory decreased by approximately 82 million.

Taking a look at our cash cycle days, we end up at 45. Cash cycle days were determined by inventory turns of 8.6, including acquisitions. DSO, 54, and APD is at 52. The slight increase in cash cycle days over last quarter is largely the result of some upsided sales that occurred the last month of the quarter which impacts DSO. Also as a reminder, we do not have any off-balance sheet financing that impacts the computations of these metrics.

Cash flow from operations was approximately 136 million during the quarter, which has, again, allowed us to be able to self-fund debt repayments, cap-ex, and crept quarter acquisitions. Pre-cash flow is positive at 120 million, when deducting cap-ex from our cash flow from operations. Our working capital was approximately 2.6 billion for the quarter.

We continue with our program of debt reduction. As I described what debt we retired to avoid confusion, I will discuss those numbers on the basis of the accreted amount that would be due in September 2005 on the put date. If you want to convert the amount of zeroes that I give to current book value, just discount the amount that I give to present value at March 29, 2003, from September 12th, 2005 at a 4 percent compounded semiannual rate.

During our second quarter of 2003, we re-purchased approximately 28 million of zeroes based upon 2005 put date. This amount, together with our re-purchases beginning in Q4 '02, means that we have eliminated approximately 279 million of the zeroes and there are now approximately 637 million of the zeroes outstanding at the 2005 put date.

The re-purchase of the bonds this quarter resulted in approximated in 2.4 million net pre-tax gain. This gain is considered an unusual or infrequent item that is not reported on a pro-forma basis. On a GAAP basis this gain is recognized and is included as other income.

So in summary, during the quarter, we continued to make steady progress toward our finance strategy. Putting these re-purchases together since the September quarter, we have reduced our bond debt coming due in 2004 and 2005 by approximately 366 million, or approximately 29 percent. Leaving 264 million of the '04 bonds and 637 million of the zeroes based upon the September put dates still outstanding and as successfully pushed out the maturity associated with the previous revolver and asset securitizations 2007 and 2010, thereby, significantly strengthening the balance sheet. We expect to continue moving forward with our game plan to reduce and/or extend the maturities of our debt with near-term maturities.

Let me now turn to the guidance for the third quarter of fiscal 2003. The information I provide will generally be before merger, restructure, and unusual or infrequent charges. We are targeting sales to be between 2.55 and 2.7 billion. Gross margins will be approximately 4.4 to 4.7 percent. SG and A is estimated at 3.2 to 3 percent of revenues. We are targeting our operating margin to be approximately 1.3 to 1.7 percent. Net other expense is expected to be approximately 38 million. Basic shares for Q3 are expected to be 510 million and diluted and cash shares are targeted at 514 million. This equates to a cash EPS range of approximately 0 to 2 cents per share.

We are targeting continued improvement in asset management and would anticipate positive cash flow from operations for Q3 '03. We estimate the quarterly depreciation for Q3 '03 will be approximately 55 to 60 million, quarterly cap-ex spending will be between 20 to 25 million and quarterly amortization will be approximately 1.6 million. I would anticipate depreciation, cap-ex and amortization would be the same amount per quarter for the balance of the year, but obviously, the above could change as the economy may improve and/or with new acquisitions.

In conclusion, we continued our focus on controlling costs, generating cash from operations and paying down debt. We believe we have managed our resources in cash responsibly, our goal is to continue this trend next quarter. We will continue to focus on earning growth and shareholder value. We appreciate your time and I will now turn this discussion over to Randy.

Thank you. Thanks, Rick. As you can see from our Q2 '03 earnings release, the March quarter came in with a top line of a little over 2.4 billion and pro-forma net loss of 4 million. This gave us a pro-forma cash EPS of break even.

Let me start with a few minutes on our top line. As you can see, again, we achieved 2.444 billion. This placed us solidly within the 2.3 to 2.5 billion guidance we set in January during last quarter's earnings call. For the quarter, the communications infrastructure market sector representing both voice and data was 29%. This compared to 30% posted in Q1. In this sector are more heavily weighted telecommunications-focused companies, the ones who primarily rely on carrier spending. They were down about 12% for the quarter. This was due to expected seasonality and in line with overall in-market trends for the industry. Also, in this sector, are more heavily-weighted networking focus companies and this group had a relatively strong quarter-to-quarter showing of flat. This relatively strong statement comes from our expectation that this subsector group would have been somewhat seasonably down, as well.

Personal and business computing systems was 32 percent. This compares to 34 percent in Q1 of '03. And January, we stated that we expected this business to be down in the 10 to 20 percent range due to traditional seasonality, March quarter weakness. We also stated that this would be partially offset by the IBM X series server award, and as you can see, that is exactly what happened.

Enterprise computing and storage was 23 percent for Q2 '03. This was up from Q1's 20 percent, and I might add up 6% from Q4 '02's 17 percent. Strength comes from market share gains and continued strength from several of our storage customers.

Industrial and medical instrumentation was also up nicely during the quarter. This sector was 12 percent this quarter. This compares to 10 percent last quarter and 9 percent in our September quarter. This business received a small boost from Elsa (ph) transaction. However, even with this transaction, the entire sector and even the medical subsector experienced growth in Q2. This is consistent with our strategy to grow our medical, semiconductor capital equipment, defense and aerospace and automotive businesses.

Again, I might suggest that you take the opportunity to review our customer focus strategy. This strategy is to focus on manufacturing systems for our customers and specific in-markets and develop expertise in these selected in-markets. It's to provide leading edge technology and cost-effective components, products and services to support this focus systems manufacturing strategy and it's to support this overall strategy with world-class infrastructure support services to include customer service, quality assurance, I.T. and supply chain management. You can review this strategy in more detail at either our website or by reviewing our 2002 annual report.

Our final market segment, multi-media, was down 6 percent in Q2, or I'm sorry, down to 5 percent in Q2 from 6 percent in Q1. This reflected traditional seasonality weakness here.

Let me turn the discussion to some comments relative to what we're seeing in our primary markets here relative to going forward. First, the communications infrastructure. Clearly, visibility has been challenging, especially for the last couple of years. However, we believe Q2 represented the low water mark and we're encouraged with recent activity in this sector. If you believe that 2002 saw a steady decrease in global carrier capital spending and if you believe that overall spending in March was down sequentially in the 10 to 15 percent range and if you believe many of the forecasts which include or indicate 2003 and global capital spending will be in the down 10 percent range, you can literally see a sequential increase from here through the balance of the year and be in line with current global capital spending forecasts. We believe this is clearly a positive.

Built into our present planning for communications infrastructure is to be in the up 5 percent range for Q3. This strength comes from the wire line side from recent market share gains in the area of long haul and metro optical transmission and from increased demand in DSL, and the wireless area, strength will come from CBNA and GSM existing infrastructure expansion programs. Both are enterprise computing and storage and our personal and business computing sectors are tied to enterprise and business spending.

However, our near-term outlook for these two sectors are a bit different. We still believe we will see a nice recovery in in-markets upon a recovery in the capital markets and this could be as soon as the second half of this year. For Q3, we expect our enterprise computing and storage sector to be in the flat to up 5 percent range. We believe this will generally track overall spending trends for the industry.

For our personal and business computing sector, we believe this business will be in the flat range offset by a full quarter of having the X series servers, ThinkPads and options business. As such, we expect this business as such, we expect this business to be in the up 15 to 20 percent range for Q3.

As previously mentioned, our industrial medical instrumentation sector was up nicely in Q2, and this followed a positive trend going back to the June quarter of last year when this sector represented only 8 percent of revenues. For Q3, we expect this business to be in the up 10 percent range. The strength will be across all three important elements of this sector, semiconductor capital equipment, medical and defense aerospace. We expect further growth of this important sector throughout fiscal 2003. Again, a trend in line with our overall strategy to grow these businesses.

Finally in our multi-media sector, we expect this sector to be in the flat to up 5 percent range for Q3. I would now like to make some comments on our PCB fabrication and enclosure divisions. The PCB fabrication business continues to navigate through a period of excess or surplus capacity. For the quarter, our board business expensed to topline decrease in revenue of approximately 5 percent. Our losses were in the 4 million to 5 billion range, or a little less than a penny a share.

There are some positives from the business coming out of the quarter. First, most obvious is that our restructuring efforts are bearing fruit. As pointed out above, our revenues were down 5 percent. Yet our losses were cut almost in half. To be running at a capacity utilization figure of approximately 45 percent and to come very close to breaking even is a very positive thing. Our management team deserves an awful lot of credit for this effort.

Secondly, pricing pressures appears to be stabilizing. For the first two months of the quarter and for the first three weeks of April, our layer square foot panel pricing has held constant. A trend now solid for close to three months. Finally, our trend in bookings appears to have stabilized, as well.

As I've stated for the last several quarters, our strategy with respect to our PCB fabrication business is to come very close to break even from the profitability viewpoint and to generate positive cash flow. Once this is accomplished, we want to maintain as much capacity as we can to capitalize on future growth opportunities which we know will come as the in-markets improve. Again, we very close to this objective. We did achieve positive cash flow with cash from operations and our PCB fabrication business being about 16 million positive.

However, we're still experience a relatively small GAAP loss. We are still somewhat optimistic that we will get this business close to break even in the June quarter. This will come after realization of the bulk of the benefits from our restructuring efforts announced last quarter and from some market stabilization that we seem to be seeing here.

Both our enclosure and memory solutions business, were again profitable and cash flow positive for Q2.

Let me turn the discussion previously to our I.T. integration efforts. The I.T. integration has gone extremely well and essentially completed right on the original schedule. We have complete -- we have completed the transition of our EMS facilities to Oracle with the exception of few of our operations which principally include our BTO/CTO volume computing division and our government division. These have unique issues which will equate to an implementation to occur either sometime later this year or next year. Once again, I'd like to compliment all that have been involved in this effort. This implementation effort was one of the largest of its kind in the world and not one facility failed to make the transition. This has been a tremendous effort by both our I.T. and our operations management teams.

We're now one of the very few large companies in the world with such a large international presence on one common I.T. platform. This will clearly be a long-term strategic advantage, especially in the area of managing supply chain, and minimizing these supply chain risks today and supply chain management are a critical focus of our customers in today's environments.

Back in January, we announced the IBM X series server award and during last quarter's conference call, we outlined both the financial and the strategic merits of this award. We stated that we expected the transaction to close in mid-quarter and incremental revenue contribution of between 50 to 75 million for the quarter. Both the expected timing and revenue were at the guidance that we had on revenue were set on a conservative side. The transaction actually closed ahead of plan and our guidance did, indeed, improve or did, indeed, improve to be conservative. As such, the revenue from the transaction was between 110 and 150 million.

Historically, we have provided incremental revenue information from large transactions. However, they have been where we've been able to combine multiple transactions and not disclose specifics about individual transactions. As you are aware, our customers do not want us to talk about their business. We do expect this transaction to be within the revenue guidance for Q3 as outlined during last quarter's conference call.

I'd like to make a few comments relative to the future. It is clear that predicting the future has become a difficult process. With this said, I know we need to provide some guidance as to what to expect for the upcoming June quarter. Again this is difficult due to the uncertainty in our in-markets and given that uncertainty, we believe it is prudent to be somewhat conservative.

For fiscal Q3 '03, as Rick previously mentioned, we expect to see a top line in the 2.55 to 2.7 billion range and our bottom line at a break even to 2 cents earnings range for cash EPS. Our challenge continues to be managed through difficult time and balance the needs of our investors, our customers, our employees and our suppliers. This balance includes positioning the company for a bright future. Once again, we're not happy with our operating performance. The biggest hurdle in making substantial improvements to our bottom line is still the overall demand for low to medium volume, high-technology products. Again, Sanmina-SCI has the technology. We have the culture to get the job done. We have the capacity. We just need improvement in the demand.

For the first time in nine quarters, we believe we will see some growth in our core organic or base business in the coming quarter. If this does, indeed, happen, the cost reduction efforts that we have been deploying should bear fruit in incremental improvement in the bottom line. We will continue to focus on fundamentals to include improvement in asset management, cash flow, our technology, and solid business practices in financial controls.

We still believe that our industry and our company continue to offer significant long-term growth prospects. We recognize that we still have a lot of work to do, however, again, I can assure you that this team is up to the challenge. Our goal hasn't changed. It's to stay on track with quarter after quarter positive news. Again, I would like to thank you for your tie and now back to Jure.

Jure Sola Thank you, Randy. Ladies and gentlemen, we are continuing to operate under challenging market conditions. However, we believe that our key markets are showing signs of stability. Our focus throughout this challenging period has been to diversify and expand customer base. We have been very successful, and diversify our market, such as, medical, defense and aerospace, semiconductor, industrial, high-end computing, personal computing, automotive, multi-media, and communication in the three segments of networking, wireless, and fixed wireless.

We are also continuing to improve our technology leadership and services. Our engineering design services are strong. They've got global capabilities and basically can design anything from an 86 to a final system. Advanced circuit boards are a technology leader and we continue to expand technology here. Conflicts and large backed plans, also a technology leader, about you we continue to expand our technology. High-end enclosure system, also technology leader and we continue to focus in the leading-edge technology. Custom optical marginals is a new business for us, but it's growing and is promising. Customer memory marginals are doing well. Large accomplish system built, final system test, distribution, including build-to-order and configure-to-order. Again, Sanmina-SCI is well positioned to provide a true end-to-end technology solution to our customers and within the world.

Now, let me tell you what I'm hearing from our customers. They're telling us clearly there are challenges in predicting the future, but some of our customers are feeling better about the second half of the calendar year 2003. I personally believe that the market is improving, but at this time, it is still hard to forecast how strong that demand is going to be. So in summary, we are cautiously optimist in the near term and optimistic about the long-term Sanmina-SCI's growth opportunities.

In the third quarter, we expect improvements on the top and the bottom line, and we expect operations to continue to generate positive cash. We will continue to improve our financial metrics, outsourcing trends will continue. As Sanmina-SCI is best positioned in the EMS industry to leverage outsourcing opportunities as the economy turns.

Now, I would like to extend a special thanks to all our investors and analysts for attending this conference call. Thank you very much for your support. At this time, Randy, Rick, and I will be happy to answer any questions that you might have. Thank you, again.

At this time, I would like to remind everyone if you would like to ask a question, please press star and then the number one on your telephone keypad. In an effort to finish in a timely manner, we ask that you limit your questions to two questions.

Your first question comes from Stephen Fox (ph) from Merrill lynch.

Good afternoon. Can you talk a little bit about when you talked about your profitability outlook on the bottom line, some of the puts and takes to get there from where it looks like you had a 4.3 percent margin in the current quarter. What are the improvements you're counting on to get you there and what maybe are some of the things that maybe offset that. Thank you.

Yeah, Steve, it's Randy here. Well, clearly, in our opinion, the biggest single variable on that line is capacity utilization, and improvement in demand there. We're -- our capacity utilization range is running, you know, in the neighborhood of 50 percent here, and there's a fair amount of leverage there with increased capacity utilization.

Secondly, we've announced Phase Two restructuring effort here, and as we continue with that restructuring effort, you'll continue to see some improvement there as a result of taking costs out of the organization, as well.

And then, of course, the third one continues to be just general pricing level. You know, we think that this business has seen an evaporation of overall pricing. Not only at our (inaudible) board business, but also in our enclosure business and in our memory business and in our EMS business over the period of the last nine quarters and we think we're pretty close, as I indicated earlier, the low water mark in those issues. That's the third variable there. As we get improvements in each of those, you'll see an improvement there.

Randy, are you counting on a little bit of pricing pressure continuing through this quarter? It sounds like you're okay on boards, but what about on the other areas?

We're always going to see pricing pressure. You know, I think there's kind of three ways that you can kind of look at costs here. You know, one is -- or sales price. One is your direct cost. Another one is something over that to get to your fully-absorbed cost, and then you get a margin on top of that. I think the industry's kind of moved down to where there's very little opportunity to historically to get much of a margin over your fully-absorbed cost. And what we're seeing is certainly reluctance in the industry to go below that level. I don't want to tell you that there's not going to continue to be a pressure on pricing, 'cause there's going to be. We expect that in the future. We think companies today are willing to walk away from business. We've experienced that on our side and we've seen that on other opportunities that are out there from our competitors, as well, at a price where we think we're at today, so you know, again, I think we're going to continue to see that, but I don't think it's going to have the negative effect. I think basically, it's going to -- as we reduce costs going forward, I think you're going to see that kind of cost being passed on to the customer, but I don't think you're going to see it in any of the margins.

Thank you very much.

Thanks, Steve.

Your next question comes from Scott Craig from Morgan Stanley.

Thanks. Hey, Randy, can you go over the IBM acquisition a little bit? It sounds like it's ahead of schedule. On the last conference call, you mentioned you were hopeful to get that accretive in the September quarter. Has that been moved ahead at all with the fact that you're running ahead of expectations?

Well, yes, you know, I think there's a reasonable chance that that particular transaction can be accretive in the June quarter we have now. The transaction, as I said closed a week to ten days ahead of schedule. We were pretty conservative on the revenue guidance. You know, we achieved revenue within the window that we said there. You know, we're going to be close to a full run rate in the June quarter, and I think we'll be close to accretion. We should be accretive slightly in the June quarter. We will have the transition pretty much completed by the end of June and you'll see the full benefit of that transaction in September.

Okay, and then just quickly, Rick, on the other income expense line, you beat expectations there. I think you're looking for a $39 million expense increment at. You're at 31. Can you talk a little bit and put flavor behind that? Thank you.

Sure, Scott. I can. When you look at that number, we actually did receive some favorable investment returns during the quarter. We also had probably a little lower than expected interest expense and coupled that with probably a little better FX experience. When I was forecasting in the beginning, we managed a little tighter. That made up the difference in that particular number.

What is favorable investment means?

Favorable returns. We got a little better opportunities come up to get a little better interest rate and to accelerate some interest, and that's what we did. It was just the managing of the interest rates and cash on our investments that we had an opportunity to take advantage of and we did.

Okay, thanks.

Thanks, Scott.

Your next question comes from Thomas Hopkins from Bear Stearns.

Good afternoon, Randy and Rick. I was thinking about Jure's comments about customers in the second half. We're going into the third year in a row where customers have been cautiously optimistic about a second half recovery. I want to ascertain, what kind of discount are you guys taking at this point to kind of customer expectations in your own guidance? Are you convinced that it's healthy enough, and you know, do you have a good system for this at this point?

Yeah. Well, Thomas, Jure here. We're definitely taking some discount here, and we've been going through this for many quarters, but definitely, I think, this time it looks a little bit different. That's why we're still only giving a guidance at a quarter at a time until we gain more confidence. Let me give you a couple ideas of what's happening.

What we have seen is definitely demand for a product is going up. That's number one. Number two, our customers really have a low inventories, so we see a pickup especially in the components level, such as board, cables and closures and some of the memory and optical modules, but if you look at the longer term, what we are hearing from our customers is that there's, you know, they have a lot more confidence and also when you look at the data they're willing to share with us, it's more convincing than what was before. Near term, we are cautiously more optimistic than maybe we were, you know, a few quarters ago, but the long term really when this turns around, I feel very optimistic about our opportunities.

Great. And then Rick, can you just want to clarify the cash. I think cash flow from operations was 136, and then I believe you said free cash flow was 120. Is that right?

Yeah. Excluding when you carve out the depreciation, you get to that number, yes, cap-ex, I'm sorry.

Just trying to reconcile that to the cash balance that went down 173 million or so.

Yeah. If you look at the cash balance, the cash balance changed from a couple of things. Obviously, you've got the overall increase in cash flow, and when you look at the cash balance, what really happened was we had some acquisitions come forward, and we also had the re-purchase of shares, but we also had a little bit of a spillover of cash paid on re-purchase from shares or excuse me from the debt from the previous quarter. It's because of the trade dates, element date issue. If you take a look, we spent about $100 million on cash out the door with respect to the debt re-purchases.

Okay.

30 of which was this quarter and obviously there was a 60 to 65 net range spilled over from the prior quarter. That's how you reconcile the cash.

Great. Thanks, guys.

Thanks.

Your next question comes from Alex Blanson from Ingles and Snyder.

Just a clarification, Randy. The PC fabrication sales change, was that from the prior quarter?

Correct, that was sequentially down 5 percent.

Sequentially. Okay, secondly, you mentioned that the IBM transaction for the June quarter would be in line with the revenue guidance you gave us last quarter. Could you remind us what that was?

That was 275 to 350. Quite honestly, if I was modeling this out, I would probably be at the low end of that number.

275 to 350, OK, and let's see, the third -

Now, that's not incremental for this quarter. That's total.

That's total, right, so the incremental is the difference. You mentioned in the opening remarks that you had some upside in sales in the last week for the quarter and I think that affected the receivables. Could you comment on that in more detail, what that was and whether that's continuing and whether or not you expect that to help you in the June quarter?

Yeah, I can try to comment on that. It is about 70 percent of Sanmina's revenues and maybe that's a number that's trending in a higher percentage way and that's a number that's really about six or seven months old, so maybe it's closer to the 75 today. Sanmina's revenues are done on a traditional forecast and pull kind of system so basically our customers forecast a period, which we require a minimum of 26 weeks. Sometimes they go out much further, and they pull actually what they sell because the product doesn't often touch their hands or if it touches it, it only touches it in a final test situation. So because our customers' lead times are much shorter, you know, often four, six, eight-week kind of timeframe, at the beginning of the quarter or even going in often until the last month of the quarter, it's still just a forecast and they don't fully know what they're going to sell. So what happens is that a lot of the actual firm demand we have to ship comes in within the last, say, three to four weeks of the quarter, and even though the forecast might be a hundred, they might literally take 110 or 120 or they might take 80 or 90. So therefore, it's not uncommon for to us be a little bit surprised one way or the other from program to program because our customers are actually fulfilling firm orders that they sell at the end of the quarter. They're not taking this product and putting it into distribution channels. Even the BTO/CTO work that we do for our large-volume computing customers is done the same way. They do not have warehouses. The work that we do is not sold to retail channels. It's business work. So what we see is actual demand. So does that help?

Yes.

Okay.

Thank you.

Your next question comes from Steve Savas from Goldmann Sachs.

Good evening. I guess we've continued to see some difficulties that some other EMS companies have had in restructuring and kind of restructuring to plan and the pace of things. You, like your peers have a lot of restructuring efforts remaining. How comfortable are you with the pace of that restructuring? I think your total annual savings are expecting about 200 million in annual savings to be realizable by first quarter '04. Do you still feel comfortable that you're on pace with that? That some of the hiccups that your competitors have been seeing and you're not worried that you have enough cushion in that plan?

Steve, this is Rick. from what we can tell the costs are in total of the cost that we thought they were tracking to. If you look at the overall savings, we still believe we're going to hit by Q1 '04 a $50 million quarterly savings rate which equates to a $200 million annual run rate. We're pretty comfortable that we will be on track with that numb.

Okay. Am I correct that the restructuring charges you incurred in the March quarter were a little bit lower than the restructuring charges you expected to incur? If so, why was that? Did something change?

They were a little bit lower. Nothing's changed the timing issue. As you know, going through restructuring, a lot of this is dependent upon certain geopolitical issues and items you have to work out with certain governments and some customers, and often, you have a small timing difference and that's what's happening right now. The total dollars are on track. It's just tough to gauge exactly the moment it's going to come into play, but we're comfortable the total dollars are there, and therefore, the savings will be on track to what we thought they were going to be.

Thank you very much.

Your next question comes from Lou Miscioscia from Lehman Brothers.

Yes. Thank you. I was wondering if I can go back to the statement you made about organic demand picking up, I guess, for the first time in nine quarters. I guess if we take the IBM business out, I mean, where do you think demand, and I guess what do you think it did March quarter over December and where do you think it could go or range where it could go June over March?

Okay. This is Randy and I will take this out. If you back out from the 2444, a number between 110 and 150 that we said was for the IBM X series server there, you're going to see that revenues were down from roughly 2.536 to a number in the 2.3 range. So, basically what you're going to see is revenues down somewhere around $200 million or between 5 and 10 percent overall from our core organic business. Again, a number in line with what we thought was mostly seasonality and a number that we have had forecasted and expected.

If you look at our guidance going forward and, again, if you -- what we're saying here, what we're expecting is a core base organic growth of somewhere from flat to 5 percent. Now I know that isn't saying a lot, but it's saying a lot compared to the last nine quarters because what we've seen every single quarter is that core base organic business, again, like last quarter, which had seasonality, but even if we go back to last year, you know, June was less than March and September was less than June and evenly strong December last year was in line with September, so where I made the comment earlier if March was in the neighborhood of 10 percent down, we could literally see a 5 percent sequential increase for the balance of the year and still be down more than 10 percent year over year. So what we're expecting here next quarter is even with the transaction, the big transaction there with IBM. We expect our core base business to be in the flat to up 5 percent range.

OK. Great. When we look out and not really asking for Sanmina guidance, but when you look out to the September quarter, there's usually a reasonable amount of negative seasonality due to summer season. Many people on vacation in Europe and here in the U.S. Would you expect to be able to stay flat because of new business that's actually come in, or would you expect to see normal kind of seasonality?

Very, very good question, and at this point, I'm just not prepared to answer it. I appreciate the question and I would want to come back and do a little bit more work there than try to factor that in how we would be able to do that without giving, quote, guidance if you can appreciate where I'm at here.

Sure. Final question would be, where do you think we are with, I guess, new business pipe line? Is there any -- you know, big OEMs that are trying to or want to sell their facilities? Obviously, (inaudible) guys have less of a desire to do so, and can you talk also about the organic pipe line where it's coming, obviously not with the plant sale?

This is Jure. We spent a lot of time, really, expanding our organic business right now, and as I said in my opening statement, we're very encouraged. We're able to expand our customer base especially in the last six months. As we diversified our market focus to medical, military, I mean, defense, aerospace, semiconductor side of the business, we're really able to gain our share out there, and we continue to -- fighting to gain our share of the business.

Now, when it comes to the pure outsourcing, we're dealing with multiple major customers out there that will be outsourcing more to their product offsite. I believe that we're well positioned at this time. We really don't have an interest of picking facilities. We're really more interested in more transferring this product into Sanmina's factories so we can give our customer a better long-term solution. So the pipe line is promising. We believe we have a lot of new opportunities on our plate.

Great. Good luck with June.

Thanks.

Your next question comes from Keith Dunne from RBC Capital.

Good afternoon, everyone.

Hey, Keith.

A couple follow-up questions. One is, the SGA, good job on bringing that down. Can we see that continue to come down in dollars if sales, you know, are over the next few quarters and able to go toward that $3 billion range or will we start seeing them flex up and the 3 percent rate turns out to be kind of a trough?

Keith, it's a good question, and we certainly focus on that quite a bit. If your question is can you see a drop in the absolute dollars.

Yes.

Quarter to quarter, if sales are going up, I'm not sure you're going to see a drop in absolute dollars. I'm going to try to hold to keep a rate at percent of sales. Our goal is to drop below 3 percent. As you heard in the guidance I gave, it was going to be 3.2 to 3, and we will continue to ratchet down from there. Could there be a time where there is a drop in dollars? The answer is yes. Is it going to be in the near term? It's tough to tell. We have to play it by ear to see what happens and that's why I'm focusing it on percent of revenue and see if we can maintain that level.

Two follow-up questions. Can you give us the specifics on how much the acquisitions that are going to come out, you know, how much spending on the cash flow is going to show up on acquisitions?

Going forward?

The quarter we just-the quarter we just finished.

Keith, I don't have that right with me at this moment in time. If you want to call me, we can look at it, but if you're talking about spending on acquisitions in total.

Yeah.

Is that what you're asking?

Yeah. So I can do more of my forecast.

I got you. The total acquisition costs will be around 200.

In quarter sure.

That will show in the cash flow statement.

Lastly, multi-media's come down over the last several quarters. Long term, have we seen the trough in that, you know, whether it's in-market demand, inventory demands, customers, what have you, or is that going to continue to pull back? You know, is it any kind of meaningful business?

It's Jure here. As Randy mentioned, that's the reason it went down. But we expect business to go up and we're expending our multiple customers there. So really, as we talk about the market focus, multi-media is one of the markets that we will continue to focus and gain the market share.

This isn't anything shifting to ODMs. This is a core and market target for you guys.

Absolutely. We expect it will go up next quarter and we do think this is the trough.

Thanks so much.

Your next question comes from Michael Morris from Salomon Smith Barney.

Hello, Michael.

Good afternoon, everyone. I have a more big-picture question, I think. Generally dealing with the asset acquisitions that both SCI systems and Sanmina had done in the late '90s. As those supply agreements are reaching maturity or anniversary-ing, can you talk about what that means for Sanmina-SCI, if it presents risks, if it presents opportunities and is it creating fluctuations in share amongst you and your top tier peers?

Well, Mike, Jure here. As you know, we last two, three years ago between SCI and Sanmina, we did a great amount of larger deals and these are our customers that we have for, many, many years and I can tell you that all of our deals are very solid today and our relationship with our customers are very solid. We don't expect really to lose the market share in with those customers. If anything, we expect to gain. There are certain programs that you know, there's the open competition and certain programs that we might decide or will not be able to compete with, but there's also programs that I'm well aware of that we are going to be winning, so overall, we expect growth from those types of relationships that we established about three years ago.

OK. My second question really just dealing with cap-ex, it wasn't up much in dollars, but as a percentage, it was up a fair bit. Is there anything specifically that is making cap-ex tick up next quarter, or is it simply a function of the business and obviously, it's way below depreciation still. Just wondering if that's sort of project specific, or is that sort of the go-forward, more stable level that we should think about?

Mike, I think it's more of the go-forward, more stable level you can look at. Coming into the quarter, we were looking at 20, 25. We obviously spent less than that. I think it's more of a conservative outlook looking forward and it's just looking at various projects and trying to figure out more from a go-forward basis where I think that's number is going to be. We're obviously trying to manage and maintain cap-ex to the minimum level, which obviously this quarter we were able to succeed on, but looking at it, I wanted to give kind of a general guidance to get you engaged to.

Thanks.

Your next question comes from Todd Coupland from CIBC World Markets.

Good evening, everyone.

Hello, Todd.

A couple of questions on the end markets. First of all, on your guidance, how much leeway have you built in the June quarter for any kind of spillover from SARS, war impact, and sort of management exuberance on second half recovery or whatever starred in the June quarter? Just talk a little bit around that.

That's a good question, and it was -- it's similar to a question asked earlier, so our process for building up our forecast is pretty elaborate, pretty formal. We do that from looking at every single P/L, plant-specific P/L in our operations and we also do that from a forecast on the sales side. We compare them together, and then you add all of that up and you give them a little bit of a haircut to come up with the guidance that you have. It's a pretty standard process that we go through, and you know, one of the reasons you give them a haircut is because some of our customers are all vying for the same programs and sometimes there's more expectation than there is actual business out there. What I will tell you is that although we don't disclose what that haircut is each quarter because we have different feelings each quarter about how much it should be so it varies, I can tell you that it's bigger this quarter than it's been for the last -- or bigger for Q3 than bigger for the quarter going forward. There is no specific allocation for so much for the war, so much for SARS, so much for exuberance by our customers, but we do have a cushion built in there and I don't know if that answers it, Todd, but that's kind of how we look at it.

Fair enough, and secondly, you talked a fair bit about a number of your market slices that were moving around. Can you just give us a little bit more color specifically what is happening in optical long haul? Talk a little bit about that and talk specifically about wireless. We hear from the wireless analysts that that's rolling over in '03, so it's interesting to hear your comments and finally, your share gains in stores. So provide us a little bit more color in those three areas.

Todd, on the long haul, we have been gaining some market share in that business. It's a slow recovery, but we are seeing some orders. Nine months ago, six months ago, we didn't see many at all. We're seeing a slow recovery there. When it comes to the wireless, we are well positioned with all wireless companies out there, both Ericsson, Nortel, Siemens, Motorola, just to name a few. We are involved in everything from a 2g to 3g, and I believe we are starting to gain the market share in those areas. On the other side of the business, again, well positioned with key players. Some Micro EMC, My Data, storage technology, IBM, just to name a few. We are well-positioned. We'll be focused in that business now. We have a lot of technology out there that we offer to these customers and we have a lot more volume. Because of that, we are gaining the market share.

Would you say on balance that the improvements that you're seeing is more of a Sanmina gain than a market?

I think it's definitely there's a stability in the market, Todd. We are starting to see stability. It's hard to get excited, but we are seeing more light at the end of the tunnel.

OK, thanks.

Your next question comes from Tony Boase from A.G. Edwards.

Thank you. Can you say what geographies the majority of your restructuring efforts remain? Where the majority of the restructuring efforts remain as far as geography?

Tony, this is primarily North America. Going into it, it was going to be more of a North America restructuring. There is certainly some international amount, but I think overall, it's North America focused.

Because, of course, there were some issues with Europe, but you're saying do you not have that much as far as restructuring in Europe.

Well, I want to add that there's some restructuring activities going on in Europe right now, and that is happening as we're talking here. I will say that through this process from the time that Sanmina and SCI merged, which was, you know, about 15 months ago now, the bulk in percentage terms of our restructuring effort has been Europe and we, although, -- I don't know that anybody wants to be an expert in this, and if you have the same people on our teams today that deal with the things that we faced a year ago last January that are still taking care of these issues today and certainly understand the process that we need to go through with the customers, the process, with the work councils and the process with the local government entities and we, you know, we've done what I think is reasonably good job and that negotiation and those discussion processes along the way, so I think we understand the process and that's why there at the beginning of this restructuring effort is when we outlined that this is going to take five quarters to accomplish, we factor in that kind of consideration that sometimes it literally takes four or five months to shut down one of these facilities specifically in Europe because of this process. So if that's kind of where you're headed with that, I think we're factoring that in, but we do have some activities that are in process in Europe.

Also, somebody mentioned SARS. Have you felt an impact from SARS at all or has it been negligible?

It's been negligible.

Thank you.

Thanks.

Your next question comes from Ellen Chae from Prudential Securities.

Could you just give us what your working capital management targets are for the June quarter?

Ellen this is Rick. We're looking to reduce obviously our cap cycle days and so my goal would be to get it down somewhere around 40 and overall looking out between now and the end of the year, we probably want to get it down to somewhere in the below 35 range, so in the next couple quarters that's what we have to work to get. It depends on where sales end up and the goal is to get it down to the 40 range give or take this quarter and then drop it down further to the final quarter.

Okay, and then I wanted to sit around your outlook purr comments around for the June quarter expecting flat to up 5 percent. What it would be fair to say your optimism increased because of the quarter polls or was it based on customer commentary? Give us color on that.

Yeah. I can take that and I'm going to ask Jure to comment on it. I think our confidence level is higher right now than it has been in some time. It surrounds a couple of things. Number one, we do actually have a formal process where we roll the forecast up and we look at them, and the numbers actually show better than they have shown in a long time. I mean, there was some times that the haircut given was a small haircut. I guess it would be the way to word it, but I think we're comfortable with the numbers that we're seeing today and you know, they're just higher than they have been in the past in terms of what's being forecast.

Secondly, we look at some trends out there that we're seeing. We've seen for about eight weeks, we've seen memory pricing stabilize pretty significantly. We've seen PCB fabrication pricing stabilize. The fact is, I don't want to factor this in because it's very small, but if anything, the trend is up a little as opposed to down. And we've seen that our customers in the last quarter actually or the last couple months of the quarter actually did what they said they're going to do. Actually, they did slightly more instead of doing slightly less, so when you factor all of this stuff in, you're starting to get a little bit better feel. In addition to that, you know, we've had Jure and I spend a fair amount of time on the road in front of presidents of our customers or senior vice presidents or executives and we talk to them about their business to try to see where they're really headed with that and that, you know, you factor all of that in to our guidance that we provide you.

Randy, I think you covered it well, but to summarize, our back log is a lot stronger today. Our abilities are a lot stronger and our confidence in the customer's outlook is a lot better, so we also have been diversifying and we have been very successful in adding some of the new programs for the last 12 months so these things are starting to pay off. I mean, we believe that these numbers are still very low, but I think it's a sign in the right direction, and we're very confident that it's the guidance that we give for this quarter that we'll be able to meet or exceed.

What kind of linearity are you expecting?

Could you speak louder? We're not getting you very well.

Sure. Can you hear me now?

Yes.

You can you tell me what kind of linearity you're expecting for the June quarter?

Fully linear based on the data that we have.

Thank you very much.

Better than last quarter.

Thank you.

Your next question comes from Dave Miller from Kaufman Brothers.

Good evening, guys. How are you?

Good.

I was just wondering, could you talk a little bit about where you're seeing some strength on a geographic basis? Is it across the board or is there anything that is particularly better or worse?

I would say it's across the board. You know, a lot of our customers are global customers, but I will say across the board, we have seen a really nice pickup for us in a defense and military side of the business which is really North America, but on the wireless, I see Europe and Asia and some here in North America. I would say across the board, we're seeing positive signs.

Great. Thank you.

Your next question comes from Chris Whitmore from Deutsche Banc.

Couple quick ones. If you look at the strength was it concentrated in any particular in-market or product category, or was it fairly broad-based?

I would say that it was fairly broad-based. If I had to put the emphasis on one particular area it was in our business and PC volume computing division, which included the X series server area.

And secondly, on the com equipment side, how much of that sequential growth do you think's being driven by new program lines or new customer awards versus the end-market. Can you provide any color there?

Definitely what I am - as Randy said, Randy and I spent a lot of time visiting our key customers and definitely we're starting to see stability in the end-market for a lot of our customers. At the same time, we're able to win a fair amount of new business in the communications side of the business in all sectors of it. You know, networking, wireless and fixed wire. So it's really a combination of both of those things that we started to see at least for us some stable demand right now.

Great. Lastly, can you talk at all about the FX impact in the quarter? How did that impact you, if at all?

Are you talking about our third quarter?

The reported quarter.

Second quarter.

Yes.

You know, we always go in and try to measure FX and we actually got FX down to close to I'm going to use the word break even for lack of a better term in there so you go in anticipating where some of the rates may go to or something like that and you anticipate a little bit and try to work off that and we were close to where we thought we were going to be. We got a little bit of a benefit though. We managed a little bit better in the rates went in our favor.

Was there any impact to the top line at all, Rick?

From an FX standpoint?

Yes.

Not really measurable. It was small if it was, but it's not measurable.

Great. Thanks a lot.

OK.

Thanks Chris.

Your next question comes from John McManus from Needham and Company.

Yes could you talk about any further success you've had in translating your BTO and CTO capabilities to other areas, whether it be storage, routers, hubs, which is point of sale, medical.

Well John I would say that our BTO and CTO, you know, at least what we seen and all the analysis that we do at the market business is one of the advance in our industry. We are moving that to a higher level of assembly and it's really across the board. In the storage area today, Sanmina-SCI is not just building a bunch of carts. We're building a full storage unit. Same thing with medical products. We're not just building a, you know, few boards on there, we're doing a really full system and doing some built to order and configure to order. So the, our goal as we, if you look at our customer focal strategy in this area, is to become a system company where we are basically delivering the finished product, fully tested to a customer installation side.

And you're winning business there on ...

Yes, this has been a really value that has been helping us win new programs.

And one other question, could you break down your utilization as far as you go into the June quarter, you know, what your utilization might be in the enclosure sector, in the base EMS sector and in the board sector?

Randy, do you want to answer that?

Sure John. In the board business, the BT fabrication business, we're running about 45 percent in today's pricing. Enclosure business about 52 percent, and we're, probably slightly, running slightly below 50 percent in the EMS business; however next quarter, that should be with the run rates we have next quarter that should be 50 percent. We probably ran a little less than that, Q2 and probably be at better run rate in Q3.

Thank you.

Thanks John.

Your next question comes from Chris Lippincott from McDonald Investments.

Hi Chris.

Hi, just want to get back at your comment, you're seeing sort of the backlog is stronger today, I take it, that this point you've been seeing some quoting activity increase. I was wondering if perhaps you could kind of walk us through what you're seen from December to this point, and how it's gone over the last couple months?

OK, well, yes, definitely, as I said earlier, our backlog is stronger, and visibility is a lot better for this quarter than what we have for the last quarter. Quoting for us, you know, there's a lot of quotes, there's a real quotes out there. Based on a key customer, you know, we have about 100 customers that we focus on Chris. Out of those 100, there's really, what I would say 40 customers that get most of our business. So if you focused on the top 20 and then the balance, we're starting to see a product that we want some time ago, and now just waiting for a demand, and that's really what we are seeing now is that the products that we want and we're going to, you know, about time, we're going to see some demand. So demand is real, and, but as I said earlier, I think we are cautiously optimistic at the beginning, but I think the longer term, we feel very confident that this will continue.

OK, and also in your earlier comments, you were talking about the industrial medical, I thought you were looking for up 10 percent in the third quarter across semiconductor medical and defense. I was just wondering if you could go back, review some of the drivers behind that. Is that also essentially sort a law of small numbers?

Well first of all, it's really more of a focus on that industry and we diversify that group, so we have a medical division now, that we're strictly focusing the medical product, then we have our semiconductor industrial division, and of course, we started our defense and aerospace division. As you know, former SCI's been in the defense business for 40 years, but they really never focus that business, has been running around couple $100 million run rate, but we feel that business should be closer to $1 billion, we've been very successful, really gaining the market share. We're focused on that. Semiconductor area has been really growing for us, as we see semiconductor turns around, we're going to see nice gain there, especially the programs that we already run, and medical business for us has been really going the right direction and so I would say that the gains are based on hard work that is paying off and we're really a company today that can deliver in each of those segments, a lot more value to our customers than ever before.

I might add in the defense business, it's a new wins there in that business, and in the medical and semiconductor capital equipment, it's some wins of companies that are moving towards outsourcing.

OK, so it also sounds somewhat like share gains as well as a focus on some of those end markets?

Yes, that's a good summary.

OK, great. Thanks.

We do have time for one more question, so could you please go?

Your final question comes from Shawn Severson from Raymond James.

Thank you. Good afternoon.

Hi Shawn. You just made it.

Yes, close. I just wanted to clarify it seems like a lot of other parts of the channel had seen a dramatic drop-off in March, and I just wanted to clarify, you really didn't see you know, volatility in order patterns, you know, as we got into the month?

No.

OK. And then secondly on the IBM opportunity, I mean obviously they're becoming, they are a very key customer for you and I know it's difficult to answer this explicitly, but you know, what you see as the other opportunities there for them over the near term. I mean are they active in terms of things they're showing you or that you're getting, you know, that they're showing to the industry in general, and where would you expect that relationship to go and develop over the next say 12 months or so?

Let me make a comment and then Randy is a lot closer to this, because you're spending personally a lot of time there. I can tell that all I know Shawn, our relationship with IBM is very close. I believe it's an early stage of our long-term success. Our performance speaks for itself and the only way that I know is how to gain the business is to deliver, first of all, the meet to expectation, what is expected from us, and then our job is to give them more, and I think that's what we've been doing right now is that we've been expanding the services that we offer to IBM, and I, there's no reason why we can't be a bigger supplier to IBM in the future. Randy?

Well I can't add a lot to that. I think Jure said it pretty well. I think, you know, there's a lot of opportunities there and it's a large company, they're involved in a lot of different areas and I think we have a good solution for them, and I think we have to earn that business each time, and they recognize that and I think we're on a good track and you know, we certainly expect that business to grow, both in terms of absolute dollars and you know, in terms of value-add that we have for that customer, so.

And do you think, from IBM's perspective, obviously, you know, you've been spending a lot of time there, that they are actively looking at doing a lot of stuff, or are they moving very slowly with you know, with moving ahead in their outsourcing process?

Well, you know, that's a question that probably IBM should, you should ask them. I think IBM though, it's clear that they outsource a lot of products today and they still do a lot of stuff internally. So I don't know, you know, I can't comment on if anything is being done internally that they expect to outsource in the future. I think that'd be a question that they would need to answer.

I can tell you that we do a lot of volume in terms of the top line, but again, I think if you look at the true value-add and what our capabilities are, I think we have a lot more opportunities within IBM and those are the areas that we're really going to focus on, stuff that they already have out there that fit well within our model and we value that. We also ship a fair amount of product to IBM through some of the other EMS companies. We have an excellent relationship there. We do a good job for them. We, you know, we don't have any intentions of changing that either, because they're good customers of ours as well, and you know, there's just a tremendous opportunity there over the long term and we expect to continue to, you know, explore that. We will.

All right. Thank you.

Thanks Shawn.

Well ladies and gentlemen, thanks for your support and thanks for the time you spend with us today. As I said, earlier, we all said earlier, we're still in a challenging environment, but we're very, you know, excited and we believe what's in front of us, that we can start and maybe, start delivering a better number here and we're going to focus on things that we control here, focus on the (inaudible) of our business, but we definitely believe that things are going the right direction and will continue to improve our financial metrics.

Thank you very much.

Thank you. Bye.

Ladies and gentlemen, thank you for your participation in today's Sanmina-SCI second quarter 2003 earnings conference call. This concludes today's conference. You may now disconnect.