Sanmina Corp (SANM) 2003 Q3 法說會逐字稿

Good afternoon, my name is Amy, I will be your conference facilitator. At this time, I'd like to welcome everyone to the Sanmina-SCI third quarter 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 1 on your telephone keypad. If you'd like to withdraw your question, press star 2. Thank you. I will now turn the conference over to Mr. Jure Sola, sir, you may proceed.

Thank you, Amy. Good afternoon, ladies and gentlemen. Welcome to Sanmina-SCI's third quarter 2003 conference call. Here with me today on this conference call is Randy Furr, Sanmina-SCI's president and Chief Operating Officer. And Rick Ackel, our executive Vice President and Chief Financial Officer. I would like to start out by thanking you all for your support. Rick Ackel will review financial results for this quarter. Randy Furr will review operations and future outlook and I will finish with comments on our goals and now Rick?

Thank you, Jure. Good afternoon, everyone. Before we get started, please note that selected financial portions of this presentation, which I will speak to verbally, is also in the form of a slide presentation and is available by logging on to the Sanmina-SCI web site at www.Sanmina-sci.com. I will make references to the slides during the course of my discussion. Prior to reviewing our financials with you, I'd like to take a moment to read the following Safe Harbor financial statement. Slide 2. During this conference call we will make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are just projections. The company's actions, results and operations may differ significantly as a result of economic conditions in the electronics industry, changes in customer requirements and sales volume, competition and technological change. The company's fiscal results of operations could differ significantly from the forward-looking statements as a result of these and other factors and rerefer you to the documents the company files from time to time with the Securities and Exchange Commission. Specifically the company's most recent annual report on form 10K for the year ended September 28, 2002, filed on December 4, 2002. Form 10K A filed on June 182003 and the company's most recent quarterly report on form 10QA filed on May 16, 2003. The 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 web site. You will 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, integration and restructuring costs, impairment and other infrequent or unusual charges and includes the results of the SCI merger from the closing date. The other is presented on a pro forma basis and is presented without these charges and includes the results of the SCI merger for the entire period. We've provided a reconciliation from GAAP to operating results to operating results presented on a pro forma basis. I will review the results of our operations, discuss the balance sheet and corresponding metrics, provide an update with respect to restructuring and finally I will conclude with the guidance for our fourth quarter of fiscal 2003. In general, for consistency, I will confine my comments to facilitate comparibility to prior periods.

Sales for the quarter, representing our third quarter fiscal 2003 were $6.25 billion, which is in line with the mid-range of our guidance. Slide 4, our top 10 customers made up roughly 70% of total sales this quarter. The second 10 made up approximately 11% of total sales. Our top 20 made up about 81% of total sales. We had one customer in the third quarter whose sales were greater than 10% of the total sales and that was IBM and a second customer that accounted for just under 10% of our sales for the quarter. For the quarter, the mix of revenue in percentage terms breaks down as follows, third party merchant printed circuit board sales was approximately 2%. Assembly and other EMS was approximately 98%.

Slide 5. Gross profit for the quarter was $119.6 million. As a percentage of revenues, gross profit was 4.5%. Selling, general and administrative expenses for the third quarter were approximately 3% of sales or approximately $80 million in absolute dollars. This excludes $1.7 million of an unusual or infrequent charge related to the re-audit of our fiscal years 2000 and 2001 financial statements, which was necessary in order for us to reach the requirement to provide auditedhistorical consolidating guarantor financial information for these periods. This arose as a result of our December 2002 note offering and the subsequent exchange of privately-placed notes for registered notes. The re-audit was necessary because our auditor during those years, Arthur Andersen, is no longer practicing before the SEC.

I am pleased to announce that there were no changes to total assets, liabilities, shareholders' equity, nor the P&L or EPS previously recorded as a result of the re-audit of the fiscal years 2000 and 2001. KPMG, our current auditors, issued an unqualified report with respect to their re-audit with respect to the 2000 and 2001 years. Total operating expenses are composed of selling, general administrative expenses with the addition of $1.6 million in amortization, bringing the total third quarter operating expenses to approximately $81 million.

Depreciation was $54 million for the quarter, Cap Ex spending this quarter was approximately $11 million. Operating income or EBIT was approximately $38 million for the quarter, which equates to an operating margin of approximately 1.4%. Our EBITDA was approximately $94 million. Other expense net was approximately $36 million. This is down a bit from what we projected at the beginning of the quarter, due primarily to the larger cash balances and resulting interest income. Our tax rate for the quarter was 33% and should remain at 33% for the balance of the fiscal year.

Net income for the quarter was approximately $1.4 million, additionally cash net income for the third quarter was approximately $6.4 million. Basic and diluted shares for the quarter were $510 and$ 514 million, cash-sdluted shares were also $514 million, giving a cash EPS of 1 cent for the quarter, which is in line with the mid point of our guidance.

Slide 6. Turning to our balance sheet, cash and short-term investments were approximately $1.6 billion, which is approximately a $200 million increase since the beginning of the quarter. Accounts receivable at the end of the quarter were $1.58 billion. AR increased slightly over last quarter and related to the increase in revenues.

I am pleased to say that our receivables aging is strong and improved from the prior quarters as evidenced by the fact that our DSO decreased two days from the prior quarter to approximately 52. Inventories decreased this quarter over last quarter by $33 million in absolute dollars to a balance of $1.06 billion. Inventory turns increased by one full turn this quarter to 9.6.

Taking a look at our cash cycle days, we ended up at 38. This was an improvement over last quarter by 7 days. Cash cycle days were determined by inventory turns of 9.6, DSO of 52 and AP days at 53. Also, as a reminder, we do not have any off-balance sheet financings or factorings and therefore do not affect the computations of these metrics.

Cash flow from operations was approximately $200 million during the quarter, which is again allowed us to be able to self-fund debt repayments and Cap Ex. Free cash flow is positive at approximately $190 million, when deducting Cap Ex from the cash flow from operations. Our working capital was approximately $2.6 billion for the quarter.

Slide 7. We continued with our program of debt reduction. As I describe what debt we retired to avoid confusion, I will discuss the numbers on the basis of the acreted amount that would be due on September, 2005 put date for a zero coupon debentures. If you want to convert the amounts I give to current book value, discount the current value I give to present value at a rate of 4% compounded semi annually.

Consistent with the debt reduction strategy, we have recently announced that we are redeeming the four and a quarter bonds due May, 2004. The redemption will effectively retire approximately $264 million of bonds and result in a savings of pretax interest between now and the maturity date of the bonds of approximately $6 million. This redemption will be completed during our fourth quarter and the net result is that these notes will be fully retired.

During our third quarter 2003, we repurchased approximately $5.5 million of our zeroes based upon the 2005 put date. The repurchase of the bonds this quarter resulted in an immaterial pretax gain. This purchase, this repurchase, together with our announced redemption of the four and a quarter bonds due in May 2004 that will take place during Q4, '03, means that we will have eliminated, since the beginning of Q4 '02, approximately $635 million of shorter term debt or approximately 50%. This leaves shorter term debt, the zeroes, due September 2005 of approximately $632 million. The debt maturity profile before and after the upcoming redemption is illustrated on slides 8 and 9.

So, in summary, during the quarter, coupled with the announcement of the 4 1/4 bond redemption, we continue to make steady progress toward our finance strategy. With the announced redemption, we will have paid down a significant amount of shorter term debt and have successfully pushed out the maturity dates, 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 shorter term debt.

In addition, during the quarter, we made some amendments, primarily technical amendments, to the $275 million loan document. We did not change the key financial metrics related to interest coverage or debt coverage and we are in compliance in all aspects.

Let me now turn to our restructuring. We have previously outlined for you our Phase 1 restructuring costs related to the SCI merger during prior calls. During the June quarter, we incurred phase 1 costs of under $1 million pursuant to the plan, most of which is noncash and all of which is a P&L charge. We have now essentially completed our Phase 1 restructuring activities.

With respect to the Phase 2 restructuring, we called for an approximate $250 million of restructuring costs. Our costs incurred during the June quarter breaks down as follows: Approximately $19 million of cost were recorded on the PL, of approximately $17 million will result in cash charges. When initially announced, our Phase 2 schedule called for Phase 2 to be completed around our December quarter. While essentially on schedule, we may have some small amount spill over into our March '04 fourth quarter, due to the orderly completion of all restructure efforts.

Slide 10. Let me now turn to the guidance for the fourth 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 $2.6 and $2.75 billion. Gross margins will be between 4.55 and 4.85%. -- 4.85%. SG&A is expected remain at approximately 3% of sales or lower or $78 million at the low end of our guidance.

However, as a result of our increased efforts in the R&D area, including the announced acquisition of -- we expect our R&D spending to be up next quarter by approximately 4 to $5 million, putting total SG&A, including R&D, at $82 to $83 million. We are targeting our operating margin to be between 1.3 and 1.8%. Net other expense is expected to be approximately $37 million and reflects the effects of the upcoming redemption.

This equates -- I'm sorry, our basic shares for Q4 are expected to be $510 million and diluted in cash shares are targeted at $516 million, which equates to a cash EPS range of approximately 1 to 3 cents per share. Basically our guidance is to a flat quarter compared to Q3 as Randy will describe in more detail.

We are targeting continued improvement in asset management and would anticipate positive cash flow from operations. We estimate the quarterly depreciation for Q4 '03 will be approximately $55 to $60 million, quarterly Cap Ex spending will be between 30 to $40 million and quarterly amortization to be approximately $1.7 million. Cap Ex is up over last quarter due to the fact that we spent well below anticipated amounts in prior quarters by deferring expenditures until needed, coupled with the fact that we are doing some facility upgrades, primarily in Hungary and China, taking place between Q4 and Q1 '04. We are anticipating Cap Ex to be approximately $85 million for the entire year, which is below the approximate $100 million we described at the outset of the year.

Obviously this could change as our economy improves and/or with new acquisitions. So, in conclusion, we continued our focus on controlling costs, generating cash from operations and paying down debt. We believe we have managed our resources and cash responsibly. Our goal is to continue the trend next quarter. We will continue to focus on earnings growth and shareholder value. I appreciate your time and now I will turn the discussion over to Randy.

Thanks, Rick. As you can see from the Q3 '03 earnings release and as Rick mentioned in his comments, the June quarter came in at a top line $2.65 million in pro forma net income of $1 million. This is a pro forma EPS of 1 cent. Let me start with a few minutes on our top line. As you can see, we achieved $2.649 billion. This placed us solidly within the 2.55 to $2.7 billion guidance we said in April during the earnings call. However, as you will hear, the mix ended up a bit different from our initial expectations going into this quarter.

The good news is we achieved our operating expectations with a less than favorable mix. In general going into the quarter, we felt that our communications infrastructure market sector and our enterprise computing and storage market sector would be in the flat to up 5% range. Both of these sectors ended up being down, with reasons being just the overall slowness in the communications market and the normal quarter-to-quarter fluctuations in the enterprise computing and storage market.

Offsetting the overall weakness in these two sectors were the strength coming from the personal and business computing sector and the industrial, medical and semiconductor capital equipment sector. The industrial sector was at the high end of our expectation range, and the personal and business computing sector exceeded even our top end expectations in terms of sequential growth.

Now, let me given you a little more granularity in terms of each of these market segments. For the quarter, the communications infrastructure market sector representing again both voice and data, was 25%. This compares to 29% posted in Q2 of this year. In this sector, our more heavily weighted telecommunications-focused companies, the ones who primarily rely on carrier spending, were down about 8% this quarter. This reflects the overall end market trends being seen throughout the industry. Also in this sector are our more heavily weighted networking-focused companies. The group had a relatively strong quarter-to-quarter, up about 7%.

I n case you're doing the math, the networking group of customers clearly represent a smaller portion of our business as compared to our telecommunications group, and this trend, again, is consistent with the overall market trends being seen by our networking customers, as well.

Personal and business computing systems was 38% this quarter, this compares to 32% in Q2 of '03. In April, we stated that we expected this business to be up in the 15 to 20% range, due primarily to realizing the benefit of having the Ibm X Series Server Award for a full quarter. As you can see from the numbers, this sector showed considerable strength this quarter, being up over 30%. Once again, the strength comes from the overall end market strength for personal computers and Wintell based servers. Enterprise computing and storage was 20% for Q3 '03, this was down from Q2's 23%. In absolute dollars, the sector was down about $25 million and we believe that this just reflects normal quarterly fluctuations.

The March quarter saw an increase of almost $45 million over the December quarter and when comparing June quarter to December quarter, this is still a decent increase in volume, and also we expect this business to be up in our upcoming September quarter. Industrial medical instrumentation was also up nicely during this quarter. This includes three broad business sub-sectors. Semiconductor capital equipment. Medical instrumentation. And our Defense and Aerospace business. This sector represented 12% of our total revenues this quarter. This compared to 12% last quarter. However, given our overall strong top line sequential growth of 8.4%, the maintenance of 12% this quarter equated to a sequential absolute dollar increase of over $26 million. All of this growth comes from organic wins. This is consistent with our strategy to grow all three of these important end market subsectors. And our final market segment was multimedia. This sector was flat on a quarter-over-quarter basis coming in at 5% of revenues. This translated to about a $12 million sequential absolute dollar increase and this is reflective of normal seasonality trends for this business.

Let me turn the discussion to some comments relative to what we're seeing in these primary markets. And again, first, communications infrastructure. Clearly visibility here has been challenging. Our customers are forecasting an increase in demand for the second half of this calendar year and a nice sequential increase in the December quarter. Built into our present planning for the communications infrastructure is revenues in the flat range for Q4 and up in the 10% range for Q1 or the December quarter.

The strength is expected to come from typical seasonal year-end strength, historically seen in the industry and more specifically increased demand for access products and wireless infrastructure expansion programs. Both our enterprise, computing and storage, and our personal and business computing sectors are tied to enterprise or business spending. We believe we will still see a nice recovery of the enterprise computing and storage sector in the capital market. For Q4, we expect our enterprise computing and storage sector business to be in the up -- in the 5 to 10% range. We believe this will generally track overall spending trends for the industry, plus reflect some market share gains.

For the personal and business computing sector, we believe the business will be in the flat to down 5% range. Actually, it's a bit difficult to project. As previously mentioned, the June quarter was very strong. It was so strong, we're not sure that this kind of strength can actually continue. We're going to forecast the business to be, again, in the flat to slightly down range.

As previously mentioned, our Industrial and Medical Implementation sector was up nicely in Q3 and this followed a positive trend going back to the June quarter of actually last year when the sector represented only 8% of our revenues. For Q3, we expect this business to, again, be in the flat to up 5% range, the strength will be across all three important elements of this sector, again, semiconductor, capital equipment, medical and the defense aerospace.

We expect further growth of this important strategic sector throughout fiscal 2004, again, a trend in line with the overall strategy to grow these businesses. Finally, in our multimedia sector, we expect this sector to be in the up 10% range for Q4. This is a result of preparation for the traditional holiday season demand.

Now, turning to profitability. Although we will never be happy with operating results until we achieve our long-term goals, we do believe the June quarter produced some very nice results, especially when you look at the overall unfavorable mix in terms of revenue. Operating income increased from $25.9 million to $38.4 million or $12.5 million. Roughly $7.5 million came from the $200 million increase in our top line. The balance came from our cost reduction efforts.

When you consider the overall unfavorable revenue mix, our team did a nice job of not only maintaining profitability but actually improving profitability. I would like to make some comments on our components business and that being PCB Fabrication and Enclosure and Our Memory Solutions business. As I know you're all aware, our PCB fabrication business continues to operate in an environment of surplus capacity.

For the quarter, our board business was essentially flat, with last quarter being down about 1% on the top line. In spite of flat top line and continued pressure on margin, our operating performance continued improvement, thanks to our cost reduction efforts. Although we did experience a loss, the lost to just a tick under $3 million, or up 1 to $2 million improvement over last quarter. And this equates to about a one-half-cent loss per share.

As I stated for the last several quarters, our strategy with respect to our PCB fabrication business is to come very close to break-even from a 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're certain will come as our end markets improve. And again, we're very close to these objectives.

We did achieve positive cash flow, with cash generated just by adding back depreciation of about $9 million positive and total free cash flow was close to $20 million for this business. However, we're still experiencing a relatively small GAAP operating loss.

For those of you who are keeping track of utilization in this business, we believe at today's pricing we're running at about 45% capacity utilization in terms of facilities and equipment and in the range of 80 to 85% based on head count. We saw a reduction of pricing between 3 and 4% this quarter. Both our enclosure and memory solution businesses were again solidly profitable at the gross profit level and, again, both cash flow positive for Q3. Capacity utilization in each of these businesses remains between 50 and 55%.

Now I'd like to turn the discussion to our platform product strategy. We use the term platform products here at Sanmina-SCI. Over another term often used to essentially describe the same thing is ODM products. I know that there has been a debate on whose strategy is best, the EMS or the ODM companies. We certainly recognize that the fundamental business concept, each employee have their individual strengths. After many discussions with our customers, we felt that what our customers really want is just in some cases a pure EMS company and in other cases, a combination of an EMS and an ODM company.

Clearly, what our customers want, their own intellectual property and they want world class manufacturing and distribution capabilities. The pure EMS solution will most often offer them their preferred solution. However, when our customers do not perceive value in owning the IP and/or when they view all or a portion of a system as a commodity and combining world class manufacturing and distribution capabilities with world class design skills and spreading the design cost over multiple users of the design is the preferred solution.

However, when -- we believe that if you talked to many of the users of either or both of the EMS or ODM solutions, they'll tell you that there are very few -- they will tell you that there are some very good EMS companies and very good ODM companies, but not a company good at providing both solutions right now. We certainly recognize the increasingly growing market for this both category. We know many of our customers like existing ODMs but want the addition of global manufacturing and distribution, which is lacking from most, if not all the ODMs today.

Given this, we developed a solution for our customers which we believe will allow them to have the best of all worlds, so to speak. Our strategy is twofold. Number 1, on commodity solutions where today the ODMs have excellent skills, we will partner with them and utilize their design skills and our manufacturing and distribution capabilities to offer our customers a total solution. An example of this is our partnership with Wistron with providing personal computing solutions.

The second part of our strategy is to develop our own ODM solutions in areas where we believe our customers are looking for ODM solutions, either today or in the near future, and where the ODMs today do not have a viable offering. In general, we're aiming at higher technology or more higher end solutions than offered today by the ODMs. An example is our Echo Bay and our InfiniBand Solutions (?). We call these products our platform product offerings. In our platform product offerings, we do the complete design and we own the IP and, of course, we do the manufacturing and distribution. A total solution for our customers. And the Echo Bay product offering, we're getting real traction with our most recent deals coming from a defense contractor and Wall Street financial institution and the InfiniBand product offering, we've received our first order last month, we already have three customers and again, we're seeing a lot of interest in this solution as well.

The announcement last week of the Newisys acquisition furthers this strategy. In a nut shell, Newisys gives us the design kpainltes to do high end management. We have a lot of IPs that evidenced by their filing of over 30 patent applications and with their over 100 hardware and software design engineers. We believe our customers view this space, that is the high end enterprise-class server space, as one right for combining the ODM and the EMS solution. Especially given the highly configureable requirements of the servers and the need for short cycle manufacturing. As you know, we are the industry leader in providing world class BTO and CTO manufacturing and distribution capabilities for enterprise class servers today and we believe with the combination of Newisys, who clearly has a lead in design for high end servers, we will have the solution, our OEM customers are looking for.

Specifically, our goal here is to work with a few OEMs and offer them ODM solutions across their entire enterprise class server and storage systems portfolio. This is not limited to one architecture. There is a lot of commonality between servers and storage and this expertise and technology will be leveraged to provide new platform projects for both of these areas in the future.

With respect to Newisys, I'd like to provide short-term guidance. For Q4 '03, a transaction will be diluted by a little less than a penny. Very little top line will be contributed in the quarter. However, we do expect revenue to begin ramping in the December quarter and for the transaction to start being accretive in the March quarter of next year. Even though the overall impact on the March quarter is expected to be only minimally accretive, this will be an important milestone in which we expect improvements in future quarters. The goal in this business is for revenue contribution of approximately $200 million in fiscal 2004 and $500 million in fiscal 2005.

I'd like to make a few comments relative to the future, as well. It's clear that predicting the future has become a difficult process. With that said, again, I know the need to provide some guidance as to what we expect for the upcoming September quarter. For fiscal Q4 '03, as Rick mentioned, we expect to see our top line in the 2.6 to $2.75 billion range and the bottom line in a range of 1 to 3 cents cash EPS.

I know the.. is not to be a significant improvement, however, please factor in that Sanmina-SCI has a substantial presence in Europe. Many of the large European OEMs are part of our overall customer portfolio. As you know, Europe is generally slow in the summer months, also factor in that June was extremely strong in the personal and business computing area and our New Icis acquisition will add approximately $4 million to $5 million quarterly in increased R&D expenses. Given this, our view is an essentially flat quarter will generally be a good quarter and in this environment, one that demonstrates further benefit from our overall cost reduction efforts.

Our challenge continues to be managed through difficult times, balancing 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. However, we do believe there are a lot of bright spots coming out of the quarter. They certainly include the fact that we increased our top line by over 8%, we increased operating income by $12.5 million and improved our operating margin. Improved our asset management achieving 9.6 inventory turns and cash cycle days of 38 without any help from factoring the receivables, assets, securitization or similar products and we generated over $200 million of cash from operations resulting in almost 100 -- $90 million in free cash flow.

Again, we're a long ways from being happy, however, when you factor in the challenges of the environment, we're making very good progress and most importantly we're doing what we said we would do. The biggest hurdle when making substantial improvements to our bottom line is still the overall demand for low to medium volume, high technology products. We have the technology, we certainly have the culture to get the job done. We have the capacity, we just need demand to improve.

We will continue to focus on the fundamentals in asset management, cash flow, leading technology and solid business practices and financial controls. We still believe that our industry and our company continue to offer significant long-term prospects. We recognize that we still have a lot of work to do, however, I assure you that this team is up to the challenge and our goal hasn't changed. It's to stay on track with quarter after quarter of positive news. Again, thank you for your time and I'd like to now turn it back to Jure.

Thank you, Randy. Ladies and gentlemen, Sanmina-SCI's challenging period has been to diversify market segments and expand customer base. We made a good gains at medical side of the business, defense and aerospace, semiconductor, industrial, enterprise computing, personal and business computing. The communication part of our business remains a challenge as Randy said. But even here, we're able to diversify and expand our customer base.

Let me tell you now about present market conditions. Conditions are improving but still remain challenging in the near-term. We expect more measurable improvements to our customers in October/November timeframe of this calendar year. On the long-term basis, we're starting to see more positive forecast from our customers and our customers are starting to feel more optimistic about the longer term future.

Let me also mention a couple of things about market wins, during June quarter, we gained new programs across all our market segments. Medical, defense, semiconductor, communication. We went approximately 15 new flames a range of 5 to $50 million run rate per year. And also, pipeline of new organic opportunities looks promising for next couple of quarters at this time. Here at Sanmina, our main focus is on business development and growth. Our customer satisfaction index arrives in joins quarter and this is very important for future wins. We're entering our customer relationships and we're continuing to invetions in technology and services that is helping us renew and future business.

Sanmina-SCI's engineering and design services are at the leadership level, with the global capabilities from ASIC design to final system design, focusing on our key markets again, medical, defense andaro space, computing, industrial and semiconductor and communications. As Randy discussed our ODM strategy, but let me add to a couple of things. We started working on ODM products about 12 months ago and with the latest acquisitions of new icis, a few days ago, we're well-positioned a high end ODM product in enterprises marketplace. The ODM model is to focus on high end energy performance technology products, including turn key product solution for our customers. In the enterprise marketplace, we have a robust product road map, focusing on our enterprise class server technologies, scaling from two wave to 32 wave scalable solution. And it is here we are focusing strictly on 32 and 64-bit enterprise servers. This product will be mainly used for web server, application server and database server storage. We expect volume productions starting in March quarter and this product will be profitable in calendar year 2004 and should also make good margins.

So, how is the ODM product benefiting our customers? Let me give you a couple of points. First of all, it enables our customers to reduce a expenditure of R&D. Speed time to value and the lowest total cost for new products development. And also, a key partnership with a key global EMS company and with a build to order configured capabilities constantly. So, basically what we are doing is we will continue to diversify our revenue streams to more profitable, vertical services. In summary, markets are improving, but slowly. I believe that the better times are just ahead.

Sanmina-SCI is in best position in the EMS industry to leverage outsourcing opportunities as the economy turns. Because of our technology leadership, again, engineering and design capabilities, advanced circuit board capabilities, complex and large-backed plains, high end enclosure systems, custom RF and cable systems, large complex systems build, final systems testing, distribution, and industry capabilities and custom built to order and configured to order. As you can see, we have a strong portfolio, a vertical value add services. Our customer relationships are strong, expanding and Sanmina-SCI's continuing to gain market share. Our sourcing trends will continue and pipeline looks promising. Even in this environment, we'll continue to improve our financial metrics as Randy and Rick said and we have a strong fundamentals in place to deliver leading financial results in the EMS industry as the economy recovers. In this environment, we do expect operations to continue to generate positive cash flow and we will also continue to pay down our debt.

Now I would like to send special thanks to all our investors and others for attending this conference call. Thank you very much for your support. Now, Randy, Rick and I will be happy to answer any question that you might have. Thanks again.

At this time, I'd like to remind everyone, if you'd like to ask a question, press star 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Lou Miscioscia.

Hello, Lou. Hi, thank you. Okay, great. I was hoping I would go in and talk about the revenue guidance and wondered if you could just put a frame on the 2.6 and 2.75. What would get you to be just flat and what would get you to be towards the high end?

Well, Lou, first of all, if everything goes, you know, per forecast and, you know, and a customer takes everything that might taking, then we could hit the high end easily, but in today's environment, as Randy said, especially with Europe with a lot of people on vacation -- [ INDISCERNIBLE ] -- to stay in a vinto, we prefer to go with the 2.6 and 2.75. Again, low end is mainly, you know, if customers don't take us -- what they're forecasting right now. Randy, I don't know if you want to add anything to that?

No, I think the low end will be if our customers are take -- pull less than the forecast. The high end will be -- to get there -- the strength that we've seen in the business and personal computing last quarter to carry on into this quarter and if that happens, you will probably see the high end.

Okay, great. Could you go into, I guess just the general pipeline, the big IBM deal looks like it's close to being fully ramped. Are there any real big deals floating out there, anything at half a billion, billion-dollar level that you can reference or reference the pipeline number?

First, Lou, let's focus on organic wins. That's really the main focus here and I talked about winning approximately 15 major problems in a run rate between 5 and 50 million per year. We've got some other bigger programs in the pipeline right now that we feel very comfortable in the next couple of quarters. So, what we have on a plate from organical point of view, we feel very comfortable and the whole focus here at Sanmina and me and everybody else in the management, is really the customer relationship and understanding what the future customer requirement's going to be and that's why we've been spending so much time on that -- you know, customer and also our technical capabilities. We do have a great platform and I think this -- our platform is starting to pay off. We're still in this tough environment, but we're well-positioned.

I don't want to talk about the too many details there, but I feel comfortable, very comfortable for -- for the programs that we have that we're working on. Now, there are some additional stuff that are floating, you know, and maybe passed two, quarters from now, that we're kind of lining ourselves for. So, the bottom line, the customers will continue to outsource, Lou and I believe as this business turns around, you're going to see more of that.

Okay. Great. Thank you.

Your next question comes from Stephen Fox.

Hi, good afternoon. Could you talk about a little bit about the IBM acquisition from the standpoint of where it is relative to your acquisitions from a profitability levels?

Sure. It's pretty much right on where we expected it to be from -- from a profitability level and in terms of volume, you know, it's -- it's -- it's over the volume level a bit. And, of course, you know, additional volumes help -- help, although a little bit, it's not overly volume sensitive, it helps -- it helps the profitability. So, we're on track with where we thought we'd be.

Great. And a quick question on the average layer count. Has it changed much? Where is it at right now?

Well, that number is -- is -- is -- came down a little bit because we're taking some products that, you know that have been in the environment, so, just to keep certain factories going. So it came down, I think for us, running around 13, 14 layers.

Thank you very much.

Next is a question from Steve Savas.

Good evening. I guess I was wondering, given the different segments that you talked about in revenues for the quarter, what you might have seen in terms of geographies and demand where it ended up weaker than you expected.

Well, you know, if you just look at the numbers, I mean I don't want to talk specifically about any one customer themselves because I don't really think it was one customer, but I think it's clear that the communications infrastructure was, you know, disappointing from what the expectations were going into the quarters and you can sit down and look at most of those companies are located in North America and Europe.

Okay. And were there any pockets of strength that you had seen?

Are you talking about within that particular sector or overall in Sanmina-SCI?

I guess in that sector.

Well yeah, as I pointed out, our networking base of customers, the one who focused primarily just on networking gear, actually was up about 7% this quarter. You know, I -- I thought that was encouraging. There are some -- some strengths and some various programs out there with, you know, with specific customers and -- and -- specific targets like ADSL and some other wireless area. Unfortunately it wasn't enough to -- to overset overall weaknesses in the other parts of that business.

Okay. And then -- and then in the enterprise computing segment, anything unusual by geography with any one area particularly weak?

No. No. Nothing there. Nothing that I would say was unusual there at all.

Okay. Thank you. Thanks a lot.

Your next question comes from Shawn Severson.

Hello, thank you. Just wanted to touch a little bit more on the plans for the carrier spending and what you've seen on the telecom side. Is it your view that this is really just kind of a pushout and we can expect a stronger second calendar half or maybe just a December quarter? Or do you think that overall forecast from your customers came down for the full year?

Randy?

Well, you know, that's -- you know, that's the big question. And, you know, I -- we -- we have -- we have maybe one additional data point you don't have and that's our customer's forecast here, but, you know, I don't think there's been any secret that there's been some preannouncements out there in that space and the general feeling, and if you look at the forecast that we get from our customers, is that -- is that the December quarter will pick up pretty significantly and the guidance that, you know, we give there actually is conservative off the guidance that we've received from our customers for the December quarter.

But, you know, in reality there's been now two and a half years of -- of difficult forecasting in that particular space that's reliant on carrier spending and, you know, we're trying -- we're trying to do our best to be conservative here going forward, but, you know, in -- in reality, I think -- I think we have to take any context and really look at what's happened. We certainly believe that -- that -- that we bottomed out in that particular industry here today and that, you know, going forward we'll -- we'll see flat numbers here coming up in this quarter and we'll see an increase in the December quarter. But, you know, other than that, that particular color is not much else I can add to what we expect out there.

Any differentiation between wireless and wire line as you see it?

Yeah, for -- for about a year now we've been saying that we expect the wireless probably to come back a little sooner than the wire line part of the business. Hopefully, you know, as we upgrade the networks and bring in new products and services by the carriers to increase demand for bandwidth and storage and all of that, we will see -- we'll see, you know, a secondary effect on wire line and storage and other areas of our business.

You know, like I pointed out, there are some pockets of strength in the area of wireless today as -- as we're -- we're expanding the networks and up2k3wr5iding equipment that's out there and we're seeing that particular demand, so, if I had to tell you, or I guess I will tell you, clearly the -- the wireless side of the business has been stronger for us than the wire line side of the business. The access product being an acceptance there has been fairly strong, as well.

Okay, and then just lastly, any other color on Europe? I wanted to touch on that again, you know, there's been that talk of the second leg kind of weakening now and things haven't been good in Germany. What's your expectation for that, you know, as we get into the second half of the year here?

You, you know, I -- I -- most -- most of the demand that we have in Europe are going -- is really going to come from the larger, truly international companies, you know, the -- I'm just going to throw some out, you clearly know the list, but they're companies like Ericsson and Nokia and Alcatel andenes, you know, large, large companies that we do business with over there that's markets are really -- really worldwide markets. And clearly I think, you know, I mean we have -- we have U.S. or North American-based customers that sell into those markets, as well.

So, I think -- I think the challenges in Europe are -- are, you know, are similar to what we're seeing here in North America and -- and -- and personally, you know, I think we need to see a number of things that's going to happen out there before we see that -- those markets truly pick up. I do think, though, that the carriers have cut spending so much for so long and that there's getting to be service issues out there that what we're seeing or what we're expecting here going out isn't a huge amount of capital improvement or capital spending for them to -- to build out complete new networks and move into 3G and really to move forward with a lot of these programs when we talked about years, we think just the increase in spending is going to come from the necessity to -- to -- to deal with current capacity-related issues and networks as well as relate to upgrades of networks for new services if the carriers want to offer. I think the same goes in Europe as -- as goes here in North America and I think the likelihood of -- of staying flat, to, you know, up, carrier spending in Europe is there just as much as it is in North America.

Great, thank you.

Thank you.

Your next question comes from Matt Sharon.

Yes, thank you.

Hi, Matt.

Good afternoon. I'm hoping you can expand a little bit on your comments regarding the computing, personal and business computing, came in better-than-expected. Looks like you're taking somewhat of a conservative stance.

Looking forward, what are your customers telling you about seasonality going into December? Are they expecting a better-than-expected, you know, seasonal uptick in December? And then also if you could tell us faurks take out the IBM business, the incremental server business that you took on, what was your base business in terms of growth in June? Thanks.

Randy, you want to take that?

Sure. Look, you know, it's no secret we have -- we have two big customers in the personal business computing area. They're clearly IBM and HP. Both of those customers had -- had a strong quarter for us. Both of those customers, you know, met or exceeded -- exceeded, actually, planned and the demand was stronger than -- than the forecast the demand was going into that quarter. That goes across their portfolio of the services that we have for those particular customers there. It was so strong that -- that, you know, it -- it challenged the -- the organization today to -- to -- to meet all of that demand. That doesn't mean we can't meet that in the future because clearly we're -- we're, you know, when you're a company and you're preting for cost reductions and controls and then you see an upside that will tax that will tax any organization, unless we carried a bunch of surplus capacity, which we're trying not to do, certainly in terms of head count today, in those areas.

So, you know, when we sit down and try to look at where the demand come from, again, most of the PCs that we do is enterprise-spending-related. They don't end up in retail channels. There's not a channel out there or in stores or anything like that. So, when it comes to seasonality, I really think that seasonality is tied to, again, capital budgets, enterprise spending, companies spending bution and what's going to happen. I would say the December quarter should be one of the stronger quarters of the year just under the concept that a lot of companies flush their budgets at the end of the year and want to spend their money.

It doesn't always happen, it didn't happen at the end of last December and no guarantee it will happen this one going forward. But our customers are telling us, look, we should see, you know, on a steady stayed basis, you know, September should be flat with June and December should be up. However, we had such a strong June, we really question if that -- that strength will continue, especially in light of what, you know, in the summer, and the issues that happened in Europe and they're a little slower in the summertime. So, therefore to be conservative, remember what I said, we're forecasting from flat to down about 5% for this business, just based upon on how strong June was and the expectations that Europe will be a little bit slow over the summer months.

Okay. Great. And then just quickly on inventories, it looks like inventories came down, turns nieced. Is there a short-term sort of turns number you're looking at? And going into the seasonally strong September quarter, would you think you will want to build inventories at that time?

Well, I -- let me take that. Short-term, yeah, we -- we set out at the beginning of this year for a goal of being at 10 turns in September. At the end of September. And -- and I'm very, very proud of our organization for -- for making the progress that it looks like they're going to be able to achieve that objective. I will tell you once we get to that, we've picked a lot of the little hanging fruit and proved that it will be marginal and we do expect to improve it throughout fiscal 2004, but it will certainly not see the kind of improvements that we made throughout 2003.

As far as building inventories, you know, again, the way -- the way our business works we have -- we have very little, little inventories that are built, the exception is the multimedia business. The fair amount of those set-top boxes are sold through distribution channels and there is an inventory build for those boxes. This quarter should see a fair amount of that and should be the strongest quarter throughout the year as the channels are -- are filled with their demand. In the September quarter. But other than that, we don't expect to build any inventories anywhere in our business whatsoever.

Great, thank you.

Thank you.

Your next question is from Joseph Wolf.

Thank you, a couple of questions related to new icis in the ODM model. You gave a revenue target. Is that just from Newisys or from another maneuvering that the company has been working on? And then can you talk about, you talked about the top line, could you give what your margin structure would be like for that business versus the 98% printer circuit board assembly?

Joseph, this is Jure. The number we give you is the other ODM product that we already announced and also some of the products that we have in the pipeline. So, we have -- we're pretty active ODM programs now in place. We didn't talk about it, you know, I mean it wasn't like Sanmina-SCI wasn't work on it, but we didn't spend a lot of time really marking this until we got at a certain level. I think we're at now at the level with a strong engineering group and we've got some good amounts of programs, what we call platforms internally in and out of play right now. So, we will push that.

We expect the margins on that product definitely to be higher than a stand out or even the highest EMS margins out there in industry. But that's all I like to comment at that time, but definitely this type of product should help us deliver, you know, higher margin than typical EMS.

Okay, just one quick follow-up. With the actual acquisition based on customer interest in that specific product portfolio or was it just a way to round out the -- the development that had been internal to Sanmina?

First of all, we have Newisys now for over 12 months. We started our designs products, the context, we spent a lot of time visiting the potential customers and, you know, we felt that the product, the product that we were basically leaders in industry right now. There seems to be a fair amount of interest right now from some of the rage OEMs out there.

On top of it, this group of engineers has a tremendous experience in other computing products so we just felt that, you know, we had to both worlds here, a great opportunity with the 16 product and some of the things that we are working on it and combining them both together and delivering Sanmina-SCI's manufacturing capability was really going to give a lot better solution to our customer and that's the real reason we felt we should partner with them.

Thank you.

Thanks, Joseph.

Your next question comes from Todd Copeland.

Hello, Todd.

Yeah, good evening, everyone. Firstly, could I just ask you, on your acquisition, two quick questions. What is the purchase price, first of all, and second of all, with the design team there, would you expect to expand away from win tale so maybe we will see you showing up competing for business in the UNIX space, et cetera? Just talk about where you can leverage that design platform?

Yeah. First of all, let me make a little bit of comment. We're just finished the deal today, Todd, so, there were, you know, some numbers went back and forth, so, eventually we will be able to give you a number. But let me give you an example. Most of the purchase price in this deal is really based on a future potential of this product. So, the purchase price up front is very low, as you know, we have to invest fair amount of money in this product going forward, but really -- the -- the -- it's really earn out and I really, Rick, I don't know if you can add anything to this on purchase price?

No, I think that's correct here. I think the purchase price of the assets themselves are very, very small and the majority will be based on the success of the product itself.

Yeah, when it comes to the -- what areas that we're going to really expand, really, I'm getting personally together tomorrow -- I guess in two days from now, with the new management team of -- of -- of this organization, our enterprise design group. I'd like to really save that little for the next call when we talk about it. But definitely this group has a -- a wide capability when it comes to servers and storage area.

Okay. Secondly, if Kai ask: With respect to the December quarter, could you just -- I know you have talked about a couple of your segments and the growth you expect, could you just give us an overall growth rate expectation, first of all, if possible, and -- and second of all, what would be the leverage to the bottom line meaning what kind of earnings do you think the printed circuit board business would kick off with that kind of upside expected in the December quarter? Thank you.

I will give that question to my manufacturing expert, Randy.

First of all, the overall growth, I think if you just look at the midpoint of the guidance, you know, last quarter we guided 2.55 to 2.7. This quarter, 2.6 to 2.75. So, midpoint of the guidance is about $50 million higher and the earnings is -- is a penny higher. So, if you want to look at it from that point of view, that's the midpoint. Although, as you know very well, Todd, this business is not the easiest business in the world to predict on any one particular thing, so, we try to balance this out.

Essentially we're saying look, look, we think overall the top line will be essentially flat, maybe up $50 million. We think we'll -- we'll -- we'll continue to have cost reductions that will continue to generate favorable earnings, however, this quarter we've got the -- the certainly known issue of 4 to $5 million incremental expenses from the new icis dwhaition are R&D expenses and we have a little bit of uncertainty with respect to will Europe slow down much over the summertime? So, as a result we've kind of given a window there to -- that will be the -- you know, what we expect from that point. The second part of your question is what again?

Actually, Randy,what I was trying to get at, not so much September, I understand the guidance there, you talked about a couple of end markets you expect to pop from a seasonal perspective. I wondered if you could ballpark what December might look like from a top line perspective and what would be the leverage kicking off the printed circuit board business in that scenario?

Well, we're not comfortable enough at this point, Todd, to provide -- providing -- providing leverage or guidance there for December. We will, you know, I did point out that it's just for the communications infrastructure business because we're still -- we're still pretty optimistic that we will see a pickup in that business in December, but when it gets down to the rest of the businesses, I just don't have enough visibility now to give you an overall guidance other than to tell you we will certainly be disappointed if our top line hasn't -- hasn't shown in reasonably growth from September to December, which we expect.

In terms of the printed circuit board business: You know, we're -- that business is continuing to be a little bit challenging, as I pointed out. I think our team has done a great job, capacity utilization is still less than 50%, yet the guys are coming very, very close to breaking even. They generated close to -- over $19 million of free cash tomorrow. You know, they're doing a good job, you know, the -- the question is what's the future going to be for that? I really think we will continue social improvements there. I don't think we'll get the break even in September. That's certainly the goal that everybody's working for.

Really, until we see a top line growth, which is as I pointed out this quarter, the top line was essentially flat, until we can see growth on the top line, I don't expect a significant improvement in that business unless we made a decision to take out a lot more capacity, witness when he made a decision today not to do that. As such, we're really looking for an increase in terms of volume. Until that happens, I would expect marginal improvements going forward. Thank you, Todd.

Thanks very much.

Your next question comes from Thomas Hopkins.

Hey, how are you? First question, you are guiding gross margins up slightly, you know, anywhere from the high end up 30 basis points. Anything on that more than cost reductions?

Rick?

Sure, I -- cost reductions are part of it, Tom, also, I think you're going to pick up some efficiencies and it depends, obviously what part of the guidance, but we expect to have some mixed differences coming through at that point in time, too. Certainly toward the upper end we expect to see mix improvements as well.

Okay, great. Second question: I think you said PC and business computing was 38% in the quarter?

That's correct.

38%. That's about a billion dollars or so in -- in terms of dollar amount. Can you tell us what mix of that is say the Wintell server stuff and what Mex of that is say PCs?

I will take that. So, I think that's a very good question and we -- we struggled with how to break this down and -- and I think, you know, we would -- we would tell you and as you can see from the length of our prepared comments today that we go to great lengths to try to give you as much information as we can on this business. Unfortunately right now, the Wintell-based servers are done for one customer and that particular customer wants to do, is as all of our customers, wants to do their own talking.

So, I'm just not in a position to be able to break that down, Tom. I apologize for that but it -- but we're just going to have to stick with one broad base. I will tell you that based on the strength of that business overall, we did see strength in the wintel based servers as well as strength from -- from both of our customers there across their product portfolio.

Okay. So can we -- can we possibly just take what you talked about initially, the perimeters for the program? And then you saying that it's tracking a little bit better than that and kind of maybe back into something, to good et to that number?

Yeah, absolutely. I think, you know, as I pointed out, we expected the business to be up 15 to 20% and it was up 30. So, you could -- you could easily add 10 to 15% to basically all the numbers and you'd be okay.

Okay. Then lastly -- there are rumors or speculation in the quarter about your HB business. I think you came out and denied them pretty vigorously. Can you just make it clear once and for all exactly what it is that you're doing for HP at this point? It used to be with the old SCI you're doing the Vectra and the pavillion. What are you doing else, storage, servers, PCs? Can you be really clear about what you're doing for HP?

Thomas, let me add to that a little bit and Randy help me on this, too. First of all, Randy and I were in Europe beginning of this quarter and -- and personally spent fair amounts of time with -- with the key players in Europe. We also had a meeting in North America with all decision makers at HP, and just wanted to tell you we had a terrific meeting and our relationship is strong as ever. What we do for them today is that we are involved across-the-board. We get involved at their board level, enclosures, cables, card assemblies, system assembly, of course, build to order, configure to order. The PCs and the servers and so on and so on. We're really trying to grow our business with HP with, you know, trying to say diversify the product that we're involved in. And that's your really what's going on. We believe that the HP is a very critical customer to Sanmina and we feel very confident we will continue to be able to grow that business. Randy, you want to add anything to that?

Yeah. So... So look, if you look at the breakdown of our businesses, clearly we -- we break our businesses down different, trying to pick the end markets here. So, with a lot of the stuff we do for HP it also ends up in the, you know, the high end computing sector there, the enterprise computing and storage sector. As Jure said, we cross a number of portfolio products for HP.

With respect to the PC business that we do for HP, the -- in -- and again, I probably mentioned some of this on the past calls, I won't take a lot of time here, but upon the completion of the merger between Compaq and HP, the -- the Compaq product lines were, you know, superseded or -- or lived on, where some of the HP product lines were discontinued. SCI, the former SCI built those -- those former HP product lines in Alabama, when they were discontinued, we stopped doing that work. So, while this process was going on, HP selected SCI to be their primary workstation and PC supplier into Europe.

And we purchased a factory from HP and we do that work for them in Europe and -- and that's what Jure was talking about about the visit there and we have a good relationship and we've done a great job. We build the PC in a very short period of time and to every -- to all the input I'm getting, HP is very happy with our relationship and that's what we're doing. So, the work that we get in the roughly billion dollars you see there for Sanmina-SCI in -- in doing personal computing and business computing, a portion of that is -- is work that we do for HP. All of that is in oorp. It was all done as part of an acquisition of that business. It was a supply agreement associated with the business and HP is happy and that business we are not losing and HP has confirmed that to us and it was strictly a rumor that was started out there.

Okay. Great. Thanks.

Thanks.

Your next question comes from Roger Norburg.

Hello, Roger.

Hi, how are you?

Good, good!

I was looking -- if I have my numbers right, your merchant PCB business, you said, was 3% of sales in the last quarter but 2% in this quarter, which would imply in the her kmant business was down quite a bit. Is that poor note taking by me, or am I correct? And if so, why was the merchant...

Well, because we're doing more in the company. Because that's the goal, to use more in the company. That's why the percentage is down.

Yeah, but in fairness, it's mostly just a rounding issue.

Okay. And you obviously are still struggling to get to break even in that business. Are you confident at this point that Q1 is the -- is the real turning point for that business --

Well, Roger, we've -- as things get better, especially the high end technology type, you know, we focus mainly on the high end technology product, as that infrastructure type of product comes back, it will definitely help us. That's where our technology leadership is. At the same time, we're expanding our technology -- you know, our circuit board capabilities in military status of the business and advanced medical products, which is helping us out.

We're also developing a fair amount of newer technology and putting couple in our stuff. So, the whole focus here is to, again, the leading edge. One when the business is going to come back again is the million dollar question. We're permitted to the business, I think we know how to run this business and I hope if things turn around a little bit, as Randy showed earlier, we're not that far away from breaking even.

A few millions of dollars. So, our goal is even if, you know, things don't pick up that much, is to find a way to break this -- to break even in the business o a GAAP business. On a pure cash flow, we're very positive on that side. So, I would hope that the next couple of quarters we will start making some money.

Okay, and one more question, on the Phase 2 restructuring, is 250 still the right total number? And again, I can just subtract past quarters and most of the residual will flow into the fourth quarter then, that's what I can expect for restructuring charges in Q4?

Yeah, Roger, 250 is still the number. Obviously it moves a little bit depending on whether or not how well you estimated and what happens. As far as what's left on to go, if you add them up, I can tell you what's left to go is 135 to 140 million. I think it's going to happen between now and the next two quarters effectively. We're looking -- we're looking to Q4 and Q1 and maybe a little bit beyond but that's -- it's going to happen in the next several quarters.

Very good, thanks very much.

Okay, thanks, Roger.

Your next question comes from John McManus.

Hello, John.

Good afternoon. Could you give us an idea of whether in Europe you may have to do any further restructuring over and above there? The announcements you've made.

Randy, you want to take that?

Well, John, that's always a sensitive issue. You know, we -- we -- we have pretty much completed the restructuring announcements that we have. That is not -- that is not using the word pretty much. There might be as far as -- in terms of sides, there might be one or two sites on a worldwide basis that are still left, but we -- we've pretty much completed the announcements and it's just a question of doing the orderly kind of transition in terms of the restructuring, so, I can't rule out that, you know, throughout the whole operations here that there won't be more sites announced in the future, but when you look at the total number of sites that were originally slated in this, including Phase 1 and Phase 2, the number was close to 50 and we're down to one or two sites. That means we're pretty much completed.

Okay. And if I can add to that, John, it's -- really we did an excellent job moving product to a low cost region. If you look at the -- for example, in North America and Europe, let's say North America only seeing this rebuilding North America on the EMS side of the business is NTI 4r06r7 volume and high mix type of product and, of course, large systems and these in aerospace and some medical. In Europe, mainly NTI and a high lease type of product and final system built to order and configured to order. So, all our high volume, intensive label type of products are already being moved to Mexico, Asia and eastern Europe.

And one last question, you -- you got involved with Delphi in -- in some enclosure joint ventures, can you talk a little bit about what that means long-term? And what you're trying to do there?

Well, basically we are -- there's a different -- besides Delphi, there are other partners that we establish out there. It is basically we're working a co-design on the certain products, it will be almost like an ODM type of product that we will be able to sell it to the industry. That's all I can say at this time.

Thank you.

Thanks, John. We have time for one more question. We apologize if we didn't answer all the questions. Give us a call. But we have time for one more. Operator?

Yes, stir. The final question is from Chris Whitmore.

Great, good afternoon.

Hello, Chris, you're lucky today.

A couple of quick questions. First, on the telecom side, it sounded like that business ended out fairly healthy toward the beginning of the quarter, is it fair to say that at weakened in the later or latter parts of the quarter? And secondly, on the Phase 2 restructuring, I wanted to get a sense of cost savings. How much or you can even include Phase 1 and Phase 2 in your answer. How much cost savings are realized? What's hitting the P&L? And how much incremental cost savings can we expect to see over the next several quarters as those are fully implemented? Thanks a lot.

Thanks a lot, Chris. Randy, you want to take the first one and Rick on the second one?

Well, you know, in our business it is -- it is somewhat often somewhat back-end loaded. First of all, we have four weeks in the first two months and five weeks in the last month of the quarter. And then generally even the last month will be heavily back-end loaded compared to the other two. Not heavily, but somewhat.

So, clearly I think the quarter started out with our customers pulling at or in excess of what the forecast was. And I think as the quarter progressed, certainly the final two months of the quarter, what we saw, was the customers taking, you know, somewhat less than the forecast, so, it worked out being about an 18% down quarter overall. Rick?

Sure, Chris, with respect to the Phase 2 restructuring planned savings it was designed to ramp up so that when we completed a round the Q1 period, you were going to have a quarterly savings run rate of around $50 million, give or take maybe $5 million, it's tough to get that for size. I still think we're looking for savings somewhere in that range when we do finish, be it Q1 or Q2, somewhere in that range, but we're looking to have savings at that time and most will occur in the last quarter or so when we ramp through that process.

As you know, when you incur those expenditures, there's typically maybe about a quarter lag between the time you have the expenditure fees, if you will, because you're SDG&E it midway through the quarter, and the time the savings hit the pfl, but it should be in the mid-40s to -- in the late Q1 or late Q2 timeframe. That's the prediction.

Thank you.

Thanks, Chris.

Well, ladies and gentlemen, again, thank you very much for attending this conference call and we'll be talking to you 90 days from now or next quarter. In the meantime, if you have any questions, please give us a call. Again, thank you.

Thank you for participating in today's Sanmina-SCI third quarter earnings conference call.

Ladies and gentlemen, you may now disconnect.