Sanmina Corp (SANM) 2007 Q3 法說會逐字稿

Good afternoon. My name is Notrice, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina-SCI Q3 fiscal 2007 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 session. (OPERATOR INSTRUCTIONS)

Thank you, Mr. Sola, you may begin your conference.

Thanks, Notrice.

Good afternoon, ladies and gentlemen, this is Jure Sola Again welcome to Sanmina-SCI's third quarter 2007 conference call.

Here with me today is our Chief Financial Officer, David White.

Good afternoon, everyone.

For agenda today that David will review financial results for our third quarter of fiscal year 2007 and then I will follow with additional comments relative to Sanmina-SCI's results and future goals.

Now I will turn it over to David.

Thank you Jure and good afternoon, everyone.

Before we get started please note that selected financial portions of this presentation are available in the form of a slide presentation which can be accessed from the Investor Relations section of our website at www.sanmina-SCI .com. I will be making references to these slides during the course of my remarks. Prior to discussing the state of our business and financial information with you I would like to take a moment to reviewed the following Safe Harbor statement.

Slide two. During this conference call we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company. We caution that you 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 electronics industry, changes in customer requirements and sales volume, competition, and technological change. 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 report on Form 10-K for the year ended September 30, 2006, filed on January 3, 2007, as well as other more recent reports on Form 10-Q filed on May 4, 2007. These documents contain and identify important factors that could cause actual results to differ materially from our projections or forward-looking statements.

You'll note in our press release issued today that we have provided you with a statement of operations for the three and nine months ended June 30, 2007, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP information is also provided in the press release. In general our non-GAAP information excludes restructuring and integration costs, impairment charges, losses on extinguishment of debt, non-cash stock-based compensation expense, amortization expenses and other infrequent or unusual items. Any comments we make on this call as they relate to income statement measures will be directed in our non-GAAP financial results.

Accordingly unless stated otherwise in this conference call when we refer to gross profit, gross margin, SG&A and R&D expenses, operating income, operating margin, net income and earnings per share we are referring to our non-GAAP information. On today's call I will review the results of our operations, discuss selected balance sheet accounts and corresponding metrics, provide an update with respect to our restructuring activities, and finally I will conclude with guidance for our fourth quarter of fiscal 2007 ending September 29, 2007.

Slide three. Revenue for the third quarter of fiscal 2007 amounted to $2.49 billion which is below our guidance of $2.55 billion to $2.65 billion, versus $2.61 billion in the prior quarter and $2.71 billion in the same period a year ago. Non-GAAP loss for the quarter was $22.8 million which equates to a $0.04 loss per share, this is below the low end of our guidance range of $0.01 to $0.03. Non-GAAP EPS was $0.00 in the prior quarter and $0.07 in the corresponding period a year ago.

Slide four. For the third quarter our revenue by end markets was as follows. The communications end market represented 27% of our net sales which in absolute dollar terms was down approximately 3% from last quarter. High-end computing and storage represented 13.1% of net sales during the quarter, sequentially in absolute dollar terms this end market was down approximately 13% quarter-over-quarter.

The multimedia and consuming electronic end markets accounted for 8.9% of net sales during the quarter which was down about 26% in absolute dollar terms versus the prior quarter. Revenue in this end market which primarily falls within our core EMS segment which was impacted by a change in the contractual terms and conditions of a sale associated with a major customer that required us to defer revenue on product that was shipped but in transit at quarter end until such product was delivered to the customer. The one time impact of this change accounted to a deferral of $44 million of revenue. Excluding this change net sales during the quarter would have been down 10.5% in absolute dollar terms for the prior quarter.

The medical end market accounted for 8.5% of net sales during the quarter which was up approximately 2% in absolute dollar terms from the prior quarter. The industrial semi-conductor capital equipment, defense aerospace and automotive end markets of our business collectively accounted for about 9.7% of our net sales and in absolute dollar terms were up approximately 7% from last quarter.

Our defense and aerospace and automotive sectors were up from the prior quarter whereas our industrial semiconductor sector was basically flat with the prior quarter. Finally, personal computing systems accounted for 32.8% of our total revenue which was basically flat with the prior quarter.

Slide five. Our top ten customer's accounted for 62% of total sales this quarter. Sales to our top 20 customers amounted to about 73% of total sales in the third quarter. We had three customers in the third quarter whose sales were greater than 10% of total sales.

Slide six. Gross profit in the third quarter was $120.3 million. As a percentage of sales, gross margin was at 4.8%, down approximately 50 basis points from the prior quarters results and down approximately 130 basis points from the same period a year ago.

Selling, general, and administrative expenses for the third quarter excluding stock compensation expenses were $85.2 million, down approximately $4.9 million quarter-over-quarter and up approximately $1 million versus the same period a year ago. SG&A expenses as a percentage of sales were 3.4% for the quarter.

Research and development costs excluding stock compensation expenses for the third quarter amounted to $6 million which is down approximately $2.8 million from the prior quarter and down $4.6 million versus the same quarter a year ago. Our combined R&D and SG&A expenses for the third quarter, again excluding stock compensation expenses amounted to $91.3 million, or 3.7% of sales.

Operating income for the quarter was $29.1 million. Our operating margin for the third quarter was 1.2%, down approximately 30 basis points quarter-over-quarter and down 140 basis points compared to the same quarter a year ago.

Other expenses net which consists primarily of interest income and expense as well as gains and losses from foreign currency translation was $31.5 million, versus $37.7 million in the prior quarter. Depreciation was $27.5 million for the third quarter, essentially unchanged with the prior quarter. Our EBITDA for the quarter was $56.6 million.

And our tax provision for the quarter amounted to $20.4 million on a pretax non-GAAP loss of $2.4 million. Our tax expense was substantially attributable to the Company's profitable operations. This taxable income, however, could not be offset by losses incurred at other operations within the Company. As such, a change in the actual and our anticipated mix of earnings across jurisdictions precipitated the year to date tax true up consequently driving up our consolidated tax rate.

Slide seven. To provide investors with a little more transparency into the business we report two business segments in our public documents filed with the SEC. The first segment is our personal computing segment which includes business PCs and industry standard servers. The second segment is our core EMS segment which includes the rest of our businesses including our various component businesses.

Third quarter revenue for our personal computing segment amounted to $799.6 million, down $7 million from the--excuse me--$806.6 million reported in the prior quarter and up $38 million from the $761.8 million reported in the same period a year ago. Gross margins in this sector amounted to 1.9% versus 1.9% in the prior quarter and 1.4% in the same quarter a year ago, margins in this segment met our expectations.

Third quarter revenue for our core EMS segment amounted to $1.69 billion versus $1.81 billion in the prior quarter, and $1.95 billion in the same period a year ago. Revenue in our core EMS business primarily fell short of expectations and guidance as a result of the revenue deferral I spoke of earlier and a product model change over by one of our customers. Gross margins in our core EMS segment amounted to 6.2% versus 6.8% in the prior quarter and 7.9% in the same quarter a year ago.

These results fell short of our expectations and guidance largely as a result of three factors. Firstly, the revenue deferral I just mentioned. Secondly, we had to record expenses associated with a tax assessment for under reported sales and use taxes which pre-dated 2003. And finally lower profitability in our PCB operations and gross losses reporting in our closure operations. Jure will talk more about these operations in his comments. Excluding the one time revenue deferral and the tax issues previously mentioned the Company would have reported profitable results.

Slide eight. Turning to the balance sheet. Accounts receivable at the end of the quarter were $1.3 billion resulting in DSO of 47.4 days, down approximately 1 day from the prior quarter. Inventory at the end of the quarter were approximately $1.1 billion. On an absolute dollar basis inventory decreased by $84.6 million quarter-over-quarter.

Inventory turn during the quarter at an annualized rate of 8.4 times versus 8.1 in the prior quarter. For comparative purpose of the prior quarter inventory turns would have been 8.7 times, excluding the one time deferral of revenue previously mentioned. Capital expenditures in the quarter amounted to approximately $13.9 million.

Accounts payable at the end of the quarter were $1.4 billion resulting in AP days of 55.6 versus 50.8 in the prior quarter. Cash cycle days for the quarters improved to 35, an improvement of 7.2 days over the prior quarter, and while we recognize that the improvement that we made this last quarter, we believe we still have lots of opportunity for improvement.

Slide nine. Cash flow from operations was a source of $240.7 million during the quarter. Free cash flow which deducts net capital expenditures from our cash flow from operations was a source of $230.3 million for the quarter. As a result of our positive free cash flow in the quarter we paid down $100 million of debt.

We expect to continue to generate positive cash flow throughout the balance of the calendar year as we focus on reducing our inventories, reducing our working capital metrics--or improving our working capital metrics, selling certain surplus real estate and completing our targeted divestitures. These action have collectively generated $349 million of free cash flow calendar year to date.

Six months into the calendar year we are well ahead of our original plan to generate total cash flow including cash from divestitures in the range of $400 million to $600 million. As such we reaffirm our expectation to use free cash flow to retire debt.

In regards to our outstanding debt on June 12, the Company issued two separate offerings of $300 million aggregate principal amount of senior floating rate notes, with one offer due in 2010 and the other offer, other due in 2014. We used the net proceeds of $588 million from the sale of these notes together with cash on hand to repay in full the principal amount together with accrued interest on our existing senior unsecured term loan.

The company recorded a loss on extinguishment of debt of approximately $3.2 million related to unamortized finance fees. As of June 30, the term loan agreement is fully paid off and terminated. The extinguishment loss is excluded from our GAAP, non-GAAP results. Cash and short term investments at the end of the quarter were approximately $780 million, up approximately $116 million over the prior quarter.

Let me now turn to restructuring. During the third quarter we incurred approximately $6.7 million in restructuring expenses most of which was cash. As we've discussed previously we are actively engaged in the divestiture or restructuring of certain business units and operations of the Company, the most notable of which being our personal computing business.

While we are not in a position to comment any specifics as it relates to our divestiture activity, or state of negotiations, we continue to make progress on these fronts and continue to believe that we can complete them by the end of the fiscal year. As it relates to plant closures we completed in the third quarter the closure of our PCB operations in Karlsruhe, Germany and enclosure operations in Lisbon, Ireland. We also announced during the quarter the closer of an additional PCB operation in Phoenix, Arizona, and a substantial scale down of our new ISIS operations. We expect to complete these and other actions over the balance of the calendar year.

Finally, while approximately half of our targeted operating expense reductions are influenced by the timing of our divestiture actions, we belive we are still on track to reduce our annual operating expenses by $60 million by the end of this calendar year. In connection with the closures just commented on, those previously announced and our remaining closures and other planned restructuring activities we expect to incur restructuring charges of approximately $90 million to $100 million over the balance of the calendar year.

Slide ten. Now let me turn to the guidance for the fourth quarter of fiscal 2007. Consistent with prior quarters the information I provide will generally exclude stock-based compensation expenses, restructuring and integration costs, impairment charges, loss and extinguishment of debt, amortization expense and other infrequent or unusual items.

We are targeting fourth quarter revenue to be between $2.5 billion and $2.6 billion, we expect gross margins to be in the range of 5.0% to 5.4%, we are targeting our operating margin to be around 1.2% to 1.8%. We expect to record minimal tax expenses.

Basic shares for the fourth quarter are expected to be in the 527 million range and diluted shares are projected to be around 530 million. This equates an approximately break even diluted non-GAAP EPS. We estimate that depreciation for the fourth quarter will be around $28 million, and fourth quarter capital expenditures to be in the range of $20 million to $25 million. Finally we estimate fourth quarter cash flow from operations to be positive.

I thank you for your time and with that I will turn the time back over to you, Jure.

Thank you, David.

Again, good afternoon, ladies and gentlemen, and by now you've seen our [wire] of course, and heard all the news here from David from our quarter results. From my point of view, obviously, we are disappointed with the third quarter results, but as David mentioned, we have made some positive improvements in our balance sheet metrics.

Now what I'd like to do is start off by providing you some insight to issues we had during the quarter and what options we have and we will continue to take to improve this businesses going forward. Our enclosure business was the biggest contributor to our miss for the quarter.

Let me talk to you a little bit more about that. The enclosure division again basically was paved by poor operational efficiency, issues all over. We had three new operations that opened up in the last 12 to 18 months which are just not running at optimal levels, and because of these things our enclosures lost approximately $10 million in the third quarter.

As of end of June, as Dave mentioned we did complete a restructuring in this division. The last operation related to enclosure division was our operation in Northern Ireland which was shut down as of June 30th, and we believe this is a final restructuring for enclosures.

Also during the quarter we made high level management changes in this organization because of non-performance. We brought on new senior manager by the name Don Kent, industry veteran who will oversee this enclosure business and I believe his strong operational skills will be an asset to the enclosures organization.

I'd like to talk to you a little bit about capabilities in enclosures. I think one thing if you look at our capabilities in our enclosure group it's really they have state of art factories around the world. These are the operations that are really providing leading edge technology and I believe now with restructuring behind us so that we can focus on really building the business and servicing our customers, and with the new management in place I believe we are better positioned to drive the financial improvements going forward. I know it's going to take some baby steps here but I'm optimistic about the future.

Again if you just look at the whole enclosure group, demand for the business was stable. Our results were mainly driven by poor efficiencies. I just want to assure you that we are taking all the necessary steps to continue to improve these efficiencies as soon as possible. The second area of our--that impacted our third quarter results from operational point of view was really our printed circuit board fabrication business.

Over the quarter we did experience some mix issues, basically softness in demand for high printed circuit boards mainly coming from a high-end communication and high-end enterprise computing products, again, impacting profitability for this division. We previously also announced a shut down in this division of two operations, one in Germany which was completed in April, and the second operation we are shutting down right now which will be completed by end of July in our Phoenix operation here in Arizona.

We also believe this is--these are the last shutdowns in our circuit board factory, I believe this now fully restructured and these restructuring actions also did impact our third quarter financial results negatively in this division. Again with a closure of Phoenix factory I believe as I said earlier the restructuring of this business is finally behind us. A good thing from operational point of view, this division is overall executing really well. It's a really demand issue.

I'd also make a comment on our present capabilities as we finish the restructuring. I think we have a great infrastructure now around the world with most of our capacity right now is in a low cost region, North America, a few factories that we focus on the defense and aerospace industry and some leading edge research and development products. But the factories that we have are state of art, they do provide one of the leading edge technologies in the world, producing product up to 60 layers today, they are very complex and also large in size.

We also believe as demand improves for high end printed circuit boards, we expect our board fabrication business to move from break even now to a nice double-digit profitability in the future. I can also make a comment that the rest of our technology component group is performing per our expectations.

I would like to now maybe bring you up to date to make a few comments here regarding management. I did hire a President to run our technology components group. Our technology components group includes printer circuit board fabrication, back plane, cables, enclosures fabrications, plastics, machining and precision assembly.

As of July 9th, we have a gentlemen by the name Walt Hussey who jointed our management team as the President of this technology components group. Walt comes to us with a strong background in operations management and we believe he is the right person to run this technology components business. And most importantly I think the right person that's going to turn this around in these challenging times, and Walt reports directly to me.

I'd like to make a comment on our EMS operations. Demand in our EMS business was also soft in the third quarter. About 3% to 5% below our expectations. Softness came mainly from communication infrastructure, high-end enterprise computing and some from multimedia.

Gross margin in this business remains stable, presently over 7.5%. These operations are all running well and today manufacturers some of the most complicated products made in our industry.

I'd like to make a few comments on our PC market--PC operations, I should say. Overall demand in our PC business was flat, approximately 5% to 10% below our expectation from the beginning of the quarter, but we do see some nice improvements in this business in the second half of the calendar year.

I'd like to also make a comment regarding selling of this business just to build on what David's already said. We are continuing to negotiate with multiple parties for this business and we believe we should reach agreement in the near future. There is basically a two scenarios here for this business.

The way I see it today, this business will be sold to basically two buyers. One buyer which we are very close to be acquiring about 25% of this business, we already identified this potential buyer, and we are in the final stage of negotiating on that. The rest of the 75% of this business we are negotiating presently with multiple potential buyers which I believe we will be able to reach some kind of agreement in the near future. So that's just a quick update of where we are on the PC.

Also this operations is performing very well. Customer satisfaction is the highest so everything is going very smooth. So from that point of view.

Now I'd like to also bring you up to date as you know we've been talking about that we are going to be also selling some of the non-strategic assets of the Company. Basically as we talked to you before these are the few plants around the world that are not strategic to our long-term strategy.

For example we just sold our operation in Perth, Australia. It's a small operation, it's approximately last year had a revenue of about $35 million, made a few bucks, but it just wasn't strategic for us going forward, and we were able to sell that operation and the sales price for that was approximately $30 million. As I mentioned that was completed in the last few days.

Let me now talk to you a little bit about the market and what we see today and what we are expecting tomorrow more or less. Overall we are continuing to see soft demand from our major customers, especially in the communication infrastructure and enterprise computing end markets. On a positive note, as our results have demonstrated we are experiencing nice growth in our medical, industrial, defense and aerospace markets. We are seeing a lot of new opportunities and really winning some nice programs. As always it's very hard to predict the future market demand but based on our customer input and new program wins I believe we should see some growth improvements in effect in the next couple quarters.

What I'd like to do now is really talk a little bit about our--just a quick overview of our strategy so you understand what we are working on today. Basically we are positioning our company to compete in a high-end market, high-end technology and high-end mixed products. After we finish this major restructuring by end of this year we will have the right infrastructure in place.

We have technology, leading capabilities around the world capabilities, what we are basically providing--we can provide a full service for our customers. We will offer our customer custom designs and vertical manufacturing model to full system assembly, logistics from a low cost region. We will continue to focus on the key markets and I would like to make a few comments on those.

Communications infrastructure, I think we are well-positioned there. This market has been going through a tough period in the last three to five years. I believe this market is coming back. There's a lot of new products coming around. I think we are well positioned and I believe we can be able to gain the market share as the demand for that product improves.

In high enterprise computing, we did a lot of changes there. We lost some of the business as we got out of the ODM business but that wasn't all bad. A lot of the revenue that we had there was not making money or in some cases losing money and the stuff that we have today is the right customers, right focus, so we believe that it's a place to be.

On the defense and aerospace, I think here we definitely have competitive advantage over all our competitors in the EMS industry, we have all key certification from the government, this business is growing. I think last time I mentioned to you that we are working on a program, there is about $350 million. I think that program is a lot bigger now, we estimate a minimum of $500 million over three years. Most importantly we got the releases in the place that are running right now at the run rate of over $100 million and these are basically--we can deliver that as soon as we can manufacture. So a lot of positive things going on on that business.

On industrial side, again, a lot of exciting things there. I believe that we are positioned to drive that account. Semiconductor capital equipment, also I think we are well positioned there. Our plants are really designed from an MPI point of view through low cost manufacturing to support that industry. Also in the medical systems, well positioned, we have FDA approvals in nine factories of ours today. I believe we are competitively advantaged there and we expect that business to continue to grow.

On multi-media we are going to focus here mainly on our high-end entertainment, focusing on our key major customers, where we believe these are the products we are going to go after and the key customers. Automotive, we are going to continue to be selective there. That business has been nicely growing for us, but again it's a selective focus.

So as we are moving this operations around how we are set up. So basically our strategy is very simple, we have gateway factories very close to the customers. We do not do the research and development for them and they are really transferring these products seamlessly to our customers around the world.

The bottom line, we are going to focus on our high-end technology product. We are going to focus on our low cost region and really making sure that we are known as a quality producer and focusing on quality and performance for our customers. Our low cost factories are state of art, it is important to know that we've been doing this thing right. We did set up these factories for high-end technology products and we have a lot of extra capacity in the low cost region for future growth. So all these expansions that we've been doing and moving them, and flip it around the world has been now focused on this region.

Now let me talk to you now a little bit about our short term and our long-term goals. In our short term basically as I'm talking here is between now and December 2007. We are going to continue to remain as we always are to focus in our key customers and our target end markets.

We are going to focus generating cash. As David mentioned in this quarter we did generate $230 million. We will continue to drive our operational efficiencies so that we can expect to continue and generate positive free cash flow for the remainder of this calendar year. We believe we will finish all the major restructuring by December 2007. We are going to sell non-strategic assets that we talked about, and as David mentioned, we will continue to pay down the debt. That's for short term.

In the long-term for 2008 and beyond, we are going to remain focused and committed to our long-term strategy. We are confident we are taking the right steps for our customers, for our employees and our long-term investors. In fiscal year 2008, we will be in better position for margin expansion and growth, our customer relationships are stronger.

We do have the customer base for growth, and our customer base will continue to improve. This is where I personally spend a lot of time. It's all about the relationships and we are driving this very hard to achieve industry leading operating margin in fiscal year 2008.

So in summary, our industry went through tough times in the last four to five years, we all know that. Sanmina-SCI had to go through major restructuring and positioning our company globally to service our customers better. The good thing is that the restructuring is behind us and I believe that the better days are there for our whole industry.

The industry is a lot more mature today. We personally--I personally learned a lot. I think the future, if you are looking going forward, the future again is very difficult to predict but I believe it's more promising. The business will continue to grow in our traditional markets and outsourcing will continue to expand in our non-traditional markets such as defense and aerospace, industrial and medical.

I'm personally 100% confident and focused on Sanmina-SCI's new strategy and our ability to deliver financial results that our investors are looking for. The bottom line we are focused, and today we are optimistic about the future. And with that now I would like to extend a special thank you to our investors and analysts for participating on this conference call. I would also like to say thank you to all our employees for their hard work and dedication to this company.

And now, operator, we are ready to open the line for questions and answers. Thank you.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Bernie Mahon.

Hello, Bernie.

Hi, just a quick question on the--you had said that you're in final negotiations for the sale of 25% of the PC business, what are your expectations of how much cash that's going to bring in?

Bernie, as much as I would like to tell you, we are going to maximize it, of course, but it's meeting our original expectations.

Original expectations were, can you just remind me, was that the $400 million to $600 million for the sale of everything, the PCs and the other assets you were going to sell?

Yes, basically as David mentioned in that bucket when we said $400 million to $600 million, that includes PC business, includes the non-strategic assets that I just mentioned that we just sold in Australia operation that was about--last year about $36 million of revenue, we are getting about $30 million for that, some real estate that we are in the midst of selling and all these things should add up to that number.

Bernie, just to calibrate, the 400 to 600 divestitures was just one piece of it. 400 to 600 was total cash.

Right, right, but that's still the target or you are still on target for that?

Well, if you look--if you go back to the slide I showed, six months through the calendar year we've generated free cash flow of $349 million. So we feel--the divestitures are clearly a significant aspect of the total cash flow we'll generate but right now we are ahead of plans.

Okay.

If I can just build on that, I think again we believe we'll get what we originally planned for this operations.

Okay. Just a question on the overall demand environment, so your guidance are up 2% sequentially, it seems like there was some weakness in computing and communications this last quarter. What are you seeing in those two segments, in the communications and computing for the September quarter? Do you expect them to grow or do you think they are going to be down sequentially again?

Well, right now I believe that we'll have some improvement in both of these markets as we look in the forecast, I mean we are forecasting a little bit up but not much as you can tell. The issues that we have in this industry, telecom especially, is we do have some of these major mergers going on, and there are some delays and some demand here.

But as I mentioned earlier, I think this as an area that the industry itself is going through a lot of changes, a lot of new opportunities coming in. I don't see this industry in telecom infrastructure to be having a huge growth from a EMS point of view in the short term, but I'm a lot more optimistic longer term.

On a high-end enterprise computing, some of the losses in the markets you see we lost some of the business when we walked away from the ODM business, I believe that market for us is starting to stabilize. We have a nice--nice few programs. We are pretty optimistic about and it really all depends on the timing there, Bernie.

Okay, that's great. Thanks.

Thanks.

Your next question comes from Thomas Dinges.

Hi, good afternoon. Jure and David, I was hoping you could help me tie together a little bit of the shortfall that you guys saw with the gross profit. Jure, you'd started to run through it. There was roughly about $10 million on the enclosure side but if I look at going back to last quarter what you guys were expecting for gross profit dollars based on the outlook that you had given, it's still probably another $20 million and maybe $3 million or $4 million of that is the deferred shipments that are there but if you could help me kind of tie the rest of that together that would be great and then I have a quick follow up for you, Jure.

Yes, okay, well let me make a comment on here and then I will turn it over to David and I'll pick up other questions.

Basically what I talked about enclosure losing $10 million we did expect enclosure actually to make $5 million but then we had a loss of approximately $10 million, so right there there was about $15 million. And then we felt that our circuit boards should have done a little bit better than they did so when you add that, plus the stock issue, so I will turn it over for you, David.

So the revenue deferral as we indicated was about $44 million of revenue, that also had some impact on us. I also mentioned that we had a sales and use tax assessment pre-dating 2003 that impacted us. When you add those items together along with the enclosure in the PCB business that's really the entire miss in gross profit.

Okay, all right, that helps. And then, Jure, just kind of a bit of a question to tie some of those long-term goals with where you are right now. Back of the envelope it looks to me like probably the PC business generated at least $10 million of operating profit this quarter and obviously you had some items here that hurt you. Assuming there's no revenue growth, you probably would need to increase your operating profit dollars to get to that industry leading operating profit margin goal in 2008 by more than a factor of five, a substantial increase, and it does seem as if we are kind of in a process where you've been cutting and cutting and cutting and cutting, and how much do you need to get from revenue growth and how much can just be done with the existing cost cutting programs that you've got in the mix right now?

Okay, first of all, Tom, we are continue to cut the cost first here to really bring the companies that are leaner than what is--what it was yesterday, okay? We believe that as we restructure the Company here and it becomes a new foundation of our company, if you look at our business, we have about $7.5 billion to $9 billion base of the business, I believe the base of the business that we have if you look at the standard margin, it's a lot more profitable. I mean, the new business, just our EMS alone today is delivering over 7.5% and we've seen that, if the demand was a little bit better that probably would have went over 8%.

As we fix these technology component group, they should be delivering better than double-digit margin, so the new company, I'm hoping the longer term will be delivering that double-digit margin, I mean, definitely in a 9% to 11% gross margin. If we do that, then I believe that industry leading margin in this business is going to be around 5% to 6% operating margin in the next 18 months, I think if you look, nobody is there today in North America but I believe this industry needs to be in that range to be able to get any market variation out there, and that's really what's driving us internally. So it's really driving our core goal--growth.

We also have some unique markets out there like for example, my defense and aerospace business. That business is a lot more profitable than your standard EMS business. We expect the business next year to grow over 30%, 40%, and I still believe that division today the run rate should be about $300 million but I really believe that in two, three years down the line that division has a potential of being a $1 billion and delivering a gross margin over 20%.

Because fair amount of product that we are shipping are (inaudible) custom designs in there. So those are type of niche markets, same thing in the medical side of the business, we really want to drive that business. We are the largest EMS manufacturer of the medical products today in North America, as independent I think in the world.

We believe we are going to grow the business also in a double-digit goal for next year, hopefully all the forecasts come in to be at least 15% to 25% growth in that business. The industrial side of the business I think--so we are going to go after this niche market, Tom, to help us drive the margin because the whole focus for us right now is execution for our key customers and then going after the markets where we can compete and have a competitive advantage.

Okay. Thank you.

Your next question comes from Jim Suva.

Thank you very much. Can you talk a little bit about, you said you lost about $10 million in the enclosures business, and if I remember correctly did you loss about $7 million last quarter, so in essence you are losing more money there now than you have in previous quarters?

Actually, no, we made a few bucks last quarter in that business. David, am I correct?

That's right.

Right, so you made it but then this quarter you lost $10 million?

Yes.

So despite all the restructuring and changes and all this it seems like you're actually taking steps backwards?

Yes, Jim, let me say, the restructuring really, the final restructuring for this operation did happen in Q3. The last factory was shut down in end of the June. At the same time, we made a management change with the top leader of this operation basically end of the June.

Okay, then what can we look for for you guys to make, that $10 million loss this quarter, what should it do next quarter?

Jim, we just brought the new management in here. Let me put it to you this way, on the positive side, factories are a beautiful, capable factories.

Number two, the business is strong. It's mainly been in efficiencies, execution or whatever we want to call it here. So I think we are going to take the baby steps here right now. I think it's at this time for me it wouldn't be fair both to the new manager and also to Walt who is overall running all the component group to really put too much pressure on him.

We are expecting improvement, how much improvement, Jim, I really don't want to make, because I've been predicting a lot of these things wrong already and I want to really leave it to these guys right now to tune these things up and I believe we will make improvements.

Okay. Then maybe as a question that you could answer a little better is, David talked about change in transaction terms. I assume that was not anticipated coming into this quarter. It sounds like it has nothing to do with the Cisco lien, and do you actually get that transaction terms back or the product then sells through already made?

You're right, this happened basically end of the quarter that we had to make this decision. I will turn it over to David. I know he worked on it a lot much more than I did.

David?

Well, yes, I'd just say that this happened at the end of the quarter. We have contractual terms with all of our customers and those contractual terms occasionally get renegotiated, etc., and when they do, sometimes that effects our revenue recognition, and sometimes we give something in order to get something back in exchange, and so in this particular instance, we had an effect on our revenue recognition.

It won't effect our cash flow because that product basically had already shipped, we'll collect it at the same point of time as we originally planned on collecting on it. So it is a one time impact, you might say on the business.

Okay. Thank you.

Okay. Thanks, Jim.

Your next question comes from Louis Miscioscia.

Hello, Lou.

Hey, guys, thank you. My first question is on the three 10% customers, I assume it's IBM, Linovo, and HP, can you give a percent as to how big they are?

I wish we can but we have policy, Lou, we only issue that once a year. Those are the three customers that we were over 10% for us for the last couple of years.

I could add this, Lou, if you took the PC revenues in the quarter of roughly $117 million or so, it roughly breaks out pretty evenly a third, a third, a third, and you wouldn't be very far off.

And then IBM had two--I guess then what was left after IBM sold the business to Linovo, that all basically their low end server business and you are putting that obviously in the PC category?

That's correct, the server business that we billed for IBM we put in the PC category, that's correct.

Now, was that also the area that you had mentioned earlier that was--a different area then that you mentioned was weak which would be the high-end computing business, that's a different customer?

That's a different--let me make sure that's separated. We have what we call high enterprise computing, that would be the high-end systems, the high-end storage system which is, we do business in that group with IBM and Hewlett Packard, that's a separate group, okay? Then we have in the PC which was mainly personal, desktop, laptop and low end servers.

You put out an 8-K a little while ago where you mention that one of the customers in the PC area might be pulling business back in house. If you could just give us an update on that? Is that something that's imminent or is that something that's long-term and how does that just effect obviously trying to sell that operation and your long-term profitability?

First of all, we were--this customer was very open with us, that's where they were going, that's their strategy. From the day one--when we put our PC business into the--that we are going to sell it and find a new home for it, we already knew about that. And as I said that would be a two different type of buyers for that business, and there would be no impact how we are going to sell that. I just can't talk to you who is going to be the buyers right now because the deals are not done.

Okay, great. So obviously you might get a little bit less than that then anticipated if that gets pulled back in house. Now, just going back to February, I thought the $400 million to $600 million that you originally talked about from cash flow was really cash coming in from the sale of all the different assets and then obviously the improvement to working capital are very desirable and investors will always take it, but isn't that a different category?

No, the 400 to 600 I think if you actually look at some of the slides we had, the 400 to 600 included everything, real estate, divestitures, EBITDA, working capital, etc.

Okay. Then my final question then from the inventory perspective, obviously it looks like it improved nicely. Where do you think it can go? What turns are your goals, let's say, 12 months out?

Well, 12 months out as we--our PC turns of course are a lot higher than the rest of our businesses, okay. I would say when we--we believe that Vitada's PCs the goal is to have a minimum turns, 8 in a 10 turn bucket, that will be the bucket for us.

Okay. Thank you.

Thanks.

Your next question comes from Steven Fox.

Hi, Steve.

Hi, good afternoon. You talked in generalities about the enclosure business and the $15 million negative swing in profits. Can you be more specific exactly what happened there, what you guys are looking for--?

Well, I think, Steve, what really happened I mentioned just in general terms is we have--we've been challenged in the last 12 months with mainly our newer factories that we open up such as Mexico operation, Eastern Europe, Hungary, and our China operations.

These operations--newer operations takes a little bit more training, and today, I mean from a quality point of view they do a great job, it's just that we are not as efficient as we need to be in this operations. Our costs are higher than they should be, and those are things that we are really now focused to fix.

So it's a basic throughput issue?

It's basically a throughput issue, yes.

Okay, and then on the change in terms with the, I guess set-top box customer, why would there be such an abrupt change in terms and conditions at the end of the quarter, and did you get something in return for holding on to that?

I don't think we said it was a set-top box customer.

Yes, yes.

Basically as David mentioned and I will turn it over to David--go ahead, David.

I was just going to say. We negotiate contracts all the time and there's always quid pro quos in those and some things we have a vested--a significant vested interest in in terms of trying to win in our favor and certainly in other points our customers have areas that they certainly care to win on, and when we have product that maybe in transit and so forth, the times we make those changes, a lot of those times those changes are, can be retroactive or effective for things that are transit at that point in time and in effect that's what we have here.

If I can just add, Steve, to that, it's a long-term customer, we have strong relationship with customer, it's really basically making some minor changes in our contract that we're able--in old days we were able to recognize the revenue when we ship, now we have to wait a few days, so.

Okay, and then the last question, David, just real quick, do you happen to have the tax impact from the restructuring costs and the loss on redemption of debt handy, if you are truing up from GAAP to non-GAAP?

You mean on the redemption of the debt?

Yes, there was a tax effect. You just had the tax effect on everything combined.

Yes, the tax effect on the extinguishment of debt I think would basically be zero because that was a loss that was incurred here in the U.S.

Okay, and then the restructuring?

And in the U.S. we don't really incur any benefits for that because we are not paying taxes here in the U.S., and on the restructuring side, we only had about $6 million worth of taxes on that--excuse me, $6 million worth of restructuring expenses or seven, whatever the number was, right in that range. Most of that was in--was in Ireland, and I think the tax rate in that would have been roughly around 15%.

Great. Very helpful. Thank you.

Your next question comes from Matt Sheerin.

Hello, Matt.

Hello, Jure, good afternoon. Hi, David.

Jure, you talked about during your commentary about all these growth opportunities that you see for the business but based on your guidance it looks like September will mark the eighth consecutive quarter that had year-over-year revenue declines even if you back out that deferred revenue. So can you be more specific about how you plan to get revenue back on track and what kind of real--?

First of all, we are, there are certain businesses that we've been exiting mainly for the businesses that have been generating fair amount of revenue, not a lot of margins. So as we now restructure the new company, as I mentioned earlier, I think our base of the business when I look at my customers, and the programs we are involved in and the demand there, it's probably $7.5 billion to $9 billion base.

We believe it's a solid base. I think that core business once we bring it down to get into these businesses that basically we don't want to participate in, I think from that base I would expect us to be able to grow to the industry--industry level. There's different markets we estimate to grow at the different level but as I mentioned earlier I think we that expect to see a nice growth from a difference in aerospace area, I think from medical, industrial side.

I mean if we look at the communication infrastructure and high-end enterprise computing, at this time that is really hard for me what type of growth that will go, as you know. We are putting the (inaudible) communication infrastructure product especially as we sell the PC out. I believe we are well-positioned with the key customers there and grow, but the key for us is really to turn this component business to be profitable. I mean if we can bring that component business to the margin with at least minimum margins I think we see a nice jump in the profits.

In the short term as I mentioned earlier right when I say short term, between now in December we are really focused on this restructuring and servicing our customer and maximizing the cash flow from operations, but we must grow. I mean end of this year, starting the new year we have to grow. I mean that is the--that's the whole focus internally, and I think with restructuring now going to be behind us, I think will give us hopefully more time to focus on the things that will drive this growth.

Okay, great, that's helpful, and with these latest plant closing in enclosers and PCBs, are you transferring that business to other facilities, or do you expect to lose a little revenue?

Let me just give you an example, we've been very fortunate, the Phoenix factory that we shut in North America we are able to transfer to our existing factories between 90% and 95%. The last number I was told, 95%, were we were planning between 90%, but I was told it's over 95%. So I think in enclosures in Ireland we were able to transfer over 85%. So it's been a very successful and most important we transitioned most of this stuff to our low cost regions.

Okay, and my last question, once the restructurings are done and all the plant closings are done what are the capacity utilization going to look like across your different geographies?

If I look at, Matt, once the restructuring is done, I think we will have--a few years ago before this downturn we spent a lot of money on equipment, so we have plenty of equipment. It's why you are seeing we are not spending a lot of money on equipment right now because we have it, I think still plenty of capacity because as we move this equipment from a high cost region to a low cost region, the way we position the Company I think our company has about $10 billion plus capacity as a new company. So I would say after that restructuring we will be--our EMS business will run around 70% capacity utilization and the components assuming it doesn't grow at all, just stays the way it is today we will be around 65%.

Okay. Thank you.

But room for growth I think that's a key important as we--so there's a lot of room for growth without spending a lot of money.

Your next question comes from Will Stein.

Thanks, good afternoon. Without trying to be controversial we are seeing all these divestitures of small pieces of the business and some not so small and we've some consolidation in the EMS industry lately. I'm wondering whether the board has evaluated some more significant action, maybe splitting up the Company into more pieces or selling off essentially all the pieces, any kind of more radical plans have been addressed by the board? And then I have a follow up, please.

Well, Bill, I mean, I can't comment all the meetings and what we discuss on the board but let me give you--our board at least when I'm inside which I'm a board member, we look at all possibilities of each of our businesses from a plant point of view, global point of view, customer point of view and we look at what is the best for our company long-term. I think if we want two accomplish--if we want to accomplish just a short term results, you probably would say, oh, we can sell it here and there and make a little bit of money, but if you really want to look at what is longer term, what is the best for our customers, for our employees and our long-term investor I think the strategy that we have in place is the right strategy.

Unfortunately, this whole industry went through tough times. Our customer base went through tough times. The good thing is that our customer base is improving, I think we always were focused on the high-end infrastructure product. That's the way the Company was positioned, and I believe that as we tune things up, get some of the--ways that we have, we are going to see a nice, nice improvement. I think the Company will be agile and I think has all the capabilities to compete in this industry with anybody.

Great. Thanks.

Just a follow up, I see that stock comp expense more than doubled, I believe sequentially it's about double what it's been running in recent quarters. I'm wondering if you can comment on what's behind that change.

Will, basically twice a year we do our forfeiture rates, and true up our actual stock compensation expense against what we anticipate to be realized, and so there was a true up of that in the June quarter.

Okay. Thank you.

Thanks.

Your next question comes from Brian White.

Hello, Brian.

Hi, Jure. When we look at the PCB fabrication business and the enclosure business, I think they are both pretty decent businesses with good capabilities but they just haven't been run properly, have you ever thought about divesting those assets?

Well, I think, Brian, you're right first of all, we had challenges running this operation, especially when we had to move this operations around the world and rebuild a new management. Okay?

I know the results are not showing there but I think from a capabilities point of view these are the state of art factories. Okay? I think if you look at our strategy and the way the world is going for, is I believe you got to to have a vertical end to end solution to our customers. Sanmina invented that--we started as a component company and we went up--up the food chain to start building a full system assembly. As I talk to our customers that's one thing what they liked about Sanmina but I think when we acquired, or merged with SCI, at that time we tried to be this big company, the market was changing on us and I think we lost some of the focus of this high-end technology product that always made old Sanmina the most successful.

So really the beginning of this year we made that decision to say we need to go back to the basics, the way we are going is not working. Yes, we can grow the Company, get more revenue but the [street] is not paying for it. So what we do is really with our vertical model such as our board and enclosures we really want to build on that so that we can vertically integrate all these critical components.

Just to give you an example, the program that I just mentioned in the defense and aerospace industry, about $500 million that we'll want for the next three years, a minimum with over $100 million for release for today's manufacturing, basically that's going to be more or less fully integrated. I mean, that takes some of the most advanced printer circuit boards that any circuit board shop can build, and I think having the advantage that we can build a board, take it to assembly, build a full system that really gives us the advantage to compete and that's the model that we've got to push more but go out to the markets that we have competitive advantage instead of trying to compete sometimes on the high volume, low margin business.

Okay, and just to follow up, Jure when you look at pricing for printed circuit boards, how did pricing trend in the June quarter and what do you expect for the remainder of the year, and also materials, are material pricing, copper clad laminate starting to go up? Do you expect them to go up in the second half?

First of all on pricing, I think the pricing, I would call it stable. We have slight improvement in the pricing from last year. Today I would say stable.

I don't really have all the data in front of me but what I--when I talk to my gentlemen who runs our PC fab operations a few weeks ago, I felt that the pricing is stable. We don't get paid as much as we need to, of course, you know that. When it comes to the metals, we started to see some metals go up. We are--I think we learn a lot from the year ago, year and a half ago when the metals really went through the roof.

I think we have a lot better understandings with our customers. Those metals go up, we need to get paid for them immediately, and, of course, when they go down we will give our customer savings. So I think we are better protected than we were a year and a half ago on that.

Okay, so it sounds like you expect material prices to go up in the second half but you think you can pass them through.

Yes, I do expect the material, based on all the data I see I do expect the commodity pricing, especially when it comes to copper, aluminum, gold to continue to inch up.

Okay. Thank you.

Your next question comes from Kevin Kessel.

Hi, guys, how are you?

So I guess two questions, one is, somewhat of a clarification here on the--again, going back to free cash flow. The way I understood it as well was that the free cash flow of $400 million to $600 million, was what you were targeting for all the different divestitures as well as the sale of all the non-strategic assets but not necessarily from any working capital improvements or just general net income, generated cash flow.

Well, I mean my comments, we really never knew what we were going to be able to get for our assets that we were selling but we basically put an estimate for that number, but the idea was always to drive the maximum price for whatever the market is going to pay for those assets. So the idea was always that we will exceed those goals. As we start selling some of these big items.

David?

Yes, I was going to say if you look at--I'm not sure how we got off base here but if you look at I think the original plans we put together and so forth, we made certain assumptions about real estate, we made certain assumptions about divestiture of businesses and so forth and those were all-- those were certainly included in as was working capital and EBITDA.

I think at this point you can look at where we are six months through the year, we are already at $350 million roughly of free cash flow. We haven't had one divestiture yet, other than the one that Jure just mentioned in his comments, and so I think it's safe to say we are going to over achieve against the numbers we've originally put forward.

Right. I think that's clear, I guess the bigger question would be many investors will want to see--what was the sum total of what you got from your divestitures versus--?

I mean, I know what the real estate--at the real estate piece we were actually looking at achieving was somewhere on the order of about $75 million for the year. So if you subtract that out of the $400 million to $600 million range that would then leave you with what the amount of the divestitures--that would leave you with the amount that the divestitures would have had to have been to achieve that number and they've never been at that level.

But, I think it's important to say that this $230 is mainly from the operations. There's no real estate in this.

The one that you are showing year to date, the $349--

The $349 million, right.

All operations.

Yes.

Okay.

I think this is--will continue, Kevin, and I think it was--we had to take a lot of steps to get this [stuff], and I think the whole focus right now for us is we are bringing this company to be a leaner--is that we believe we can be, we can run it with the better cash flow than we ever did before.

What else is left to sell? The way I think it's been described in the past, memory modules sounds like one area, new ISIS, I'm not sure what's left of new ISIS but it sounds like that's something that you plan to sell. In terms of other strategic assets outside of PCs, is there anything else?

We always said we never talked about Australia openly, there is a few operations around the world that are like small like this. There are nice little businesses but strategically for us, Kevin, long-term makes no sense to invest the money there, we are better take that money and put it in India in our new operations we are growing. As I mentioned earlier this Australian operation, around last year their revenue about $35 million, $36 million, a little bit profitable but we are able to get about $30 million for it, it made a lot of sense to make a deal, and take that money, put it somewhere else.

Right, and how did you set such evaluation, is it just kind of one off, (inaudible) one times sales, it's an EMS factory?

We use some of our financial advisors and we test the market and market really drives everything. And then end of the day we make a decision, does it make sense for us to do it or not do it.

Okay, and when you say you are selling 25% of PCs, do you expect kind of with the two buyer scenario, isn't this an operation that has three plants?

We have more than that. We actually--we have a three major plants, right.

I'm thinking, you sell one of the three plants you sold a third, not 25%, so I'm trying to understand what 25% means?

Basically it's 25% to 30% of revenue. I'm not trying to be exact here.

You are saying more from a revenue perspective than from asset perspective?

That's correct.

Okay, but we can think of it conceptually as maybe one buyer buys one plant and maybe some other buyer buys two plants?

That's correct.

Okay, and the last question, David, is just on taxes, you said, I think you said 0% or zero for the quarter? Is that right? And I just wanted to figure out what it is going forward?

Are you referring to guidance for--?

Yes.

Yes, so when we trued up to the end of the third quarter, that was in anticipation of roughly a break even quarter for the fourth quarter, and so it was based on an expectation for the full year, and given that we would be close to break even roughly for the fourth quarter it works out the taxes wind up being pretty minimal.

But going forward, normalized tax rate going forward?

I think a normalized tax rate would probably be, somewhere again in the 20% type of range and again it will be--I think dictated largely by our profit level in the Company. Given the lower profit levels as I'm sure you've seen with a lot of other companies when profits go down you still find out you are paying taxes in some jurisdictions and you don't get a benefit from those and that's the situation we find ourselves in right now. So I think to get back to that 20% rate that will I think naturally occur as our profitability goes back up.

Okay, I will jump off now but just last question, have you guys seen any opportunities spring up as a result of the Flextronics Selectron merger?

I don't want to make a comment on that. I think it's good for an industry. Flex is a great company, they will do their job. We compete with those customers both the Selectron and Flex. We constantly compete with each other so there's always been a lose type of a play. But I don't think you can just wait over on the door and say the order is going to come because of the merger. There's a lot of work with that, Kevin.

Got it.

Thanks.

I think we have, operator, time for one more question.

Okay, Mr. Sola, your next question comes from Amit Daryanani.

Thanks a lot.

We left the best for the last.

I'm glad I snuck in.

Jure, a few minutes ago you spoke about some of the absolute need for Sanmina to grow revenues next year and (inaudible) for the last two years sales are going to be down, I'm just wondering if you don't see revenue growth next year and your margins still remain below 2% what sort of options would you look to evaluate then?

Well, I think first of all right now we are not just waiting for a growth, we are taking the cost down across all our operations from my office down to the janitorial office. So we are looking at everything. We are really rightsizing the Company to what it needs to be to make money at the present revenue. Okay?

And then as we drive the revenue up, we hope that we will have a bigger benefit and then we will adjust if we need more bodies or whatever, we will do that. But right now the whole strategy is to right size it so that we make money at whatever the revenue we--the reason I'm saying, the revenue that we are going to keep, Amit, is going to be the customers that were stable and the one's that we want. There are certain businesses that we have for a long time to give us a lot of revenue but not a lot of margins.

All right, and then just looking at the enclosures segment I think this is the second time in the last few years you are having a management change there. Is that right?

We brought in the present gentlemen that we basically left about a year ago and we just made a change in June.

All right, and then just finally going back to the memory modules question, I wasn't able to understand it.

We usually don't change managers. If you look at the managers they have been around for many, many years. Unfortunately we've been having challenges in this operation but typically if you look around most of our managers have been with the Company for many, many years, over ten years plus.

All right, and then, Jure, I just wasn't able to understand, is the memory modules business one of the business that would you like to divest or?

I mean, we don't want to talk about that right now. There's memory modules for us is doing fine. We were looking at it at one time but we pulled it off the market because we just felt it was better to keep it and just the timing was bad.

Finally it sounds like a lot of the non-technology segments for you guys seem to be doing pretty well and there's good potential for them out there. I'm just wondering given the ongoing struggles you have in (inaudible) operations, have you evaluated a potential to spin-off the non-technology part of your business away?

Such as what?

Aerospace, medical, industrial--

We don't really--we are not complicating that at all today. We are going to be focusing as a major competitor in EMS companies that will be vertically integrated from a--for high-end product. That's the model that we are going.

I know it's embarrassing for me personally. It's disappointing that we are not delivering our short term results, like I say it's been a tough time. But we are--we believe we see the light at the end of the tunnel. Believe me if we didn't see that--if we didn't have the confidence, we wouldn't be here.

Not here just for a paycheck, I'm here because I see that this company can compete with anybody. We've got a great customer base, and we got the businesses we can grow. We are not running away from it. We are going to be a major competitor in this EMS industry.

All right, and then finally, the component business, could you just talk about what you expect in terms of sequential revenue growth next quarter and how do you expect that to do in terms of margins?

Amit, we don't forecast major revenue growth next quarter. We really right now are focused on fixing a few issues that we have and servicing the customer. I think if demand is there it's going to come. We still--talking to our customer we see demand improving in our high-end printer circuit boards.

I think our enclosure business demand is strong even today. I think if we meet any more demand will be in our high-end boards. As you know a lot of the high-end boards come from the telecom side of the business and high enterprise computing, they are a little bit softer today than we like it to be.

I think the whole industry, PCB industry that's focusing on high-end is feeling it a little bit but I think it's going to--I think we are going to see some improvements the rest of the year. How much is hard to predict at this point at this time.

All right. That's about it. Thanks a lot and best of luck,.

Thanks a lot. Thanks. Ladies and gentlemen, thank you for your time.

I know this was a little bit longer conference call but we just want to give you a little bit more data, but if you have any more questions give us a call any time. Thank you very much.

This concludes today's Sanmina-SCI Q3 fiscal 2007 earnings conference call. You may now disconnect.