Sanmina Corp (SANM) 2009 Q2 法說會逐字稿

Good afternoon. I will be your conference operator today. At this time I would like to welcome everyone to the Sanmina-SCI second quarter fiscal 2009 conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions). Thank you. Ms. Bombino, you may begin your conference.

Thank you. Good afternoon, ladies and gentlemen, and welcome to Sanmina-SCI second quarter earnings call. Today's call is being recorded, and is posted along with a copy of the earnings release and slide presentation on the Company's website at www.sanmina-SCI.com in the Investor Relations section. You can follow along with our prepared remarks in the slides posted on the website.

Please turn to page two, the Safe Harbor statement. During this conference call, we may make projections or other forward-looking statements regarding future events or future financial performance of the Company. We caution you that such statements are just projections. The Company's actual results of operation may differ significantly as a result of various factors including the state of the economy, economic conditions in the electronics industry, changes in customer requirements, and sales volume, competition, and technological changes. We refer you to the documents in the Company's filings from time to time with the Securities & Exchange Commission, specifically the Company's most recent annual report on Form 10-K for the year ended September 27, 2008, filed on November 24, 2008, as well as the most recent report on Form 10-Q for the quarter ended December 27, 2008, filed on February 2, 2009. 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 a three and six-months ended March 28, 2009, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and is posted on our website.

In general on our non-GAAP information excludes restructuring and integration costs, impairment charges, gains or losses on extinguishment or repurchase of debt, noncash stock-based compensation expense, amortization expense, and other infrequent or unusual items to the extent material. Any comments we make on this call as they relate to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, SG&A, and R&D expenses, operating income, operating margin, net income, or earnings per share, we are referring to our non-GAAP information. I would now like to turn the call over to Jure Sola, Chairman and CEO. Jure?

Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome. Thank you for being here today. Joining me on this conference call is Hari Pillai, our President, Chief Operating Officer.

Good afternoon.

And also Todd Schull, our Senior VP of Finance Corporate Controller and also acting CFO.

Good afternoon, everyone.

So agenda today is that Todd Schull will review our financial results for second quarter fiscal year 2009, then I will follow additional comments relative to Sanmina-SCI's results and future goals. Then Hari, Todd and I will open for question and answers. With that, Todd.

Thank you, Jure, and good afternoon, everybody. Please turn to slide three. Revenue for the second quarter of fiscal 2009 was $1.2 billion, down 16% versus $1.4 billion in the first quarter and below our internal goal of $1.3 billion. As we noted in last quarter's call, visibility going into the second quarter was very poor, and the declining economy resulted in revenue being less than we had anticipated. Jure will provide more insight into our revenue in his comments shortly.

For the second quarter we reported a GAAP loss of approximately $37.5 million which equated to $0.07 per share. We reported a non-GAAP loss for the quarter of $30.9 million or $0.06 per share and this compares with the break even earnings per share in the prior quarter. Gross profit for the second quarter was $70.6 million. As a percentage of sales, gross profit was 5.9%, which was down approximately 80 basis points from the first quarter due to the impact of reduced revenues, partially offset by our cost reduction efforts.

Operating expenses, excluding stock compensation expenses were $59.1 million, down approximately 5.6 million from the prior quarter. These expenses have continued to trend downward over the last year as we have focused on reducing infrastructure costs. Operating income was $11.4 million. Our operating margin was 1.0%, down 120 basis points from the first quarter.

We continue to aggressively restructure our global operations and administrative functions to reduce costs. We've made significant progress and we're not done. We expect to realize additional improvements as we take further actions over the balance of this year. Since the first quarter of 2008 we have been able to reduce our operating expenses by more than $30 million a quarter. Net interest and other expense which consists primarily of interest income and expense as well as gains and losses from foreign currency exposures, was $39.9 million, an increase of $3.7 million from the first quarter. This increase was due primarily to foreign exchange losses resulting from significant rapid changes in exchange rates during the quarter, particularly in January. Tax expense for the quarter was $8.5 million.

Notwithstanding our negative earnings before tax, we still report a tax expense as losses in certain countries under U.S. GAAP do not generate tax benefits to offset the tax expense generated in our profit making countries. To mitigate this inefficiency, we continue to pursue our long-term global realignment program. This effort has already produced substantial savings to the Company and is expected to further reduce our tax expense in 2010. Our reported tax expense in the second quarter increased significantly from the amount reported in the first quarter. This increase results from the fact that a significant portion of our expected full year loss before tax occurred in the second quarter, and under the accounting rules a similar portion of our expected full year tax expense must also be reported in the second quarter. As a result, we expect tax expense in the rest of the fiscal year to be in the range of 3 million to $5 million per quarter. Depreciation was $20.3 million. EBITDA for the quarter was $31.7 million.

Now, turning to the balance sheet, slides four and five. Cash and short-term investments at the end of the quarter were approximately $851 million, an increase of $55 million from the prior quarter end. Cash flow from operations was $97 million. Net capital expenditures were $16.6 million resulting in free cash flow of $80 million in the quarter. Accounts receivable at the end of the quarter were $710 million, and our DSOs for the quarter improved by 3 days to approximately 53.5 days. Inventories at the end of the quarter were approximately $706 million, down $78 million quarter over quarter. Accounts payable at the end of the quarter were $679 million which equated to AP days of approximately 55, an improvement of 1.4 days. Our overall operating cash cycle for the second quarter was approximately 55.6 days.

During the quarter the Company repurchased $33.7 million of debt and 23 million shares of our stock for $7.6 million. Since the inception of our stock buyback program, we have repurchased a total of 44 million shares at an average price of $0.43. Our overall liquidity position is very strong with cash on hand of $851 million, available accounts receivable and bank borrowing facilities, and a debt maturity profile that is very favorable. All of this plus our continued focus on improving our working capital metrics positions the Company well to weather these economically challenging times.

Let me now comment on restructuring. Although we completed our major restructuring initiatives prior to this economic downturn, we continue to fine tune our structure. During this the second quarter we incurred $15.6 million in restructuring expense. This expense primarily relates to reductions in force associated with previously announced plant closures as well as the restructuring of various corporate functions. Actual cash payments related to these reductions and previously accrued restructuring actions amounted to approximately $21 million in the quarter. We expect further restructuring related cash payments for the remainder of this fiscal year to approximate $30 million.

In summary we are operating in challenging economic times. In such times we must be focused on cost and asset management. Our results reflect that focus and we'll continue to do so. I will now turn the call over to Jure to provide his comments and our outlook for the third quarter. Jure?

Thank you, Todd. Good afternoon, ladies and gentlemen. Please turn over to slide six. Here what I would like to do is review end market demand for second quarter. As Todd mentioned, revenue came in about $1.2 billion, down 16% from the December quarter, and it's approximately 7% below our internal expectations. Typically March quarter for Sanmina-SCI in our industry is seasonally slowest quarter, but this time most of our market experienced greater than normal seasonal decline. Demand for January and February was weak, and we did see some signs, though, of stabilization in March.

Like to break down our revenue and here, again, we break this thing in five groups, communication group includes networking, wireline, and wireless infrastructure. Data represented approximately 44% of our revenue, down 13%. Medical represented 15% of our revenue, basically was flat, enterprise computing represented 15% also down 22%. Industrial, automotive, defense and aerospace represented 12%, and was down 27%. The biggest drop that we had was in semiconductor equipment, manufacturing, and automotive industry. Those two groups were very, very weak and also multi-media represented approximately 14%, down 20%. So if you look at overall, this decline in revenue was mainly driven by weak demand. Also in the second quarter Sanmina-SCI had no customer over 10% of revenue.

Now please turn over to slide seven. Here I would like to talk to you about our third quarter outlook and our internal forecast. Short-term visibility improved slightly, but is still very difficult to forecast end market demands in this economy. We are cautiously optimistic that June quarter our third quarter, will continue to stabilize. So let me give you some of our internal forecast which basically we call flat to some potential for upside.

Revenue is going to be between 1.175 billion and $1.250 billion. Gross margin 6 to 6.4%. Operating expenses should come down a little bit to 55 million to $58 million. Interest expense also should come down a little bit about 28 million to $29 million. Depreciation is going to be around $20 million. CapEx for next quarter again between 10 million and $15 million, and number of shares that we're estimating for next quarter about 488 million. We're forecasting net GAAP EPS loss of $0.04 to $0.02. Also, we expect positive cash flow in the third quarter. Again, visibility is improving but still limited in this business and demand is unpredictable. So we have to continue to stay cautious in this environment.

Now let me talk to you about our longer term and also market opportunities as we look out to the future. As a management you always ask yourself what do you do in this type of environment? You realize in this type of recession you're not controlling everything. You focus on things that is in our control. Number one, we're taking very aggressive actions, especially in last six months to reduce the costs and tune up our operations. We are making Company a lot more efficient and enhancing our future financial performance as economy normalizes. I can tell you that our customer satisfaction has continued to improve. We're focusing on building even stronger relationships here, and we are continuing to add value and providing our customer with the new services and Company's also investing some of the new technologies for future.

We do have strong liquidity, and strong capital structure, and we believe that's one of the competitive advantages that we have in this economy. As Todd mentioned in this environment, we are focused on generating free cash flow from operations. As he mentioned, we generate $80 million of free cash flow from operations second quarter, and we expect to generate free cash flow for the remainder of the calendar year.

Let me talk to you a little bit about market opportunities. Even in this economic environment there are new business opportunities. If you look at our bookings in last six months, over 10% of our bookings came from ur new customers and new programs. Also bookings were positive this quarter. Book-to-bill was positive, and this is the first time in nine months.

Also our new business strategy is working well in this environment. This allows us to stay focused on our best businesses and best customers longer term. We do have a strong customer base with a long-term relationship, and we believe this type of foundation is gives us a strong foundation to build a future growth as the economy improves.

So in summary, again, in this environment the key is generating free cash from operations. As for future demand, most of our customers are feeling more positive about the growth in the second half of calendar year 2009. I can tell you we as a Company are cautiously optimistic that maybe the worst is behind us, but we are not ready to declare end of the recession at this time. We as a Company have a very strong management team in place. I believe this management knows how to manage in this environment. We've seen it before. We are very confident about our Company future and also our industry. We'll come out of this storm as a stronger Company, strategically leaner, be asset efficient, and have the right technology and capacity for future success.

Now I would like to say thank you all for your time. I would to also say thank you to our employees for their hard work and dedication to this Company. Operator, we are now ready to open the line for question-and-answers. Thanks again.

(Operator Instructions). Your first question is from the line of William Stein with Credit Suisse.

How are you?

Good. Just a couple quick ones. You had mentioned that in March you saw signs of stabilization. I think you mentioned book-to-bill over 1.0. Can you talk about which end markets are strong on the bookings side in March? And then also, you mentioned you're investing in some new technologies for the future. Can you give us some details there? Thank you.

Yes. As I mentioned one of the -- in any environment, especially in a recession that we are experiencing, you always find out that the customers are looking, upgrading existing product and investing in the new technology, and with our new strategy we are really well-positioned with our key customers that we had for many, many years, and I think that's one of the reasons that our new bookings was at least in this new projects are looking positive. Our traditional businesses I think are performing a little bit better. Yes, they're down, I would say communication infrastructure which with us that includes networking, wireline, and wireless. I think it is holding reasonably well. Medical is holding reasonably well. Industrial is holding reasonably well, and the defense in aerospace, yes, we had a few programs that got delayed, but even when it comes to some of the consumer we're doing and the semiconductor equipment and automotive that was -- it's really weak.

The technologies that we're really investing, looking at the areas that as we look at the future, alternative energy, defense, aerospace, industrial, and medical side I will say that's the area that we be a lot more focused and our traditional telecommunication infrastructure.

Your next question comes from the line of Jim Suva with Citigroup.

Hello, Jim.

Great. Can you maybe talk a little on your sales outlook how much of it is acquisitive from a JDSU acquisition I believe you acquired some assets there and what was the purchase price and run rate of sales?

Well, first of all, that business, don't want to give too much detail. Strategically that was -- we went after that. We had strong R&D capabilities here in North America, and we were looking for expansion in a low cost region, so when this opportunity came up, it was very exciting, especially these assets that we partner with JDSU are one of the leading in our industry, and so the revenue potential on that is a couple hundred million plus a year. We are bringing new customers to the area, so we are really trying to make the business side of the long-term that could be a $1 billion business as you look at the three, five years down the line, and that's one of the reasons we went after that business. It is a really expansion into some of the latest technology and optical and also stuff for the future. We believe that optical technology, especially if you look at out three to five years, is going to be a technology that is going to have a nice growth, and maybe I will turn it over to you, Hari, if you want to talk a little bit more about that position.

I think, Jure, you covered it well. I think, Jim, it puts us in a clear leadership position in the industry in terms of optical technology. We're very confident that long-term the long haul communications space will be vibrant with insatiable demand for bandwidth.

I understand the logic behind it and it seems to make good strategy sense. My question is, I am trying to figure out your organic decline or your organic growth rate. Would it be fair to assume about $50 million next quarter sales then as a boost from this acquisition and what's the purchase price?

That's not -- that will not be a fair statement. Actually, because that number is not going to be even close to that number, in first quarter.

Okay.

The purchase price really this was a really more partnership. It was offset type of purchase. There was no premium involved at all. It's really more based on a long-term partnership between two companies.

And then on your notes that you on your press release you talked about a payment to divest the PC business of $16 million.

Right.

Can you let us know what that's about as well as future liability still associated with that?

There is little future liability in that. Basically what that, Jim, is that we had a, basically a credit that we're holding on until everything got cleared up, and we basically had to return extra money that was prepaid.

Great. My last part of the question, seemed like when you talk about restructuring, you said you had done all the heavy lifting. Are you done with restructuring now? I understand there is going to be a little more cost cash flow and a little more costs associated. Are you done with restructuring?

All the major stuff for us is done. Let me turn it over to Hari. He can make a few comments. But as Todd mentioned from a dollars point of view, we have additional 25 million to $30 million that was it, and then we are done. Unless this whole economy turns down on us again, but as I said, we cautiously optimistic, maybe the worst is behind us. So, Hari?

So, Jim, I think we have done a lot of restructuring already over the years. We probably got a head start a couple years ago, and we really have done a lot of the heavy lifting as you said. When I read about some of the challenges that some U.S. companies or other companies have in France, I thank my stars we got that done a year ago, so we're done. What we have really done is we've taken our break even as a Company around rough terms from somewhere like $1.7 billion down to about $1.3 billion, somewhere in that range, and we're continuing to work on it, so we really structurally reset the Company and in real terms if you take a contribution margin somewhere in the 15% range the difference on $400 million of sales could be a $60 million flow through in terms of profitability. So that's quite a lot of work we have done to reset and structurally make the Company more profitable.

Housekeeping item. Your stock comp year-over-year is up about 11.5%, stock price is down quite a bit, sales are down, how should we think about how to connect those dots?

I will take that, Jure. Jim, the stock comp is driven in part by price, but actually the larger variables that affect stock comp are things like volatility, forfeiture rates and things like that. That tends to have a bigger influence. In the areas that we're dealing with, if you look at the history of our stock price over the last year or so, although it is not a lot in terms of dollars, it is significant in terms of percent volatility, and those kinds of factors are what drive the stock comp expense. Overall stock comp expense is not a significant number, and it is not expected to change materially going forward here.

But you didn't change a policy of the way you compensated people?

No.

No.

Thank you, everybody.

Thanks, Jim.

Your next question comes from the line of Sherri Scribner with Deutsche Bank.

Hello, Sherri.

Hi. Thank you, how are you doing?

Good.

I wanted to dig a little bit into your comments about sort of seeing stabilization in the market. Obviously the guidance for the June quarter is somewhat flat sequentially, but it seems to imply that you expect revenue growth in September and into December, and I wanted to see if that was a fair or accurate description of sort of what you're seeing for as we finish out calendar 2009?

Yes. Let me make sure I make that pretty clear, Sherri. I don't think I am smart enough or anybody in this room is smart enough to know what is going to happen in September and December. What I said and what we're saying here is that based on information and as we talked to our customers, and as we look at their forecast and look into their analysis, they are more optimistic that second half will be a little bit better than what they experienced so far. So that -- based on that information and then what we have seen pipeline of inventory, there is just not a lot of inventory in the pipeline. So that's one of the reasons we feel more comfortable that at least what we see today things are starting to stabilize. The forecasts are more predictable, so those are all positive signs, but I don't think I can tell you that I really know what is going to happen in September and December as of today, but we're optimistic that maybe the worst is behind us, and -- but we are not preparing to take our guards down. We're driving very hard here, the costs, and working very close with our customers, but I think when it does turn I believe it will be a little bit more positive than what we think today because there is just not enough inventory in the pipeline.

Okay. That's helpful. Then in terms of the -- you put up a number of $1.2 billion in liquidity for the Company. You have got the cash on the balance sheet. I was hoping you could help me walk through how you're getting to that number? You have 850 in cash on the balance sheet.

Then we have assets and AR factoring capabilities.

So how much is accounts receivable again?

It is around 200 million, $250 million.

How much is your credit facility?

A couple hundred.

So that's how -- that'sthe two items.

Yes, and basically there is no bottoming in those facilities. We do have factor in approximately $40 million.

And then just finally, I was hoping to get an update on your thinking about the CFO position. Is this something that you're looking at external people or do you think Todd will stay on as the acting CFO?

Definitely we have a very -- Todd and another partner is here, they're very strong, so I think from financial controls we have a great financial controls and two very strong individuals here internally. We are looking at outside, but at the same time we're trying to bring some more stronger players to the team. If we can't find that, then definitely we will look internally.

Okay. Great. Thank you.

Thanks, Sherri.

Your next question is from the line of Louis Miscioscia with [Rigentine Advisors].

Hello, Lou.

How are you, Jure?

Good, Lou.

Thanks. Could you walk through where we are just with your free cash flow thoughts, last conference call you had mentioned $200 million for the year and maybe just recap first and second quarter and also if you could give us a breakdown as to how you're getting to that $200 million?

Okay. Well, let me give you highlights and it is really a combination of cash flow from operations and real estate. We have, if you look at cash flow from operations as you can see this quarter we generated $97 million, and free cash flow was about $80 million. For next quarter we do expect to be cash flow positive, don't like to forecast now, but we expect to be really positive for the rest of the calendar year. So it is a combination, the money that we get from operations, perhaps real estate, opportunities a lot higher than $200 million. We just know that we're not going to be able to sell all our real estate in this environment unless we discount it heavily. No need to discount it because these are the good assets mainly in North America and Europe that have value and they're not costing us a lot of money to hold on.

What was the range in the real estate numbers that you were thinking about, and I guess a high-end?

It could be high over $160 million.

Okay.

That's what we are -- that's what the price -- listing price is higher than that, but like I said, I think we'll have some sales this year, but I don't think it will be substantial amount because of just the market that we're in involved in.

Great.

And we don't need to option it, so it is a good asset that we want to hold on.

I would just add one comment, Lou, that, just to make it clear, the majority of our free cash flow that we're projecting, the comments you were making from our last call is really internally generated. Real estate is a piece of it, but it is not three quarters of it. Although we could potentially get $160 million as Jure mentioned, we're not counting on that in this kind of a real estate market.

Good point, Todd.

Great. Now that we're obviously many, many months into this downturn, obviously as we're going through the tail end of '08, a lot of customers were obviously in a huge state of flux. Have you seen any more interest in material amounts of new outsourcing now that we're a lot more into it or is the market just pretty mature ready so there is not as much as used to be available?

First of all, outsourcing is continuing to expand. I think that is such a huge competitive advantage for our customers, so anybody who says that outsourcing is going to shrink doesn't know what he is talking about or she. Okay? Outsourcing, I think what's happening, we have such a huge demand fall off the cliff demand from most of our customers that we're really -- a lot of our customers were surprised. They did not expect this type of a decline. So there is a lot of going on, a few customers of ours that still have outsourcing and I think strategically you're going to see a lot of those assets going to be available in next six to twelve months. It takes time to get these things organized, and people and what is the best way to transfer, so I believe -- because we know we got some deals today in our hands that we're looking at, so I think outsourcing will continue to go, especially from nontraditional outsourcing players, medical industry, industrial industry, and so on.

Even all traditional companies, even high tech that used to do manufacturing, and they still have some internally, I believe that's a short list because when you look at the cost, the companies that do this stuff internally are -- their costs internally are a lot higher than what they can get from us or any other good competitor in our industry. Outsourcing just makes a lot of sense. I am a firm believer as market stabilizes there will be more deals out there.

Good. Glad to hear about some stabilization.

Yes. Well, we're hoping. It is hard to predict. Like I said, I don't think we're smart enough to be able to forecast this recession, but on the positive side there's not a lot of entry in the pipeline, customers starting to feel more comfortable, and we're hoping, we're just hoping this economy is going to turn. I think when the economy turns I believe the high tech will move in the right direction at a faster rate.

Thank you.

Thanks.

Your next question comes from the line of Amit Daryanani with RBC Capital Market.

Hello, Amit.

Hi, Jure, how are you doing?

Good, good.

Just a couple of questions, one on the component side. I don't think I heard you guys talk a lot about it. Can you just talk about what's happening on the component side and how much of a head wind was it for you guys on operating profits?

We did some restructuring last six months here. We combined -- we used to have two divisions and to bring the costs down we really separated it, mixed everything in one bucket and I will have Hari comment on it. So on a negative side in this type of environment components are more affected because when we have a downturn of course there were some inventory in the pipeline, and people had to use the inventory first. So the components in this first six months are more affected then let's say EMS typical type of business.

On the positive side when things turn around, I believe the components will turn at the faster rate and they'll have a lot bigger contribution. Today they're hurting you, but as the market turns around, it should be a positive contribution. So we're running it today just like any other plants, and we do not release plants numbers. We have plants that are profitable and plants that are not profitable. So I will turn it over to Hari if you want to add comments to this.

The only thing I would add to what Jure already said is that in addition to that is that we're not sitting still in those areas either, so those areas, too, we're aggressively, probably more aggressively than other divisions focused on bringing down the break even levels, but at the same time we're also trying to protect technology and capacity and some critical areas where we know we have world class technology that our customers are very tightly engaged with us on.

Got it. And then just I question for you, Hari, you have a loss per share, it's going from $0.06 to $0.02 next quarter on roughly $1.2 billion of sales, so definitely looks like the cost savings are working, but I think you talked about $1.3 billion being the breaking run rate, so does that suggest there's not a lot of realization of cost savings on the model at this point and we just have to wait for incremental sales to come?

No. I mean, I think that's not -- I was just saying that's kind of a check point of where we are today. I can assure you this management team is going to continually to drive down that break even point. You will see I think some of the that reflected in the numbers that Jure talked about, for example, operating expense, he's guiding with further reductions coming in this current quarter. So we're going to continue to drive break even lower, and we're going to reset the reality as we see it today.

And just to add to that, Amit, I think in today's level we're really at the level we're trying to protect some of the capacity for the future. It is a question if we believe that the market will continue to decline, then I think we can take more out. We believe that what we have today is right things, right capacity, yes, in a short-term might affect maybe a making $0.01 or $0.02, but when you look at the longer term, I think taking more out, I don't know if that will be the best decision for a long-term success of this Company.

We do believe that not end of the world. I will use Hari's phrase, in the good times we always think the good days will never end, but in the bad times I think in this environment everybody thinks bad days will never end. This will end. I think the question is I think for us is that we need to continue to tune up the structure, make sure that we have the leading technology, and we can provide everything that our customers are looking today and help our customer grow again as the economy improves, and that's really the play that we are playing.

Got it. Just finally, for me on stock repurchase, looked like the share count was down 22 million or so, and I know you guys were authorized to buy back some stocks. Did you guys act on it in the March quarter?

Yes. Todd, what was the number?

Yes, we did. In the comments I mentioned we actually repurchased about 23 million shares during the second quarter, maybe the confusion was is in total we repurchased 44 million over the life of the buyback program. The 23 of the 44 was in the second quarter, the March quarter.

Got it. Perfect. Thanks a lot, guys.

Thanks, Amit.

Your next question comes from the line of Sean Hannan with Needham & Company.

Hello, Sean.

Hello. Thank you. If I could just ask competitively what you might be seeing on a pricing front, and then what your views might be at least in the current environment? I know that we might be seeing a little bit of potential stability, if this is inviting any, either greater risks or perhaps even protecting -- providing some pricing protection within your current business, is there a way you can provide a little bit of comments around this?

Definitely. Any time in this environment when you have a economy as crazy as we are involved in, as an industry, we do sometimes crazy things, but I can tell you that this industry learned a lot in the last couple years. I believe there is a lot more discipline in this industry today to say, hey, listen, we have to make a buck here. We add a lot of value to our customers, and I don't think -- you got to talk to my competition, but what I am seeing out there is that most of the management in this industry today, our focus is today we have to make a cost of capital. We have to focus on our customers are looking for partnership. We're really not interesting any more just buying the revenue and so on. So I think I am definitely seeing this, so I would say discipline is a lot better. This industry is not making a lot of money today, so there is how much is to go down. So I don't think the price, at least what I am seeing is a major issue today. I think our customers are very loyal. I can speak for my customer base. I would say 90% plus are very loyal, they understand what we're going through, and they also appreciate what we're doing for them. So I think it is more what type of relationship and programs that you involve with the customer than just pricing in this recession, but I just want to summarize I think industry is a lot more smarter and a lot more disciplined, and I don't think that our competition out there wants to just go and buy the business.

Okay. That's helpful. If you look at the competitive environment, we're probably not entirely out of the woods yet where perhaps some smaller more regionalized EMS players could still be struggling within some of their business. So it sounds like you're not really seeing much evidence where there could be elements of some more aggressive pricing at this point?

Well, I think in our business, I don't think our customers -- in a business that we participate in which is a high-end infrastructure business, customers don't just move the business because of the price. It is very difficult for them to move it from supplier A to supplier B. There has got to be a good reason behind it and a lot of times it is more than just price. I personally believe that the players out there that have a strong customer relationship and performing well in this environment, are not going to lose the business because of the price. I know we are not losing because of the price.

That's helpful, Jure. A little bit earlier you actually commented around a few different segments that were holding in there. It sounded like, that the comments being for communication, industrial, medical, was along the lines of general business levels and kind of product sell through. You also talked about some of the -- well, essentially the bookings in the quarter being actually positive first time in nine months. Can -- were the bookings actually correlated to the same segments? Or is there a way you can provide a little bit of detail around that if this was a little bit more pronounced?

I don't know if I will go that detail, but again it is exciting first -- I mean, you never want to be too excited at this level to be just booking positive, but it was exciting because it is the first time in three quarters that the things moved in the right direction, but definitely we're not happy about the revenue level. I just want to make sure that is clear. No, again, on a positive side bookings were positive, as I mentioned, telecommunications, infrastructure, industrial, medical aside, I think a lot more stable, and weak markets for us was industrial -- I am sorry, semiconductor equipment manufacturing group and automotive. Those were the two weakest and few customer type of products that we have.

Okay. And then lastly, on the free cash flow, you expect to be positive for the remainder of the year. Is that an aggregate number? Are we talking specifically for both quarters?

We're specifically talking we expect each quarter to have a positive cash flow.

Okay. Very helpful. Thanks so much.

Thanks. Operator, I have a question -- I have time for one more question.

Okay. Your final question comes from the line of [Joe Whitney] with Longbow Research.

Hello, Joe. We save the best for the last.

A couple additional things I had were how should we think about usage of cash going forward? Particularly in light of the fact that the share buyback is mostly complete, I think, at this point and then you also generated a pretty decent booking on buying back some debt. So how should we think about things going forward?

Well, as you know we have some debt that is due in 2010, so we are well aware of that. We are making sure that we have plenty of money for that. I think the rest of the cash, right now we are holding on it, and because we'll see how this economy turns around. At the same time we're going to make sure that we have a cash when the economy turns around so that we can grow again.

As Hari mentioned, I think operationally, structurally, we're in the best position that we were in last seven years. Technologically we got all the best capabilities that we ever had. So we got a lot of positive things. We just need economy to turn around. We're going to keep the cash. We're going to watch what we spend in the short-term because we don't know if recession is over yet, but we're going to keep it.

Okay. Thanks for that. Maybe as a quick follow-up. Is the stock split, the reverse split I should say, still on the table? I know NASDAQ kind of extended their minimum requirement out to July.

Yes. NASDAQ has extended their rules, so that's still on the table, but we're hoping that our price is -- value of our Company is today, so under value that we're hoping in any reasonable market that will be fixed. So we're just going to take one month -- one day at a time, and we'll make a decision at that time.

All right. Thanks, Jure.

Thanks. Ladies and gentlemen, again, thanks for your support, and thanks for your time on this call today. If you have any more questions, please give us a call. Thank you very much. Bye, bye.

Thank you. This does conclude today's conference call. You may now disconnect.