Sanmina Corp (SANM) 2009 Q4 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 fourth quarter fiscal year end earnings conference call. (Operator Instructions). I will now turn the call over to our host, Ms. Paige Bombino, Director of Investor Relations. Madam, you may begin your conference.

Good afternoon, ladies and gentlemen. And welcome to Sanmina-SCI's fourth quarter and fiscal year 2009 year end earnings call. Today's call is being recorded and is posted along with a copy of the earnings release slides on the quarter on www.sanmina-SCI.com in the Investor Relations section. You can follow along with our prepared remarks in the slides posted on our web site. Please turn to page 2, the Safe Harbor statement.

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 you that such statements are just projections. The Company's actual results of operation may differ significantly as a result of the various factors, including the state of the economy, economic conditions in the electronics industry, changes in customer requirements, and sales volume, competition, and technological change. We refer to you the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's most recent report on form 10-Q, for the quarter ended June 27, 2009, and its most recent annual report filed on form 10-K, for the year ended September 27, 2008. These documents contain and identify important factors that could cause actual results to differ materially from our projections or forward-looking statements.

You will note in our press release issued today that we have provided you with the statements of operation for three and 12-months ending October 3, 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 it is posted on our web site. In general, our non-GAAP financial information excludes restructuring and integration costs, impairment charges, gains and loss of extinguishment of debt, non-cash stock-based compensation expense, amortization expenses, 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 expense, operating income, operating margin, net income, and earnings per share, we are referring to our non-GAAP financial information.

I would now like to turn the call over to Jure Sola, Chairman and Chief Executive Officer.

Thanks, Paige. Good afternoon, ladies and gentlemen. And welcome. Again, thanks for being here with us today. Also on this call today, I have our President and Chief Operating Officer, Hari Pillai.

Good afternoon.

And also our newly -- CFO who just joined us a couple months ago, Bob Eulau.

Good afternoon, everyone.

And welcome to Sanmina's conference call. So we will have some fun. Anyway, today's call again Bob will review our financial results for the fourth quarter, fiscal year 2009, and then I will follow with additional comments relative to Sanmina-SCI results and future goals. Then Bob, Harry and I will open for questions and answers that you might have. And now I would like to turn this call over to Bob. Bob?

Thanks, Jure. It is a pleasure for me to be joining you on today's call. I look forward to meeting many of you in person over the coming months. Please turn to slide 3 now. As you can see, we finished the fiscal year with a solid fourth quarter. Revenue of $1,354,000,000 was up 12% on a sequential basis. The revenue growth, coupled with cost management actions taken earlier in the year led to improved gross margin of 7.1% on a non-GAAP basis. This implies a contribution margin of 13.3% on the incremental revenue, which was in the range of 10% to 15% we had been communicating. This is a good outcome and a function of mix in addition to the leverage we were getting on fixed costs. Non-GAAP EPS was at break even.

The fourth quarter was unique in several respects. Not the least of which was the fact that we had 14 weeks in the quarter. This phenomenon had positive and negative implications. I will discuss some of these as they are relevant in understanding the results that we are releasing today. At 50,000 feet, the best part of the fourth quarter numbers is that they demonstrate our cost structure is well positioned for the future. We were able to generate cash in spite of the working capital requirements of growing revenue, $145 million, sequentially. On a non-GAAP basis, we were slightly positive in net income, and at break-even from an EPS perspective.

This is the first quarter that we have reported earnings per share after the one for six reverse stock split. We finished the quarter with 79.2 million shares outstanding on a fully diluted basis. As a result of the margin expansion and good working capital management, cash flow from operations came in at $45.8 million.

Please turn to slide 4 now. For the fourth quarter, we reported a GAAP loss of approximately $32 million, which is equal to $0.41 per share. We estimate that the fourteenth week added about $11 million in operating overhead and interest expense for the quarter. This was partially offset by an increase in revenue due to the extra week. But the increased gross profit of approximately $5 million did not completely offset the increased expense that was recognized.

Let me now comment on our past restructuring actions and future plans. During the fourth quarter, the GAAP financial results included $18 million in restructuring expenses. This expense primarily related to reductions in force associated with previously announced plant closures, as well as restructuring of various corporate functions. Actual cash payments relating to these restructuring actions will be approximately $16 million. We will continue to see some minimal restructuring expenses on our GAAP P&L of approximately $4 million per quarter that relate to costs for past restructuring actions that are booked as incurred in accordance with GAAP. These expenses primarily relate to real estate, which is being held for sale. We expect these expenses to decline over time as properties are sold. We currently have about $69 million in book value of real estate that is on the market. This property is listed at over $160 million.

During this past recession, we took aggressive action to right-size our Company to meet our present demand, and we feel that we have brought our cost structure in line with that demand, and have set up a geographic footprint that is well suited to provide value to our customers. Going forward, we do not anticipate at this time that there will be the need for any new major restructuring plans.

My remaining comments will focus on the non-GAAP financials for the fourth quarter. Gross profit was $96.4 million, or 7.1% of revenue. This is a sequential improvement of 70 basis points over the third quarter. Operating expenses of $61.8 million, declined on a normalized basis. We think the fourteenth week added about $3.4 million in expense for the quarter. The fourth quarter expenses were also impacted by a one-time $1.6 million capital tax item related to our Canadian operations. Normalized operating expenses are down significantly from the $74 million spent in the same quarter last year. Operating income was $34.5 million, or 2.6% of revenue. This is a sequential improvement of 1.2 points from the previous quarter.

Tax expense for the quarter was $4.8 million. We continue to work towards our long-term operating structure, with the goal of reducing actual taxes paid. We saw some of this benefit in FY 2009. This all led to a slightly positive net income for the quarter. For modeling purposes, I want to mention that depreciation was $21.8 million, and EBITDA for the quarter was $56.3 million.

Let's move to page 5 now. Here we are showing you some of our key non-GAAP P&L metrics. The trend in gross margin and operating margin is favorable over the last three quarters. This reflects the benefit of the restructuring programs that have been completed, and the leverage that we got on fixed costs as revenue grew in the fourth quarter.

I would like to now turn your attention to the balance sheet on page 6. Our cash and short-term investments at the end of the quarter were $899 million. This is a sequential increase over the third quarter of $22 million. Cash flow from operations was $46 million. Capital expense was $10 million, which led to free cash flow of $36 million for the quarter.

I now would like to turn your attention to page 7 where you can see our balance sheet metrics. In the upper left quadrant, you can see the improvement in our cash balances during the past year. This was achieved while spending $29.2 million to repurchase common stock, and $31.5 million to repurchase a total of $47 million in outstanding debt during the year. To the right, you can see that as business picked up, inventory was a challenge at the end of the quarter. Inventory increased by $65 million over the third quarter. This brought inventory turns to 6.1. Much of this increase was a result of responding to increased demand and customer programs late in the quarter. Most of the increase in inventory shift to customers in early October. Our longer-term goal is to achieve 8-plus turns in inventory.

From a cash cycle time perspective, we made good progress during the quarter, in spite of the increase in inventory. Overall cycle time went from 51 days to 46 days. Accounts receivable was at $668 million, and DSO for the quarter was improved by four days to approximately 48 days. We believe the fourteenth week of the quarter helped us with collections. Accounts payable also increased to 60 days payable outstanding, which benefited from deliveries of material late in the quarter. This is up three days from the third quarter.

Finally, our debt maturity profile continues to be very favorable. From a capital structure perspective, we made good progress in 2009, in spite of the worst economic conditions that most of us can remember. At the end of the quarter, our short and long-term debt stood at $1,438,000,000. Earlier this month, we announced the early redemption of $176 million in short-term debt, effective on November 16. Additionally, during the fourth quarter, we paid down $13 million of the 2014 floating rate notes. We expect to exit the first quarter with approximately $1,262,000,000 of long-term debt and no short-term debt. In fact, the next debt is not due until 2013. Overall, with the debt redemption this quarter, we expect a net interest expense savings of approximately $1.2 million in Q1, and $1.9 million in subsequent quarters. Our liquidity remains strong.

We are generating cash, and as I mentioned our next debt is not due for almost 3.5 years. FY 2009 was an important base from which we can grow financially. As business improves, and opportunities present themselves, we will continue to look for ways to deleverage the Company. Now, I will turn the discussion back over to Jure for more comments on the business and our guidance for the next quarter.

Thanks, Bob. Good afternoon again. Please turn to slide number 8. What I would like to do is talk to you a little about end market demand for the fourth quarter. As Bob mentioned, the September quarter of $1.35 billion in revenue was nicely up about 12% from our June quarter. During the September quarter, we saw positive signs in the economy and improved business confidence from our customers. Because to me that was the key. Visibility improved. I mean we had a very bad visibility three quarters before that, and having some good visibility was a very positive. And as you can see, demand was up, and we expect this to continue to be going in the right direction.

Let me just give you some facts. As you can see, communication in our group consists of networking, wire line, wireless infrastructure. It represents approximately 36.1% that was down 7.7% from our previous quarter. Medical represented about 13% and was nicely up about 4.8%. Enterprise computing represented 18.7%, that was up 36.1%. Industrial defense, aerospace, and automotive represents about 15.7%, and that was up 32.8%. Multi-media represents 16.5% of our revenue, and it was nicely up also at 35.3%. So as you can see, most of our key markets went in the right direction.

In the fourth quarter, Sanmina-SCI had no customers over 10% of revenue. And our top 10 customers represented 50% of revenue and our top 20 customers represents 64% of revenue. I think this is a key we will be working on for a long time is to diversify the Company, not just in the market, but also with the right customer base.

What I would like to do is talk to you now about our market opportunities, what we see in the market today. First of all, book to bill was positive for the third quarter in a row. Book to bill was 1.15. Also, new business events continued to be positive. For the year, we won approximately a billion dollars of new business. And new business we consider a business that we won with existing customers and new projects and also new customers. So that was a very positive sign that the markets are starting to improve. Personally, in the management eyes, we are optimistic about the fiscal year 2010.

As the economy continues to improve, we do expect to continue to grow and improve the financial results of fiscal year 2010. We also expect to generate positive cash flow from operations in fiscal year 2010.

Please turn now to slide number 9. What I would like to talk to you about is the outlook for first quarter fiscal year 2010. As I mentioned, short term visibility continues to improve. And we continue to see some positive signs from our customers. So our outlook for the first quarter is the following. Revenue is going to be between $1.35 billion to $1.45 billion. Gross margin, with a nice improvement in gross margin the last couple of quarters, we expect those gross margins to continue to improve, and we are forecasting a range of 7.1% to 7.4% gross margin. Operating expenses should stay flat, about $59 million to $60 million. Interest expense and other, about $29 million. Depreciation and amortization, about $22 million. CapEx for a quarter $25 million, and for the year about $80 million. Tax rate is expected to be between 22% and 24%. And our diluted shares outstanding is approximately for next quarter about 80 million shares.

We do expect non-GAAP EPS to be positive $0.10 to $0.15. So in summary, we are coming out of this recession fundamentally a stronger Company. Visibility is a lot better in this -- at this time, and demand is currently moving in the right direction. We will continue to stay cautious, disciplined and focused on financial metrics and we will drive profitable growth as the business environment continues to improve. Now I would like to say thank you to all of you for your time you're spending with us today. I would also like a special thanks to our employees for their hard work, dedication and support, especially during the recession of the last nine months. Operator, we are now ready to open the lines for question and answers. Again, thank you very much.

(Operator Instructions). We will pause for just a moment to compile the Q& A roster. Our first question comes from the line of Jim Suva with Citi.

Hello, Jim.

Jim Suva with CITI, your line is open. Please go ahead with your question.

Thank you. And congratulations on great results and a good outlook.

Thanks, Jim.

Jure, if you could maybe give us a little more details as you look forward, coming out of this recession, what type of margins are you seeing in your components business? Is that kind of where we should look to see the most incremental through-put for margin leverage? And I believe you laid out some goals for operating margins, I believe it is close to 6%, kind of what has to happen for us to get to that milestone?

First of all, let me break this exactly the way as -- a component business is still -- first of all -- the margin the component business, of course, a lot higher than our results today. The component performance, even the quarter that we just finished, is still -- margins for components overall, on average, are less than our corporate average. Going forward, we expect our component margins to continue to improve and to be a lot higher than our corporate margins.

If you look at our other key numbers that we have such as our traditional EMS business, that business even during the tough times, our margins held pretty well. And I think the main reason there because I think taking the costs out, and getting out of the certain customers that we were not making a lot of money in the past, so we really cleaned up a lot of stuff. So we believe that our EMS margins are in pretty good shape today. And we do expect even to improve those. Because we do have a few plants around the world that can do better job than what we are -- what the results are today.

So back to overall goal for us, as the revenue goes up, and we get the revenue, the run rate between $1.8 billion and $2 billion, assuming that all of the things go in the right direction, I think we get the gross margins up to a 10-plus percent. And at that level, we should have our operating margin at 6-plus percent. So our longer-term goal, yes, the model of 6-plus percent.

Thank you. And congratulations, gentlemen.

Thanks, Jim.

Our next question comes from the line of William Stein with Credit Suisse.

Just to try to help us model that progression eventually up to 6%, we certainly assume that as the revenues progress from this low level, you get a better contribution margin than typical, and eventually it is going to track closer to the aggregate operating margin. You can give us an idea what contribution margin we should think about in the near to medium term? And then at what revenue level does it kind of flatten out as you get to a higher utilization level?

Well, I think in the last quarter, I believe, Bob, our contribution margins came in about 13%.

Yes, we were at 13.3% in the last quarter. And I think we've been saying we expect the contribution margin over the next few quarters to be in the 10% to 15% range.

So that's a short-term goal. As we -- the revenue goes at the higher rate, and our component business improves substantially, then that contribution could be at the high end or higher.

Then end markets, I'd love to hear some discussion as to what the outlook is, there is a lot of variability in the quarter for the performance in each of the markets. Any comments on the outlook would be helpful.

I think what we see out there today is definitely we've seen a nice improvement. Definitely visibility today is a lot better than what we had six months ago. Six months ago I could only find about my shipments what I shipped today. What I had to ship tomorrow I couldn't even imagine. Today we have visibility. I think we have pretty good visibility today, what we're going to ship this quarter.

It is really hard at this time to forecast what we are going to do in 2010. But all of the signs are showing us the direction that is positive. Across most of our key markets. I mean, if you just look at the communication, which for us is a networking, wire line, wireless, we had a few projects that were down, but even in that area the majority of the projects are up. So we do expect again for this quarter, most of our markets to be moving in the right direction. Yes, there might be a slow recovery in the short term, but definitely things seem like really they're going in the right direction.

Any of these disclosed end markets you think might be down again, might be down sequentially in December?

It is really hard to tell at this time. I mean I don't have enough data. We are not a great forecaster, so I don't want to go there. I personally believe that most of the customers we have will have an upside in September. And that's one of the reasons if you look at our range is we have a potential to go up in the right direction.

Thank you.

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

Hi, how are you doing?

Good.

Maybe just go back to the long-term margin targets we were discussing. What type of mix would you need on EMS versus component revenues to achieve that 10% gross margin target? And what percent of sales today are really from the component business?

Well, first of all, if you look at the type of EMS business that we go after today, we should deliver the higher margin business. We are going after the more higher technology, higher mixed type of products. If you look across all of the markets that we focus on, the margins should be higher than what we are delivering. So we believe that we can expand our EMS margin as long as we can drive the revenue growth. So that's number one.

Our component business, we don't break those numbers down, but it is still a small percentage overall. I mean it is around -- today, it is probably around 20% to 20-plus percent. And to make the story short, we do expect a lot of contribution for component businesses, especially as we look out six months from now, and so on. We do expect that business to grow at the faster rate if we are going to have any recovery in the economy. So we're not going get to those margins overnight. But I do expect us to, as we have shown in the last three quarters, once we got the restructuring done, and once we got the costs where it needs to be, we got a good infrastructure in place right now, we do expect to improve those margins on a quarterly basis.

Fair enough. And then I'm not sure you addressed this, but the enterprise computing segment was up fairly strong sequentially, 36%. What drove that? Was it just a new win or end market demand coming up?

I think it was a combination of a couple of things. As you know, we won a fair amount of new business this year that is starting to ship. And also the end market, the customers that we have, seem like that the demand was up.

All right. And then just finally, you have mentioned the $3.4 million of additional expenses due to the extra week this quarter, which is helpful to understand. But can you talk about what is the benefit in revenues as well due to the extra week?

We really tried to figure that out ourselves in the last two or three weeks. And it is really hard to figure out -- because we asked the customers to take them sooner if we didn't have the 14 week, but we didn't have to push the customer to take it sooner, the ones who tried to push it out, so it is really hard to figure out. At the beginning of the quarter, we didn't think we are going to get much upside, because of the fourteenth week. I think as the quarter went in, we do believe we got some upside, and how much it could be an additional $30 million, $40 million, $50 million, it is hard to tell, but we really don't have a real fact to be able to say this is it.

That is always hard to do. Thanks a lot, guys.

Thanks.

Our next question is from the line of Steven Fox with CLSA.

Hi, good afternoon. Just going back on the question about new programs, is there anything else you could talk about in the quarter that you completed by new programs certain markets that helped the sequential change? I am trying to figure out how much is organic versus new wins for you guys.

Steve, I think it is a combination. All this stuff is organic for us. I consider some of these customers that I call them new customers, we have been working with them for a long time, they are organic, it is just new programs with the customers that we didn't do a lot of business with in the past. So we have been spending a lot of time and money on going after the right customer base in the last 18 months. Unfortunately, we had a recession. So things slowed us down a little bit.

But the focus for us as we just started in 2008, to go to a new strategy, to get rid of certain unprofitable businesses, I mean they were profitable, our PC business was profitable, I mean we were making some money on it. But we didn't feel it is the business that can take us for the future. And then we also got rid of a fair amount of revenue for other unprofitable customers. So the new Company going forward is structured differently.

We are looking at areas where we believe we can compete with anybody else in the world out there. We believe that we have an infrastructure in place to go after the key markets that we just talked about, especially this new market such as industrial for us, defense, and aerospace, alternative markets, medical side of the business. We believe that we give a lot of opportunity to grow there. And really protect and build the relationship long-term growth in our communications side of the business, and also the high-end enterprise computing side of the business. So I would summarize that A, overall demand is up, and I think our customer base is a lot stronger than what we have been shipping in the last 12 months. And I'm hoping that this economy is starting to improve and gradually we will get this back.

All right. Fair enough. Maybe if I could just try it one other way. You talked about a billion dollars of new wins this past fiscal year. How much of that business do you think you started to realize revenues from during this fiscal year?

We definitely started to realize revenue because this business, whether we booked them -- this was booked in the last four quarters, so the stuff that was booked in the first and second quarter, we are definitely starting to benefit now. And we expect that we are benefiting a lot more next two or three quarters.

Okay. But you don't want to put numbers around it.

I don't want to put the numbers on it.

Okay. Thanks.

Thanks, Steve.

Our next question comes from the line of Christian Schwab with Craig Hallum Capital.

Hello, Christian.

A follow-up to the last question. The billion dollars in new business that you won this year, can you compare that to previous years without the PC business? Just so we can get an apples-to-apples comparison, if it makes any sense?

Well, it is tough really to compare it to 2008 because 2008 for us, we felt was a good year that we're positioning ourselves, and we felt that we are positioned for the growth. And then October came last year and the recession hit us, that the whole world changed. So it is really hard to say today what is the normal environment. Internally, Christian, I think we're really more focused on present than future. Both from a cost point of view and the demand. We don't know what the demand -- if we're going to go back to what the demand was a few years ago. But we have to run the Company today on what is available for us. And make sure that we are providing the right solution for our customers so we can grow from that. And I feel very comfortable with that. I think we positioned the Company that we can win in the markets that we are focused on. Because we are -- we are not trying to shut down and trying to be everything for everybody. We are really a lot more focused today, going after the customers that we believe we offer competitive advantage, and these are businesses that are sustainable and we can grow on year after year.

Great. Thank you. Bob, I know you haven't been there for very long, but if you look at this quarter, exiting the year at $1.26 billion in debt, is that correct?

Yes. No, I'm sorry, that's exiting next quarter, exiting Q1 at $1.26 billion.

Right. And you have $900 million in cash, which gives you a net debt of $360 million. If you look at your interest expense, that debt, it is extremely high.

Let me mention one thing. Of the $900 million in cash, we are using $176 million of it to redeem the short-term piece. That's how we get to the $1.26 billion.

Right. So even taking away $200 million, say you have$560 million in net debt, your implied interest rate on $560 million in net debt is pretty high. Is there anything that you guys are working on either repurchasing existing debt in the open market, or what type of steps are you doing -- I mean not only -- you're doing a fabulous job winning new business and restructuring the business to drive pretty material potential earnings acceleration. But on the debt side, there is another -- there are other things it appears to me that you could do, and I'm just wondering where you guys are in that thought process.

So I have been here a couple months, and actually one of the key things I've been focused on is looking at the capital structure. As you know, one of the dilemmas today is we really don't earn very much on the cash we have on hand. That's just because of where rates are. In terms of what we're paying on the long-term debt, I think it is fairly consistent with what you would expect for a company with our kind of credit rating right now. We've got some fixed rate debt at 6.75%. Some at 8%. The floating rate, we actually have a swap on that gets us to a fixed rate of a little over 8%. That is kind of where we stand in terms of what we're paying.

Christian, if I can add to that, we hope as we grow that we are going to be generating more cash here, we're going to be more profitable. The goal is to start taking some of this debt, as much as we can, on a yearly basis, and then as we drive the volume of currency up, that we will hopefully have a lot more options. But right now, to take care of this debt, we don't have to -- for good things, we got 3.5 years to take care of it. Hopefully, we will do a lot of it before that. But the key to us right now is drive the profitability, and drive the growth. If we do that, we will have more money and we will have a better currency, and then we have more flexibility to take care of the long term. But we are committed, and I think we have the right foundation to build on to create a new Sanmina that is going to be a trend-setter based on performance with our customers, and also financial performance for our investors.

Great. Thank you. Good quarter again.

Thank you.

Our next question comes from the line of Joe Witthohn Longbow Research.

Hello, Joe.

Hi, good afternoon. First one for you, just a clarification point. Bob, did you say there was a $1.6 million item that was in operating expenses?

Yes, there was a $1.6 million capital tax that we paid in Canada. It is a fourth quarter item.

That was in OpEx?

Yes, it was in OpEx.

So then the question is you gave operating expense guidance. You mentioned how much of the uptick the fourteenth week created. So if I start with what you did last quarter, it is about $62 million and take away $3.4 million in the fourteenth week and take away the $1.6 million, I guess, which doesn't sound like will recur. That will bring you down pretty low to like the $56 million, $57 million range, so what is causing a little bit of an uptick I guess to the $59 million to $60 million range in your guidance. Are there some temporary cost savings that may be coming back next quarter?

Yes, I guess there are a couple of things that are happening. One is we are investing incrementally on the sales side, and we will do that as the business continues to improve. And then secondly, both in sales and across the board, with our incentive comp programs, they will go back to hopefully more normal levels next year and that is part of that increase.

Those accruals will start rolling in right away in the first quarter.

Right.

Got you. And then kind of a quick follow-up question, I guess. The incremental margins that you mentioned in the mid 13% range. Do you know how much of that was restructuring savings on a sequential basis?

I don't think we can really split that out right now. I mean, we know that it is a combination of both mix and the leverage on the fixed costs.

Okay. Thanks very much.

Thanks, Joe.

Thank you.

Our next question comes from the line of Louis Miscioscia of Brigantine Advisors.

Hello, Lou.

Can you hear me? This is Lou Miscioscia with Brigantine Advisors.

We can hear you very clear.

Okay. Thank you. Just help us out one more time, let's say where we are at right now with an annualized run rate of, let's say, $5.5 billion. To get back to the $7 billion to $8 billion run rate, it would obviously take something north of 50%. If you look at a 50% growth rate, any idea how many years it might take? And then second, could you maybe just break it apart into is it new wins or is it organic growth? And would that be 50/50 or something else?

Well, first of all, we don't know how many years it is going to take. First of all, if we had a business today, we could get there in the next quarter, I don't mean this quarter, but next quarter, okay? We can climb nicely this quarter and then following quarter, we can get there. So we got the capacity. We got the equipment and the plants for the upside. And most importantly, Lou, these plants today are in good global locations, where they're cost effective, and also they're positioned very well to service our customers at those markets. So I don't want to forecast time right now because I don't know what the hell is going to happen with the economy.

But assuming the economy continues to improve, and I'm just going to now say that the economy is going to improve this year, but let's assume it is going to be a moderate improvement in 2010, I do expect us to continue to, as I said in my prepared statement, to improve the margins, on a quarterly basis,because I do expect also revenue to go up on a quarterly basis. Can we get there in 18 months? Yes, we can get there sooner than that. But it all depends on the economy. But I'm not even focused on that.

I think what we have to do here and what we are focused, Harry and I and Bob and the rest of the team, is we don't know what the economy is going to do. Let's focus on things that are in our control. That's what I said, we have to be cautious, we have to be disciplined, we'vegot to take one quarter at a time, and run a tight ship, just like we learned in this recession, hey, we can do a better job than what we thought 18 months ago. So we're really focused on running a tight ship, maximizing the margins and finding the help to make sure we grow our share of the business with our customers. And we feel we will.

I think we have a great offering in our medical side of the business that is second to none. We got a great offering on industrial and defense and aerospace side of the business. We always have had a very strong operating and communication and networking side of the business. And high end computing. And so we like where we're at.

One follow-up. And I'm not sure if -- I did join a bit late. Any components that you were running short of that you needed to chase down, I guess the category of the ones that might have been in tighter supply?

So let me -- before I go to components, I just have a thought. I think also, to get to the revenue, we are talking about $1.8 billion to $1.2 billion per quarter, Lou. We can get that with the existing customer base. I think that is very important. And we are aggressively expanding that base. But with the existing customer base, we believe we can get there as the demand improves. Back to your component question, definitely we are chasing but I will turn that over to Harry. We're making shipments but definitely some challenges. Harry?

Lou, in recent, especially in the last four or five weeks, we started to see more sporadic -- more component shortages that are impacting us, maybe as we're reaching in for short-term upside as well. Today, it is not anything that I would characterize as catastrophic, but certainly we're beginning to see more of it. It is a departure from the last year.

Okay. Thank you, guys. Good luck.

Thanks, Lou.

Our next question comes from the line of Alexander Blanton with Ingalls and Snyder.

Hello, Alex.

Hi. I wanted to discuss briefly the comment about your incremental margins. First, is that on the gross margin line or the operating line?

Well, I think it will be both. I mean first of all, our SG&A should be pretty flat. We don't see major expansion of SG&A costs. So as our gross margin goes up, most of that should fall down to an operating margin. And as I said, at the beginning of this call, Alex, our longer-term is to get operating margin over 6%. Now we got longer to get there. I mean, we just did 2.6%. Hopefully, we will get over 3% soon. And then over 4%. And drive it from there.

I just worked out some numbers. Assuming that the 10% to 15% incremental margin were on the operating line, let's look at your guidance for this quarter, $0.15 at the top end, take the sales at the top end, work back up the income statement, and it works out that that would be about a 3.5% operating margin. At the top end of your guidance for this quarter. Now, if -- what would it take to raise that to 6%? If you use a 12.5% incremental margin, right in the middle of your range, you could get to -- and apply it to the operating line, you could get to a 6% operating margin with only a 22% increase in sales. Now is that a reasonable --

Well, I think Alex, in our business, it is a mix. Mix plays a big impact. Right now, I don't want to talk too much about it, because we are not there yet, so -- but we believe that if I look at the -- what the Company produced in the past, we used to have a lot higher margins, operating margins than 6%. I'm not saying we can get there overnight, but I think the infrastructure we have in place in the high-end printer circuit board, high end back plan, optical capabilities now that we have in mechanical, precision assembly, the component side of the business, that being in a way not contributing a lot to the Company in the last couple of years, I expect that part of the business to contribute a lot more. And I believe that our EMS side of the business is positioned to continue to grow and expand.

Now, you combine those two things together, it gets us there. It is all about the demand for us. We don't have much to do -- we don't have to worry about restructuring, we don't have time right now to think about shutting down the plants down, Alex, we're all about growing and executing. So I think if the business is there, we will get there.

But historically, you have had higher margins, but that was when most of the profits were coming from bare boards, where you had a dominant position in the world. But that is no longer the case.

Well, we still have, Alex, one of the highest technology in the world today, and our boards in the back business, and we are focused on building that. And maybe our goal today is not to be the largest in the world, but we are still going to be driving the high-end technology to be dominant in the world.

I mean bare boards is a very high margin business, potentially, if you ever can come back in it. Well, thank you very much.

We are moving in the right direction, Alex. And thanks for bringing those good questions. Listen, we have time for one more question, operator.

All right. Our final question comes from the line of Mike Crawford with B. Riley and Company.

Hello, Michael.

Hi, gentlemen. How are you doing today? Congratulations on the quarter. Thanks. Just to keep it brief, you mentioned demand is really key and you positioned your business well. With that said, what macro economic indicators do you think are most correlated with your future business?

Well, right now, coming out of this recession, the question is what is going to be normal going in the past. I'm not an economist, so I will really coordinate that more closely to our customer demand. If the customer demand -- I mean the forecast that we've seen today, Mike, we believe will have an expansion longer than the next 12 months. It might be a slow expansion in 2010, but what I'm seeing out there, that yes, this will continue longer than just 12 months. I believe our Company is well positioned with some key customers out there, and also very good position, some of the new programs that we have been going after, especially in this nontraditional market, such as what we call emerging markets. So alternative energy. We really believe we have really finished strong in that, especially on the mechanical side, when you combine mechanical and electronics side of the business.

We're in a strong position to medical. We believe we are going to be growing that aggressively. Strong position on defense and aerospace side of the business. So those are the areas. It is really hard to kind of hook it up to the economy, but I believe we got a wide enough customer base, and no matter what happens with the economy, I expect us to do better than what we did in the last couple of years.

Great. Thank you much for the answer and good luck for next quarter.

Thanks, Mike. Well, ladies and gentlemen, thank you for spending time with us today. Hopefully, we answered most of your questions. If not, please give us a call. Thanks for your support.

Thanks, everyone.

Thank you. Bye-bye.

Ladies and gentlemen, this does conclude today's Sanmina-SCI fourth quarter fiscal year end earnings conference call. You may now disconnect.