Sanmina Corp (SANM) 2013 Q3 法說會逐字稿

Good afternoon, my name is Candace, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina Corporation's third-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After our speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. Ms. Paige Bombino, Director of Investor Relations, you may begin your conference.

Thank you, Candace. Good afternoon, ladies and gentlemen, and welcome to Sanmina's third-quarter fiscal 2013 earnings call. A copy of today's release is available on our website in the Investor Relations section. You can also follow along with our prepared remarks and the slides posted on our website.

Please turn to Page 2, the Safe Harbor Statement. During this conference call, we may make projections or other forward-looking statements regarding the 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 operations may differ significantly as a result of various factors including the state of the global economy, economic conditions in the electronics industry, changes in customer requirements and sales volume, competition and technological change. We refer you to our quarterly and annual reports filed with the Securities and Exchange Commission. These documents contain risk factors that could cause actual results to differ materially from our projections or forward-looking statements.

You will note in our press release and slides issued today that we have provided you with statements of operations for the three months and nine months ending June 29, 2013 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 slides posted on our website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, non-cash 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 our gross profit, gross margin, operating income, operating margin, taxes, net income and 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 Chief Executive Officer.

Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome. Thank you all for being here today. With me on today's conference call is Bob Eulau, our CFO.

Hello, everyone.

For our agenda, Bob will review our financial results for the third quarter, then I will follow up with the comments relative to Sanmina results and future goals. Then Bob and I will open for question and answers.

And now I'll turn this call over to Bob. Bob?

Thanks, Jure. Please turn to Slide 3. As we expected, the third quarter was better from a revenue and an earnings-per-share perspective, and cash generation continued to be excellent. Revenue of $1.49 billion was up 4.3% on a sequential basis, and down 3.9% from the third quarter last year. Non-GAAP earnings per share was $0.40. This was based on 85.6 million shares outstanding on a fully diluted basis. Cash generation was excellent this quarter, with cash flow from operations at $66 million and free cash flow at $56 million. I'll discuss cash in more detail in a few minutes.

Please turn to Slide 4. Revenue was up 4.3%, or $61 million, from Q2 to $1.49 billion. From a GAAP perspective, we reported net income of approximately $19 million, which results in earnings per share of $0.22. Restructuring charges for the quarter were $9.4 million. Restructuring expense was higher than we expected this quarter. Roughly 50% of the restructuring costs were associated with the two facilities that we closed earlier this year. The other 50% is related to facilities that we had previously closed. Restructuring costs will be substantially lower next quarter, and should be in the range of $4 million to $5 million.

My remaining comments will focus on the non-GAAP financials for the third quarter. At $116 million, gross profit was up $14 million from the prior quarter, and up $10 million from the third quarter a year ago. Gross margin was 7.8%, which was 70 basis points above the previous quarter. Operating expenses were up $4 million for the quarter at $66 million. This represents a 10-basis-point increase in operating expenses as a percent of revenue. The increase was primarily related to increased accruals for incentive compensation, and increased investment in research and development.

At $50 million, operating income increased by 24.4% from the prior quarter, and was up 12.7% from the third quarter last year. Operating margin was 3.3%, which was 50 basis points better than last quarter. Other income and expense was at $9 million.

The tax rate for the quarter was 17.4% of pre-tax income, which brings our estimated tax rate for the year to 16%, up 1 percentage point from what we had estimated from last quarter. We have revised our tax estimate for the year to 15% to 17%. On a non-GAAP basis, we earned $34 million in net income, or $0.40 per share.

Please turn to Slide 5, where we're providing more information on the segments that we report. To refresh your memory, the integrated manufacturing solutions segment includes printed circuit board assembly and test, optical and RF modules, final system assembly and test, as well as direct order fulfillment. As you can see from the graph on the left, the IMS segment recovered nicely for us this quarter. Our revenue was up $44 million, or 3.8% from last quarter, which was slightly better than we had expected. Our gross margin improved by 60 basis points due to increased volume and a good mix of business.

The second segment for us is components, products and services. Components include printed circuit board fabrication, backplane assemblies, cable assemblies, enclosures, precision machining, and plastic injection molding. Products include computing and storage products, defense and aerospace products, as well as memory and solid state drive modules. Services include design and engineering, as well as logistics and repair services. In aggregate, the revenue for this segment was up $16 million, or 5.2%, with gross margin up 50 basis points to 11%. This gross margin improvement reflects higher revenue coupled with better business mix.

On Slide 6 we are showing you some of our key non-GAAP P&L metrics. Revenue was up $61 million, or 4.3% from last quarter. Demand was good in most segments, although, as we expected, we continue to experience softness in the multimedia segment. When compared to the third-quarter last year, total revenue was down 3.9%.

Moving on to gross profit, we had a $14-million increase in gross profit in Q3, while gross margin increased 7.8%, which was up 70 basis points from last quarter. As you just saw, gross profit was up $11 million for the integrated manufacturing solution segment, while gross profit was up $3 million in the components, products and services segment. Our operating profit increased 24.4% from last quarter to $50 million. This led to operating margin of 3.3%. Net interest expense declined by about $1.7 million this quarter, as we continue to see the benefits of the deleveraging of our balance sheet.

Now I'd like to turn your attention to the balance sheet on Slide 7. Our cash and cash equivalents were $416 million. Cash was up $4 million from the previous quarter. This increase in cash was achieved while reducing total debt by $69 million during the quarter. Accounts receivable and accounts payable increased, while inventory was slightly down. Property, plant and equipment was down slightly at $544 million at the end of the quarter.

The single biggest change in the balance sheet for the quarter was a $56-million reduction in short-term debt. Overall, our cash position and our balance sheet are in excellent condition. In fact, two of the three debt rating agencies have recognized our financial improvement with an increased debt rating since our last earnings call.

Please turn to Slide 8 where we'll review our balance sheet metrics. Cash was up $4 million from Q2 as a result of strong cash generation, offset by a $69-million reduction in total debt. Cash flow from operations for the quarter was slightly better than the second quarter at $66 million. Gross capital expenditures were unusually light at $10 million. Overall, this led to $56 million in free cash flow. Inventory dollars were down slightly from Q2, with inventory turns increasing from 6.7 to 6.9 during the quarter. Compared to Q3 last year, inventory is down $30 million.

In the lower left-hand quadrant, we are showing cash cycle days, which combines our cycle time for inventory, accounts receivable and accounts payable. Overall, cash cycle time decreased from 52 days last quarter to 48.3 days this quarter. Accounts receivable, days sales outstanding, inventory days of supply, and accounts payable days outstanding all improved during the quarter.

Finally, return on invested capital improved to 12.6% for Q3. ROIC was helped by stronger profitability and better asset utilization.

Please turn to Slide 9. I would now like to share with you our guidance for the fourth fiscal quarter of fiscal-year 2013. Our view is that revenue will be in the range of $1.475 billion to $1.525 billion. We expect that gross margin will be in the range of 7.2% to 7.8%. Operating expense should be $62 million to $64 million. This leads to an operating margin in the range of 3.1% to 3.5%.

We expect that other income and expense will be in the range of $8 million to $9 million. We expect the tax rate to be in the range of 15% to 17%, and we expect our fully diluted share count to be 86 million to 87 million shares. When you consider all this guidance, we believe you'll end up with earnings per share in the range of $0.37 to $0.43. Finally, for your cash flow modeling, we expect that gross capital expenditures will be around $20 million, while depreciation and amortization will be around $24 million.

Overall, we continue to navigate through a slowly improving macroeconomic environment. Profitable growth and free cash flow generation are our highest priorities, as we see improving growth prospects across our customer and business base.

At this point, I will turn the discussion back over to Jure for more comments on our target markets and our business strategy.

Thanks, Bob. Ladies and gentlemen, I will review the business environment for the third quarter, talk about the short-term business environment for our fourth quarter, and I'll talk about outlook for the rest of the calendar-year 2013.

As I look at the macroeconomic environment, I can see some economical improvements looking to be a lot more positive than 90 days ago. I am pleased at the third-quarter results. Yes, I would like to see a little bit more growth, but we believe things are moving in the right direction. As we accomplished a lot of good things during quarter -- we improved operational efficiencies, we delivered favorable business mix, we continued to improve our capital structure, delivered a strong free cash flow of $56 million in the third quarter, and year to date over $200 million of free cash flow. Overall, to us, it's a good quarter.

Now please turn to Slide 12. Third-quarter revenue by end markets -- as you can tell, communication network is the largest part of our revenue, 49% -- grew nicely, up 6%. Basically it was driven by a strong demand in networking and wireless part of the business. Demand was driven by [LTE] programs during the quarter.

Computing and storage was 13% of revenue, overall flat. We had a weaker demand than anticipated, and slower growth in our new programs.

Defense, industrial and medical was 28% of our revenue, grew 7.7%. Very nice improvements in industrial and defense segment; medical was slightly down on a weak demand in our new programs.

Multimedia was 10% of the revenue. It was down 5.9%, as we forecasted. Overall, multimedia seasonally is a slower quarter, but we are continuing to make some improvements, diversifying our business here, and also making nice improvements overall.

Would you please turn it now to Slide 13? Now let me review our fourth-quarter outlook by market segments. We are forecasting that demand should continue to improve across most of our key market segments. Communication networks we're forecasting for the fourth quarter to be slightly up. Demand in communication network is overall stable, and should continue to improve, driven by networking and wireless infrastructure projects. Enterprise computing and storage we're forecasting to be flat for the quarter. Overall slower demand, but we expect to see some more improvements in the new projects as we're continuing to work on some of the good opportunities in this segment of the market.

Defense, industrial and medical we are forecasting to be up. Defense forecasting better demand to continue, and industrial -- we are starting to see strong demand across all our industrial segments. Medical we forecast to be flat, slightly down, short-term weaker demand, but again, we also have some good opportunities in the pipeline with the new projects here. Multimedia we are forecasting to be down. We do expect it during the quarter to get more stabilized; we expect better activities and better mix of the business for the future.

Now let me make a few comments regarding the sales bookings. Bookings for the third-quarter book-to-bill was positive, and continued to improve. This was the strongest quarter in bookings for fiscal-year 2013. Outlook for the rest of the calendar-year 2013 looks positive. We remain overall encouraged by better customer forecasts, and stronger growth opportunities with these new projects. We have some good new opportunities in the pipeline that we are working on; overall, looks very promising at this time.

Please turn to Slide 14. In summary, third quarter, as Bob mentioned, we had a solid execution. Fourth quarter we expect modest growth with further improvements in our operating model. We continue to be focused on quality of our growth, and market opportunities remain attractive as economy starts to show signs of improvement.

Our strategy is very simple -- to continue to invest in our people and technology to create more value for our customers. Our goal is to be predictable, and deliver sustainable results. So, ladies and gentlemen, now I would like to thank you all for your time and support.

Operator, we're now ready to open the lines for questions and answers. Thank you again.

(Operator Instructions)

Brian Alexander, Raymond James.

Thanks, good afternoon, everyone. Hi, Jure and Bob. Just on the communications business -- so it looks like you're expecting further improvement in the September quarter on a sequential basis. Could you maybe give us a sense for the magnitude of the improvement that you're expecting, and whether you're seeing the uptick in orders that you thought you would see a quarter ago? I know you were pretty excited about that business last call. And just the overall health of that segment? And then, how should we think about the Nokia Siemens relationship in light of the transaction with Nokia, and discussions about them potentially inviting more manufacturers to the table? Thanks.

Okay, Brian. Well, first of all, as we know, the communication network for us -- the first two quarters of this fiscal year were slower than what we anticipated. We've been very fortunate that we've been involved with the new projects in the communication network, both in a networking side and a wireless side. So we saw nice growth last quarter, about 6.6%. We expect that growth to slightly improve in this quarter, and we expect it really to continue to improve for the rest of the calendar year. Again, we're well positioned. We've got some good programs, so at this time, things are looking up.

When it comes to the Nokia comment there, we don't like to comment on the news reports about our customers. As you know, we have a long-term relationship with Nokia. We continue to do a great job, but Nokia or any other customer, there's always positives and negatives. But we are pretty optimistic about the future.

Okay. And then just to follow-up on the gross margins, 7.8% was well above the midpoint of your guidance, Bob, of, I think, 7.2% coming into the quarter. So where were you surprised from a gross margin perspective, given that the revenue was really within your guidance? Was it mix, was it cost savings came in faster than expected? And then, what's driving the downtick in gross margins in September? Thanks.

Yes, so for the quarter, the mix was excellent in really both segments. So on the integrated manufacturing solution side we had very good mix, obviously helped by the increase in volume there, as it was up quite a bit sequentially. And then on the components, products and services, it's really a matter of a lot of the actions we took before, beginning to yield some benefits. And then we also had a pretty good mix on that part of the Business.

So with respect to your question on next quarter, we're assuming what I would say back to a more normal mix. Mix could end up being better. We never know for sure until the quarter is over, but we're being a little cautious on mix, and we are pretty pleased with what we were able to deliver in the current quarter.

Okay, thank you.

Thanks, Brian.

Wamsi Mohan, Banc of America.

Yes, thank you, good afternoon. Hi, Bob. Hi, Jure. Jure, can you talk about the length of some of the programs in the wireless infrastructure, particularly LTE? Are we in the early innings there? Do you expect a multi-quarter ramp on these programs? Can you give us some sense?

Yes, well, I think we are very well positioned with all our key customers on LTE. I would say that we are in early innings of LTE deployment, so I think we're well positioned. Most importantly, we are positioned with the new projects for the future also. So as the growth in this side of the Business improves, and assuming that the economy is going to support us, I believe that Sanmina will continue to have some nice benefit.

Okay, thanks, Jure. And, Bob, just on the component margins, you mentioned both mix and higher revenues as drivers. Any sense you could give us on how much the contribution from each of those were on a sequential basis, so that we can sort of think about how those margins might play out going into the December quarter also? Thanks.

Yes, the challenge is -- there are a lot of moving parts, and so we definitely benefited from volume going up. When you start to peel the onion in components, products and services, there -- some of those businesses where revenue was down a bit, some where it was up a bit. Some where -- obviously, where it was up, the contribution margins were quite healthy. So without getting into detail of every single one of those areas, it's difficult to fully articulate what happened. But I can tell you -- all those businesses were really performing pretty well. And there were some areas, some of the more profitable ones in the past, maybe revenue was down a little bit. Some of the ones where we had some struggles in the past, we really saw improvement in profitability. So it was very much a mixed bag, and it's difficult without getting into a lot of detail to clearly articulate that.

But just, Wamsi, to add to that, as you know, our goal is to continue growth in our components, products and services. And as we talked about for a few years, there's a lot more opportunities there for us, and we want to take advantage there as the economy improves, so that we can grow each of those segments, and that should help us in the future.

Jure, thanks for the extra color, but is it reasonable to think that now, like, 10%-ish margin, and that segment gross margins is more sustainable level for you guys?

I think 10% is very sustainable. We're not happy with 11% right now. We should be able to do substantially better than that as we continue to improve, and we get a little bit of tailwind in terms of volume increase.

And continue [to improve] the mix in the segment -- all those things will add up, which are well focused right now. We'll be investing a fair amount in the business development side, in engineering and technology. As you know, Wamsi, we did arrange the management in that side of the business in last year or so. So, things are moving in the right direction. As Bob said, we are not happy with the present gross margin.

Thanks a lot.

Jim Suva, Citi.

Thanks, and congratulations to your team there, especially on EPS and margin; that's great.

Thank you, Jim.

In your prepared comments, you made a little bit of commentary around medical being a little bit softer than expected. Can you expand upon that a little bit, because I kind of really wonder, with Obamacare coming out, does this yield the opportunity for you guys to see much more outsourcing coming in the medical sector? Or is there the tax change that is causing this to slow down? Or how should we think about Obamacare and the medical segment, as it's a pretty important sector for you guys?

Jim, definitely medical is very important. I don't know if I'm an expert to be able to answer the question directly -- how Obamacare is going to affect. Really, my customers are probably more expert on that, but let me tell you our situation. I'm really pleased where we are in the medical segment itself. In last year or 1.5 years, we've really grown our customer base, expanded the opportunities.

The only challenge in the medical side -- it takes -- when you win these new programs, sometimes takes one or two, three years to get them in production, especially when you win in these new programs in medical. And that's really our situation here is more that some of these new programs that we won, not as moving as fast as customer forecasts them. At the same time, sometimes moving these programs away from our customer to Sanmina manufacturing takes a little bit longer. So we've got a lot of it in the pipeline, but overall we're very optimistic about opportunities that we have in the medical segment. Actually I would say I'm more optimistic about our medical business now than I've been for a long, long time.

Okay. And then, taking a step back and looking at the overall Sanmina business, you mentioned that you had a very strong quarter of bookings, yet your sales outlook isn't overly robust. In fact, it looks more kind of flattish to slightly up, and so can you help us bridge the difference between the commentary on the strong bookings and the revenue outlook?

Yes, well, bookings -- strong bookings, but not everything was scheduled for this coming quarter. So overall, first of all, as we look at the long term, I think our goal internally is to focus on quality of the growth here, Jim -- make sure we have right customers and right projects that are sustainable. We don't want to chase revenue for revenue's sake. Our goal is to, again, improve the quality of the customer, and go after the projects that allows us to make a little bit more money, and make sure that we properly load all our operations. As you know, we have a circuit board, we have backplanes, we have plastic, we have mechanical, we have EMS -- loading this thing properly is the most important thing for us, with the quality of the customer. So I think for us, it's more focusing on -- to be able to deliver predictable and sustainable growth is most important right now. So we're going to take what I call right steps in the right direction in the short term, but working on the bigger deals long term, but those bigger deals got to be quality deals.

Great. And then, Bob, was it one customer above 10%, or two, or how should we think of that?

There was one customer above 10% this quarter.

Great. Thanks, and congratulations again, gentleman, especially on the margins and earnings.

Thanks, Jim.

Osten Bernardez, Cross Research.

Good afternoon, and thanks for taking my questions. How's it going, guys? Just real briefly wanted to get your feel for where you think -- and it was touched on already, but the trajectory for your CPS and IMS margins throughout the year. I know that mix comes into play, but do you expect both segments to improve throughout this calendar year on a full basis the way they have so far?

First of all, let me, from a pure business mix, I'll make a comment to some of the things that we do in operations, and then I'll see if Bob can add to that. I think there's a lot of things that we're doing internally to improve our efficiencies, yields and so on. And as I said, driving the proper load for these factories. That is the key to us, and I think we are moving in the right direction.

As we mentioned earlier, I believe that this components, products and services have a lot more opportunities for better margins because some of these businesses are not properly loaded yet. We also have some good opportunities, especially in the product side and services side that we won, and are working on that should help us contribute for the future. So there's a lot of exciting opportunities in our components, products and services. Yes, in the short term we are forecasting modest growth, but I would expect us to make improvements in the margin.

On integrated manufacturing solution business, I think we had a nice improvement in this quarter. I think this coming quarter is going to be more dependent on a mix, how the mix comes in, but again, both of the segments we are working very hard internally to drive the quality of the business, and also focus on our businesses that we can make some improvements in margin.

Bob?

Yes, I don't know how much I have to add. On the integrated manufacturing solution side, we are not going to see as much upside there as you're going to see on the components, products and services. IMS is really a function of mix, and as Jure said, how we load the factories and getting better factory utilization. So there's definitely upside on integrated manufacturing, but on the components, products and services, we think there's significant upside potential there. Those are all businesses that have very high contribution margins, and so the way we've got them positioned now, the way we've been able to lower some of the fixed costs, as we see revenue come back, we should see a pretty substantial pick up in gross margin on that side.

Appreciate that color. And then separately, during the quarter you signed -- your Viking Group was able to sign a commercial customer. My question is -- how should we think about future signings for the Viking Group and the trajectory for that business to generate some volume?

Well, we signed more than one customer, so I don't know exactly which one you are referring to.

Sorry, I was referring to the SuperComm announcement.

So we're in the midst of a transition in Viking where we're doing more and more on the solid state drive side. We think we're well positioned in niche markets with some of the solid state products we're working on. And we'll continue to have the memory module business, the business that's been very successful for us in the past. And the key is to catch the next wave on solid state drives.

And the margin picture there, still improving?

Well, the margins in the Viking business, as I think we said in the last analyst meeting, are already at benchmark levels, and so as we go through this transition, we need to continue to sustain that.

Thank you very much.

Christian Schwab, Craig-Hallum Capital.

Great quarter, guys.

Thanks, Christian.

You bet. Quick question -- follow-up on somebody's earlier question -- as we look to the September quarter guide kind of being up, say, 1% at the midpoint versus 6% the last couple years. In reality, when we look at that, how should we be thinking about that? Should we be thinking that that is predominantly macro driven, and we're seeing possibly less-than-typical seasonality as a result? Are there some moving parts in the revenue stream that are more negatively impacting that, or delays in customer ramps of new products? I'm just wondering if there's any further color that you can share there, other than it is what it is?

Well, Christian, as I mentioned earlier a few things -- let me try to add some more to that. First of all, as we looked at this coming quarter, we see some -- as I mentioned earlier, we think overall business is stronger, there's a lot of positive signs. But based on what we see today, we saw communication network to be slightly up; enterprise computing to be flat; defense, industrial and medical to be nicely up, especially driven in the industrial side and defense side of our Business. Each segment, as I mentioned in my prepared statements, in enterprise computing, storage, we have some good opportunities, some of the new programs being delayed or pushed out. As we talked about also a little bit about some of the medical products. As these new programs are coming up, they have been not -- I wouldn't use the word pushed out, but they are coming to the market a little bit slower than what we anticipated.

So we've got some of that stuff going on and -- but on a positive side, I would say I'm a lot more personally confident about next six months today than I was 90 days ago. So to us, I think most importantly for us is to stay on a conservative side, and take advantage of every opportunity that we have during the quarter, and deliver hopefully a good quarter, and be positioned to even a better opportunity in our December quarter. So that's really what we are planning on. A lot of work in front of us, but most important, there's a lot more positive opportunities now than what we were talking about six months ago.

That sounds great, and given the strong bookings and stuff that you'd talked about, I would assume it's safe to assume that the December quarter will be up from September. We just will have to determine how much?

Yes, it's hard to forecast, and we would like to take one quarter at a time, but as I said in my prepared statement, our goal is to focus on sustainable and predictable. I think that is the most important part that, as we are right now building what I call new Sanmina, I think consistency and quality of the earnings with a good cash flow is the most important part of our strategy.

Excellent, and one last question. You have done just a tremendous job of capital allocation towards reducing measurable debt, and reducing the net interest expense. Any update on a two-pronged approach more aggressively on both debt and repurchasing of stock, or are we just going to take that day to day?

Our priorities on using the cash we're generating remain the same. As I've said before, number one is making sure we have the working capital we need to grow the Business, and as Jure said, there are a number of opportunities out there, so we need to make sure, first of all, we've got the cash we need to run the Business.

Secondly, we will continue to look at small strategic acquisitions similar to what we did last year; we did a couple small services deals last year. We're looking at deals that are synergistic with our strategy, as we've articulated it. So we'll continue to look at opportunities there.

And then we get to the question you're posing, Christian, of -- is it better for shareholders to repurchase debt, or is it better for our shareholders to repurchase stock? And we'll continue to go through that analysis on an ongoing basis, and we've already taken out quite a bit of debt this year, and we fortunately are still generating very good cash flow. So it's an important question, and we'll continue to monitor it, but I can't say today exactly what we'll do.

Perfect. No other questions. Congrats again on a great quarter.

Thanks, Christian.

Sherri Scribner, Deutsche Bank.

Hi, thank you. This is actually Kevin LaBuz on behalf of Sherri. Hi, how are you guys? My first question is just on the communication side of your Business. Was the upside there -- was that driven by new program ramps or improving end markets or some mix thereof?

Well, as I mentioned, and the last couple quarters talked about, we've been very fortunate in our communication network, a fair amount of our revenue is really coming from these new programs. So it's a combination of, I would say, number one, demand. And, of course, most of the demand is coming from these new technologies, new programs. So it was pretty helpful, so let's put it that way.

Okay, thank you. And just a brief one as a follow-up. Do you have any expectations for when you'll return to year-over-year growth on a revenue basis?

Well, for us, I would say we're going to focus on a quarter at a time. As I said earlier, hopefully the economy will cooperate with us, and our customer base will continue to expand -- we can grow on a quarterly basis. But I think to us most important is quality of the growth. Growth of the revenue itself without growing a gross margin and operating margin and EPS doesn't mean anything to us anymore. So again, the quality of the growth, EPS, free cash flow, and building a lot stronger Company for the future, to me, that's the key. And that's what Bob and I and the rest of the team at Sanmina are focused every day.

Bob, any comments?

I guess the silver lining in the challenges we have the first half of this year is the compares get easier as we move into next year. So I don't know for sure when we'll be back to year-over-year growth, but the challenge isn't as high as it was before. And I think the key is what Jure said -- we have to take it a quarter at a time, and keep going after the right markets that yield good benefit for both our customers and our shareholders.

Thank you very much, guys.

Joe Wittine, Longbow Research.

Thanks. Bob, going back to the buyback, you sounded relatively conservative when you were talking about how you're looking at cash deployment. Does that imply that we shouldn't expect that you'd consider drawing the credit facility to do some of the buyback?

I didn't mean to imply anything. It's something we monitor constantly, and we'll continue to look at what we think makes the most sense from a shareholder standpoint. Obviously, we have more information here in terms of things we're working on and trade-offs that we're making that I can talk about publicly, but we're here to create shareholder value, and so we'll make whatever the right -- whatever we believe is the right decision at that point in time.

Got it, thanks. In the guidance, OpEx is coming down sequentially; I was curious what's driving that? Is that restructuring savings or is some of the R&D bump in the June quarter one-time expenses; if you can explain that?

Yes, the anomaly is really in the third quarter. We had, as you know, a very tough first half of the year, and that accrued very little in terms of incentive compensation. So given the improved results, we did book more in the third quarter, so that will come back down to more normal levels in the fourth quarter.

Great. And finally, if I could, you talked about the Analyst day I remember I think a potential easing of the valuation allowances against your deferred tax assets. I assume that's something you look at as you approach the end of the fiscal year, so is there any update on that with the change in your operating model right now? Is it still the big dollar amount that you talked about? I think you said potentially up to $500 million. Is that still a possibility at this time?

I doubt if we'll bring on that magnitude at any one point in time. It is something that, as part of our normal process, we'll be evaluating at the end of each fiscal year. And so it's really a function of our assessment of our ability to use those NOLs, and I think over time we're pretty confident we'll be able to use them, but I can't tell you what a number would be right now.

Okay, thanks, great quarter.

Thank you.

Operator, we have time for one more question, please.

Absolutely. Amit Daryanani, RBC Capital Markets.

Great. Thanks, I snuck in under the line there. A couple questions. One, you talked about the $9.5 million restructuring charge this quarter, $4 million to 5 million next quarter. Could you just talk about -- are these more focused on the component side or the IMS side, and what sort of savings do you expect, and when should they start to flow into your P&L?

Yes, Amit, this is Bob. I'll take that question. So as I mentioned, overall restructuring was about $9.4 million this quarter, and roughly 50% of that was associated with the plant and the PCB business that we made the decision to shut down in Malaysia. And we're making very good progress on that, and most of that expense is behind us at this point. And then the other part of that first 50% is associated with the plant that we are consolidating in Israel. So the stuff that we announced in the last few quarters is -- we've got $2 million more to go, but for the most part it is behind us. And so we think it will be down to the $4 million to $5 million range next quarter, and then as you go out into the future, it should drop even significantly lower than that.

Bob, how do you think about the savings from this, call it, $13 million to $14 million restructuring for June and September quarter? Do you start to see that payback of 12 months [I'm assuming] kick into fiscal '14, or is it a more elongated payback?

What we said when we made these decisions is we really expected to begin to see the benefits -- we expected to begin to see benefits in the June quarter, which we did from those restructurings, and then fully realizing the benefits in the September quarter.

Got it. And finally, given the commentary on capital allocation, how much cash do you think you need to run the Business on a day-to-day basis? I'm trying to get a sense of how much excess cash you might be sitting on today, and how much you'll generate going forward?

Yes, it's not a question that we've answered publicly, although I can tell you we have substantially more cash on the balance sheet than we need to run the Business on a day-to-day basis, and it will continue to be that way. I think it's important that we're cautious with how we use our cash. It's important for both our shareholders and our customers that we have a strong balance sheet, and that we maintain reasonable cash balances.

Fair enough, thank you.

Thank you.

Well, ladies and gentlemen, again, I want to thank you personally for taking your time and listening to us. If we didn't answer all your questions, please give us a call. Otherwise, we'll be talking to you in 90 days from now. Thanks again.

Thanks, everyone.

Bye-bye.

And this concludes today's conference call. You may now disconnect.