Sanmina Corp (SANM) 2014 Q4 法說會逐字稿

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina Corporation's fourth-quarter FY14 earnings call.

(Operator Instructions)

I will now turn the call over to Paige Bombino, Director of Investor Relations. You may begin your conference.

Thank you, Mike. Good afternoon ladies and gentlemen and welcome to Sanmina's fourth-quarter and FY14 earnings call. A copy of today's release is available on the website in the investor relations section. You can follow along with our prepared remarks in the slides posted on our website.

Please turn to 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 operations may differ significantly as a result of various factors including the state of the global economy, economic conditions in the electronic industry, changes in country 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 the actual results to differ materially from our projections or forward-looking statements.

You'll note in our press release and the slide issued today that we have provided you with statements of operations for the 3 months and 12 months ended September 27, 2014 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 composition expense, amortization expense, and other infrequent or unusual items to the extent material. Any comments that 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, 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, welcome. Thank you for all being here today with us. With me on this conference call is Bob Eulau, our CFO.

Hello, everyone.

For the agenda we have for you is that Bob will review our financial results for the fourth quarter. I will follow-up with additional comments relative to Sanmina's results and future goals. Then Bob and I will open for questions and answers. And now, I would like to turn this call over to Bob. Bob?

Thanks, Jure. Please turn to slide 3. Overall the fourth quarter was very good from any growth, operating margin, and cash generation perspective. Non-GAAP revenue of $1.69 billion was up 5.2% on a sequential basis and up 12.1% from the fourth quarter last year. Our gross margin came in at 7.9%, which was down 10 basis points from the third quarter and up 10 basis points from the fourth quarter last year.

Operating margin increased 40 basis points from last quarter to 4.2%. Non-GAAP earnings per share was $0.61, which was above the high end of our guidance for the quarter. This was based on 87 million shares outstanding on a fully diluted basis.

Finally, cash generation was excellent again this quarter, with cash flow from operations at $110 million and free cash flow at $89 million. I will discuss cash in more detail in a few minutes.

Please turn to slide 4. From a GAAP perspective, revenue was up 5.1% or $81 million from Q3 to $1.686 billion. We reported a net income of approximately $133 million, which resulted in earnings per share of $1.52 for the fourth quarter. This was up relative to last quarter by $1.28. The GAAP results included an incremental release of our valuation allowance against deferred tax assets.

The tax benefit recorded in this quarter totaled $87.6 million or $1.01 per share, versus the benefit of $21.5 million or $0.25 per share which was recognized last year. We continue to have a valuation allowance of $362 million associated with US deferred tax assets, and accordingly, this amount is not reflected in our balance sheet.

For the year, revenue finished at $6.215 billion, which was up by $298 million while GAAP net income increased by $118 million to $197 million, primarily due to the larger tax benefit being recognized this year and very good improvement in operating income. Accordingly, GAAP earnings per share for the year were $2.27 versus $0.93 last year.

The restructuring costs for Q4 were $4 million. Going forward, the restructuring costs we expect are associated with real estate that we have on the market to be sold. We expect these costs to be in the range of $2 million to $3 million next quarter. As of the end of the year, we have about $65 million in real estate on the market at list prices after having sold about $93 million of property in the last five years.

My remaining comments will focus on the non-GAAP financials for the fourth quarter and FY14. At $133.4 million, gross profit was up $4.6 million from the prior quarter. Gross margin came in at 7.9%, which was 10 basis points lower than we reported in Q3.

Operating expenses were down $5.8 million for the quarter at $62.1 million. This represents a 50 basis point improvement in operating expenses as a percent of revenue compared to Q3. Spending was down this quarter primarily due to lower expected incentive compensation payments, higher vacation taken in the quarter, and containment of other administrative expenses.

At $71.3 million, operating income increased by 17% from the prior quarter and 27.9% from Q4 last year. Operating margin was 4.2%, which was a 40 basis points sequential increase. Other income and expense at $7.6 million was up slightly when compared with last quarter and down 12% from the fourth quarter last year.

The tax rate for the quarter was 16.2% of pretax income, which was in the range we had expected. On a non-GAAP basis, we earned $53.4 million in net income or $0.61 per share. Earnings per share were up 17% from Q3 and up 34% from Q4 last year.

On slide 5, we are showing you some of our key non-GAAP P&L metrics. Revenue was up $83 million or 5.2% from last quarter. Demand was up in all segments except multimedia which was down slightly on a sequential basis.

On a year-over-year basis, we were up in all segments other than communications. Industrial, medical, and defense continues to be very strong. Compared to Q4 last year, total revenue was up $183 million or 12.1%.

Moving onto gross profit, we achieved a 3.5% increase in gross profit in Q4, while gross margin at 7.9% was down 10 basis points from last quarter. We've been very consistent in our gross margin at 7.8% to 8.2% over the last six quarters. Our operating profit increased 17% from last quarter to $71.3 million. This led to operating margin of 4.2%.

Net interest expense was down slightly at $7.1 million for Q4, but still included some extra interest expense as a result of the debt reduction actions we have taken in the last quarter. I will come back to the debt reduction in a moment.

Please turn to slide 6 where we are providing more information on the segments that we report. The integrated manufacturing solution segment represents printed circuit board assembly and test, final system assembly and test, as well as direct order fulfillment. As you can see from the graph on the left, the IMS segment revenue was up $87 million or 6.8% from last quarter. Our gross margin improved by 20 basis points from Q3.

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, memory, and solid-state drive modules, as well as optical, and RF modules. Services include design and engineering, as well as logistics and repair services.

In aggregate, the revenue for this segment was down $3 million or 0.8%, with gross margin down 70 basis points to 10.3%. This gross margin decline reflects lower profitability in the components areas, partially offset by better profitability in the products and services areas.

Now I'd like to turn your attention to the balance sheet on slide 7. Our cash and cash equivalents were $467 million. Cash was down $85 million from the previous quarter. We used this cash and strong free cash flow to pay off long- and short-term debt this quarter. We used about $25 million in cash to repurchase 1.1 million shares of our common stock at an average price of $23.62.

Accounts receivable were up slightly and inventory was up $13 million, both primarily a result of higher revenue for the quarter. Property, plant, and equipment was basically flat for the quarter. Other assets increased primarily due to the incremental release of the valuation allowance for deferred tax assets.

From a liability standpoint, we continue to have positive results. First, we had a $57 million increase in accounts payable during the quarter. This was driven primarily by increased business and better payment terms, which also drove better ending days payable outstanding.

From a debt perspective, as of the end of the quarter, we have $387 million in long-term debt, which mostly reflects the $375 million of 4 3/8% 2019 debt we issued in May. During the quarter, we committed to retire the remaining $100 million of our 2019 7% senior notes, and this was completed on October 8. Because we have committed to make this payment, this amount is included in short-term debt.

At the end of the quarter, our gross leverage is approximately 1.7. Overall, our capital structure is in great shape and is the best it has been in 13 years.

Please turn to slide 8 where we will review our balance sheet metrics for the fourth quarter. Cash was down $85 million from Q3, but still very robust. Cash flow from operations for the quarter was excellent at $110 million, and net capital expenditures for the quarter were $21 million. This led to $89 million in free cash flow. We expect to return to more normal levels of positive free cash flow next quarter and in FY15.

Inventory reduction and cash generation are an ongoing priority for our team. Inventory dollars were up $13 million from last quarter at $893 million, while inventory turns were flat at 7.0. Compared to Q4 last year, inventory turns were also flat, but inventory dollars were up as a result of much higher revenue.

We're showing cash cycle days, which combines our cycle time for inventory, accounts receivable, and accounts payable. Overall, cash cycle time decreased from 44.1 days last quarter to 38.9 days. This was driven by a 3.3 days of improvement in account payable days outstanding, and 1.9 days of improvement in accounts receivable days sales outstanding.

Inventory days were slightly better than last quarter. We are pleased to see continued progress on our overall cash cycle time. On an annual basis, cash cycle time improved by 7.1 days.

In conclusion, our return on invested capital improved to 18.3% for the quarter, which was excellent. This was driven by the combination of better profitability and better working capital management.

Please turn to slide 9. I want to take a couple of minutes to reflect on our longer-term cash generation and the impact it has had on our capital structure. Cash flow from operations for FY14 was outstanding. In fact, in the last four years we have generated almost $1.1 billion in cash flow from operations. During the same four-year period, our free cash flow was around $800 million. This cash generation is the driving force behind our ability to reduce our long-term debt and begin to repurchase equity.

In the upper right-hand quadrant, we are showing the decline in long-term debt over the last five years. Over the last five years, long-term debt is down $904 million. In the last three years, we've reduced our long-term debt by $648 million.

In the lower left quadrant, we're showing our net interest expense over the last five years. One of the key benefits of the debt reduction is the lower interest expense we now experience. This graph shows the great progress that we've made with FY14 net interest expense at $29 million, which is $81 million lower than FY09 and $68 million lower than three years ago.

We expected that annual net interest expense will be around $25 million in FY15. Obviously, everything else being equal, the lower interest expense enabled us to generate significantly more cash than we did just a couple years ago.

In the lower right quadrant, we're showing our growth leverage at the end of each of the last five years. We define gross leverage as total debt divided by EBITDA. As a result of the reduction in debt and solid EBITDA over the last four years, our gross leverage ratio has improved dramatically. As you can see in the chart, our gross leverage for this period peaked at 8.0 at the end of FY09 and stands at 1.7 today. This lower leverage gives us more business and financial flexibility as opportunities arise.

With all the progress that we've made in the last four years, the balance sheet is in excellent condition. We expect to continue to generate cash in the coming years and we will be carefully evaluating how to maximize the shareholder benefit of the cash we generate.

Please turn to slide 10. I'd now like to share with you our guidance for the first quarter of FY15. Our view is that revenue will be in the range of $1.65 billion to $1.7 billion. We expect gross margin will be in the range of 7.7% to 8.1%. Operating expense should be $65 million to $67 million. This leads to an operating margin in the range of 3.8% to 4.2%.

We expect that other income expense will be in the range of $5 million to $7 million. We expect the tax rate to be around 16.5%, and we expect our fully diluted share count to be around 87 million shares, plus or minus 0.5 million shares. When you consider all of this guidance, we believe that you'll end up with earnings per share in the range of $0.55 to $0.60. Finally, for your cash flow modeling, we expect that capital expenditures will be around $25 million while depreciation and amortization will also be around $25 million.

Overall, we are very pleased with this finish to FY14. We executed consistently in FY14 and positioned ourselves well for the future. Growth continues to be our number-one objective, but it is imperative that we grow with the right kind of business. 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, let me add a few more comments regarding our business environment. First of all, I'll talk about the fourth quarter a little bit in FY14, and I'll spend more time talking about the first quarter in FY15.

So to recap, fourth quarter in FY14, overall, I would say this was a good quarter with solid results. We had a stable and a strong demand from the majority of our end markets as we continue to diversify our business and our customer base. Operationally, we did a solid execution and as we delivered strong improvements in our operating margins.

For FY14, we delivered solid and consistent results, good and predictable growth, expanded our customer base, and improved the quality of our customers with a better growth potential. Internally, we continue to tune things up, focus on efficiencies, and lean structure globally.

We continue to deliver the right technology and best value solution for our customers. I can tell you today that a year later, Sanmina is a lot stronger Company and it's positioned for a lot better future.

Now please to turn slide 12. We are continuing to diversify our revenue by end markets and customers. As you can see, top 10 customers represented 51.7% of our revenue. We also have no customer at 10% for this quarter or the year.

Majority of our end markets segment grew in the fourth quarter. Communication Networks overall for the quarter was stable growth, up 3.6%. Overall demand during the quarter was stable. For the year this segment was down 2.9%, slightly below our expectation, what we expected a year ago.

Industrial, Medical, Defense grew nicely, up 7.3%. Industrial, we saw strong growth again; Medical, overall good growth; Defense was slightly down. This segment on a yearly basis was up 37.8%, a great year in industrial, medical, and defense. It was driven by new customer growth and also overall very strong customer base that we expect this segment to continue to do well.

Computing and Storage for the quarter grew also nicely at 8.9%. Better overall demand and also the new projects are starting to drive the growth. For the year, this segment grew 10.7%.

Multimedia for the quarter was flat, slightly down about 1.7%. We saw stable demand during the quarter as we continue to improve quality of the revenue in this segment. For a year also this segment Multimedia grew approximately 7.7%. So overall, nice growth through most of our market segments in the FY14.

Now please turn to slide 13. Now let me talk to you about first-quarter FY15 outlook by market segments. Bookings for the fourth quarter was positive. So as we look at the first quarter as Bob mentioned, we are forecasting revenue $1.65 billion to $1.7 billion. I call this a good start to a new year as we remain cautiously optimistic about first-quarter opportunities.

I'd like to make a few more comments. Communication Networks we're forecasting for next quarter demand to be flat. Overall, stable demand I think we're well diversified in three segments, wireless, networking, and wireline infrastructure. I will summarize this as good opportunities in this quarter and good pipeline.

For Industrial, Medical, and Defense segments, we're forecasting to be slightly up. Industrial, we continue to forecast in good demand to continue; for Medical, overall stable demand. For defense, we forecasting flat in short term, but the long term looks more promising, driven mainly by new wins. Overall for this segment, things look very stable and growing.

Computing and Storage, we're forecasting to be slightly up for our upcoming quarter. I will say overall stable demand as we continue to expand the customer base and good potential in the near future.

Multimedia, we're forecasting to be slightly down, short term, maybe flat. As I said earlier, we see good opportunities and we continue to grow new customers and improve better business mix in this segment.

Also, let me talk to you more about what we expect for the rest of the FY15. I'm personally optimistic that FY15 will be another growth year for Sanmina. It's hard to predict global economy, but we believe it will be overall stable and we still expect a slow recovery. We have strong customer base and positive outlook for majority of our customers for calendar year 2015. I can tell you that Sanmina is in a strong position to continue to win in our focus market segments. Overall, our strategy is working.

A few more comments on our strategy for FY15. The goal here for us is to continue to stay in our leadership role in our focus markets and with our customers. We'll continue to focus on Sanmina's core strengths and we'll do it Sanmina's way, focusing on quality of the growth, margin expansion, and cash generation.

Key to our success always been our customer, so the key going forward is to focus on our customers' success. We are partnering with our strong customers to have a good and sustainable future potential.

We continue to provide leading, high-end technology solutions, products and services from design to order fulfillment, including aftermarket services. Continue to invest in this technology and new technology, product, quality, operational efficiencies. And overall, to provide a quality of work for our employees globally.

The goal here is very simple: to maximize shareholders value. As we've always said, job is not done. There's still a lot of leverage left in our existing structure.

Please turn to slide 14. So in summary, fourth quarter solid results with excellent execution. For FY14, I call it good year as we managed the quality of the growth. For first quarter 2015 as I just said, overall demand is stable as we're going to continue to focus on market and customer diversification.

For FY15, I remain positive about it. We've got a sound, solid foundation to continue to build on. The goal for us is to continue to build our predictable and sustainable results in FY15.

Now ladies and gentlemen, I would like to say thank you all for your time and support. Operator, we are now ready to open the lines for question and answers. Thank you, again.

(Operator Instructions)

The first question is from Brian Alexander with Raymond James.

Hello, Brian.

Hi, Brian.

Hey, Jure. Hey, Bob. Very strong quarter obviously. I just had a question on the outlook.

Is there anything unusual or temporary in the December earnings guidance that we should consider when we build the models for FY15? I ask that because historically I think the December quarter is about 20% of the full-year earnings if I go back over the last two years. And if we apply that kind of math to your guidance for this December, it would suggest that your expectation as you can do close to $3 in EPS for FY15.

So before we all get ahead of ourselves, I just thought I would ask if there's anything you wanted to clarify about the December guidance that we should take into account for the full year?

Well, first of all, Brian, as I mentioned in my prepared statement, overall, I think we did a lot of good things in 2014. We stuck with our strategy which was really focusing where we're good at, continue to expand the customer base that we can have a long-term partnership. We can create a lot of volume and create a win-win.

We are able to accomplish that. We grew nicely in some segments of our business. A lot of the growth in 2014 really came from our new customers, new projects.

So we are in a little bit better position today than a year ago. As I mentioned, economies hard to predict. I still believe the forecast will continue to be choppy out there.

So yes, this first quarter is a little bit better than a year ago. It will be a lot better than the year ago. So that's good.

But I would like to kind of take one quarter at a time. I think as long as the economy cooperates, I believe we are well-positioned to continue to tune things up. Bob mentioned a lot of positive things that we accomplish both on a financial side.

And as I mentioned, I think we accomplished a lot of good things in building a stronger customer relationship and providing a better technology that is needed to grow our business. So I'm optimistic, but let's be a little bit cautious.

I guess I'll add a few things. We do need to be cautious about extrapolating Q1 results to the full year, and as you know, Brian, we don't give annual guidance because there are always things that develop during the course of the year.

It's our belief, our seasonality is changing a lot as the mix of our business has changed. If you go back a year ago we had more Communications business and less on the Industrial, Medical, and Defense side. So we think we're more diversified today than we've been in the past, and we think that's going to have an impact on our seasonality, hopefully making it a little less dominated by Communications as it's been in the past.

I guess the other comment I would make if you go back to last couple years in this call, at the beginning of the year, we'd signaled we expected a stronger second half than first half. And I don't think that's what we're saying today. We're expecting it to be a pretty solid year, and we think obviously Q1 will be pretty solid and we'll wait and see how March develops.

One quarter at a time.

Okay. Sure. If I can just ask one follow-up on the Industrial segment.

Anyway that you can give us a sense for maybe what the organic growth or maybe that's not the best word, but the growth excluding some of these the customer asset deals that you've had over the last few quarters? And where are we in the ramps of those large programs? And should we anticipate that segment to be more volatile than maybe it's been in the past because maybe more of the growth is being driven by some unusually large ramps?

First of all, I think this segment for us should be more stable going forward at least and I say short-term, let's focus on FY15. I would say it's more stable. The progress that I talked about a few minutes ago, new customers and new projects already around more or less in a full ramp, almost full ramp.

In those type of new programs, there's a lot of tuning up to do. They are not as profitable as they should be. Hopefully one of these days, so we expect to make little bit more money in this segment in the future.

I think it's an area that we're really focused, we create a lot of value, we add a lot of vertical capabilities here from technology point of view and all the components that we manufacture. So we expect this component to be very healthy for us in hopefully more than one year. So we're pretty optimistic on the segment. A lot of work left to do, though, Brian.

Okay. All right. Well thanks very much.

Thanks.

Thanks, Brian.

The next question is from Mark Delaney with Goldman Sachs.

Hello, Mark.

Hi, Mark

Good afternoon thanks very much for taking the question, and nice quarter.

Thanks, Mark.

Thank you. That I was hoping you could elaborate a little bit more on the trends you're seeing in the communications end markets. There's obviously been some well-publicized weakness from some of the equipment companies, especially those with high exposure to US telecom spending.

Maybe you can just to remind us how your exposure breaks out between service provider, data center, and enterprise. And then maybe some of the types of programs that you're on that are allowing Sanmina to have better results from some of the market participants.

Yes. First of all, let me focus strictly on our customer base. It's always dangerous trying to sound like I'm an expert in communication networks.

We've been in this business for many years. It's actually the biggest segment and when we started the Company, this is where we grew from. So I know a lot about it.

At the same time it tells you how much I know. A year ago I thought that Communication Networks would grow year over year. Well, I was wrong, it's down 2.9%.

But if I look at 2015 -- first of all in the short term I would say that we have customers that are winning in their marketplace. But the thing about our segments, Mark, is that most of our customers that we do business with really do business globally.

And in a short-term I would call this stable business for us. Yes, we had few customers that are down. Fortunately for us we also have a few that are up, so kind of neutralizes itself.

For a year, it's hard to forecast, but if I had to be a betting man, I would say that this segment for us it's going to be slightly up. I don't know how much up. We'll have up and down quarters in it.

But overall, as I see a lot of my customers I would say they're more optimistic maybe than I am. So let's see how things shake up.

That's helpful, Jure, thanks for that.

And therefore, follow-up question, maybe you can just talk a little bit about for the September quarter, you came in above what you guided to. Can you just tell us what surprised you and that allowed the revenues to come in above your expectations?

Bob, I'll leave that up to you a little bit. (Laughter) I'll take a break.

I think we're a little cautious because actually related to the question you were asking on the Communication side, we were a little cautious, but as Jure said, most of the customers came through pretty well. And we saw good strength again on the Industrial side, which we're really pleased by. So it was just I'd say a little better in several places.

Yes. Some of our customers were really a little bit better, and that's as I said that's where really -- and if you look at all the big markets for us were up. And so that helps us.

Thank you very much.

Thanks, Mark.

The next question is from Osten Bernardez with Cross Research.

Hello.

Good afternoon. Thanks for taking my questions.

I guess just to taking a look at your products and services versus your components business. Can you sort of add some color as to what drove the strength within your products and services during the quarter?

Well, product and services as you can say, it was an okay quarter. It wasn't nothing great. We could have done a little bit better in it.

We had some, how do I say it? The mix itself was not the best and we have a few push outs.

But overall, this is a segment that we are spending a lot of time in and working very hard. We expect the segment to be doing a lot better than what it's doing today. So there's a lot of focus on it, on components, products, and services because that's a very key to our success to deliver the numbers that we want to deliver long term.

Okay. I ask the question because you comment on profitability on products versus your components business. And tied into that I wanted to know whether it's some of the strength that you saw in Computing and Storage came from new (multiple speakers)

Definitely on a product side, our storage product is moving in the right direction. We're adding a fair amount, good customers there. So definitely it's contributing, but it's not yet big factor. I mean, it's definitely helping out, but it's not a major factor in our numbers yet.

Okay. And so should we expect the trends that you're seeing in Computing and Storage to sort of play out going into 2015? How should we think about that full-year perspective? I know you don't --

Yes, it's hard to say what is going to happen in 2015, but I said I think the pipeline is pretty stable right now. I think we got some good opportunities. We're working on a fair amount of new customers, so we expect the segment to do well.

Thank you.

Thanks, Osten.

The next question is from Jim Suva with Citi.

Thank you, and congratulations to you and your team there at Sanmina. Great progress.

I'm more interested in the bigger picture strategy questions to Bob and Jure. I believe it was Bob in his mentioned his top priority is for growth. Can you help us understand is that organic growth or do you see acquisitions, and if so, smaller acquisitions or more medium, larger size acquisitions?

The reason why I ask is it appears the past year so you've made a couple acquisitions that have been folded in very, very well. So I wonder since your balance sheet is probably in the best shape it's been in many years, is acquisitions become more of a focusing probability?

Yes, Jim, this is Bob. I'll take the first cut at answer.

I think it's going to both. And we've been saying that for a while. We need to make sure that we're growing first of all with the right customers, building the right portfolio of accounts over time. And we will continue to look at small acquisitions that are strategic and that are a direct fit with the strategy the way we've articulated it, and if we execute on both fronts, I think they'll both contribute to growth.

And as a follow-up to that, am I correct that when you say small acquisitions, these are more kind of current, maybe customer assets or adjacent skill sets as opposed to consolidating the industry or even some of the smaller private EMS companies?

Yes, that is correct. We really are looking for assets that make sense for our strategy. And we are not that interested in a consolidation.

We're frankly not convinced it makes a lot of sense. It's really a matter of executing our strategy and finding opportunities that fit with that.

And finally, is that a higher priority than say stock buyback or how should we think about that?

It really depends on our assessment of the risk and potential return to our shareholders. So I think we'll probably end up doing both by the time all is said and done.

Thank you, and congratulations to you and your team at Sanmina

Thanks, Jim.

The next question is from Christian Schwab with Craig-Hallum Capital Group.

Hey, guys. Great start to the year.

Thanks, Christian.

When we look at the Industrial, Defense, and Medical business, up 34% this year, roughly $550 million. If we had to categorize that organic growth, new programs ramping, and then lastly, some of the key customer extensions of partnerships which included purchasing acquiring some facilities, do you have a rough idea how we should think about that number percentage-wise between those three?

You mean in last year?

Yes. Of that $550 million, how much of that -- what percentage of that was driven by organic growth, what percentage was driven by new programs ramping? And what percentage was kind of acquiring facilities of customers?

Yes, Christian, I would consider that really everything is organic growth in that case because these are the relationship that we extended basically existing customers where it's just like going out there in some cases buying additional equipment and getting the revenue to fill the plant up.

So I would say most of this stuff is organic growth. I mean, 90% plus is organic growth. That's the way I look at it.

No, I understand that. So if we, let's, can we look at it one other way quick, Jure, and then I'll leave it alone. As we look at that percentage of revenue growth, if you want to purchase extra facilities, is there any way to quantify how much the extra facilities brought versus just --

But we don't -- I can't answer that for two reasons because that's not how we look at it. It's really basically it's opportunity that comes up -- you know we work with these customers for many years in both of these cases for many years, and you look at okay, what is the best to create a real partnership? In some cases we build a new factory, in some cases we take over the customer assets and build on that. And that's kind of, that's why hard to say.

Be honest with you, I don't want to break it apart because a lot of that is probably for competitive reasons. But I think you have to look at this as organic growth really what we accomplished. And it's really expanding our relationship.

We have some great relationship, and that's really the focus of our new strategy, and when even Jim asked the question, how are we going to grow? It's really creating a value satisfying our customers' requirements so that we can find a relationship that can last for many years in the future. And hopefully end of the day make a little bit of money.

I think that our strategy is very simple. Go back to the basics. End of the day you have to make the little bit money, we have to be consistent, and we have to return right shareholders' value to our investors and to our employees.

We knew -- when we started the Company, that's how we build the Sanmina, focusing on simple things and doing them right. We did a lot of stupid things in between in bad economy and bad timing.

I think we learned our lesson, went back to the basics, really working around the customer. Because key in our type of business, Christian, success is all about building your customers successful. Once we get our customers successful and we are primary supplier because we are given the right technology, right solution, we win.

And that's really our focus right now. Not what our competition does, it's more what we do.

So that's why we're able to win some of this up. And I expect we'll win in 2015 type of deals like this because of a providing the right service, right technology, and executing right.

Well, congratulations on doing that. One last question, Jure, you talk about good potential near-term in Computing and Storage. And you used those words or words very similar to that a few quarters ago before the Industrial, Defense, and Medical the started growing quarter-over-quarter very nicely. Should we assume that Computing and Storage should return to a growth year in 2015?

Yes, I would expect that we grew nicely in 2014. I would as I said earlier, unless this whole economy completely goes different direction, this economy as I said stays stable with the slowly recovery, I think we'll see an overall Computing and Storage growth in 2015 (multiple speakers).

Great. No other questions. Congratulations again.

Operator, may have time for one more question.

The last question is from Amit Daryanani, your line is open with RBC.

Hello, Amit.

Hi Amit.

Hi, guys, how are you doing? Two questions for me.

One, I think you made a comment saying your expectations might be a little bit more subdued in comm equipment versus your customers. Maybe just flesh that out because there's been obviously some mixed data points from an end market basis on that segment. So from a linearity basis, from an inventory basis, did you guys see anything that was off throughout this quarter?

Well, as I said for this coming quarter we feel stable. We're forecasting stable demand. I think we're well diversified in this segment between wireless, networking, and wireline infrastructure.

As you know we're mainly in infrastructure side of the business. We think our pipeline for this short term is there are some good opportunities, and even a longer term. So we don't see, unless something happens tomorrow with our customer base, we don't see anything major.

Fair enough.

And Amit, I'm not an expert on every little component that goes into this industry. I can only talk about what I'm seeing with the projects that I'm involved in.

Understood. And then, I guess, Bob, you talked about how OpEx came in well below what you guys thought. I thought that was pretty impressive given the fact you had some good sales upside. As you go through maybe not the December quarter but broadly through FY15, what is a more optimal OpEx run rate for you guys for us to think about?

I think you can probably assume we'll be in the neighborhood of where I guided for the December quarter. I think that was $65 million to $67 million.

Fair enough. Perfect. Thank you.

Thank you, Amit. Well, ladies and gentlemen, that's all that we have for today. If you have more question, and if we did not answer anything, please give us a call. And looking forward talking to you in 90 days from now.

Thanks, everybody.

Thanks a lot, bye bye.

This concludes today's conference call. You may now disconnect.