Sanmina Corp (SANM) 2015 Q1 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 Sanmina Corporation's first-quarter FY15 earnings call.

(Operator instructions)

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

Thank you, Mike. Good afternoon ladies and gentlemen, and welcome to Sanmina's first-quarter FY15 earnings call. A copy of today's release is available on our website in the investor relations section. You can follow along with our prepared remarks in 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 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 ended December 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 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 financial information. I would now like to turn this call over to Jure Sola, Chairman and Chief Executive Officer.

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

Good afternoon, everyone.

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

Thanks, Jure. Please turn to Slide 3. Overall, the first quarter was a good start to FY15. Non-GAAP revenue of $1.67 billion was down 1% on a sequential basis, but up 15.5% from the first quarter last year. Non-GAAP earnings per share was $0.61, which was above the high end of our guidance for the quarter. This was based on 86.7 million shares outstanding on a fully diluted basis. The disappointment for the quarter was cash flow from operations, which was negative $6 million. I will discuss cash in more detail in a few minutes.

Please turn to Slide 4. From a GAAP perspective, revenue was down 0.9%, or $15 million, from Q4 to $1.671 billion. We reported net income of $22.7 million, which resulted in earnings per share of $0.26 for the first quarter. This was down relative to last quarter by $1.26.

You may recall that last quarter our GAAP results included an incremental release of our valuation allowance against deferred tax assets. The tax benefit recorded last quarter totaled $87.6 million, or $1.01 per share.

The restructuring costs for Q1 were $3 million. Going forward, the restructuring costs we expect are associated with the real estate that we have on the market to be sold. We expect those costs to be in the range of $2 million to $3 million next quarter. Currently, we have about $65 million in real estate on the market at list price, after having sold around $93 million of property in the last five years. There is one property which should be sold this quarter for net proceeds of around $5 million.

My remaining comments will focus on the non-GAAP financials for the first quarter of FY15. At $132.5 million, gross profit was down $900,000 from the prior quarter. Gross margin came in at 7.9%, which was the same we reported in Q4.

Operating expenses were up $2 million for the quarter, at $64.2 million. This represents a 10 basis point increase in operating expenses as a percent of revenue compared to Q4. Spending was up this quarter primarily due to the return of some administrative expenses to their normal run rate. At $68.3 million, operating income decreased by 4.2% from the prior quarter but increased 40.4% from Q1 last year. Operating margin was 4.1%, which was a 10 basis point sequential decrease. Other income and expense at $5.0 million was down 33.3% when compared to last quarter and down 13% from the first quarter last year.

The tax rate for the quarter was 16.0% of pretax income, which was at the range we had expected. On a non-GAAP basis, we earned $53.1 million in net income, or $0.61 per share. Earnings per share were flat with Q4 and up 50.7% from Q1 last year.

On Slide 5 we are showing you some of our key non-GAAP P&L metrics. Revenue was down $17 million, or 1% from last quarter. Compared to Q1 last year, the total revenue was up $224 million, or 15.5%. Industrial, medical and defense continues to be a very good growth segment for us.

Moving onto gross profit. Gross margin was flat at 7.9% for Q1, but we had a $1 million decrease in gross profit from Q4. Gross profit was up about $19 million when compared to Q1 last year. We have been very consistent with our gross margin ranging between 7.8% and 8.2% over the last seven quarters.

Our operating income decreased 4.2% when compared to a very strong Q4. This led to $68.3 million in operating income and operating margin of 4.1%. Net interest expense was down $1 million to $6.1 million for Q1 when compared to Q4. Over the last few years, we have benefited extensively from our debt reduction efforts, but we do not expect much change in interest expense over the next few quarters. I will come back to debt reduction in a moment.

Please turn to Slide 6. We are providing some -- we are providing more information on the segments that we report. As you can see from the graph on the left, the Integrated Manufacturing Solutions segment revenue was up $15 million, or 1.1% from last quarter. A good mix of business within this segment and good execution led to a 40 basis point increase in our gross margin from Q4. This is the best IMS margin we have reported since we have started segment reporting.

The second segment for us is Components, Products and Services. In aggregate, the revenue for this segment was down $36 million, or 9.2%, with gross margin down 1.3 percentage points to 9.0%. With the high contribution margins in this segment, the lower revenue has a large impact on gross margins. This gross margin decline reflects lower profitability in the components and product areas, offset slightly by better profitability in the services area.

Now I would like to turn your attention to the balance sheet on Slide 7. Our cash and cash equivalents were $391 million. Cash was down $76 million from the previous quarter. There were two primary contributors to this decrease in cash. The first was the planned reduction in total debt of $54 million. The second was a $60 million reduction in accounts payable. Accounts receivable was down $6 million, and inventory was up $15 million. Property, plant and equipment was up $2 million for the quarter.

From a liability standpoint, the major change was a $60 million reduction in accounts payable I just mentioned. The largest driver was early material purchases during the quarter in order to meet pre-holiday shipments to customers. From a debt perspective, as of the end of the quarter, we have $427 million in long-term debt, which reflects the $375 million of 4.375% 2019 debt that we issued in May, and the renewal of the term loan on our San Jose campus in December. With the renewal of the term loan, the term loan was reclassified to long-term debt at the end of the quarter.

On October 8, we completed the retirement of the remaining $100 million of our 2019 7% senior notes. This was the larger reason our short-term debt was down $94 million. At the end of the quarter, our gross leverage on total debt was approximately 1.4. Overall, our capital structure continues to be excellent, and the best it has been in in 13 years.

Please turn to Slide 8 where we will review our balance sheet metrics for the first quarter. Cash was down $76 million from Q4. We are very comfortable with our cash at $391 million. The cash levels were higher than normal in Q3 and Q4 of last year, as we were completing the debt refinancing.

Cash flow from operations for the quarter was disappointing at negative $6 million. Net capital expenditures for the quarter were $28 million. This led to $34 million in negative free cash flow for the quarter. The two primary drivers in the negative free cash flow were the reduction in accounts payable and increased inventory. We expect to return to positive free cash flow during the remainder of FY15.

Inventory levels were a disappointment in Q1. Inventory dollars were up $15 million from last quarter at $908 million, while the inventory turns were down to 6.8. Compared to Q1 last year, inventory turns were flat but inventory dollars were up $116 million as a result of much higher revenue.

In the lower left quadrant, we are showing cash cycle days, which combines our cycle time for inventory, accounts receivable and accounts payable. Overall, cash cycle time increased from 38.9 days last quarter to 40.1 days. This change was primarily driven by the 1.4 day increase in inventory. Overall, our cash cycle times continues to be respectable. In conclusion, the return on invested capital decreased slightly to 17.0% for the quarter, which was still good after a very strong fourth quarter.

Please turn to Slide 9. I would now like to share with you our guidance for the second quarter of FY15. Our view is that revenue will be in the range of $1.575 billion to $1.625 billion. We expect that 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 3.6% to 4%.

We expect that other income and expense will be in the range of $5 million to $7 million. We expect the tax rate to be around 16.0%, and we expect that 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 will end up with earnings per share in the range of $0.50 to $0.55. Finally, for your cash flow modeling, we expect to sell real estate of approximately $5 million during the quarter, which will result in net capital expenditures of approximately $20 million, while depreciation and amortization will be around $25 million.

Overall, we are pleased with this start to FY15. We have executed consistently well in the last seven quarters, and have positioned ourselves solidly for the future. Growth continues to be our number one objective, but 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, yes, I would like to add few additional comments in review of our business environment for the first quarter and outlook for the rest of the FY15. Basically, as Bob mentioned first quarter results came in per our expectations. Overall, good quarter. Operations executed well. We delivered a solid operating margin of 4.1%.

But we have some challenging product mix in our Components, Products and Services businesses. And also we had a lot of movements in the forecast during the quarter. Bookings for the first-quarter -- book-to-bill was flat. In summary, results per plan, a good quarter. But even with this revenue, we still believe we can do better.

Now, please turn to Slide 11. I want to make a few comments on our end markets breakdown. But before I do that, as you can see on Slide 11, we are changing the segment, the way we report, going forward. We going to three segments instead of four.

So with Communication Networks, that stay the same. Industrial/Medical/Defense also the same. But we did combine Multimedia with Computing and Storage. And the reason behind that is that we are getting more and more involved as we are expanding this segment into more -- where we are adding a lot of embedded computing. We felt it's the best way to combine it and to make more sense going forward. So going forward, we will be reporting in three segments as you see on this Slide. At the same time, it gives you a lot of history so that you can compare going forward.

So now, please turn to Slide 12. Most important in the first quarter is that we are continue to diversify revenue by end markets and our customers. Top 10 customer represented approximately 50% of our revenue. Communication Network was 41% of our revenue. That was slightly down 2.4%. We had a slower demand during the quarter. Industrial/Medical/Defense was 38% of the revenue. This segment grew nicely. Industrial had a nice growth, where medical, defense had some growth during the quarter.

Embedded Computing and Storage was down 5%, mainly driven by computing and storage and set-top box business. Automotive and other businesses actually grew nicely during the quarter. On a positive side, year over year, we had a nice growth of 16%.

Now please turn to Slide 13. Let me add few more comments on a revenue outlook by market segment for second quarter. For second quarter, we expect demand to be seasonally slower, but stable. Communication Networks, we expect demand to be seasonally down. But we should see nice improvement in this segment in the second half of the year, driven by 4G wireless and IP networks.

Industrial/Medical/Defense that we are forecasting for the quarter to be flat. Industrial we should see some nice growth. For medical, slightly down. And defense, we are forecasting to be flat. But in total, opportunities in the pipeline continues to be good, as we are well positioned in this segment. Embedded Computing and Storage, we expect to be flat for a quarter, as we are continue to diversify this segment and we are expanding the customer base. Overall, good opportunities in the pipeline driven by new projects.

Now, let me talk to you about what we expect for the rest of the FY15. Overall, business is stable. We have strong foundation to build on, as we remain optimistic in our ability to drive profitable growth in FY15. On global economy, still challenging but slowly moving in the right direction.

On a positive side, majority of our customers still have positive outlook for FY15. Sanmina is well positioned to win in this environment, and we have some good opportunities in the pipeline to drive profitable growth. Again, we are confident about opportunities for FY15. Company is doing well. We're focused on quality of the growth. We competing on Sanmina's core strengths, where we provide high technology solutions, products and services from design to order fulfillment. This is our competitive advantage, and it is working.

Relationships with our key customers are going strong and expanding. We are continue to invest to drive profitable growth in FY15 and beyond by investing in talent and technologies as we provide more value to our customers. Sanmina has lots of leverage in our business model, driven by Sanmina's business portfolio.

Now please turn to Slide 14. Again, first quarter FY15 was a good quarter, in line with our expectation. We delivered solid operating margins. For second quarter 2015, as we said earlier, revenue down sequentially, primarily due to seasonality. And really this is not a surprise to us. But based on an outlook, first half FY15 should grow 10%-plus compared to the first year of FY14.

For FY15, we will continue to diversify in our focus markets. We are optimistic in our ability to drive the growth. And we have opportunity to deliver more financial improvements during the rest of the year.

So ladies and gentlemen, now I would like to thank you all for your time and support. Operator, we are now ready to open these lines for question and answers. Again, thank you very much. Operator?

(Operator instructions)

Mark Delaney at Goldman Sachs.

Good afternoon. Thanks very much for taking the question.

I was hoping you could help us understand how orders trended during the quarter in terms of the linearity of the orders? And then how much visibility do you have into the pick-up you were talking about into the second half of the fiscal year?

Well, first of all, linearity wasn't that bad. We had, as I mentioned earlier, our mix in our Components, Products and Services wasn't best. Revenue was down, and that affected our margins there. And we had some movement in our forecast. And it is kind of normal for December timeframe, had all of the holidays, and a lot of our customer were shut down between Christmas and New Year's. So that really kind of affected it.

But overall, I think it was a good quarter for us. As we look at the rest of the calendar year, I would say visibility is good. Most importantly, we have very good communication with our customers, and those are positive. We expect a growth year. I think we are well-positioned. And most importantly, I think we have some good opportunities in our pipeline that we can maybe see more growth from that point of view. But we feel comfortable.

That is helpful. And then for a follow-up, I was hoping you could quantify just roughly how much of total revenue is tied to oil and gas? And then have you have seen any change in orders tied to the oil and gas segment?

Oil and gas for us is new markets that we entered, as you know, about 18 months ago. It is still a small percentage of our business. Don't want to really put a percentage on it. Yes, definitely, there is some slower demand in a short term. Some orders being moved around. But we are still very high on this segment for us. I think we look at this as opportunity, as there's a lot of pressure on this industry to improve the cost, to improve in this type of environment.

As we enter in this market, we look at it as opportunity, but we are really focused on this area and we looking at long term, because we still believe long term, this is an area that we fit well, we add a lot of value to our customers. We provide actually savings in a lot of these projects that we get involved with our customers. So slower right now, but we are still focused on the longer term.

Thank you very much.

Thanks, Mark.

Brian Alexander, Raymond James.

Okay. Thanks. Good evening. I just wanted to follow up on the gross margins in the CPS business. Looks like that's been trending lower the last several quarters on a year-over-year basis, despite what has been pretty good growth, particularly last fiscal year. And this quarter it looks like you had flat revenue and roughly flat gross margins in CPS on a year-over-year basis. And you are at about 9% on $350 million in revenue.

But back a couple of years ago the margins in that business were 10% to 11% on lower revenue levels. So given this is a key source of operating leverage for the Company, could you just maybe drill into that a little bit and help us understand what is driving the downward margin trend in CPS? Is it just timing? Is it mix? And more importantly, what is the catalyst for that margin expansion going forward?

Yes. Well, Brian first of all, as I mentioned in my prepared comments, we had a challenging mix in that part of the business. We did, as you know, in a couple of years, we invested more in the side of the business. I would say that it is a timing issue with us. I think it is more revenue driven and mix. We are very optimistic that we will see improvements in this coming quarter, in second quarter, and we expect to see improvements definitely on the margin for the rest of the year in 2015. So nothing is wrong except we need more revenue in there, and a little bit better mix.

Yes, I agree with Jure. In my view, these are very high contribution margin businesses. And the number one issue was the decline in revenue. And the mix, a little different than it was a year ago. But I think we've got room to improve both in terms of revenue growth and mix.

So you think you could be back in that 10%, 11% range with not a whole lot of revenue lift off the $350 million, Bob? And then I know your long-term goal is to have operating margins in that business, 8% to 10%. What is the right revenue base that you think you need to achieve to get to that kind of leverage?

I did not mean to imply we didn't need revenue growth. We definitely need revenue growth. There's a lot of contribution margin there. So any time we get revenue growth, we drive a lot of gross margin improvement.

So to get to the 8% to 10% long term, what kind of revenue should we be thinking about for that?

I don't want to say what the right revenue level is in the future, but if you just look at the graph you can see that $40 million in increased revenue, you get two percentage points improvement in gross margin. Just looking at what we did in Q3 versus Q1.

Okay. And then just a follow-up. Is just the nature of the distress customer charge in the quarter, and whether you expect any lingering effects going forward?

I don't think we have any lingering affects at this stage. It is the same customer we had to take a charge for in the prior quarter. We got new information this quarter, better view on the value of our -- of the, I guess, the dollar value of our exposure. So I think this should be the final charge.

Okay. All right. Thank you very much.

Thanks, Brian.

Joe Wittine, Longbow Research.

Jure, you mentioned you saw a lot of movement in the customer forecast during the quarter. I think later in the Q&A, you mentioned oil and gas. Anywhere else as far as end markets go that you saw some unevenness?

Well, Joe, first of all because of the holidays, it is kind of normal. Sometimes we have some push-outs, push-ins, and good thing is there was really no major constellation. Most of the stuff, it was really moving because of the holidays. So that usually affects your numbers and so on. But I think, as we said, operationally I think our team executed really well. And that what allows us to deliver what I call good decent margin, and delivered what I would say greater EPS for our first quarter. This is the best EPS we have for first quarter for many, many years to come.

So visibility is still good. We think the second quarter will be very stable. I think on component side, we see improvements in a short term and then getting better as the year progresses. So back to oil and gas. Yes, we're going to have some moving parts in oil and gas in a short term, but we are continue to focus on this area because I think there is a benefit to Sanmina long term.

Okay. Thanks. Bob from a financial perspective, could you be clear on why both OpEx and other income would trend higher sequentially?

The main thing on the OpEx side was we had some -- basically we returned to a normal run rate of administrative expenses. They were unusually low, actually, in Q4. So that is the OpEx background. In terms of other income and expense, the main thing still is interest expense, although it is dramatically lower than it once was. And then the second contributor is FX in that category.

Okay. Could you quickly address what the asset impairment was to you, if you didn't already?

Yes, the asset impairment is actually related to the restructuring that we did, I believe over two years ago in Kuching, Malaysia. And we're just -- we still have a building there that we are in the process of selling. And so we have a better idea of what the proper evaluation is.

Got it. Thanks a lot.

Sure.

Sean Hannan, Needham & Company.

Hello, Sean.

Good evening. Can you hear me?

Yes, we can.

Okay, great. Just follow-up on some questions a little bit earlier. One from a segment exposure standpoint. When we think about oil and gas, is that now at a point now where we're doing maybe a 5% to 10% of revenues within that sub-segment? Or how can you characterize the exposure there to that end market?

It is a lot less than that, Sean. Our exposure to that market is not very high. We have some really exciting projects in there that will still do reasonably well during this period. We are probably not going to see a lot of growth in a short time. That is really only area that will affect us, but we're well covered on the projects that we involved in. And as I said earlier, I believe this is a still area for us because we are just entering this industry.

Any time that a market like this goes through a change, there is opportunities. That is kind of how we look at it. And we are involved in a lot of good new technology products that we will continue to develop as the time goes on.

Okay. So just to confirm, sub-5% then?

Yes.

Okay, great. And then also to follow up on some of the comments earlier around components, products, services. Just want to see if we can get a little bit more detailed in terms of the drivers from the current point forward. Yes, I would suspect that repair logistics are a part of that. Not sure exactly where your comfort is right now with boards.

You, I think, have some momentum building a little bit within the Newisys business. So if we could get a little bit more detail, and understand some of the puts and takes as we progress into the March quarter and moving forward, that would be very helpful. Thanks.

Well, we have very excited about, for example, our global repair services. That business has been strong with us, and we expect it to continue to be strong for rest of the year. On component side, yes, we had probably a little bit more challenges in the mix and the demand in a short term. And we, as I mentioned, we will start seeing some improvements in this quarter. We are expecting that to continue through the rest of the fiscal year.

On some of our product side, you mentioned Newisys. We got a lot of opportunities there. We continue to qualify a lot of customers. They are expanding, but the potential is really high. So, I mean, that's all of these good seeds that we planted so far starting to grow.

So on the defense side, the market actually is stable for us. Almost I can say, it might be even going up. But we have a lot, again, a lot of good opportunities there. We are not a big player in defense and aerospace yet, but we have niche products in there that I believe allows us to expand.

So overall, we feel comfortable in that area. I think it is the mix and a demand in a short term. But again, it is important to note that we are going to see improvements in a second quarter.

Okay.

On a positive side, I think our IMS business last quarter did really well. We had a great mix, and that helped us deliver the results as we did.

Thank you.

Osten Bernardez, Cross Research.

Hi. Good afternoon. Thank you very much for taking my questions. Real quick. I just want to follow up on that last question again. Could you just specify for me, if you can, what sort of business within CPS did you have a year ago that you don't have as much of this time around? Is it more so within the component side that where the revenue was lacking? How do I think about that mix?

Well, I would say definitely component side was a little bit bigger impact, but it was really across the board. Nothing specific that you can say. It's really more the overall demand and mix.

Okay. All right. I was just trying to clarify the mix issue because you noted that that contributed to the mix. I will follow up later.

No, just to add to that, Osten. If you look at that margins, it came down because again, it is the mix itself. That's what drove the margin. And as we starting now improve that mix, and then the revenue, those margins should be slowly coming up in the right direction. That is basically what we're saying. I just want to make sure there is no misunderstanding there.

Okay. Thank you for that. And then just lastly from me. How do I think about the type of cash flow generation we should be expecting in the second quarter at the midpoint of the guide that you provided?

Yes, Osten. This is Bob. So we don't give specific guidance on cash, but I did say in my remarks that we expect to be cash flow positive for the remainder of the year, and that includes the second quarter. We think there were several anomalies in Q1. So I think if you look at the last two or three years, we should be able to deliver quarterly cash flow more in line with them.

Thank you very much.

Thanks.

Jim Suva, Citigroup.

Thank you. Congratulations to you and your team there at Sanmina.

Thank you Jim.

When we think about the raw material environment and your components, parts and services, I believe that there is a fair amount of plastics, maybe metal enclosures, machining products and stuff like that. Can you walk us through? Is there any impact to your gross margin or raw material input costs, assuming that your metal costs are likely to go lower, or is that like a pure pass-through to your customers?

Well, it depends. As you know, a lot of these are fixed costs on some of this stuff where we negotiate on these expensive metals together with the customer, like copper, gold, aluminum, things that we sometimes use a lot of. Also with the commodities going down, definitely we are going to be getting some benefits in the future. A lot of these things we hedge at same time. So it depends quarter to quarter when you get benefits.

Okay. And then as a follow-up, maybe to Bob. On your future outlook for what you will be using cash for, now that you have pretty much delevered your balance sheet so much in a very impressive way in the past few years, can you help us understand your priority and uses for cash? I would assume it is, of course, organic growth. But now that debt is so much lower, are you looking more now at strategic tuck-ins, or how should we think about your priorities for use of cash? Thank you.

Yes, I would say our priorities have not changed that much. As you noted, we have plenty of cash for organic growth, and that will continue to be our top priority. As we've said, we want to find profitable growth opportunities. And we will also look at M&A situations. Again, it will be of the nature you've seen from us in the past. Smaller, and something that is very synergistic with what we have been articulating as our strategy for many years.

So we will continue to look at M&A. We look at a lot of deals every year. We don't pull the trigger that often.

But we will continue to, I'm sure, do some deals going forward. And then finally we will look at repurchasing equity. And again, continuing to look for opportunities to repurchase equity when we think it makes sense for our shareholders.

Thanks, and congratulations to you and your team at Sanmina.

Thanks, Jim.

Sherri Scribner, Deutsche Bank.

Hi. Thank you.

I was hoping to get more detail on the segments. I think the communications segments was down a little bit, a little below what your expectations were three months ago. Can give us some detail on what you're seeing there? And also on the server and storage side, you mentioned that that was soft. If you could provide a little additional detail? Thanks.

Sherri, this is Jure. As I mentioned earlier, communication was down by approximately 2.5%. But if you look at -- we didn't see really major changes there this quarter. We had a few push-outs. I think it was more -- if we analyze the last three years, it seemed like the December quarter for us is not always the stronger in that segment. It seems like the second half is getting to the June, July and September, it seems like it a stronger. We expect the same thing this year.

I think we are well positioned there, as I mentioned. I think we're going to start seeing some more positive demand, even by end of this quarter, driven by 4G and IT networks that we are involved in. I think we got a good customer base. And most importantly, we have a solid relationship on the projects that we are involved in. And we continue to drive that growth.

So we are optimistic longer term. Short term, first half,, if you compare it to -- on a quarterly basis, we'll be slightly down.

On storage, on the storage side, as I mentioned earlier, we have fair amount opportunities there for a year. We still think that segment will grow year over year. And we expect a good year. Short term, we are forecasting slower demand. But longer term, when I say longer term, rest of the fiscal year, we should see some growth.

So overall, we expect a better year than last year. We are a lot better positioned, and we are going to continue to focus whatever it takes to drive the shareholders' value up. That's it.

Okay. Great. And then just thinking about the growth for the first half of the year, 10%. Would you expect those rates to continue into the second half of the year? Or do you think it slows down because the compare gets a little more difficult?

Well, it'll be a little bit more difficult, but hey, we're not giving up on anything. So we do expect to see a growth. If you just compare second half to the last year, I would expect growth over that. But we are driving very aggressively to drive right growth.

I think the Company is well positioned to grow in any environment now. I like where we are at. It is a lot more exciting than few years ago. So we will see. But we're not giving up.

Okay. That is helpful. And Bob, just quickly, were there any buybacks in the quarter? Thanks.

No, we did not have any share repurchases. As I said in my remarks, we've spent $50 million-some on debt reduction. That was the main use.

Okay, great. Thank you.

Amit Daryanani, RBC Capital Markets.

This is Mitch Steves filling in for Amit here. I just ad a quick question on the coms business, the networking business. Basically you are guiding for the second half to grow in order to pick up in speed from a revenue perspective. Just wonder what is giving you confidence in this beyond just the 4G ramps?

Well, I think what gives me confidence is the projects that we are involved in globally. And talking to our customers and knowing their forecast. Of course, those can change any day, but we are -- we have close relationship on those. Also, some of the new programs that we both involved in both of our key segments that we involved.

So that is 41% of our revenue. We are very confident with segments. We know this segment. We well integrated, providing the product end to end. So yes, we pretty confident that we will see some growth year over year.

And then one quick one, if I may. If I look again to the end of the year, would you expect that potentially breaking out, and I'd call it 8.2% gross margin and call it low 4% operating margin?

Would you repeat the question, please?

Yes. Is there a potential for you to break out of the 7.8% to 8.2% gross margin range towards the back half of the year?

I will leave that to my CFO.

(Laughter) Again, we are only giving guidance out for the March quarter at this point in time. But I think if you look at the numbers and you see what we have achieved over the last seven quarters, and you think about if we start to see some revenue recovery in Components, Products and Services, it is certainly feasible that we can be above where we have been.

Thank you.

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

Christian Schwab, Craig-Hallum Capital Group.

Thanks for squeaking me in here. On the debt reduction, are we almost done with everything that is kind of easy to do?

Good question. If you think about it, I think the answer has to be yes. We just issued new debt last May. I don't see that changing. It is five-year debt. And there is not that much left in terms of short-term debt. We just refinanced the campus here. So yes, I think we are pretty much set on the debt side.

Okay, perfect. Well, you have done a wonderful job of creating nice earnings growth over the last few years by re-profiling debt in an environment that still remains challenging to acquire top-line growth, not just for you but for your entire industry.

But you are in a special situation. When we met many years ago, I said if you could re-profile debt, you would be a huge stock. And I'll suggest to you that if you can now take all that money and repurchase your shares, you are one of the few companies with a revenue base as large as you have with as few shares outstanding as you do.

So in line with the earlier question asked by somebody else, I would reiterate that I think a top priority for you should be repurchasing stock at current levels, for whatever it is worth. That is all I have. Thank you.

Thank you Christian. Ladies and gentlemen, that is all we have for today. Hopefully, we answered most of your questions. If not, we are all available at any time, to give us a call and we will get back to as soon as possible. With that, thank you very much for your time you spend with us today. Bye-bye.

Thanks, everyone.

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