新聚思 (SNX) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SYNNEX Corp. fourth-quarter earnings conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session, and instructions will follow at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference Ms. Laura Kelley, director of Investor Relations and public relations.

Ms. Kelley, you may begin your conference.

Good morning and welcome to SYNNEX Corp. fiscal 2005 fourth-quarter earnings conference call.

Joining us on today's call are Bob Huang, President and Chief Executive Officer;

Dennis Polk, Chief Financial Officer; and John Paget, President of North America and Chief Operating Officer.

Before we begin the statements on today's call, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, but are not limited to, statements relating to our expectation of our tax rates, our current expectations of our revenues, net income and earnings per share for the first quarter of fiscal 2006, our stock option and other related non-cash compensation expenses, our approximate weighted average diluted share count, improvements in our productivity metric, growth in demand of our distribution products, sales projections for 2006, our profitability, maturity of IT marketplace, decreases in our assembly business, expectations of operating income, growth of our U.S. distribution market share, growth of our Canadian distribution business, formation of our technology solutions division, projected growth by close of fiscal 2007, improvements in our Mexico distribution business, our business focus and investments, our capital expenditures, Canadian restructuring charges, competitive pricing and our growth in business strategy.

These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those discussed in these forward-looking statements.

Please refer to today's press release and documents filed with the Securities and Exchange Commission specifically our most recent form 10-Q for information on risk factors that could cause actual results to differ materially from those discussed in these forward-looking statements.

The non-GAAP supplemental data included in our press release today and discussed on this call are included with the intention of providing investors a more complete understanding of our operational results and trends, but should only be used in conjunction with results reported in accordance with generally accepted accounting principles.

The non-GAAP financial measures should enable investors to analyze the base financial and operating performance of SYNNEX to facilitate period to period comparisons and analysis of operating trends.

Non-GAAP measures presented and discussed today or in other releases, presentations and similar documents issued by the Company exclude restructuring charges, non operating settlement gains or losses, results associated with the Company's discontinued Japan operation, gains or losses including foreign exchange and the Company's equity investment in MCJ and other infrequent or unusual item.

A detailed reconciliation of the adjustments between results calculated using GAAP and non-GAAP can be viewed in the Investor Relations section of our website.

Additionally, this conference call is the property of SYNNEX Corp.

It may not be recorded or rebroadcast without specific written permission from the Company.

I will now turn the call over to Dennis.

Thank you, Laura, and thanks to everyone for joining us today.

Similar to last quarter I would like to remind you that our current and prior period results from continuing operations exclude our former Japan subsidiary as this business was sold in the second quarter of 2005.

Total revenues for the fourth quarter of 2005 were a record 1.59 billion, an increase of 11% over the fourth quarter of 2004, and a 15% sequential increase from the third quarter of 2005.

By segment distribution revenues were 1.47 billion, an increase of 15% over the fourth quarter of 2004, and a 16% increase sequentially.

In addition to the expected seasonal increase across all product and customer sets, we also had strong seasonal federal government sales during the period, as well.

Contract assembly revenues were 127 million, a decrease of 22% over the fourth quarter of 2004 and essentially flat sequentially.

Despite the year-over-year decreased contract assembly revenues we are in line with our expectations for the quarter.

Fourth-quarter GAAP income from continuing operations was 12.4 million or $0.40 per share compared to 15 million or $0.49 per share in Q4 2004.

Fourth-quarter non-GAAP net income was 12.7 million or $0.41 per share compared to 13.1 million or $0.43 per share in Q4 of 2004.

Q4 of 2005 non-GAAP net income excludes approximately 385,000 in SG&A expense net of tax associated with the secondary offering completed during the quarter, approximately 519,000 in fees and other costs net of tax associated with our new securitization borrowing facility in Canada, and a gain of approximately 642,000 net of tax relating to our investment in MCJ.

On this point, during Q4 2005 we hedged the remaining of our holdings in MCJ which puts us in a position of [turning] the entire amount of the approximate $20 million gain originally record on this transaction.

Q4 2004 non-GAAP net income from continuing operations excludes approximately $2 million in a onetime positive tax valuation adjustment.

Moving on to our gross margins, the gross margin percentage for the fourth quarter was 4.2%, a slight decline of 5 basis points from the prior year quarter and 4 basis points sequentially.

The decline was primarily due to increased business in the quarter with larger, higher volume customers which generally carry lower gross margins.

As always our primary focus is on our operating margin since a slightly lower gross margin and a seasonally high fourth quarter given our operating margin performance this quarter is acceptable.

For the quarter 2005 GAAP selling, general and administrative expense was 42.5 million or 2.67% of revenues.

On a non-GAAP basis excluding 610,000 and expenses relating to our secondary offering, our SG&A expense was 41.9 million or 2.63% of revenues in the fourth quarter of 2005 compared to 38.2 million or 2.65% for the prior year quarter and 38.4 million or 2.76 for the third quarter of 2005.

The decline in SG&A expense percentages year-over-year sequentially are primarily due to our continued focus on cost-saving initiatives, profits, efficiencies and improvements as well as overall higher revenue.

We are also experiencing the benefits from the synergies with our integration of the EMJ acquisition in Canada.

The increase in the dollar amount of SG&A expense versus prior periods is primarily due to incremental expenses associated with higher revenue and profitability and continued investments in our new business initiatives.

The GAAP income from continuing operations for the fourth quarter was 24.4 million or 1.53% of revenues.

On a non-GAAP basis excluding the secondary offering expenses operating income was 25 million or 1.57% of revenues compared to 23.1 million or 1.6% of revenues in the prior year and 20.6 million or 1.48% of revenue in the third quarter of 2005.

On a segment basis perspective, GAAP distribution operating income was 21.4 million or 1.46% of revenues compared to 19 million or 1.49% of revenues in the prior year.

On a non-GAAP basis excluding the secondary offering expenses distribution operating income was 22 million or 1.5% of revenues.

Assembly operating income was 3 million or 2.34% of revenues compared to 4.1 million or 2.53% of revenues in the prior year quarter.

Assembly amounts were essentially flat, or essentially the same -- excuse me -- on a non-GAAP basis, as well.

With respect to interest expenses and finance charges, the total for the fourth quarter was 5.9 million, an increase of 3.1 million over the prior year.

Approximately 800,000 in expense associated with our new securitization line in Canada, plus an overall higher interest rate environment and higher borrowings due to increased business, were the primary causes of the increased expense over the prior year.

The approximate $1 million gain in our other income and expense line is due to the final hedging gains from our investment in MCJ.

From the continuing operations standpoint our tax rate for the fourth quarter was $0.36 (sic).

This rate is slightly lower than expectations, primarily due to higher profits and lower tax jurisdictions and positive effects in our tax structure that were completed during the fourth quarter.

Our current expectation for our tax rate for 2006 is approximately 36.5 to 38.5%.

Regarding our balance sheet metrics, accounts receivable totaled 617 million on November 30, 2005 which includes approximately 275 million associated with our off balance sheet accounts receivable securitization programs.

DSO, including the off balance sheet programs was approximately 40 days.

Inventory totaled 495 million at November 30, 2005.

Inventory days were approximately 30, included a detailed metric of approximately 32 days, our fourth-quarter cash conversion cycle was 38 days and in line with seasonal norms.

Other fourth-quarter metrics of note, depreciation expense was approximately 1.2 million, and amortization expense was approximately 1 million.

Capital expenditures were approximately 1.5 million.

From a distribution productline standpoint peripherals accounted for 30 to 34% of our sales.

System components accounted for 17 to 21%.

IT systems accounted for 29 to 33% and software accounted for 9 to 13%.

Networking accounted for 5 to 9% of total distribution revenues.

In our contract assembly business from a customer mix standpoint approximately 94% of our business was from our primary customer, Sun Micro and approximately 6% was from all other customers.

HP had approximately 27%, was the only vendor accounting for more than 10% of sales during the fourth quarter of 2005.

Total headcount was 2,511 at November 30, 2005 which consists of 2,026 permanent employees and 485 temporary personnel.

Moving on to our first quarter 2006 expectations, for Q1 2006 we expect revenues will be in the range of 1.42 billion to 1.47 billion.

Net income will be in the range of 10.2 million to 10.9 million, and earnings per share will be in the range of $0.33 to $0.35 per share.

These earnings and per-share amounts do not include the effect of stock option and other related non-cash compensation expense, which we expect will total approximately $0.02 in the first quarter of 2006.

These forecasted earnings per-share figures are based on an approximate weighted average diluted share count of 31.2 million and do not include any other type of special charges or restructuring amounts that could be incurred.

All of these statements are forward-looking and actual results may differ materially.

I will now turn the call over to Bob for his comments.

Thank you, Dennis.

Good morning, or good afternoon everyone.

We are pleased to deliver another solid quarter of revenue and earnings results.

I am also encouraged by our overall strong performance in the second half of the year after a somewhat sluggish beginning of 2005.

Our 10% plus revenue growth and our delivering of EPS results that exceeded the high end of our guidance are evidence that we executed well in the fourth quarter.

As always, I wanted to thank the SYNNEX team for another well-executed quarter and to our customers and suppliers for their continued loyalty and support.

The fourth quarter of 2005 marked our 74th consecutive profitable quarter.

The manufacturers contributing to our increased revenues and topped it during these quarters were the performance of our distribution business.

And additional fee-based assembly business from our distribution customers also contributed to our profits.

From the U.S. distribution perspective we continued to execute on our goal of growing faster than the overall marketplace while also taking advantage of the strong seasonal period.

We are pleased by the fact that we saw double-digit, year-over-year and sequential growth in our distribution business in the fourth quarter and at the same time maintain our focus on growing profitably from our operating earnings perspective.

As noted earlier, we did have strong seasonal government sales but we also continued to execute well in the SMB marketplace.

Regarding our Canadian distribution business, I am pleased to say that our Canadian investment in EMJ last year and the resulting execution on our integration efforts to the first half of this year truly paid off in the first quarter as our Canadian team delivered very strong organic growth year-over-year and sequentially in the fourth quarter.

Operating income growth was even better.

I would like to extend my appreciation to our management team in Canada and to all of those who invested time and hard work in delivering this outstanding performance.

While not shipping at the prior year revenue levels, our assembly business also performed well in the quarter.

I believe we are able to sequentially improve our operating margin by over 20 basis points.

The improved operating income performance was primarily a result of increased [use] from our (indiscernible) business.

We will continue to focus on growing this part of our assembly business.

The solid activities on many fronts in the fourth quarter allowed us to also improve our productivity metrics in GPE, i.e. the gross margin to expense ratio.

With the increase in the fourth quarter to 1.6 from 1.54 in the third quarter of '05 this is one of the key metrics where we continue to be the industry leader.

Regarding the distribution front of categories we sell, we continue to see strength in servers, storage systems and mobile PCs.

We also saw continued solid growth in our networking segments as we placed more focus and resources in this area.

We are also encouraged by the momentum we have seen in the consumer electronics products as well, especially in Canada.

New products driven by Intel device technology should further enhance the growth opportunity in this area.

However, Intel's chip set and certain hard disc drives have been in shortage and will likely remain constrained this quarter.

From our overall market perspective, the demand environment appears to be remaining stable and running through normal seasonal patterns.

Now any comment on our first quarter guidance.

At the midpoint of our guidance we are projecting a 10% increase in year-over-year sales for the first quarter of '06.

This growth rate is reflective of our continued focus on growing the overall business profitably.

The projected increase takes into account from the growth standpoint the continued maturity of IT marketplace and an approximate 6 to 8% decrease in our assembly business from Q1 '06 versus Q1 '05.

While we are still well in our fiscal fourth quarter, and while we have a strong December, we have taken a conservative stance on Q1 guidance.

In the past we have experienced a seasonal slowness in the second part of the quarter, which resulted in an increased competitive environment.

However, even with this conservative view of Q1, we are excited about our fiscal 2006 outlook and our focus on our efforts on delivering 10% plus EPS growth over the '05 year based on our normal seasonal patterns.

We believe we can accomplish our goals through continued solid execution in all of our main operating units.

For our North American distribution business one, we will focus on areas where we can add economic value to our customers and vendors.

Two, we will invest more resource on our recently formed technology solution division which is a combination of our higher margin and higher value added networking, auto ID, point-of-sales, enterprise, securities and telephony businesses.

With the current run rate of approximately $150 million we are encouraged about the potential for growth and especially its higher returns.

With our investment to date and the future investments we are optimistic about our plan to grow this business to a run rate of approximately $500 million in years.

2006 should also see improvement in our Mexico distribution business.

Last year we stopped significant losses in this business and we continue to work toward returning Mexico to sustained (indiscernible) and profitability.

We believe this is an achievable goal in '06 based on recent supplier arrangements we have signed with a customer in Mexico who won a long-term business (indiscernible) department of the Mexico Government.

Because the arrangements are long-term in nature we have taken on more risk than is typical in our business.

However, through our knowledge of the opportunities we believe that (indiscernible) is worth the risk.

Finally, for our assembly business we expect an increased unit volumes with our main customers.

And additional fee-based in value added distribution related customers we expect to have solid operating income percentage and be a good company to our overall distribution business.

Overall, based on all the opportunities we see, again we look forward to 2006 with optimism and a stronger determination to execute our business plan.

Before we take questions I would like to comment on '05 one last time.

While '05 was a disappointment for us in that our net income and EPS was slightly down from '04, and as we did not meet our initial goals for the year, we can look back at '05 with several positive thoughts.

Including one, increasing our consolidated revenue space by 10%; two, executing on our goal to rightsize our Canadian distribution business out to EMJ acquisition; three, the fact that all in including the sales of our Japan subsidiaries, charges, et cetera, we delivered approximately $53 million in net earnings or $1.70 per share to our shareholders during the year.

Thanks again for your time today and interest in SYNNEX.

Now I will turn the call back to the operator for questions.

Thank you, Bob.

Can we open up the line for questions, please?

(OPERATOR INSTRUCTIONS) Brian Alexander, Raymond James.

Good morning; nice quarter.

Bob, you talked about a stable demand environment and normal seasonality, and your guidance for the first quarter in your distribution segment implies roughly 12% growth.

So that would be the second consecutive quarter of double-digit revenue growth in your distribution business, which is better than where you had been in earlier part of 2005.

So I guess I am just trying to get a sense for has the market accelerated here, or do you think most of this incremental growth is coming from share gains for SYNNEX?

A couple of things.

One, Brian, we had a very strong Canadian business after the EMJ integration, as I mentioned.

In the last few quarters we've been performing extremely well in the market.

Two, remember in '04 we had a lot of high-volume, low-margin businesses which we decided to let go at the end of '04.

So the basis last year basically lower from that perspective relative to the comparisons of '05 and '04.

So that is the two areas that contributed to seeing this higher growth of our distribution business in North America.

Okay, and I think you mentioned by my math roughly a 50% expected growth rate in some of these higher margin solution areas over the next three years going from 150 to 500 million.

Can you give us a sense for how much higher the margins are in those areas and where do you expect to see a disproportionate amount of the growth take place?

This is the area that John is really focusing on, and I would like to turn this over to John for --.

Our expectations on margin, both front-end and operating margin, would be just about 2 X greater than the average in our normal distribution business.

And then I guess to round it out one question for Dennis.

It looks like inventory was up a little bit this quarter sequentially, and DSO's I think were flattish sequentially but toward the high end of where you have been historically.

Maybe just a little bit of color on each of those metrics and how we should think about those trending in '06.

Thanks.

As far as the DSO and all of the metrics in the cash conversion cycle as we noted, they are seasonally in line with our expectations.

Yes, slightly up but more reflective of the period than anything else.

We expect them to trend over the next year in the same pattern that they did in the last year, so nothing to note there really.

As far as the inventory, as Bob noted in the script we did have a very strong December so as we close November we had the inventory ready for that business.

Okay, I will leave it at that.

Thank you.

John Coyle, JMP Securities.

I was wondering in my first start off by just giving a sense of competitive environment.

I know there were some pricing issues earlier in '05 and I wanted to get a little bit more color on where that stands currently.

The market always is very, very competitive.

And we don't -- it has been rational in the last few quarters and we expect it to be that way moving forward, John.

Okay.

You're not seeing any -- anything started '06 now, you're not seeing anything significantly change from the end of '05?

We have not, and we hope not.

Let me move into more of the business units.

On the assembly side, it seems that the performance there is your increasing unit growth with Sun.

Can you expand a little bit more on the state of that relationship and how you see that growing in '06?

John, the relationship is very strong, continues to be very strong.

We have enjoyed that for many, many years now.

We are through the product transition period, and we are beginning to see the expected increases in unit volume.

And we are also, as Bob stated, we are seeing increases in the non Sun business especially from a margin standpoint.

In terms of that non Sun business, what plans do you have to try to grow that in '06?

Any specific programs or can you just expand on that?

We have continued to focus in that arena.

We have actually added some structure within the company to go after that, as well.

So we continue to be very [planful] that with a very high-quality output of product.

And we do some very significant business with a LINUX cluster manufacturer that continues to grow.

Then shifting to the distribution side of the business, in the -- follow-up on an earlier question on the new technology solutions area, could you be a little bit more granular in terms of the specific technologies that you see -- that you expect to see the greatest growth in '06, whether it be the AIDC, point-of-sale or work with Avaya?

As you well know, we have spent considerable time and effort and financial investment in infrastructure over the last 12 to 14 months building the engineering structure and the outside sales force and dedicated inside sales forces and improving our integration capabilities and solution design capabilities.

And we are clearly at the point now where we have significant enough concentration that we will go to market strongly in again the auto ID business, the security and telephony and networking business.

And we continue to make good gains in the verticals of networking and security and storage in our enterprise business.

So it is what we have been focusing on over the last 12 to 14 months, and we are beginning to get good traction in the marketplace at this point.

And just if I might expand on, can you give an update on the services programs that you put into place mid last year working with a company in India, the progress you're making there?

We have continued to focus in that marketplace.

As you well know, that engineering investment was a big part of the enablement of our technology solutions division and the support structure that is needed from a pre and post sales standpoint.

We continue to focus on the marketplace and selling the remote monitoring and management services.

Certainly not growing as fast as we had hoped but continues to have interest, and we continue to make progress in that area.

And finally, just on your comments regarding the component shortage seems from Intel, can you just provide a little bit more color on what specifically --

John, the chipset for the motherboard Intel has been in shortage for a long time for quite a few quarters away.

And that worries certainly, puts some constraint on our white box business, as you could imagine.

The good news is that we signed up with AMD last quarter, and we actually have seen a pretty good business through AMD's processors, the outfront processors and hence the server [products].

With regards to the Intel chipset, that has been the market -- has it materially changed in anyway, though, in the past say several months?

Other than shortage, other than shortage I think the result of that is AMD seems to gain some market share in that area if that is what you're referring to.

Yes, more just the I am interested in just -- in terms of the shortage of how that has it increased or begin to dissipate in anyway, or do you expect it to change interiorly in the near-term?

I don't think it would change materially in the near-term.

I think it has been constrained for quite a few quarters already, and we hope that we are coming up with sometime down the road because we certainly don't expect that the constraint will be relieved in the current quarter.

Okay, great.

I will leave it at that.

Thanks very much.

[Jason Gerske], JPMorgan.

A couple of quick questions for you.

John, can you give a little more color on how many enterprise related vendors you have at this point and how many you may have added in the quarter?

And just general trends here on how you think that is going to play out for the rest of the year?

And just to confirm on this topic that the 150 million run rate that you talked about now going to 500 in three years, that is for auto ID, POS, as well as the storage networking and security products?

Let's begin there, you're correct in your assumption of what products we are talking about there.

We have continued to add, and we have talked openly about products like TippingPoint and HP's enterprise storage, Barracuda, so there are clearly focused product in that enterprise world that you typically move upstream into a more complex solution.

We continue to add product to the point-of-sale auto ID, the Avaya business we have been very pleased with our progress in the Avaya business.

So it is a product set that remains relatively stable.

We continue to focus on attracting and recruiting additional enterprise level type of products at the same time as we drive our market penetration with the products that we have in those specific market segments.

And maybe a question for Dennis here.

On the GPE ratio you talked about it being at 1.6 this quarter.

Where do you see that kind of going over the next couple of years?

Internally what is kind of your target for that?

For the year we were just above 1.5, and what we would like to do is going forward is increase that on an average basis for the year.

For next year we would like to increase it by at least 5 basis points, and in future years increase it from there.

Same type of increments?

Yes.

Exactly.

Okay, and then a few other just quick questions; on the assembly business margins obviously operating margins got a little bit better this quarter.

Are they sustainable at this level?

Do you have kind of a range that you are targeting for the next 8, 12 quarters?

Yes, the assembly margin has fluctuated somewhat over the past few quarters so we think plus or minus 10 basis points it should be in the range that we reported for the last quarter.

Okay, and then lastly you talked about the government business being strong during the quarter that ended in November.

I just want to check back and make sure that that (indiscernible) seasonal spike in October and kind of came down seasonally in November and December.

Or are you seeing some things that are a little bit less seasonal than you would have expected in November, December?

We continue to see strong months in December, and we expect the debt to decrease from early part of this year from generally essentially.

Okay, great.

Thank you, guys.

Joel Wagonfeld, First Albany Corp.

I apologize if you already addressed this, I got cut off for a little bit.

But I was wondering if you could address the assembly business, specifically the revenues, which have sequentially been trending down just a little bit over the last two quarters.

But somewhat opposition in seems to what Sun is doing in terms of ramping its volume at the low end.

Just wondering if you could elaborate a little bit more if you haven't already on kind of what may be driving that discrepancy.

And what your expectations are for assembly revenues year-over-year this coming fiscal year.

Is it going to be growth?

Is it going to be double-digit growth, et cetera?

Thanks.

From assembly standpoint as it relates specifically to Sun as we've talked in our last session where we talked about the product transition, and we are through that product transition and the unit count continues to grow as we expected from a going forward standpoint.

The average selling prices on those units, however, are down.

And so I think that is the rationalization of continued growth in Sun's expectations of units and consequently our growth in units, as well.

From a 2006 overall standpoint on assembly revenues we are not making a call on that right now until we get a better feel for the full transition of products, ESP, the mix, et cetera to be able to call for the entire 2006 assembly revenue.

Okay, but at this point there is no change in your share of Sun's business?

It is all just the dynamics of the transition?

Yes, that is correct.

Great.

Thank you very much.

Richard Gardner, Citigroup.

Two quick questions.

Number one, which you may not answer is, can you tell us whether you have any of the new business with Sun related to the multi-threaded processor, the T1 business?

And then secondly on existing margins given that you are expanding into some of these higher margin areas, you did quite well with operating margins this quarter.

I suspect part of that is just seasonal, but should we think about 1.5% being a good baseline margin for the [disti] business on a go forward basis, and I guess ultimately what is your target for that part of the business?

Thank you.

From a Sun product-specific standpoint we do not talk about the specific products as it relates to Sun from a technology standpoint.

But what I can say is that we clearly are involved in some of their newer technology as we go forward.

From an operating margin perspective for distribution, our stated goal for the company is to have sustained 1.5% operating margin for an entire year.

We achieved that in the fourth quarter, but we want to have that each and every quarter and for the entire year.

As our distribution business becomes a bigger part of our overall business more and more, you would expect that our distribution goal for operating margin would be the same.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS) Peter Barry, Bear Stearns.

Just one quick question for me and that has to do with the distribution revenue mix, government versus SMB.

Could you give us a sense of where it is currently?

Is it seasonally normal?

And might your goal be somewhat different in terms of mix as we look out over the next couple of years?

Peter, on the -- certainly last quarter reflected much higher government business because of the seasonality but we don't really see there is anything abnormal per se moving forward.

In other words, we would expect that the government business would come down somewhat.

But SMB continues to be strong.

Can you give us a frame of reference in terms of the relationship between those two customer groups?

We would not be able to comment, Peter.

Fair enough.

That is all for me.

Richard Kugele, Needham & Co.

Two quick questions.

First, in terms of the component shortages both on the semiconductor side as well as the drive side, does that affect more of the distribution business or the assembly business?

And secondly in terms of your operating expenses, John, as you said you have invested in that business over the past 12 to 18 months.

Do you feel you have now a sustainable level in that business or do you think you're going to need to further expand that operation?

Clearly we are going to expand that operation, but we believe we have put in place the fundamental foundation to be quite successful and grow.

So and what I mean that -- from an engineering standpoint, design, solutions and so forth -- so our investment will be in taking it to market and marketing the sales standpoint.

For the first question it was the shortage impact, the more distribution side of that, would have no impact to the manufacturing side.

Is there a way of trying to ballpark the impact of what [loss] opportunity in sales?

Relative to our overall distribution business, that is a more insignificant I will say, because remember we do, as I mentioned earlier, we had the franchise of AMD filler products.

So that was able to make up some loss we had on Intel side.

Okay.

Thank you very much.

Brian Alexander.

Dennis, the 800,000 that you mentioned for interest expense related to the new facility in Canada, is that a onetime expense, or should we expect that to be recurring?

No.

That's onetime for the implementation of the new facility.

Okay, and then just to clarify on the total headcount at the end of the quarter you said 2,511, I believe.

Last quarter was it 2,350?

At least that's what I have in my notes and if so, obviously a big increase sequentially.

Maybe give us a little bit of color on where you have been hiring.

This is more from the temporary workers we hire for both assembly side, as well as on the distribution side of that.

Remember last quarter we commented that we are going to be full capacity in the assembly side of that business.

And we did.

And so we had a very busy quarter.

What was the temporary portion of the total headcount this quarter and last quarter?

The temporary headcount for this quarter was approximately 500.

And last quarter (indiscernible) we will dig that out and share with you afterwards.

Thank you.

There are no further questions at this time.

This concludes our fourth-quarter earnings conference call.

Thank you for joining us today.

We will have a replay of this call available for two weeks beginning today at approximately 12 noon Pacific standard time through January 25th.

It will be posted on our website at IR.SYNNEX.com, and the replay number for domestic dial is 814-219-1444.

And 703-925-2474 for international.

The conference ID is 831075.

Thank you for your participation today.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes the program.

You may now disconnect.