新聚思 (SNX) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SYNNEX fourth quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS].

I would now like to introduce your host for today's conference, Ms. Laura Crowley, Director of Investor Relations and Public Relations.

You may begin your conference.

Thank you, Adrienne.

Good afternoon, and welcome to the SYNNEX Corporation fiscal 2006 fourth quarter earnings conference call.

I am Laura Crowley, and I will be serving as your moderator this afternoon.

Today's call is also available via audio Webcast.

To access this Webcast or future Webcasts, please visit our Investor Relations section of the corporate website at www.SYNNEX.com.

Joining us on today's call are Bob Huang, President and Chief Executive Officer, Dennis Polk COO and CFO, and John Paget, President of Technologies Solutions Division.

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.

These forward looking-statements include, but are not limited to our expected revenues from our Mexico project, statements on our current expectations of our revenues, net income and earnings per share for the first quarter of fiscal 2007, our tax rate, our growth rate, our profitability, our assembly business revenue, our ability to meet our 2007 goals, our distribution business, growth of our Canadian distribution business, the effect and anticipated business, the effect and anticipated benefits of our Concentrix acquisition, continued focus on our Technology Solutions division, investments in new lines of business, our growth and business strategy and anticipated benefits of our non-GAAP measures, 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.

To supplement our financial results presented in accordance with GAAP, we use non-GAAP financial measures.

These non-GAAP financial measures should not be considered in isolation or as a substitution for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

A detailed discussion and reconciliation of the adjustments between results calculated using GAAP and non-GAAP are included in our earnings release, which can be viewed on the Investor Relations section of our Web site located at www.SYNNEX.com.

Additionally, this conference call is the property of SYNNEX Corporation and may not be recorded or rebroadcast without specific written permission from the Company.

At this time, I would like to turn the call over to Dennis Polk.

Dennis?

Thank you, Laura, and thanks for everyone for joining our call today.

Total revenues for the fourth quarter of 2006 were a record $1.74 billion, a 9% increase over the fourth quarter of 2005, and a 9% increase sequentially.

By segment, distribution revenues were $1.59 billion, an increase of 9% over the fourth quarter of 2005 and a 9% increase sequentially.

The expected seasonal increase was driven by sales to larger customers and a good government season.

Contract assembly revenues were $145 million, an increase of 14% over the fourth quarter of 2005 and up 8% sequentially.

A supercomputer assembly project for a customer that emanated from our distribution business contributed to the year-over-year increase.

Fourth quarter GAAP income from continuing operations was $15.6 million or $0.48 per share compared to $12.4 million or $0.40 per share in Q4 2005.

Fourth quarter non-GAAP net income was $16.3 million or $0.50 per share compared to $12.7 million, or $0.41 per share in Q4 2005.

Q4 2006 non-GAAP net income excludes share-based compensation expense of $0.02 per share.

Q4 2005 non-GAAP net income from continuing operations excludes approximately $261,000 net in nonrecurring items, the details of which are delineated in our press release today.

Moving on to our gross margins.

The gross margin percentage for the fourth quarter of fiscal 2006 was 4.56%, an increase of 36 basis points from the prior-year quarter and down one basis point sequentially.

The year-over-year increase in our gross margin percentage as a result of our continued focus on improving our gross and operating margin returns.

The sequential decline was primarily due to the expected increase in seasonal business during the quarter, with larger, higher volume customers, which generally carried lower gross margins.

This decline was slightly offset by gross margin contributed from our demand generation services business during the quarter.

Fourth quarter of 2006 GAAP selling, general and administrative expense was $51.2 million, or 2.95% of revenues.

On a non-GAAP basis, our SG&A expense was $50.1 million or 2.88% of revenue in the fourth quarter of 2006, compared to $41.9 million or 2.63% for the prior-year quarter and $48.3 million or 3.03% for the third quarter in 2006.

The raw dollar increase in SG&A expense year-over-year is primarily a result of variable costs associated with our higher revenue during the quarter, additional expenses associated with the acquisitions of Azerty, Telpar, and Concentrix, and continued investments in all aspects of our business.

GAAP income from continuing operations for the fourth quarter was $28.1 million, or 1.62% of revenues.

On a non-GAAP basis, excluding share-based compensation expense, operating income was $29.2 million, or 1.68% of revenue compared to$25 million or 1.57% of revenue in the prior year, and $24.4 million or 1.53% of revenue in the third quarter of 2006.

On a segment basis perspective, GAAP distribution operating income was $26.6 million, or 1.67% of revenue compared to $21.4 million or 1.46% of revenue in the prior year.

On a non-GAAP basis, excluding share-based compensation expense, distribution to operating income was $27.6 million or 1.73% of revenue.

GAAP contract assembly operating income was $1.51 million or 1.04% of revenue compared to $3 million or 2.34% of revenue in the prior-year quarter.

On a non-GAAP basis, excluding share-based compensation expense, contract assembly operating income was $1.6 million or 1.1% of revenue.

The year-over-year decline in assembly operating income is due to pricing pressures and product mix, primarily from our main customer.

This being said, we are pleased with our progress in diversifying this business with our fee-for-service offerings and combined distribution, assembly, supply chain solutions.

With respect to interest expense and finance charges, the total for the fourth quarter of 2006 was $3.7 million, a decrease over the prior-year quarter by approximately $2.2 million, and an increase of approximately $1 million sequentially.

The year-over-year decrease is attributed to the long-term project business we engaged in with one of our customers in Mexico.

The primary returns from this business are related to long term financing of computer hardware sold to our customer and are reflected as a reduction to our net financing costs for the quarter.

The sequential increase is attributed to higher borrowings due to the overall increase in business during the quarter.

Our tax rate for the fourth quarter of fiscal 2006 was 36.4%, which was in-line with our expectations.

Our current expectation for our tax rate for 2007 is approximately 35.5% to 37%.

However, as always, this is dependent upon several factors, including profit contribution from the various geographies we operate in.

Regarding our balance sheet metrics, accounts receivable totalled $707 million at November 30, 2006, which includes approximately $344 million associated with our off-balance sheet accounts receivable programs.

DSO, including the off-balance sheet programs was approximately 42 days.

Inventory totalled $595 million at November 30, 2006, inventory days were approximately 33.

Including a days payable outstanding metric of approximately 30 days, our fourth quarter cash conversion cycle was 45 days.

The primary reason for the increase in conversion cycle days over prior quarters was due to the timing of accounts payable payments.

Other fourth quarter metrics of note.

Depreciation expense was approximately $1.5 million, and amortization expense was approximately $1.3 million.

Capital expenditures were approximately $2.1 million.

Cash flow used in operations was $112 million.

Use of cash is typical in our fourth quarter due to the seasonal increase in business.

Our overall growth and our position of inventory for calendar year-end sales.

Similar to Q1 2006, we expect significant positive cash flow in Q1 2007 as our business seasonally adjusts downward.

Please note, all of these comments are based on the non-GAAP assumption that our securitized borrowings are placed on balance sheet.

From a distribution product line standpoint, peripherals accounted from 31 to 35% of our sales, system components accounted for 17 to 21%, IT systems, 28 to 32%, software accounted from 9 to 13%, and networking accounted from 5 to 9% of total distribution networking revenues.

In our contract assembly business, from a customer mix standpoint, approximately 83% of our business was from our primary customer, Sun Micro, and approximately 17% was from all other customers.

HP, at approximately 25%, was the only vendor accounting for more than 10% of sales during the fourth quarter 2006.

Total head count was 3,385 at November 30, 2006.

This consists of 2,647 permanent employees and 738 temporary personnel.

The increase over the prior quarter is primarily due to our acquisition of Concentrix, as well as due to the additions at our China facility.

Moving to our first quarter 2007 expectations.

For Q1 2007, we expect revenues will be in the range of $1.57 billion to $1.62 billion.

Net income will be in the range of $12.8 million to $13.5 million, and earnings per share will be in the range of $0.39 to $0.41 per share.

These forecasted earnings per share figures are based on an approximate weighted average diluted share count of $32.9 million, and do not include any impact of any special charges or restructuring amounts that could be incurred.

The forecasted amounts include stock-based compensation expense, which will approximate $0.03 for the quarter, compared to $0.02 in Q1 2006.

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

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

Bob?

Thank you, Dennis, and good afternoon, everyone.

Each quarter throughout 2006 we have shown improvement and met our goals.

We are pleased to complete our fiscal year with another record quarter of revenue and earnings results.

I would like 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 2006 marked our 78th consecutive profitable quarter.

Our focus on continued productivity improvement and creation of value for our customers and vendors is a driving factor in our year after year delivery of industry-leading profits.

The main factors contributing to our increased revenues and profit during this quarter were the performance of our distribution business.

Our continued effort to grow our distribution business profitably and our ability to drive operating efficiency results in an increase in our known GAAP distribution operating income by approximately 26% year-over-year, and earn improvement in our operating margin by 23 basis points.

Our GPE, gross profit to expense ratio, in the fourth quarter increased to 1.58 from 1.51 in the third quarter of 2006.

This is the key productivity metric where we continue to be the industry leader.

From an overall distribution market perspective, the demand environment was reasonable in Q4, pricing rational.

Although, as always, the distribution marketplace was very competitive during the quarter.

In terms of customer segment or product category, there were no significant difference from the historical talent.

On the assembly business, while the gross margin from our primary customers continues to decline, because of the lower ASP, we were able to provide system integration service from our system builder customers, and hence we had much stronger revenues in this segment than we guided last quarter.

It is important to note the gross margin generated through the [no sun] customers exceeded 30% last quarter, an increase from 20% in Q3.

Now let me comment on our first quarter guidance.

At the midpoint of our guidance, we are projecting a 6% increase in year-over-year sales for the first quarter of 2007.

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

As typical uncertainty in Q1 and the Vista factor that appears to have short-term negative impact on PC purchases of the [basic] consumer [and server] markets.

Overall, our outlook for 2007 will be another solid year of growth and earnings.

Here is our game plan.

For our distribution business, we will, one, continue our market share gains by adding more value services and leveraging our efficient business model.

Two, continue to invest in the new distribution business -- excuse me -- like our Technology Solution division, which consists of document management and professional printing, security networking, auto ID enterprise, and telephony businesses.

With the sales of more than $250 million in 2006, we're encouraged about its potential for additional growth and especially its higher margin return.

With our investment to date and future investment, we're optimistic about our plan to grow this business to more than $350 million in 2007.

Given the many initiatives we have ongoing moving forward where we update you on this figure annually.

The second main category of distribution for our investment is consumer electronic products.

Our next CE division also had a strong first quarter since its inception in last September.

On our assembly business, as I mentioned before, with the synergy between system builders and manufacturings, we had developed a rather unique business which we believe can be profitable business.

We will also further invest in our Concentrix business, which we will successfully integrate into our BSA organization in the fourth quarter.

This business comes with much higher gross margins and opportunity for much higher operating net returns.

We believe there will be a lot of synergy between Concentrix and SYNNEX.

Given our low-cost operation in China, we believe we can create additional business process, along with opportunities for our Concentrix customers.

Finally, we'll continue to pursue new acquisitions as we expand our service offerings and yield high ROI.

In closing, we have made a lot of accomplishments in our last fiscal year.

Our core distribution business both in U.S. and Canada performed extremely well.

Our TSD grew faster than we expected.

With the service we are providing to our customers and vendors, combined with Concentrix, the main generation capabilities, not only we have most efficient a supply chain infrastructure, we have started creating demand for our vendors as well.

As we turn around our Mexico business very successfully from losing operation to a significant profit contributor, and the acquisition of Concentrix give us an entry to business process outsourcing business.

Overall, based on all the opportunities we see, I'm very excited about the potentials we have here in 2007, and as well, we have an internal goal to achieve $100 million in net income in double digit ROIC by 2010.

With a team in infrastructure, we have developed over the thicket, we will achieve these goals.

Thanks again for your time today and interest in SYNNEX.

Now let's take some calls.

Thank you, Bob.

Adrienne, let's go ahead and open the line to some questions.

[OPERATOR INSTRUCTIONS] The first question is from Jason Gursky from JP Morgan.

Good afternoon, everyone.

Just a couple of quick clarifications.

On the supercomputer business that you had in your assembly business this quarter, to what extent is that a one-time program in the quarter, or is this a program that you see continuing on as we move through fiscal year '07?

Jason, this is Bob.

The supercomputers, there aren't many supercomputers in the world, is and these type of projects come and go.

A year ago, we had one major installation and last quarter, the second major one we had, so it's not something that we could expect every quarter.

That's the nature of the business.

Okay.

So the project at this point is complete, finished in the fourth quarter there?

That is not quite done yet.

It's still quite -- not in the Q1.

Okay, great.

Should be completed by the end of this quarter.

Right.

Okay.

Bob, I had a difficult time hearing your comments about the short-term negative data points that you have on the PCs and servers.

Can you just offer perhaps a little bit more detail on your thoughts there?

Jason, the Vista thing has been talked, and the question's been asked by lots of people.

The short-term, there appears to be some slowdown on the systems.

We could not pinpoint exactly what the reason there is, but from the consumers, and some Soho, even some enterprise customers we talked to and there were some holdback in terms of purchase of the PCs before the VISTA gets fully deployed.

That's our perspective.

And therefore, we want to be particularly cautious in this environment.

Okay, agreed.

And I'll save my last question here for Dennis.

On expectations around operating expenses, as we work through our models here, is there a normal pay raise type of environment that we should be working through on our modeling to nail down the SG&A number?

Yes, I would agree with that.

Going forward, I would model most of our SG&A increases due to variable cost increases, less due to investments we've made in our business.

We have acquired three companies in the past year, and invested in a lot of new businesses such as TSD, and the Next CE division.

We are absorbing those investments now, and moving forward, expenses should rise incrementally with the variable expenses associated with the higher revenues that we should expect.

Okay, perfect.

Thanks, guys.

Next question is from Brian Alexander from Raymond James.

Thanks and good afternoon.

Just a follow-up on that last question, Dennis.

For the last several quarters, we've seen revenue growth -- or I should say we've seen expense growth outpace revenue growth as you've been investing heavily in the business.

And you talked about going forward, how most of the SG&A is going to be variable increase.

Can you remind us what that relationship is and if revenue grows 6%, as you're targeting in the February quarter, what kind of growth in SG&A should we expect?

Brian, let me comment a few points first, and then I'll ask either Dennis to comment more on the first quarter.

John, you probably want to also chime in as well.

Sure.

I think, Brian -- we have met our investment on our new business, as you can tell.

We've been talking about TSD now.

Right now it's two years.

We also have this new business on the consumer electronics, which is just kick in.

So every little bit of investment can get the bottom line contributed, it always increase of expenses on that.

Dennis you comment on the stock and other stuff?

I think Brian's question was more to what kind of growth rate should we expect in expenses compared to our growth and our sales and gross margin.

I would endeavor to grow our expense at a lower rate than revenue end margins.

We'll still be making incremental investments in the business, but for 2006, we do expect our expenses to grow at a lower rate than they did in -- excuse me, in 2007, we expect our expenses to grow at a lower rate than they did in 2006.

Brian, this is John.

Hi, John.

Brian, from a TSD standpoint, as you well know, over the last year, we've made a significant investment, but we are at the point now where we're fully staffed.

You'll see very little incremental investment.

It becomes time for us to now really reap the benefits of all that investment we've made in the past.

To put it all together, I know it's difficult to answer given that it's uncertain exactly where the growth is going to come from, but for every incremental revenue dollar, should we be thinking that incremental expense as a percent of revenue is in the 1.5 to 2% range, in the 2 to 2.5% range?

How do you think about that going forward?

Brian, we only give out topline and bottom line forecasts, but if you take a look at our historical expense growth in periods where we don't have acquisitions or any significant investments, similar to what we had in 2006 with TSD and NEXCE, that will give you a good flavor of how or organic expense growth rate will be.

Okay.

Just to follow-up on the revenue guidance, clearly you've seen as our own checks have indicated some slowdown in PC sales ahead of VISTA being adopted.

And your revenue growth over the last quarter in distribution went from 15% Q3 to 9% in Q4.

In Q1, are you expecting distribution growth to be around that 6%?

Part A of that question.

And part B is, as VISTA ramps throughout the year, perhaps more back end loaded in the second half, do you think that the revenue growth should accelerate from there?

Brian, that's -- the 6% reflect it is reasons I indicated earlier.

As far as the longer term, we still don't believe that the ASP will be higher on the PCs, and there's a lot of reports.

We believe that as VISTA get deployed more, we will see other businesses will come with that.

So we think it's longer term will be a positive to the topline growth.

Okay.

And final question for me on Mexico.

Maybe just give us an update on how that project is unfolding.

And I think at the beginning of the quarter, you're expecting a benefit of around $0.015 to EPS.

Is that what you ended up achieving in the quarter?

Sure Brian, this is Dennis.

The project is working very well, and to our expectations to date.

In the last call, we did give guidance as to its contribution on a yearly basis of $0.08 to $0.10 per share per year, and the contribution in Q4 2006 was slightly above one quarter that amount or slightly above $0.025 per share.

Great.

Thank you very much.

Thank you.

[OPERATOR INSTRUCTIONS] The next question is from Peter Barry from Bear Stearns.

Good afternoon, gentleman.

Good afternoon.

Hey, Peter.

The goal for TSD has been about $500 million.

I think that was over a three-year period of time.

You suggested $350 million could be achieved in the current year?

Actually, Peter, I believe what we said at the end of last year was that by the end of 2007, we would have a $500 million run rate as we exited 2007.

So we certainly are holding to that as we had earlier said.

That answers it rather directly.

Thank you.

Bob, in your closing comments, you mentioned a goal of $100 million of net income and double digit ROIC by 2010.

Without necessarily being overly precise, could you share with us some of the assumptions that you're making in that target, margin, volume, revenue mix, whatever you might be able to share with us?

If you just look at -- Peter, if you just look at organically, if we were to pick whatever historical growth rate we have, we will get to almost close to $90 million by 2010.

So we could conclude then you're looking for what's built into that number is modest margin expansion?

That's correct.

But more important and more difficult to get ROIC into the double digit area.

And that's where all the new services are coming in that we're talking about.

Either Concentrix and some other businesses we're pursuing.

And when they all fall together, we would have a good potential to drive our ROIC in the double digit area.

And that's where all the new [sue] business is coming in, that we're talking about, either Concentrix, or some other business we're pursuing, and when they all fall together, that, I think we have a group hold to drive our ROIC in the double digit area.

If we just continue on the traditional distribution business, it's just not possible to get to the double digit return on investment capital.

Terrific.

Okay.

That's all for me.

Thank you.

Thank you.

Thanks, Peter.

I'm showing no further questions at this time.

Well, thank you very much.

Can you go out and poll one more time for any additional questions, and if there's nothing further, we'll go ahead and end the call.

[OPERATOR INSTRUCTIONS] The next question is from Brian Alexander from Raymond James.

Figured I'd ask a follow-up.

On working capital, Dennis, you talked about how the trade cycle was negatively impacted at least this quarter by the payables shrinking a bit, but you also had a little bit of an increase year-over-year in DSOs and also inventory days, and I think that's kind of been somewhat a trend here over the last few quarters.

So just kind of remind us of what your targets are for trade cycle, and if you can decompose that into individual components, that would be helpful.

Sure.

I think it's important to emphasize this is a point in time metric that can be heavily influenced by the timing of deliveries, payments, et cetera.

As well, economic reasons can drive our conversion cycle up, but be, on overall, positive from a return perspective.

We've also had changes in our customer mix, how we finance receivables, be it flooring or other types of terms, and also changes in our inventory mix over the past few years, as a result of acquisitions and other aspects.

That has somewhat changed our cash conversion cycle and pushed it up slightly.

In the end, the most important thing is, are we being adequately compensated to carry our inventory on accounts receivable, and we believe we are.

The larger issue in the cash conversion cycle is the quality asset base we carry, which we believe is very good right now.

All that being said, to answer your questions about our goals, our goals are always to reduce each metric of the cash conversion cycle, but only if we can do that making economic sense.

That's where we're at today. 45 days is higher than it has been in the past, but causes us no concern, and you'll likely see it come down due to natural seasonal adjustments in Q! 2007.

Great.

Maybe I'll ask a question on the assembly business.

I believe you said that your non-Sun customers were 17% of revenue, which I think is the highest in at least a few years, and you talked about non-Sun gross margin increasing significantly.

I was wondering if you could maybe talk more at the operating margin line.

Is there a major difference within the assembly business of your non-Sun customers versus your Sun customers and if you can provide some order of magnitude, that would be helpful.

We'll not be able to break out the Suns and non-Suns operating income at that level, but as I alluded earlier, our primary customers gross margins has continued to decline in the last more than three quarters, moving into the fourth quarter, and that's the one that depressed operating income.

As far as the non-Suns fee for services, you can imagine they're pretty nice in terms of operating income.

And at this point, Bob, how much of your non-Sun assembly revenue is being aided, I guess, by distribution relationships?

You pointed out the supercomputer example, but is it more pervasive than that?

It is more pervasive than that, that's correct.

We publicly said about company, that's a combination of using the distribution inventories and manufacturing process.

So it depends on how you look at it.

It's more pervasive.

Okay.

Thank you.

That does it for me.

Thank you, Brian.

Thanks, Brian.

The next question is from Peter Barry from Bear Stearns.

John, going back to TSD a moment, could you give us a little color in terms of what's driving what are clearly very substantial increases in revenues?

Sure, Peter.

I think you'll see that as we look at that business, the enterprise side has done very well, especially in the storage practice arena.

We have a very good set of customers now to now also include Hitachi, for all of their product line, and the appropriate software that's necessary there.

The telephony business is growing extremely well, and what I would call the specialty IT security business.

As you've heard me talk about [Fortinet] and Barracuda, as they've come onboard.

But the telephony business is clearly the leader in terms of growth followed by the enterprise business.

And I would assume we can conclude that achievement in telephony is just substantial improvement in market share?

It is clearly market share, but we've moved upstream a bit too with Nortel's Meridian Product.

But the voice over IP business for both Nortel and Avaya is growing substantially, and those are basically new customers both for ourself ourselves and for them.

And Bob, I think you made a passing reference to an added commitment to consumer electronics.

Could you give us a little color in that regard?

We have such a great start, because we carry the GPS products from MiTAC and the relationship there.

The [Mio] GPS has been extreme well accepted in the retail space, and that's what make us so excited about this.

On top of the other fee product lines we're talking about.

Was ate particularly strong holiday season for Mio?

Yes, no question about it.

We could not get enough product to our customers.

Can you give us any specific numbers in that regard.

How many units issues perhaps sold?

Very good try, Peter.

I will not be able to go that far.

Well, you asked me for more questions.

What I can tell you, though Peter.

Let me add one more comment on TSD area.

Our AIDCs has also grown very, very significantly year-over-year.

That apparently has softened a bit.

That space apparently has softened a bit, particularly in the retail.

Have you seen any indications of that in terms of distribution activity sales in general?

Actually, Peter, what we've seen over the last three quarters, okay, is we've seen quarter over quarter growth for the last three quarters across that entire segment.

Both in the U.S. and in Canada, with Canada growing substantially faster than the U.S. is growing right now, but the U.S. showing very good growth.

All verticals?

Over all verticals, correct.

Okay.

Thank you very much.

Thanks, Peter.

the next question is from Jason Gursky from JP Morgan.

Yes, I couldn't be the only guy that asked a couple of more questions here.

On the CE space, just a follow-up there to Peter's questions, is there anything more to it than just the GPS products, and what does the road map look for you relative to TSD and how that unfolded?

Will you at some point hope to give us a little more clarity on what your longer term goals are for that space, just maybe a little bit more than just GPS was great this past quarter.

What else do you have there, and when will you think you'll give us a little bit more detail on that?

Jason, you could almost imagine any consumer electronics product in the market that we have more or less carry, and we have about 200 pages catalog that we printed every quarter.

We'd be very happy to send you a copy so you could take a look at that.

However, though, it's still relatively speaking, still in the very early stages.

We just only launched from that September 1st in the U.S.

In Canada, we also launched about the same time, but we have a great hope in '07 will be much sizable business for us.

Right.

So kind of mirroring the type of development you've had in TSD over the last six to 18 months?

Yes, I would -- it will take a little while to develop.

But the retail business, Jason, we've been working with the retailers contract for years, so when there is a product very effective we could get into shelf space a lot quicker from starting from scratch.

Okay.

And then maybe, John, just a follow-up for you on TSD.

The document management product that you launched last year --

Print Soft product?

Yes, exactly.

We launched that in July.

Go ahead.

Right.

So how has the adoption been thus for on it?

Is it meeting your expectations?

It is meeting our expectations.

We have -- I'm going to say double digit copies on a monthly basis under -- a thousand copies under contract now.

Excuse me, millions -- I didn't mean thousands, millions under contract now.

We have a whole series of resellers now who have adopted that as a methodology to go to market, albeit, still pretty small, but it is yielding what we'd anticipated it to yield, so this will be a very good year for Print Soft.

Great.

Thanks, guys.

Thanks, Jason.

Okay Adrienne, we're going to go ahead and conclude the call today.

Thank you for joining our fourth quarter earnings conference call.

We'll have a replay of this call available for two weeks beginning today at approximately 5:00 p.m.

Pacific standard time through January 23rd.

It will be posted on our Website at IR.SYNNEX.com, and the replay number for domestic dial-in is 866-256-3815, and 703-639-1212 for international.

The conference ID is 1018015.

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.