TTM Technologies Inc (TTMI) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the TTM Technologies fourth-quarter 2010 financial results conference call.

(Operator Instructions).

This conference is being recorded today, Thursday, February 10, 2011.

I would now like to turn the conference over to Diane Weiglin.

Please go ahead, ma'am.

During the course of this call, the Company will make forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such risks and uncertainties include but are not limited to fluctuations in quarterly and annual operating results, the volatility and cyclicality of various industries that the Company serves, and other risks described in TTM's most recent SEC filings.

The Company assumes no obligation to update the information provided in this call.

The Company also will present non-GAAP financial information in this call.

For a reconciliation of TTM's non-GAAP financial information to the equivalent measures under GAAP, please refer to the Company's press release, which was filed with the SEC and which is posted on TTM's website.

I would now like to turn the call over to Mr.

Kent Alder, President and Chief Executive Officer.

Please go ahead, Kent.

Okay.

Thank you.

Good afternoon and thanks for joining us for our fourth-quarter and fiscal year 2010 conference call.

Joining me on today's call are TTM's CFO, Steve Richards, and Canice Chung, CEO of Asia-Pacific region.

I will begin with a review of our business, and Steve will follow with a review of our financial performance.

Then we will open the call to your questions.

First, a few highlights from the fourth quarter and the fiscal year.

In the fourth quarter, we recorded a very strong fourth quarter, achieving record revenue and profitability for the second quarter in a row.

Net sales increased 6% sequentially to a record $377.9 million.

GAAP net income attributed to stockholders grew 14% sequentially to $33 million or $0.41 per diluted share.

Non-GAAP net income increased sequentially by 13% to $39.7 million or $0.49 per diluted share.

For the fiscal year, our results included almost three quarters of contributions from Meadville.

Net sales increased to a record $1.2 billion.

GAAP net income attributable to stockholders grew to $71.5 million or $1.01 per diluted share.

Non-GAAP net income increased to $105.5 million or $1.49 per diluted share.

During the fourth quarter, we experienced robust growth and strong results in our Asia-Pacific operation and solid results in our North American operation.

Strong demand for our advanced technology products drove sales and profitability growth.

A higher mix of HDI products, combined with improved operating leverage, lead to gross margins increasing 130 basis points sequentially.

We continued to experience high capacity utilization in both of our operating segments.

Our results are a testament to how well we are operating as a global company.

Our performance demonstrates the benefits of expanded scale, geographic reach and the breadth of our end of market exposure.

Despite those strong results, we believe we have more opportunities as we execute our advanced technology strategy on a global company basis.

Now I would like to review the results of our operating segments for the fourth quarter.

The Asia-Pacific segment had sales of $224.7 million in the fourth quarter compared to $211.5 million in the third quarter.

Gross margins for this segment increased to 25.1% in the fourth quarter compared to 23% in the third quarter.

Fourth-quarter operating segment income before amortization of intangibles was $38.3 million compared to $32.2 million in the third quarter.

The North American segment recorded fourth-quarter sales of $156.4 million compared with $148.3 million sales in the third quarter.

Gross margins for this segment was 21% in the fourth quarter, unchanged from the third quarter.

Fourth-quarter operating segment income before amortization of intangibles was $19 million compared to $17.1 million in the third quarter.

On a year-over-year basis, fourth-quarter sales in Asia-Pacific increased from $172 million to $225 million, an increase of 31%.

In North America, sales increased from $150 million to $156 million, an increase of 4%.

Steve will provide more details later in the call.

Now moving on to our end markets.

On a dollar basis, sales increased in all of our end markets in the fourth quarter.

Networking/communications is our largest end market.

Sales in this end market increased to 37% compared to 36% in the third quarter.

We continue to experience broad-based strength for most of our customers in this end market.

The key drivers for growth in this end market growth are Internet and wireless infrastructure for enterprise and service providers.

Sales to this end market are expected to be lower in first quarter.

Computing, storage and peripherals is our second largest market.

Sales were up sequentially and represented 22% of sales in the fourth quarter versus 21% in the third quarter.

We have experienced solid growth in this end market throughout the year with touchpad tablets as a leading driver of growth.

Despite seasonal softness in other end markets, we expect this end market to retain some of its fourth-quarter momentum into the first quarter of 2011.

The aerospace and defense end market represented 16% of sales in the fourth quarter compared to 17% in the third quarter.

We continue to support a diverse mix of programs for domestic defense, foreign military sales, and commercial aerospace, and we are involved in many new programs that will drive future growth.

We anticipate continued stability in the first quarter.

The cell phone end market is predominantly comprised of smartphones.

Sales increased to 12% of total sales in the fourth quarter compared to 11% in the third quarter.

Customers in this end market are serviced by our Asia-Pacific operation.

Strong demands for smartphones and the transition to 3G are driving growth in this segment.

We expect to see the normal seasonal decline in the first quarter and then have solid growth for the rest of the year.

Medical, industrial and instrumentation represented 8% of sales in the fourth quarter compared to 9% in the third quarter.

We expect this end market to have stable ongoing demand.

The other end market represented 5% of sales compared to 6% of sales in the third quarter.

Included in this end market are automotive, products, consumer products, office products and a host of other products.

Our top five customers accounted for 31% of sales in the fourth quarter.

No customer represented more than 10% of sales in the fourth quarter.

In alphabetical order, our top five OEMs were Apple, Cisco, Ericsson, Huawei and ZTE.

As expected, lead times for North American segment have contracted and returned to normal at about five to seven weeks.

Order levels in Asia-Pacific segment continue to reflect healthy demand with lead times also in the range of five to seven weeks.

In summary, we are very pleased with the performance of the Company.

Our results demonstrate our ability to leverage our technology, strong customer relationships, and establish global manufacturing capabilities, and they confirm our reputation for operational excellence.

Despite the seasonal lower sales in the first quarter, sales in the first quarter are expected to be up 16% when compared to the first quarter of 2010 pro forma sales, which includes results from Meadville prior to our combination.

We are very optimistic for solid growth in 2011, particularly in the last half of the year, mainly in the third and fourth quarters and mainly driven by touchpad tablets, smartphones and Internet infrastructure products.

In Asia-Pacific we are focusing our capacity expansion on advanced HDI capabilities to meet the growing demands of our customers.

In North America our capacity expansion is focused on high-end Internet infrastructure products.

Additional HDI capacity in Asia-Pacific for touchpad tablets and smartphones is coming on line in the first half of 2011.

We plan to invest $115 million in capital in our Asia-Pacific operations in 2011.

Of this total, $89 million will be for capacity expansion, and $26 million will be for technology upgrades and maintenance CapEx.

Of the $89 million for capacity expansion, $67 million will be used to increase our HDI capacity.

In North America we plan to invest $21 million in our facilities in 2011.

$12 million will be for advanced technology capabilities, and $9 million for technology improvements and maintenance.

We expect that cash flow from operations will fund all of these capital expenditures.

We have made great strides in positioning the Company to take advantage of the potential growth in the global PC market and in our end markets.

As we enter 2011, we are excited about our prospects for continued growth and success.

Now I will turn the call over to Steve to review our financial performance for the fourth quarter and for the fiscal year.

Thanks, Kent.

Good afternoon, everyone.

Fourth-quarter net sales of $377.9 million increased $20.1 million or 6% from third-quarter net sales of $357.8 million due to continued strong demand across our end markets.

Gross margin for the fourth quarter of 23.8% increased from third-quarter gross margin of 22.5%.

Selling and marketing expense increased $9.5 million in the fourth quarter from $9.1 million in the third quarter.

As a percentage of net sales, selling and marketing expense in the fourth quarter was 2.5%, unchanged from the third quarter.

Fourth-quarter G&A expense increased to $23.4 million or 6.2% of net sales from third-quarter G&A expense of $21.9 million or 6.1% of net sales.

Amortization of intangibles increased to $4.6 million in the fourth quarter from $3.7 million in the third quarter.

The fourth-quarter expense included a year-to-date true-up due to adjustments in our opening balance sheet for the Asia-Pacific operation.

Operating income for the fourth quarter was $52.6 million compared to $45.7 million for the third quarter, an increase of 15%.

Interest expense decreased to $6.4 million in the fourth quarter from $6.7 million in the third quarter.

Other net includes a foreign exchange gain of approximately $1.8 million or $0.02 per diluted share, which is the same as in the third quarter.

Our effective tax rate was 25.2% in the fourth quarter compared with 22.7% in the third quarter.

We have partners who hold minority interest in three of our Chinese companies.

Net income attributable to these minority interests was $3.5 million in the fourth quarter compared to $3.1 million in the third quarter.

Net income attributable to stockholders for the fourth quarter was $33 million or $0.41 per diluted share compared to third-quarter net income of $29.1 million or $0.36 per diluted share.

Fourth-quarter non-GAAP net income attributable to stockholders was $39.7 million or $0.49 per diluted share.

This compares to third-quarter non-GAAP net income attributable to stockholders of $35 million or $0.43 per diluted share.

Non-GAAP net income attributable to stockholders adds back amortization of intangibles, stock-based compensation expense, non-cash interest expense, asset impairment and restructuring charges, inventory adjustments, costs related to the transaction with Meadville, and miscellaneous closing costs, as well as the income tax effects related to these expenses.

EBITDA for the fourth quarter was $76.5 million or 20.2% of net sales compared with third-quarter EBITDA of $66.9 million or 18.7% of net sales.

Cash and cash equivalents at the end of the fourth quarter totaled $216.1 million, an increase of $51.9 million from $154.2 million at the end of the third quarter.

Net debt was $339 million at the end of the fourth quarter.

Cash flow from operations in the fourth quarter was approximately $89 million.

Capital expenditures for the fourth quarter were approximately $39 million.

This reflects $39.5 million for Asia-Pacific, $3.6 million for North America, and proceeds of $4.1 million from the sale of our Redmond, Washington building.

Depreciation for the fourth quarter was $16.6 million.

As Kent noted earlier, the Company expects to use cash flow from operations to fund the capital expenditures.

We anticipate that solid business conditions will continue through the first quarter.

However, given plant closures for the Chinese new year holiday, as well as some typical seasonal softness in both of our operating segments, we expect first-quarter revenue to be in the range of $338 million to $358 million.

We expect GAAP earnings attributable to stockholders in a range from $0.27 to $0.36 per diluted share and non-GAAP earnings attributable to stockholders in a range from $0.35 to $0.44 per diluted share.

This is based on a diluted share count for the first quarter of approximately 82 million shares.

Our first-quarter gross margin is expected to be in a range from 22% to 24%.

We expect that SG&A expense will be about 9% of revenue in the first quarter.

We will record combined amortization of intangibles of about $4.2 million.

We expect our blended tax rate to be approximately 26% in the first quarter.

As Kent mentioned earlier, on a pro forma basis, including Meadville's results prior to the combination, fourth-quarter sales year over year increased approximately 18%, and we are forecasting sales in the first quarter to be up about 16% over the first quarter of 2010.

Meadville sales were $172 million in the fourth quarter of 2009 and $159 million in the first quarter of 2010.

Following the typical first-quarter seasonality and Chinese New Year, we expect revenue and earnings growth to improve in the second quarter and to continue throughout the year with particularly strong growth in the third and fourth quarters.

We will bring the additional capacity online to meet the strong demand of our customers.

With that, let's open the call to your questions.

(Operator Instructions).

Matt Sheerin, Stifel Nicolaus.

This is [Farh Singh] on for Matt Sheerin.

So the first thing is, with increasing commodity prices, how do you see the gross margin trending, and when did you see it coming down to the lower end of the 22% or going below it?

I think the answer to the question is we have some costs that increase on materials, labor costs.

That is nothing new.

That has been part of the business for a long time.

The important thing is that you manage through those costs, and we have been effective in managing through those costs in the past.

As you look at our business model, we've focused on the advanced technology.

We focus on some of the high-growth industries.

We anticipate our ASPs to go up, and so that will compensate for any increases that we have in labor and materials.

So we are looking at our gross margins to not decrease, but increase as we go throughout the balance of the year.

I was also wondering on the handset business, that has grown pretty fast.

You guys have a lot of new products coming in from the Chinese ICTs, like one of your top five customers now.

How that is growing, and do you have any more program wins or anything on that front would be great?

Yes, I mean our growth in -- so you go through 2011 will be driven by touchpad tablets, smartphones and the Internet infrastructure that goes along with the increased demand for additional bandwidth.

We are adding capacity in those areas.

I think we have done a very nice job at matching our capacity increases with demands for customers in the past.

I think that it is important.

As we look at our existing customer base, it is important to take care of our existing customers.

However, we are looking at new customers.

We are in discussions with new customers.

We have opportunities that we think will not be a problem in filling our capacity.

We are very comfortable that as we bring this new capacity online, we will be able to fill that capacity, improve our margins and drive topline growth.

So I guess the short answer to the question is, we are taking care of existing capacities, and we are having discussions with new potential customers.

We will want to make sure that we align ourselves with the best practices and best customers so that we can be very successful short-term and long-term.

Great.

So I just have one last question.

What about the CapEx expansion in North America?

That focus, I guess, is more than the networking side.

Given Cisco's comments, are they kind of okay, what do you think about that, and how is that going to play into your year out?

Yes, our $21 million investment in North America, that is a pretty solid investment, and it is an investment in advancing our technologies, some production improvements, technology improvements, and then also to maintenance and equipment.

When you look at our networking customers, our networking business, we are involved in the advanced router platforms for service providers and for enterprise.

I mean we are producing the highest technology levels for our customers.

So our business was up with our networking customers in the end market in the fourth quarter.

And so we are pretty optimistic about our networking business.

It may be off a little bit in the first quarter because of the strength we had in the fourth quarter.

But when you look at it long term because of the advanced products that we service and advanced technologies that we manufacture, we are pretty optimistic about that end market.

Amitabh Passi, UBS.

The first question was, I was hoping you could shed some light on the operating margins in the Asia-Pacific region?

You know, very strong growth sequentially up 15% to 17%.

I was wondering was that all just attributed to your volume growth?

Was there mix impact?

Any incremental color you can shed on just the margins.

Yes.

Obviously volume growth always helps.

You saw that our revenue net segment did increase.

But the biggest, I think, focus is the increase in the mix towards HDI work, which is largely for touchpad tablets and smartphones.

So it's probably a little bit volume and mostly mix shift that caused our margins expand so significantly in the Asia-Pacific segment.

And then perhaps related to that, can you give us what your HDI revenues were in the quarter?

What our what --?

HDI revenue in the quarter?

In the fourth quarter, HDI ran about 36% of the $224 million, and probably about 40% to 45% of that HDI was the advanced HDI work.

And is that the anywhere stuff or --?

Yes, we defined advanced HDI as 3 plus and any layer and above.

I mean it's quite a mix in there, but generally that is what you are talking about.

Got it.

And then any updates on just your customer -- like any new program ramps, you certainly have a fairly well-publicized customer on the tablet side.

Any updates on potential for incremental program wins?

How your customer integration is progressing both on the smartphone and tablet arena?

I think we mentioned earlier that a lot of our capacity is allocated for existing customers, but we are doing extremely well with attracting new customers.

When you have the right capabilities and the advanced technology and to some degree there is more demand than there is supply, we are in a great position to attract new customers.

So I think the fact that we are expanding our capacity will enable us to grow our business, not only with existing customers but also with new customers.

And we need to balance that so that we are diversified and not too concentrated on any one customer, yet servicing those customers and capturing the growth.

So Canice, you are in Asia-Pacific.

If you want to add some color to my comments there, I would appreciate that.

I think what we see in the CapEx PC market together with the smartphone markets, we are seizing the opportunities with our existing customers, as well as for new customers.

Indeed, the group is on its way to develop a bit further on new customers.

There are ones who are already on track to start mass production, and there's also several customers are planning to develop within the current year with (inaudible) to blend in the (inaudible).

It is interesting, and they are seeing positive, very positive market opportunities ahead that we see (inaudible) are all happening with our banded HDI in a positive environment there.

And, you know, just a little more color.

When I look at some of the industry experts like Gartner, they are predicting just the touchpad tablets to increase 300% in 2011.

An article in DigiTimes had the smartphones increasing 40% to 50% on an annual basis and continuing through the next three to four years.

So I mean there is clearly significant demand from existing customers, and like Canice said, we are on track with new customers also.

And then just my final question.

Kent, would you venture to take a stab at just sort of your full-year outlook for the year where you think revenues should go in terms of overall growth?

And then perhaps related to that, Steve, I am just wondering you just said gross margins of 23.8%.

I mean it is pretty reasonable that you could probably surpass 24% in the back half of 2011?

I think that is reasonable.

If you look at our target gross margin, it's about 25%.

So I think that target is certainly well within reach.

Now to the second part of your question, I think that when we look historically at our revenue in Asia-Pacific, about 45% of our revenue comes in the first half of the year and 55% comes in the second half of the year.

So you can see the strength in the third and fourth quarter.

In North America, it's not that dramatic.

We still have some seasonality, but about 48% to 49% comes in the first half of the year, and then 51% to 52% of our revenues come in the second half of the year.

So I mean the first quarter is seasonally the lowest quarter.

We have put some numbers out there.

When you compare the first quarter of 2011 to 2010, you can see that we have grown significantly two quarters year over year, and we anticipate that that growth will continue.

So the strength really comes in the third and fourth quarter.

So with the global company that we have right now with the strength in the end markets, seasonality is a part of our business.

Shawn Harrison, Longbow Research.

A few questions, I guess.

What is typical seasonality in Asia in the second quarter?

I will just issue this that the first quarter is the lowest, and then the strength starts second quarter.

We start to ramp in the second quarter.

The real strength coming in the third and fourth quarter.

And Canice, maybe you can add some additional comments to that.

It was used to be relatively a slower season for the local China market in the June 2 normally.

But what we see this year, the opportunities are more on the global economy.

We are seeing like in the panel that the turbo electronics market are doing better in Q1 2011 than Q1 2010.

We are also seeing a lot of the new models are planning to be launched for both smartphones, as well as for the computer sectors.

So we are expecting these global market sectors will likely then dominate quite a bit of the (inaudible).

Okay.

And then maybe as a follow-up, if you could remind me, maybe what was the pro forma revenue for the combined company last year in the June quarter?

Do you have that available?

(inaudible)

In the third quarter?

I'm sorry, the June quarter, the second quarter.

Keep in mind, because we closed the transaction about April 9, we did not pick up about $25 million of revenue in the second quarter.

So, on a combined basis, what we reported for the second quarter of last year was $318 million of growth, and you want to add back $25 million from the 10 days prior to our combination as well.

So we're looking at on a gross basis about $340 million to $343 million in sales.

Okay.

And then as my follow-ups, I just want to make sure my math is correct.

The capacity in Asia that you are adding for HDI, which is say about $70 million, if the target math works, you are adding about $140 million of incremental HDI capacity.

Is that the way to think about it?

In revenue capacity, yes.

Revenue capacity?

Revenue capacity, mainly both on HDI.

Okay.

And I guess to triangulate that, you added a lot of capacity in the back half of the year of 2010.

How much of that existing capacity that you have added is already spoken for?

As well as this incremental capacity coming online, how confident are you that it is already spoken for as well?

Yes, I think when we throw out the demand for smartphones and touchpad tablets and Internet infrastructure, I mean we are looking at pretty significant demand.

In our best estimate, that demand is going to continue for two to three years.

So we are really confident that we will fill that capacity on a very timely basis.

Right now it is kind of like the faster we can bring it on, then the better off we are.

As far as the first part of your question, how the additional CapEx that we spent in Q4, I mean I think we will see that in the first quarter here.

So, Canice, maybe a little more precise timing on the how that CapEx comes online that we spend in the quarter?

We will be spending roughly about [60%] on what we intend to spend in the first half.

And then we will be spending about 40% of what we are planning to spend in the Q1 month in the second-half there.

If you look into our track record, particularly on the (inaudible) that you are familiar with, we are able to deliver a very tight of the installation and loading of the schedule there.

I will demonstrate that we have been able to execute a very timely method of expansion.

In fact, whatever we have been spending in the [Q1] has also piled on the benefits on both the Q3, Q4 growth, as well as the, for example, Q1 growth in 2011.

We need all this new capacity to drive in order to expand the business of our existing customers as well as the new business from the new customers.

And one more comment.

As Canice indicates, we will bring that on in a very timely basis and match the revenue with the additional capacity.

But when you look at our past experience with HDI, we are pretty confident that we will be able to execute on that.

And not only bring the capacity online, but have that capacity produce pretty high quality product rapidly and early on.

Okay and then maybe just a final modeling question for me there.

Steve, what do you expect stock-based compensation to be in aggregate for the first calendar quarter?

Should it run at that similar rate throughout 2011?

It is hard to know about the future.

To tell you the latter half of (inaudible) because our comp committee is probably likely to give some grants out to our overall employee base.

But for the stock-based comp expense in G&A, about $1.8 million in my forecast.

And for cost of goods sold and selling, the numbers should be akin to what we showed on our financial schedule as well.

Okay.

Thank you very much, everyone, and congrats on the quarter.

Jiwon Lee, Sidoti & Co.

Just following up on that capacity question, when all done with that $150 million or $89 million in Asia-Pacific, how much of an incremental revenue could that add?

I think on the CapEx we have indicated that on the CapEx for expansion we will receive $2 topline revenue.

And, as we invest in HDI and the mix changes to more HDI type products, we will also have some margin expansion along with growth.

Terrific.

And then Kent, when you are indicating margin expansion with this new HDI work, is that mainly a function of better utilization, as well as some of the yield improvement that you think you can get done throughout the year?

It is a function -- it is the fact that that product is challenging to build, and if you have not been building that product, it is hard to catch up.

You are kind of behind, and it takes a pretty significant investment in CapEx to produce advanced HDI technology.

And we have been producing that product for quite some time with satisfactory yields, and that product comes with higher ASPs.

So it has higher ASPs attached to it, and that means higher margins as long as you are able to execute.

So our past experience means that we can execute, and we have got higher margins, the mix is changing to a higher ASP.

So that is how our margin expansion will take place.

That is very helpful.

And if you could just comment briefly about the competitive landscape on the HDI front, please?

Well, I think like I said that there are a couple of competitors that are doing a good job that supply to the same customer base that we have.

There are a number of second-tier customers that some of our -- second-tier competitors that some of our customers have brought on board.

But that is the normal process.

When you look at all of our customers, they have one or two, maybe three prime suppliers, and then they will have some secondary customers just to ensure that the supply chain is full and so forth.

So I guess the bottom line is that we believe that the demand will continue to outreach the supply, and that our position with our existing customers and the potential new customers we are talking to and our technology expertise and capability will enable us to achieve these higher ASPs and execute on that until we get satisfactory yields and drive margins up.

Very good.

Lastly, for me I wonder going back to the networking and communications are there any order patterns sort of some differences between the Tier 1s versus the Tier 2 consumers?

In networking order patterns?

Q1 and Q2?

Tier 1 and Tier 2.

Oh, Tier 1 and Tier 2, I'm sorry.

It does not seem to be.

I would say no.

I have not thought of it in that vein.

But, as I sit here and look at our customers in that networking and, again, it kinds of goes back to the fact that we are serving the advanced router platforms for service providers and enterprise and because we are in the high level of technology-printed circuit boards and into that new product introduction, our business seems to be pretty solid across all of our networking customers whether they are the larger ones or the smaller ones.

(Operator Instructions).

Rich Kugele, Needham & Co.

I will throw my congratulations in as well.

A few questions.

From a segment perspective, given the orders that you are expecting to receive later in the year, how much would you expect the computing segment to represent as a percentage of revenue maybe exiting the year calendar 2011?

I don't think I have ran those numbers out to the end of the year.

But I mean clearly computers because of the touchpad tablets being included in that end market, I mean that will continue to increase as a percentage of our topline revenue.

So it should outpace general growth in the other segments?

That is correct.

And the other -- I guess the other thing is we have got the smartphones that are going to be in the cell phone end market that we will have some pretty significant growth there, too.

Rich, we are expecting computing to be up about 2 or 3 percentage points the first quarter.

And I would like since Canice is with us today, Canice, can you maybe add your impressions of where that computing end market is headed.

Well, I think for the Asia-Pacific side, we are seeing the opportunity expanding from both the communications, as well as on the computing and servers reaching time for about (inaudible) of our business.

In fact, on the tablet PC, as well as on the smartphones there, we are on track to develop server customers, as well as expanding the existing customers to gain more shares there.

On the communication side, we saw us steady on the investment because of the speed drive, the bandwidth drive, and we are seeing a lot of infrastructure, particularly for the services provider to expect further and further year on year.

But, of course, during the year, there is seasonal.

Our sentiment is that some quarters are better; some quarters are slower.

But we are expecting obviously segments in Asia-Pacific as we are positively growing ahead.

And then to add maybe the North American perspective, we see networking on the long-term improving and increasing as we go forward.

Aerospace and Defense has been pretty steady.

I mean even throughout 2010, it has been steady, and we have had to replace some of the programs that were related to the Iraq and Afghanistan war with more technological radar detection type programs.

So we are pretty pleased with aerospace and defense.

We think that even though there are some budget cuts, the information we are looking at is that procurement will go up, and it will go up in the technology portion of the aerospace and defense.

And so we are pretty excited about what is going to happen in aerospace and defense towards the end of 2011 and maybe more into 2012.

But longer-term we are pretty excited like that.

And then our medical industrial instrumentation, I mean that is a pretty steady, just general steady constant increase over time.

Okay.

And then Steve, from a tax perspective, do you think this is the right rate, 26%, for the balance of the year, or do you think as Asia increases, especially given those two main drivers of smartphones and the computing segments, can it come down a little?

Yes, I think it could come down a little bit.

I think 26% is what we are giving guidance for for the first quarter.

On a full-year basis, it could come down a bit.

It really all depends on the relative mix of profitability among the segments.

But you are right that we expect obviously significant growth in Asia-Pacific that could bring this down a bit.

Okay.

Then just lastly, over 20% EBITDA margins, so much quicker than even I thought, and I was optimistic about the acquisition.

So I guess has the transition or the integration moved faster than you expected?

Have you achieved greater synergies, or was this what you were expecting by this point?

Rich, I mean we are 10 months into the integration now, and all of the major milestones are in place.

And I think we are looking now at going to kind of the second phase and refining what we have in place.

We are focused -- whenever you do kind of like an integration -- and remember, both North America and Asia-Pacific are two very well-run companies.

And so it was not a cost synergy, so there is not a lot of cost synergies that we have achieved so far, although we have achieved some.

I think, as we go into the second phase, there are some opportunities there.

But the major objective and any time you are running the business whether you are integrating or not is to make sure that you're providing customers with value and that you are doing that in a united way, but mainly you're making sure that the core of the business stays strong.

And that is where our focus is.

And so we have integrated where it helped build that core, and that has been our -- I guess our priority to integrate is to help to build the core, and then, as we go down the priority list, I think that there will continue to be ways to improve our business as a united company.

So, I guess, I mean the results for the third and the fourth quarter speak for themselves.

I would love to take full credit for being a visionary and seeing how fast that took place.

But the fact of the matter is that our two companies are involved in the advanced technology.

We are involved in an early product development, our strategy with customers.

I mean there are so many things that line up that it's not a difficult task to become one company on a global basis.

Shawn Harrison, Longbow Research.

Two quick questions.

I'm kind of looking for clarifications.

Interest expense for next quarter, I guess, either inclusive or exclusive of the non-cash interest piece.

I will give it to you including that piece, and it's about $6.5 million.

Okay, so no real change from the normalized profile going forward from that?

Right.

We will make a debt payment actually next week of $17.5 million, but it is a small enough piece that it is not going to make much of an impact.

Okay.

And then second kind of the target model out there, it has a 15% EBIT margin.

Just running the math back of the envelope, it is more of a -- if you do total non-GAAP, maybe a 17% EBIT margin?

Is that the correct way to think about it backing out the amortization and stock comp?

I think that is about right.

I did not look at it on a non-GAAP operating income basis versus an EPS basis, but that sounds about right.

Okay.

And then the third question -- maybe I will put you in a box, maybe I will not -- but you have an annual target model of 15% growth.

Is there anything standing out there in the marketplace right now when looking at the capacity additions coming online that TTM would not be able to get close to that number for 2011 on a pro forma basis?

I don't think there are any real obstacles out there.

I mean if we can get in Asia-Pacific, we have had significant growth in the past, and we are looking for that to continue.

So if you go at 22%, 23% growth in Asia-Pacific, you look at North America growing 4% to 5%, I mean you are pretty close to 15% right there.

And so that 15% is a real target.

And I think one of the things we try to do as a Company is, when we put targets out there, we try to make them stretch targets, but we also try to make them real.

So I can see why looking at those numbers that I just went over that that is a target, but it is certainly achievable in 2011.

Got you.

Thanks so much, and congratulations, again.

At this time, there are no further questions in queue.

I would like to turn the call back over to Kent Alder for any closing comments.

Okay.

I would like to certainly thank everybody for joining us on the call this quarter.

Hopefully you can tell by the answers that we have given to our questions that we are very positive.

We are optimistic about 2011, pretty satisfied with the direction we are going, the technology we have, the customers, the end markets, our overall strategy.

If you look at our ability to execute both North America and Asia-Pacific, we think we have a pretty exciting opportunity here through 2011 and beyond and into the future.

So we will thank you for joining us this quarter, and we will look forward to talking to you again next quarter.

Thank you.

Ladies and gentlemen, this concludes the TTM Technologies fourth-quarter 2010 financial results conference call.

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