Welcome to the Benchmark Electronics’ Second Quarter 2010 Earnings Call. At this time, all lines are on a listen-only mode. Later there will be a question and answer session and instructions will be given at that time. (Operator Instructions) At this time then, I’d like to turn the conference over to Mr. Don Adam. Please, go ahead, sir.

Good morning. Welcome to the Benchmark Electronics Conference Call to discuss our financial results for the second quarter of 2010. I’m Don Adam, CFO of Benchmark Electronics. Today, Cary Fu, our CEO, will begin our call by reviewing the current market environment and resulting impact to benchmark. Gayla Delly, our President, will then discuss our operational activities for the second quarter and our outlook for the third quarter. Then I will then follow with review of our financial metrics for the second quarter. After our prepared remarks, Gayla, Cary, and I will take time for your questions in our Q&A session. We will hold this call to one hour. During this conference call, we may make projections that are forward-looking statements regarding future events or the future financial performance of the company. We would like to caution you that those statements reflect our current expectations and that actual events or results may differ materially. We also like to refer you to our reports that are filed from time to time, with the Securities and Exchange Commission, including the company’s 8K and S4 filing, quarterly filings on Form 10Q, and our annual report on Form 10-K. These documents contain cautionary language and identify important risk factors which could cause actual results to differ materially from our projections or forward-looking statements. We undertake no obligation to update those projections or forward-looking statements in the future. Now, I’ll turn the call over to Cary.

Good morning. Thank you for joining our call today. Benchmark Electronics second quarter results, once again show a material growth in some operating metrics. For the quarters our revenue was up 22% compared to the same period of time of 2009, and at 3% subsequently. Earnings per share excluding [inaudible] charges, up74% compared to the same period 2009, and up 10% subsequently. Our earnings per share result was in the guidance we reported last quarter. For Q2 our earnings per share were impacted by two items that were not forecasted; the favorable tax rate, and a favorable FX impact. These items are basically setting up our results. For the year-to-date results on revenue, first half was up 19% compared to last years. And earnings per shares excluding the [inaudible] was up 85% compared to 2010 to 2009. Our gross margins for the quarters, the 2010, was 4% compared to 2.8% in 2009, and consistent with our first quarter of the year. We have a retained our operation leverage while ramping up some of the new programs which we have been talking about over the last several quarters, in addition to the overall challenging component environments. Of course, we are disappointed that our Q2 earnings [inaudible] our revenue guidance. In comparison to our guidance, we’re negatively impacted by the continued challenging on the supply chain, changing the mix on our customers forecast, and additionally to a lack of a demand pool at the end of the quarter of one of computer customers. We expect this to impact our revenue and the inventory level as well. For the second quarter, we’re confident with our revenue guidance. In the development of Q2 forecast, we considered the supply-chain environment. We also conservatively discounted forecast provided by our customers. But that’s not enough. The product…

Thank you, Cary. As Cary noted, the second quarter was a challenging quarter; another quarter of good results and continued restraints within the supply chain, as well as significant mixes in the demand level from our customers including their increase demand. As you will recall, we booked 11 new programs with current estimated annual run rate revenues at 300 to 375 million at full production during the first quarter of 2010. These are tracking to plan, and we expect to start seeing the benefits of these bookings beginning in 2011. During our second quarter we booked 11 new programs with estimated annual revenues 87 to 92 million. These bookings were in the following industries sectors; industrial control, telecommunication, and the medical sectors. And they were with a new and existing customers. These bookings, of course, are subject to risk of timing and ultimate realization of the estimated revenues. Additionally, in our sales front log, we have opportunities which we anticipate will close in Q3 that have not closed during Q2, that are significant. During the second quarter, we did not report any restructuring charges as we did complete our plan restructuring activities during Q1. Of course, we continue to review our global footprint in relation to customer demands and to determine if actions are warranted for the short-term or the longer term. As noted, we expect to see continued growth in the third quarter of 2010. And based on what we see today, we expect estimated revenues, considering the factors Cary pointed out, during the third quarter of 2010 to be in the range of 500 to 630 million with corresponding earnings per share for the third quarter in the range of $0.33 to $0.36, including restructure charges. We’re providing third quarter guidance only at this time. And at this time, I’d like to turn the call back over to Don to go through some financial metrics for Q2.

We completed the second quarter of 2010 with revenues of 589 million, which was a 22% increase over the prior year, and a 3% increase over the first quarter. Yet, these revenues were slightly below our revenue guidance of 600 to 630 million provided during our last conference call. On a quarter-over-quarter basis, we saw a stronger shipment for all industry sectors we serve except for medical, or we saw a decrease due to product transitions and crossovers. Subsequently when comparing Q2, this year compared to Q1 of this year, revenues from test and instrumentation were up 14%, revenues from the industrial control sector were up 18%, revenues from the telecom sector were up 7%, revenues from the computing sector were up 3%, revenues from the medical sector were down 20%. Our earnings per share for the quarter were $0.33. Note that we did not report any restructuring charges during the second quarter as anticipated in our last conference call. Providing more meaningful comparative analysis, we will present certain financial information excluding restructuring charges incurred in the prior periods during this call. As previously mentioned, we do not report any restructuring cost this quarter. We call your attention to the fact that these items are excluded when we do so. In today’s press release, we have included a reconciliation of our GAAP results to our results, excluding these restructure charges. Our gross margins for the second quarter was 8%, which was once again an improvement over the prior quarters, gross margins of 7.9%, excluding restructuring charges. Our operating margins for the second quarter was 4%, which is consistent with the first quarter. Net income was 20.8 million for the second quarter of 2010 compared to 12.2 million in the second quarter of last year, which is excluding restructuring charges. GAAP…

Thank you. (Operator Instructions) Our first question comes from the line of Brian White with Ticonderoga. Please go ahead.

Yes, good morning. Cary, could you talk a little about what you saw – you said the computing business weakened at the end of the quarter. Was that just one customer? And, what’s going on, is that end-mark demand weaknesses, is that some type of consolidation of relationships?

We have a significant under pull from one of the computer customers towards the end of the quarter. And not knowing the overall computer industry environment – this is probably a very unique situation. I cannot tell you the overall macro environment, but the under pull is significant enough to know this.

And Cary, one of your competitors is benefiting from a consolidation of a server customer. And I’m wondering, could that have a negative impact on Benchmark at some point this year?

They might, you know, because of the volume that that particular customer has dropped in volume; it’s not a significant amount. But the under pull we talked about is not related to the customers.

Okay. Thank you.

Thanks.

And our next question comes from the line of Sherri Scribner with Deutsche Bank. Please go ahead. Sherri Scribner – Deutsche Bank: Hi. Thank you. You gave a little bit of detail in the commentary, but I was hoping to get your sense of how you think your segments will break out in the third quarter. I think you said medical would recover, but wanted to see what you were thinking about some of the other segments. Thanks.

I think for the third quarter, we do anticipate the computer sector will be back up a little bit. And the, of course, medical will be coming up.

We’re expecting all of the sectors to increase over Q2 in real dollars, all of them to increase over Q1 levels, or Q2 levels, excuse me.

And with respect to mixed share, we expect medical to have a slight increase in Q3, probably the more dramatic increase would come in Q4. And then a little bit of strength in the computer sector as we indicated. But overall, we don’t expect significant mix changes within the industry, just the strength across the board as we are clearing through some of the supply chain. And probably of note is the fact that we expect some of the supply chain constrains to ease a bit, both because we have had the increased forecast out to the extended supply chain for a longer period of time for them to be able to react to. And also because within the extended supply chain, there have been some investments made for them to ease the constraints that exist, as well as some of the increase in inventory levels that we have as we position inventory for the ramping programs, and the new programs that we’ve talked about beginning to ramp. Sherri Scribner – Deutsche Bank: Okay. I guess just two quick follows. It sounds like the under pull issues you had in the segment have been resolved. You expect that to be up. I mean, you’ve had some visibility in July, I assume those have come back. And then in terms of the supply-chain issues. Was there any particular segments that was impacted more by the constraints? Thanks.

First in the computing, we have seen specifically – don’t have clarity around whether it was the actual forecast that was out there that has now been pulled, but yes, July has been stronger than expected as a result of potentially what was rollover. And then as to industry, I don’t believe the supply constraints pick favorites. I think it was really across all industries. Given the mix of product that we support for customer and the level of unique components that we have for a number of our customers, the constraints are pretty common across the product set. And as they go to their customer demand, and have drop-in orders in this environment that that’s where the challenges arise. So it’s not specific. It probably is specific to some sub-tier suppliers that our supply chain team members know very well at this point. Sherri Scribner – Deutsche Bank: Okay. Great. Thank you.

Thanks.

Our next question then comes from the line of Amit Daryanani with RBC Capital Markets. Please go ahead. Amit Daryanani – RBC Capital: Thanks. Good morning, guys. Hey, I may have missed it. Could you just update us on the two big computing customers that you guys talked about last quarter? They were supposed to be 350 to 370 million. Is that number still on track? And should both of them start to ramp in Q4? Is that still the timeline?

As I mentioned in my comments, some of those are going to begin ramping. We won’t see significant impact until next year. But we will begin the ramp in the later half of 2010. I don’t know specifically. It won’t have much of an impact in Q3, probably more so in the beginning of Q4. Amit Daryanani – RBC Capital: And then, is there a way to kind of quantify how much of a headwind did you really have from this one computing customer? And was this more product transition issue, or a program that you’re transitioning away from you guys?

It is not a loss of business. I think there is a transition within the program. I don’t know if that’s significant to the end customer, but it is not a loss of business. Amit Daryanani – RBC Capital: And did you guys have any customer over 10% of the revenues this quarter?

No. Amit Daryanani – RBC Capital: Perfect. Thanks a lot.

Thank you. And our next question then comes from the line of Sean Hannan with Needham & Company. Please go ahead. Sean Hannan – Needham & Company: Yes. Good morning.

Good morning, Sean. Sean Hannan – Needham & Company: So, on the medical side, you spoken around transitions, prior transitions there. I just want to see if we can clarify and nail down, are we talking about a single program, multiple programs, multiple customers, or single?

We actually have ramps and transitions taking place in four programs right now that are pretty significant. So they’re kind of all coming at the same time, which tends to be what we’ve seen traditionally with the markets we serve. Sean Hannan – Needham & Company: Okay. Four programs, four customer?

Yes, four customers. Sean Hannan – Needham & Company: Okay. All right. That’s helpful. And then, in terms of – if I look at what you did in terms of OpEx, is this 23 million kind of a sustainable level that we should assume moving forward through the year?

Yeah. I think, you know, 23 million, you know, 23.5, somewhere in that range is probably a pretty good estimate. Sean Hannan – Needham & Company: Okay.

To the extent if revenues go up, I think you’ll see some marginal increase. You’ll keep the leverage, but the dollars may go up a little bit. Sean Hannan – Needham & Company: That’s great. All right, thanks so much.

All right. Thank you. And we have a question now from the line of William Stein with Credit Suisse. Please go ahead. William Stein – Credit Suisse: Thanks. Just first, a housekeeping question. The taxes, I understand how the predictability of profits differences drive this. I get the idea. Can you tell us what we should expect for the rest of 2010? Is it the same level?

Yeah. You know, I’d probably use, you know, that 11 to 12%. William Stein – Credit Suisse: Okay. Then I’m wondering if you can quantify how – to what degree components hurt revenue and cause inventory to increase in the quarter? And when you expect these problems might go away based on what you see on the supply base.

In the component challenge, most of the suppliers still have a pretty good booking into Q3, and Q4. And we believe that we will see some improvement, slightly improvement in Q3. You’ll probably see the most improvement in Q4. We definitely say in the Q4 conference call, we anticipating improvement coming in Q2 2010. But it looks like it’s going to come earlier. We do seem some suppliers to add additional capacity, and not only from the [inaudible] from the assembly resources standpoint point of view. So what we is, it’s almost like improving in Q3, and I don’t believe – the lead time is still long, but have been stabilized. So we see a sign that it’s getting a little bit better. And again, this is not a across the board, 20,000-component shortage here. You know, component of backlog is in the 300, 400 different components, but those are the components preventing us to ship the product. So it’s kind of, in some way, receding. The lead time will probably not be significantly improved in Q4, but we’ll see a slight improvement in Q3. William Stein – Credit Suisse: And the affect on revenue and inventory in the quarter?

The impact of the supply-chain challenge for Q2 still be. And inventory is probably in the 20-some million dollar range. And keep in mind, some of the inventory increases are related to the new [inaudible] on RAMs. And in this environment, it’s become a multiple issue when you have a new program. You have no commodity relationship with the supplier for the particular commodity. That makes it more difficult. William Stein – Credit Suisse: Thanks, Cary.

Thanks.

Great, thank you. And our next question comes from the line of Jim Suva with Citi. Please go ahead.

Hi, Jim. Jim Suva – Citi: Hello.

Make sure your line is muted on your end. We’re unable to hear you. Jim Suva – Citi: Good afternoon, everyone. Thank you. The quick question I had was on your new programs. You know, last quarter, in the March quarter they were extremely strong. But when we look at the June quarter, it looks like they’re down year over year. And I think many people on this call would assume the economy is better today than it was a year ago. Where some of the programs wins kind of borrowed into the March quarter from the June quarter? Or can you help us understand if the economy’s better, and business is better now than a year go, why would business wins be down year over year, or you see some hesitancy in signing new programs, or just the topic in general?

I wouldn’t try to read too much into it as bookings kind of are on a long continuum. We have a very good pipeline of opportunities. But some of the larger opportunities probably do take a little bit longer in the decision making. So they tend to be a little bit lumpy. But we do not see any indication that the funnel is not improving. In fact, we see just the contrary. We do see good opportunities in front of us and expect, as I said, that Q3 would be stronger. So nothing to cause alarm there. That’s just a cutoff that we used that doesn’t always indicate quarter over quarter. Jim Suva – Citi: Okay. And just a quick followup. I know this is a long-term question, but when you look at, assuming that those bookings continue, and the pipeline to be extremely strong, would you expect, you know, growth year over year and quarter over quarter to accelerate as we go ahead, you know, in the next few quarters and into 2011? Or how should we think about benchmark? Obviously, year over year’s benefiting from easy comps, but how should we think about the acceleration of revenues?

Well, as you can see from the first half revenue that we have, while we had better opportunities in our forecast and our guidance, and we weren’t able to fully achieve that. What we did have is 19% growth as compared to the industry, which was at 14.7%. So I think our growth year over year, while we say easy comps, easy comps from the standpoint of the backlog and the demand being there. Not so easy as to shipment in a high-mix industry. So yes, we do continue to see the opportunity there, the challenges there. And I think our guidance proves out that we are seeing continued opportunity for growth. So I’m not sure that I fully comprehended your question. But hopefully that answers it. Jim Suva – Citi: Okay. And just housekeeping tax rate as we look ahead?

11% to 12 percent going forward. Jim Suva – Citi: Great. Thank you very much, everyone.

Okay.

Thank you. And we have a question now from the line of Brian Alexander with Raymond James. Please go ahead. Brian Alexander – Raymond James: Thanks. Just back to Amit’s question earlier. I don’t know if you guys quantified the impact from the computing customer where you saw the pull at the end of the quarter was not quite what you expected. And then related to that, was that driven by demand for that customer’s product, or was it really due to a product transition issue? I’m just trying to understand why you expect that revenue to come back in the third quarter.

I don’t know that we specifically can say demand, product transition, and quantifying the actual impact with, you know, probably 10 million, maybe a little bit more than that, to read in as to whether the demand evaporates or it’s really there. Our true indication is based on the fact that the July shipments remained and were in fact stronger than we anticipated. So I don’t get into the mind of the end customer and understand what the forecast expectations were built upon. But we just see the dynamics of the outcome. Brian Alexander – Raymond James: Okay. And then you guys talked about baking in, I think I heard you say more of a discount to your customer forecast in terms of what you’re guiding for the third quarter than the discount you’ve applied over the last few quarter. And if that’s what I heard correctly, what’s driving that approach? Is it because the customer forecasts are becoming more volital and more unpredictable? Or are you just choosing to be more conservative?

Clearly based on not meeting guidance, it is prudent for us to say that whatever we had used in our modeling previously needed to be ratcheted down. So while our customer forecast continue to show strength, as we mention in our comments, we are seeing strength and demand, in fact, increasing. And so the gap between what we are providing as guidance and what our customers are providing as guidance to us, it has expanded. And because of slightly missing the quarter, this quarter, that is the basis for it. It just seemed to be prudent because we, as you, do not like surprises, and we want to be able to meet our commitments. Brian Alexander – Raymond James: In terms of magnitude, are we talking 5%, 10%, 15%?

I would say it’s between 5 and 10%. Brian Alexander – Raymond James: Okay. And then the last question –

Incremental. Brian Alexander – Raymond James: Incremental, okay. Gayla, just on the – I think you guys talked about mixed changes within your customer base that you saw during the quarter, and that somehow affected your results. Could you elaborate on what you meant by that?

Because of the mix of products we have for our customers, just because even dollars of shipments may increase for a customer, when they want Product A at the beginning of the fourth quarter, and that’s what we forecast and they end up having true demand for Product B and C, even though there’s increases, those drop-in orders, they come very challenging if you’re one part shy and you don’t get to ship. And yet, your inventory for Product A will be on the dock and ready to go. So that’s the ongoing dynamic we have in our marketplace. That’s not unusual. But volitility when there’s growth opportunities out there, as we’ve seen this year, the volitility seems to be increased because somebody’s got to anticipate the exact nature of the orders in order to play demand and supply chain. Supply chain has got elongated lead times in it, which dictate the forecast being put in place. But they don’t seem to get any more accurate just because demand increases. Brian Alexander – Raymond James: Okay. That makes since. Thank you very much.

Thank you. And we’re going to go back to the line of Brian White with Ticonderoga. Please go ahead. Brian White – Ticonderoga : Yeah, Cary, just on the component situation, do you think the component situation will ease in the September quarter because there’s enough inventory out there? Or capacity has just come on in these different component areas?

It’s a combination, I guess. We do see some inventory increase in distributors for certain components. And of course, of the new capacity coming in line, they will ease up a little bit. But the good thing about it, if you look at these component challenges, usually first will be a lead-time extension, and then next time was a price increase, right? And once you see the lead times stabilize, not continually extended, that means the situation should start getting better. And that’s what we’re seeing today. Brian White – Ticonderoga : Okay. And just on – is there any reason that December quarter sales won’t see a typical uptick from the September quarter? Is there any reason that we could see a downtick this year?

I don’t anticipate a down tick. And particularly was the – several major programs start ramping in Q4. And the typical Q4 will have a stronger demand. No, we do anticipate a look into the customer forecast and we think Q4 will be an interesting promise. Brian White – Ticonderoga : Okay, great. Thank you.

Thanks. And we have a question from the line of William Stein with Credit Suisse. Please go ahead. William Stein – Credit Suisse: Thanks. So two quick followups. First, can you help us understand what’s driving the strength in the testing market that’s been strong for a while, and it looks like it’s continued in Q2? Do you expect that to continue into Q3?

At this point, yes. We see continued strength there as I believe we’re taking market share. Brian White – Ticonderoga : Okay. And can we get an update on the vertical precision machining business?

The business is doing very well, and we have – this particular business, I’m very excited about. Number one, it’s a better margin business. And the second thing is further expending our service scope with our customers. It’s difficult profile [inaudible]. The volume could definitely continue to increase. We are starting to introduce the capacity to our key customers. And we’re also, at this point in time, looking at expending the capacity into Asia’s market. So we’re pretty excited about it, and I think this is a great addition to the customers, to the Benchmark portfolio to supporting our customers. Brian White – Ticonderoga : Great. Thank you.

Great. Thank you. And we’re going to go back to the line of Amit Daryanani with RBC Capital markets. Please go ahead. Amit Daryanani – RBC Capital Markets : I just have two quick followups. Just from the medical side, was the entire 20% sequential drop due to programs coming into life and new ones not ramping? Or was there some end market softness as well?

It was part of a crossover between the new product and the old customer. Brian White – Ticonderoga : Got it. And then, you know, FX has been fairly volital and a couple of your peers have kind of called that out as headwind in the June quarter. I’m curious, could that have any impact for you guys at all?

FX for the second quarter? Brian White – Ticonderoga : Yea.

Yeah. I think, you know, FX was probably $800,000 - $900,000 for the quarter loss. Brian White – Ticonderoga : And how do you see that shake out for Q3?

Well, I think – I guess it depends on what the exchange rates are going to do going forward. It seems to have moderated a little bit so far, but you know, we still have two months left in the quarter, two-plus months. Brian White – Ticonderoga : Got it. Thanks.

Thank you. And we’re going to go to the line of Brian Alexander with Raymond James. Please go ahead. Brian Alexander – Raymond James: Yeah. Just a follow up on the medical segment. I understand the performance this quarter. But it seems like you’ve had a lot of success with new wins there over the last several quarters and yet the segment continues to decline on the year-over-year basis. It’s really declined, I guess, every year going back to ’06. So is there anything else going on within the medical segment that you could talk about? And anything that gives you confidence that going forward, we’ll start to see that business grow again?

No. It’s probably two things. One is as we’re moving more product to overseas, we do see price reductions and the [inaudible] prices have declined in the medical device. And the, also, we have several of customers that have some FDs and the product sensation, some of the product support has been there for a long time. And the summer sensation time takes longer than anticipated. But fundamentally, I think the medical device portfolios are looking pretty good. We still see PG capacity, what we have, we’re probably about to spend more revenue on the view. This is also program ramped, and we feel very comfortable with our medical device practice. And we do see some sales issues, and we see some growth in the second half. Brian Alexander – Raymond James: Cary, do you think this business can get back to 350 million a year like it was back in ’07-’08, or that too aggressive?

It’s a possibility, yes. Brian Alexander – Raymond James: Okay. And then just – did you guys say what utilization was for the quarter?

Probably about high 60 and approaching 70. It is not 70 yet. Brian Alexander – Raymond James: Okay. Thanks so much.

Thank you.

Thank you. (Operator Instructions) And at this time, I’m showing no further questions. Thank you.

All right. That will conclude the call, and we’ll be in our offices for follow-up questions.

Thank you, all, for joining us today.

Thank you.