Sanmina Corporation (SANM) Q4 2012 Earnings Report, Transcript and Summary

Good morning. My name is Brent, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Sanmina-SCI Fourth Quarter Fiscal Yearend 2012 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. Bombino, you may begin your conference.

Thank you, Brent. Good morning, ladies and gentlemen, and welcome to Sanmina-SCI’s fourth quarter and fiscal yearend 2012 earnings call. A copy of today’s release is available on our website in the Investor Relations section. You can follow along with our prepared remarks in the slides posted on our website. Please turn to slide 2, the Safe Harbor statement. During this conference call we may make projections or other forward-looking statements regarding the future events or the future financial performance of the company. We caution you that such statements are just projections. The company’s actual results of operations may differ significantly as a result of various factors, including the state of the economy, economic conditions in the electronics industry, changes in customer requirements and sales volume, competition, and technological change. We refer you to our quarterly and annual reports filed with the Securities and Exchange Commission. These documents contain and identify important factors that could cause actual results to differ materially from our projections or forward-looking statements. You will note in our press release and slides that we have provided you with the statements of operations for the three months and 12 months ending September 29, 2012 on a GAAP basis, as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in our press release and slides posted on our website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, non-cash stock-based compensation expense, amortization expense, and other infrequent or unusual items to the extent material. Any comments we make on this call, as they relate to the income statement measures, will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, net income, and earnings per share, we are referring to our non-GAAP information. I would now like to turn the call over to Jure Sola, Chairman and Chief Executive Officer.

Thanks, Paige. Good morning to everybody, and welcome. First of all, I want to thank everybody for letting us change this conference call. I know that there’s been a lot of bad weather on the East Coast. So hopefully, everybody got through it okay. But with that, again, I want to thank you all for being here today. And on our conference call today – or this morning, I should say, I have Bob Eulau, our CFO.

Good morning, everyone.

For agenda, is that Bob will review our financial results for our fourth quarter then I will follow up with the comments relative to Sanmina-SCI results and future goals. Then Bob and I will open for question-and-answers. So now I’d like to turn this call over to Bob. Bob?

Okay. Thanks, Jure. Please turn to slide 3. Overall, the fourth quarter was solid from a margin standpoint and very strong from a cash generation perspective. Revenue of $1.58 billion was up 1.9% on a sequential basis and down 7% from the fourth quarter last year. Our gross margin came in at 7.4%, which was up 60 basis points from the third quarter. Operating margin increased 70 basis points from last quarter to 3.5%. Non-GAAP EPS was $0.46, which was well above the high end of our guidance for the quarter. This was based on 83.6 million shares outstanding on a fully diluted basis. Finally, cash generation was outstanding this quarter, with cash flow from operations at $121 million and free cash flow at $99 million. I’ll discuss cash in more detail in a few minutes. Please turn to slide 4. Revenue was up 1.9%, or $30 million, from Q3 to $1.58 billion. From a GAAP perspective, we reported net income of approximately $164 million, which results in earnings per share of $1.96. This was up relative to last quarter by $1.85. The GAAP results included a benefit for income taxes due to a partial release of our valuation allowance against U.S. deferred tax assets. Given all available evidence, we now believe it is more likely than not that we will be able to utilize a significant portion of our U.S. tax attributes in the future. The tax benefit totaled $159 million, or $1.90 per share. Offsetting this benefit is a restructuring charge of $17.5 million which we recorded this quarter. You may recall that we made a decision a couple years ago to expand our printed circuit board manufacturing capability in Wuxi, China, and that facility is now beginning to come online. We feel that we can compete on…

Thanks, Bob. Again, ladies and gentlemen, what I would like to do is to give you a little bit more insight on our business environment for our September quarter – I mean the quarter that we just finished, and also talk about the short-term business environment in our first quarter, or December quarter, of our fiscal year 2013. And then what I would like to do is give you some outlook at what we are looking from our bookings as we go enter the calendar year 2013. So just to add a few things. As Bob talked about, the fourth quarter, this was a modest growth in a quarter. Definitely was below our internal expectations, mainly driven by forecasts going up and down. We did deliver a nice margin improvement per our expectations, driven by operating efficiencies and better product mix during the quarter. So overall, we’re pleased with the fourth quarter results and accomplishments in our fiscal year 2012, despite a challenged economical environment with just basically a lot of headwinds during our fiscal year 2012. One comment that I would like to make is that in 2012 we made a significant improvement in our strategy that we laid out for you a year ago. We continued to diversify our customer base with a lot better opportunities. We reposition each of our business unit to be aligned with their customer needs and ability to compete independently. So, our long-term opportunities are still very promising. And also on a positive side, that our customers are still cautiously optimistic about the future as we look at in a calendar year 2013. So please turn to slide 11. As you can tell, our top 10 customers were 51.4% of our revenue. We also had a one customer around 10% of our revenue,…

Thank you, sir. (Operator Instructions) Your first question comes from the line of Brian Alexander with Raymond James.

Hello, Brian. Brian Alexander – Raymond James: Hi, Jure. Hey, Bob, maybe talk a little bit more about the source of the gross margin upside in the quarter. Revenue is at the low end of the range, but gross margin was up 60 basis points and almost a 40% incremental margin. Looks like the components revenue was only up about 5% sequentially. So just talk about how much of the gross margin expansion came from components, improving profitability versus the core business, and maybe some mix factors that drove it.

Yeah. Okay. And thanks, Brian. So first of all, I’d go back to Q3 and say that was the biggest anomaly. If you look at this year, our overall gross margin’s been in the 7.3% to 7.4% range other than Q3. And you’ll recall, in Q3 we got hit by some FX issues as well as a particularly bad mix of business in the third quarter. So, part of your question is comparing to a fairly weak base period. Now, with respect to your question on components, the way we’ve historically defined components, the gross profit was definitely up and was pretty good – not as good as it was in the second half of last year, but starting to recover. Revenue, again in the historical definition, was up as well, and in our new definition as well with the Components, Products & Services. So I think, as Jure I think mentioned, mix was positive, and we’re comparing, particularly with Q3, to a weak base period. Brian Alexander – Raymond James: And just to clarify, was the components gross margin above the corporate average this quarter?

So in our new segment, Components, Products & Services, the gross margin is higher than it is in the Integrated Manufacturing Solutions. And the components in the old definition was I believe still below. Brian Alexander – Raymond James: Got it. And then just a follow-up from me. I know last quarter you alluded to more of a deep dive into some of the components operations to identify some opportunities for improving efficiency. It sounds like you’ve been able to do that in the PCB area with cost savings of I think you said $3 million to $5 million a quarter that are going to be coming. What’s the timing of the cost savings? Will all that be realized in December? And then, what about some of the other areas within components, have you dug deeper into those operations or is that still an opportunity going forward? Thanks.

So, yeah, thanks for that question as well, Brian. First, I would like to credit the team for really doing an extremely thorough analysis of all the alternatives that were available to us, and I think we’ve landed on a solution that makes a lot of sense for our shareholders. We think we’ll get the $3 million to $5 million in savings showing – it will begin – some of it will begin soon. But I think to fully realize that, it’s probably in the June quarter as we work our way through this transition. Brian Alexander – Raymond James: And then just other areas within the components business, are you – go ahead.

Yeah. So we scrubbed everything, as we had told you we would. And at this point, we’re pretty pleased with the footprint we’ve got, and in the other components areas; we’re also, as I mentioned, defining the business with Components, Products & Services and we’ll continue to invest in the product areas which are showing some pretty good momentum as well. Brian Alexander – Raymond James: Okay. Thank you very much.

Yeah. Thanks, Brian.

Thanks, Brian.

Your next question comes from the line of Wamsi Mohan with Bank of America Merrill Lynch. Wamsi Mohan – Bank of America Merrill Lynch: Yes, thank you. Good morning and thanks for rescheduling this call.

Good morning, Wamsi.

Morning. Wamsi Mohan – Bank of America Merrill Lynch: Good morning. I had a question around this PCB transition you’re talking about from your Malaysia facility. Your Malaysian footprint was about 5% of your revenues; are you completely closing the Malaysian facility or is it a subset of that facility?

Well, we’re going to be leaving some technology engineering group there that will be working on some research and development. So basically for all the practical purposes, we’re not going to be manufacturing printed circuit board at that factory in the future. And so really, the whole focus here, Wamsi, is to this new expansion that we created in China. It’s a really high technology product, and based on a present demand and a future demand, we believe we can provide a better solution from China and in other parts of the company. I think it’s also important that we continue to invest in this business substantially. So our capabilities today, even with transitioning Malaysia operation into China and other parts of the factories around the world, are a lot stronger. And we believe that the areas that we focus on, that this was the right solution for us going forward.

Okay, just to clarify your Malaysia question, we continue to have an integrated manufacturing facility, or EMS type facility in Penang, Malaysia, and what we’re in the process of transitioning is our printed circuit board facility which is in Kuching, Malaysia. Wamsi Mohan – Bank of America Merrill Lynch: Okay, thanks. Thanks, Jure. Thanks, Bob. And also, so if I understood that right, Bob, then we shouldn’t be expecting any change to your tax rate here because of this change.

No, I don’t anticipate this affecting the tax rate. I mean, it’s – tax rate, as you know, is always a function of where do the profits end up being (inaudible). But I don’t think this taxation will change. Wamsi Mohan – Bank of America Merrill Lynch: Okay, thanks. And as a follow-up, Jure, last quarter you commented that you think that the inventory correction on the component side was more or less complete. This quarter you saw some sequential growth in the overall new segment basis – or do you think that that’s pretty much worked out of the way now from an inventory correction standpoint? And within components, could you just perhaps elaborate a little bit within the new segment where you’re seeing faster versus slower growth? Thank you.

Yeah. Well, Wamsi, definitely as I look at the pipeline of inventories with our customers, are pretty, pretty low, with most of – and there’s few customers they have more. But overall, I still believe that the pipeline in industry today is operating with a very low industry – I mean a very low inventory. We do expect that, as we mentioned, we saw some upside in our September quarter. We see some positive trends right now on some of these components in December quarter, and hopefully that will continue through the calendar year 2013. Again, as I mentioned earlier, I think – as I talk to our customers, they’re pretty optimistic, and I’ve been spending a lot of time there. They’re cautious about the global economy and what’s going on in Europe and then election here in United States. And so but hopefully with now all this behind us that things will move in a right direction as we enter the January timeframe. So we’re pretty optimistic. But again, back to these components, we do expect this portfolio to grow at a faster rate than traditional EMS business. Especially, how we are repositioned these businesses as independent as humanly possible, and also I think we strengthen them both from a capabilities point of view so they can compete in the future. I mean, if we didn’t believe that these businesses are not going to add a lot of value in the future, we would not be investing in these businesses. So we’re very excited, because that this is the side that should be a lot bigger than what it is today, has a lot of potential, and as the economy turns around, we’re pretty optimistic about this diversified portfolio of Components, Products & Services that we have. As I mentioned on our call earlier, we really expanded our global services, which includes repairs, with some major partner in the mission-critical type of products. Most importantly we’ve built a foundation in that side of the business that can be a $1 billion plus business. And the margin in those type of business, as we all know, are better than traditional EMS. So we’re really investing in the businesses that can deliver the better results going forwards. So, yeah, growth is very critical to us right now and there’s a lot of focus, but growing with the right customers, the right project and also invest in a businesses that are going to be sustainable for many years in the future. Wamsi Mohan – Bank of America Merrill Lynch: Thanks, Jure.

Your next question comes from the line of Sean Hannan with Needham.

Hello, Sean. Sean Hannan – Needham: Yes. Thank you. Good morning. Can you hear me?

Yes. Sean Hannan – Needham: Okay. So, Jure, just to clarify if I understood your comments correctly, you’re explicitly looking for growth in fiscal 2013. I want to confirm that. And then, did you mean that you’re looking for the improvements year-over-year or are you also looking for improvements on your top and bottom line of your business sequentially through the year – or how do we think about that?

Yeah, well, based on the – if you look at our projects that we have with existing customers that have been a long time, we’re very fortunate that we’re involved in a lot of new technology products. So that customer base is pretty strong with most of them. Some of the new programs that we’ve won also have a fair amount potential and the new projects that we’re presently involved. So when you look at that, assuming all these things move in the right direction, I would expect us to deliver a better year than what we did in 2012. But at the same time, if the economy falls off a cliff, then it’s going to be a different world. But we do not expect that. We expect to see some improvements across most of our businesses, based on our opportunities that we have in front of us today; that’s really what I’m talking about. But overall, yes, we do expect to have a better 2013 on the top line and on the bottom line. Sean Hannan – Needham: Okay. Well, just to follow on that, can you perhaps elaborate, when you think about that business providing the relative strength, as you look into December and into 2013, to what degree is there perhaps, A, the project orientation where it’s the momentum with the customers that’s underway versus, B, better relative demand for some of your customer products in their general marketplace versus, C, explicitly the magnitude of new programs and perhaps why the environment has not disrupted those ramps? Thanks.

Yes. So let me kind of just give you a little bit more. If I look at our communication infrastructure product, overall we expect today a slight growth on that bucket. But if we look at the industrial side of the business, defense, the medical side, we expect more growth on that one. Also, our storage, what we call enterprise computing and storage, we expect that, based on a project that we have, to move in the right direction. On the multimedia, with that business being down for us – and actually there’s a two reasons there. Demand, and we also decided to end a relationship with one of our customers there. That was a relationship that was not profitable for us and we made a decision to exit that. We believe, overall, that business now is stabilized. I think we have a right customer. So quality of the customer, I would say for us is a lot stronger in 2012. We do have a fair amount of good opportunities in front of us, some new opportunities that we have a high confidence that we’ll benefit in 2013. So, Sean, we’ve been expanding again in a unique market. So the key there is to focus on areas where it will allowed us to deliver not just a growth, but more sustainable growth and go invest in these unique technologies that will allowed us to make a little bit higher margin. So if I can go back – and I know this is a long answer to your question – if I just look at our circuit boards, backplanes, overall, we expect that to do better in 2013 than what we’d accomplished in 2012. Same thing on mechanical, that we will deliver better numbers. I think defense and aerospace products, which…

Thanks, Sean.

Your next question comes from the line of Craig Hettenbach with Goldman Sachs. Craig Hettenbach – Goldman Sachs: Jure, you’d talked about a book-to-bill that was above 1x and some benefit from new programs, yet the end demand environment has weakened. Can you just walk us through kind of what you saw from customers as you progressed through last quarter and into the beginning of this quarter in terms of that up and down in forecast you mentioned?

Well, the biggest impact, as you know, 50% of our business is communication networks. So our wireless access product demand from some of our customers is kind of weak this quarter; that affected our forecast for this quarter. If you look at the demand for that product longer term, this is mainly 4G LTE type of projects. We believe there is a lot of momentum there and we expect that business to be fine. So again, as I said earlier, I think communication networks for us, we do expect it to be slightly up. It’s probably more difficult to forecast that at this time. On a positive side, we are involved in advanced new programs in that group. So enterprise computing and storage, I think we’ll continue to move that in a right direction. That’s really mainly driven by demand for our storage area. And I believe that we’ve been investing some good solutions there. The other group that we talk about is medical, defense, industrial, I think all those will be okay. Semiconductor, capital equipment, still weak for us. We are involved in – in that business we really focus in a new products. We believe it – new technology coming out, that we will have some positive momentum in 2013. The energy area that we are really working on, and this is both from our – really crosses all energy area. It’s a new area for us. We got some positive things there. So I think from a pure positioning, I believe that we are well-positioned, but again, from a demand itself, I will say the hardest one for me to forecast right now for our customer base will be the wireless access product, especially in the short term. Craig Hettenbach – Goldman Sachs: Okay. And then any color or commentary in terms of how those customer forecasts and patterns changed as you went through the quarter?

Well, at the beginning of the quarter they were a lot more positive than end of the quarter. And so we had a lot more change in our schedule there. And I believe that’s going to continue through this quarter, so it’s a little bit more difficult to forecast. But at the same time, I want to also give ourselves a credit. This year was really hard to forecast the whole year. But I was just looking at my notes, internally, when we had a – in June time, we had a detailed review, we had a sales meeting and we look at what we going to ship in next two quarters, and we were in the $5 million. So we’re able to – there was a lot of changes in a product demand, but overall we were $5 million up. So from that point of view, we’re really micro-managing that today, and I think we need to continue to micro-manage that at least for the next 90 days and we’ll see how things shake up as we enter the January timeframe. Craig Hettenbach – Goldman Sachs: Okay. And if I could just ask a follow-up. A couple of the companies in the EMS space have talked about some pressure in margins in the comm space and one of them reset their targets in terms of profit. Any commentary there from your end in terms of in addition to weak demand, are you seeing any changes to the pricing environment?

Well, the nature of this business, Craig, here, we always have – it’s a tough pricing environment across all our businesses. So I don’t think there’s anything – at least with the projects that I’m involved, anything different now than it’s not there all the time. There’s a lot of pressure on all our customers right now in this environment to – they have to deliver the better numbers, their customer are asking for a better deals. So we have to be creative, we have to – in our part, we invested a lot of money in our supply chain. Material is the biggest cost here. We’re working very close with our customers to try to offer up better solutions when it comes to options and materials so that we can go and give them a savings there. So, those are the areas that we do. But, Craig, in this business there is always price pressure. Craig Hettenbach – Goldman Sachs: Thank you.

Your next question comes from the line of Christian Schwab with Craig-Hallum Capital Group.

Hello, Christian.

Hello, Christian. Christian Schwab – Craig-Hallum Capital Group: Hey, guys. I missed – I’m sorry, can you just repeat your guidance for gross margin and OpEx for the upcoming quarter? I missed that.

Yeah. So the gross margin guidance is 7% to 7.4% and our operating expense is $62 million to $63 million. Christian Schwab – Craig-Hallum Capital Group: When we look at the cost reduction and the printed circuit board restructuring, of the $3 million to $5 million, what is the mix between COGS and OpEx?

It’s going to be mostly cost of sales. Christian Schwab – Craig-Hallum Capital Group: Perfect. And then lastly, congratulations on finally selling some of the real estate this quarter. After this $25 million to $30 million sale, how much real estate do you have left for sale?

There is probably another somewhere between $50 million and $100 million that’s still available for sale. And you are right, 2012 was a tough year on real estate sales, but the prior two years we’d actually sold $25 million, $30 million as well. Christian Schwab – Craig-Hallum Capital Group: Great. No other questions. Thank you.

Thanks, Christian.

Your next question comes from the line of Jim Suva with Citi.

Hello, Jim. Jim Suva – Citi: Thank you. And congratulations to you and your team there at Sanmina.

Thank you, Jim.

Thanks, Jim. Jim Suva – Citi: A question and a follow-up question on the same topic. The main question is, can you give us a little bit more details on – it looks like the gross margins came in quite a bit more healthier or stronger than projected. Can you give us some details on that? And then I guess on the forward guidance, should we expect gross margins to be relatively stable as we progress through the year or is there some volatility or changes seasonally through your gross margins as we look at potentially coming into a better environment, Jure, that you’d mentioned?

Bob?

Yeah. I think it’s difficult to say what would happen with gross margins on a seasonal basis. I mean, we’re obviously working hard to improve. And as we see the benefits of some of the actions we’re taking now, I would hope that by the second half of the year that margins would be a bit better. So that’s certainly our goal. And then with respect to this quarter’s gross margin and the guidance, I mean, we thought we had several one-time events last quarter that were negative, and so we were a bit cautious in terms of setting the guidance this quarter, just to make sure that we clearly understood what was going on there. And fortunately, now with the benefit of hindsight, it’s clear that the anomaly was really much more Q3 than it was for the current quarter.

But, Jim, if I can add to that. For us right now is just loading these plants with better product mix and expanding these businesses that allows us to make a little bit better margin. And I think as we grow, those businesses should help us to improve the margins. So that’s the focus. Jim Suva – Citi: Great. And then a quick question – follow-up, probably for Bob. On the other income expense line, I believe you guided that could be approximately $13 million to $15 million. Is that kind of a good run rate or is there some timing to where that’s going to keep going down lower in the future? Thank you, gentlemen.

Yeah, so at this point, I think that’s a reasonable run rate to assume. As you know, that particular line item just inherently has volatility because we have miscellaneous things that show up there. But I think the $13 million to $15 million range is a good way to think about it throughout FY 2013. Jim Suva – Citi: Thank you. And congratulations to you and your team at Sanmina.

All right. Thank you, Jim.

Thank you, Jim.

Your next question comes from the line of Richard Todaro with Kennedy Capital. Rich Todaro – Kennedy Capital: Hi, guys.

Hi, Rich. Rich Todaro – Kennedy Capital: I just was going through a scorecard of what you guys have accomplished in the last three years where your book values increased from like 7.25 to 11.50. You’ve paid down debt and you’ve done a really nice job. In prior years, it looks like when you’ve had losses they’ve mainly been below the line items, intangibles or acquisitions or shutting down divisions. So as I look forward – and I’m just projecting this out, with lower interest expense going forward now that your debt is lower, it appears that the company could throw off $600 million in net income in five years, and you have a $600 million market cap today. And I realize you have about $400 million in net debt. So I guess my question is, if the company continues to generate this sort of earnings in a flat environment, one, what level of debt would you like to get the company down to; and then two, what do you start to do with the free cash flow? And I’m not necessarily asking you to back the free cash flow numbers or the net income numbers I’m giving, but at some point, the amount of cash you’re generating relative to your market cap starts to become ridiculous. And I don’t think analysts are assuming any sort of assumptions with those cash flows in their forward models when they give 4x and 5x earnings multiples to your stock.

Yeah. Thanks, Rich. I appreciate the observations and comments. With respect to your question on target debt and our plans over the next – longer period, I’d say five years or so, we haven’t put a specific target out there. Obviously the last – probably even the last decade, one of the key goals of the company has been to deleverage, and we’ve made a lot of progress on that over the last three years. If you go back to the recession, the gross leverage peaked at something over 8, and I think if you do the calculation now you’ll see it’s around 3. I believe that we’re in a new equilibrium at this stage. We certainly have some appetite for continuing to deleverage, but we can make opportunistic decisions in terms of what we choose to do going forward. So – and by that, what I mean is we’ll make good capital allocation decisions. There may be times when it makes sense to repurchase more debt and there may be times when it makes sense to repurchase shares, there may be times when there are small strategic acquisitions that make sense and are synergistic with our strategy. So I really do believe we’re in a new equilibrium now. I, again, can’t say what our plan is over the next five years, but if you look at the last five years, as you noted, we’ve generated a lot of cash, and we think we’ll be able to continue to generate cash going forward. And I think we can make some good decisions here over the next few years that will really benefit shareholders. And I guess the final comment I would make is, on your observation, I agree with you, I find it remarkable that our company trades below book value with our ability to generate cash, and I think at some point in time, the market will catch up with that. Rich Todaro – Kennedy Capital: I guess one observation is, is that in the past some of the shareholder value write-downs – which it looks like most of your acquisition write-downs are behind you hopefully, given where your goodwill’s at, et cetera, is that in the past some of the shareholder destruction has been having to write down something you purchased. And it seems like you have a decent business today, and so whether it’s in prior years paying 8% for leverage to somebody else to get a return or doing an acquisition or rewarding somebody else, it seems like if you stay on the same path, maybe do small acquisitions where you have to, that your shareholders today, including management, will be rewarded one way or another down the road based on these cash flow estimates. So I just wish you guys the best and I give you an A+ for the last three-year track record. Good job.

Thanks, Richard.

Yeah, thanks, Rich. Actually there is one thing I wanted to add. And in terms of the book value, obviously the big increase this quarter is on the deferred tax asset and the valuation allowance we released. That was a partial release. So in addition to the cash generation capability that you mentioned, there still remains an evaluation allowance on probably close to $0.5 billion of deferred tax assets that if we’re profitable over the next five years, we’ll be able to recognize more and more of that as well.

But, Rich, let me just add one more thing. I think we had a very difficult time to operate. We had a lot of debt after acquisition of SCI. Today, especially if you look at the last three years, we’ve brought it down to what I’d call reasonable. Personally I don’t like any debt and we’ll continue to drive debt down, but we have a lot more flexibility to do what’s right today in how we’re going to grow each of these businesses. So we’re not going to do anything crazy. I think, in a flat market, we’re going to continue to generate cash, try to improve the margin in each of these businesses. And in our growth area, I really believe we’re going to be throwing a lot of cash to the bottom line, because each of these businesses are now poised to do better. And I would like to leave it with that. So I appreciate your positive comments, but we’re really excited what think we can accomplish the next couple of years. Rich Todaro – Kennedy Capital: Thanks a lot, guys.

Yeah. Thanks, Rich.

Your next question comes from the line of Amit Daryanani with RBC Capital Markets.

Hello, Amit.

Hi, Amit. Amit Daryanani – RBC Capital Markets: How you guys doing?

Good. Amit Daryanani – RBC Capital Markets: Just a couple of questions from me. One, sequentially, obviously we get gross margins have declined by about 40 basis points or so on the op line. Is there anything beyond the fact revenues will decline 3% or so sequentially that’s driving that op margin declines?

Well, the biggest issue – you’re talking about the Q1 guidance? Amit Daryanani – RBC Capital Markets: Yeah.

Yeah. The biggest issue of course is that revenue was down from Q4 to Q1, and that impacts all line items. If we had obviously similar revenue, I think we’d be able to continue to see some progress on margins. Amit Daryanani – RBC Capital Markets: Got it. And then, I think you guys had – and maybe I didn’t hear this properly, but you mentioned you had a one-time benefit from a government incentive program in a foreign country. Was that on the interest income line, and could you quantify that number for us?

Yeah, it was in the other – we call it other income and expense line, which includes interest expense. And, yeah, that item was around $2 million. Amit Daryanani – RBC Capital Markets: And then just finally, you guys are obviously looking at communications network segment to be down sequentially in the December quarter. That’s, again, seasonal trends. Is there something specific you’re seeing with them, be that within wireline or wireless infrastructure, that’s driving that or is it really just broad-based demand softness across all the different sub-sectors there?

No, it’s as I mentioned, Amit. That’s really mainly driven for us on that wireless access product. Rest of the networking, what we call communication networks, are actually pretty good shape. Amit Daryanani – RBC Capital Markets: Perfect. Thanks a lot.

Yeah. Thank you.

Thank you, Amit. Operator, I think we have a time for one more question.

Yes, sir. Your next question comes from the line of Osten Bernardez with Cross Research.

Hello, Osten. Osten Bernardez – Cross Research: Hey, Jure. Good morning. Thanks for taking the question. When I look at the mix of your components business, aside from the activity that’s taking place with respect to PCBs, where do you see the greatest margin improvement opportunity going forward into 2013?

Well, as I said earlier, I’m very excited about our Global Services, which is repairs, logistic both forward and reverse. A lot of engineering services there that we sell. So that’s basically in the bag. I think that business is moving in the right direction. I think our products groups, both our storage products, defense, mission-critical products and also our solid-state drive solutions, what we call Viking Technology, I think all three of those have a fair amount of opportunity. And then, I see, as I mentioned earlier, we – unless the whole economy falls off the cliff, I would expect better results – or should I say, improvements from our high technology printed circuit boards and backplanes, and our mechanical systems group. Osten Bernardez – Cross Research: And how should we be thinking about the – obviously you’ve done the internal studies to see – to make the decisions that you needed to make with respect to the upcoming restructuring, but how susceptible are the other sub-segments of your business, so the components business, to future restructuring?

Well, first of all, as Bob mentioned earlier, we do a lot of reviews on all our businesses on a quarterly basis. We believe that what we have today, after this transformation – and really this transformation has been planned for a long, long time – we always review it. We made a major commitment, and with the investments in China, we got basically a huge new factory there. It just didn’t make sense for us to have two similar type of factories, one in Malaysia and one in China, when we feel that one can provide the solution. And also, I think it’s important to understand type of product that we build; these are really – we’re driving to advance printed circuit boards that we can compete on some of these things even from North America. So we’ve been investing heavily in our North American operations that provide for a unique technology. So we feel comfortable with what we have today. We’ve be tuning these things up. Most important for us right now is really the growth of these. And I believe we need some demand to improve. But as that demand comes, I think operationally we’re ready to execute. Osten Bernardez – Cross Research: Thank you very much.

Well, ladies and gentlemen, that’s all we have for today. I again appreciate your time and appreciate you letting us reschedule; and it’s an unfortunate thing that we have to do it, but I appreciate you guys being in our call today. If you guys have any more questions, we’d be ready to answer this at any time, so give us a call.

Yeah, thanks, everyone. And we’ll see many of you in New York in a couple of weeks.

All right. Bye-bye.

This does conclude today’s conference call. Thank you for your participation. You may now disconnect.