Good afternoon. My name is Ian, and I will be your conference operator today. At this time I would like to welcome everyone to the Sanmina Third Quarter Fiscal 2014 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. Paige Bombino, Director of Investor Relations, you may now begin your conference.

Thank you, Ian. Good afternoon ladies and gentlemen, and welcome to Sanmina's third quarter fiscal 2014 earnings call. A copy of today's release is available on our web site in the Investor Relations section. You can follow along with our prepared remarks in the slides posted on our web site. Please turn to the Safe Harbor statement. During this conference call, we may make projections or other forward-looking statements regarding future events or 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 global 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 risk factors that could cause actual results to differ materially from our projections or forward-looking statements. You will note in the press release and the slides issued today that we have provided you with statements of operations for the three months and nine months ending June 28, 2014 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 the press release and the slides posted on our web site. 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, taxes, 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, and good afternoon ladies and gentlemen and welcome. Thank you all for being here with us today. With me on today's conference call is Bob Eulau, our CFO.

Hello everyone.

For agenda, Bob and I will review our financial results for the third quarter. I will follow with comments relative to Sanmina's results and future goals. Then Bob and I will open for question and answers. And I will turn this call over to Bob. Bob?

Thanks Jure. Please turn to slide 3; overall, the third quarter was better than expected from a revenue, margin and cash generation perspective. Revenue of $1.605 billion was up 8.7% on a sequential basis, and up 7.8% from the third quarter last year. Our gross margin came in at 8.0%, which was down 20 basis points from the second quarter, and up 20 basis points from the third quarter last year. Operating margin increased 20 basis points from last quarter and 50 basis points from the third quarter last year, to 3.8%. Non-GAAP EPS was $0.53, which was above the high end of our guidance for the quarter. This was based on 86.2 million shares outstanding on a fully diluted basis. Cash flow from operations was outstanding at $152 million this quarter. We repurchased about $6 million of our common stock. Finally, as many of you know, we made a significant change in our capital structure this quarter, which I will discuss in a few minutes. Please turn to slide 4; revenue was up $128 million or 8.7% from Q2 to $1.605 billion. From a GAAP perspective, we reported net income of approximately $21 million, which results in earnings per share of $0.24. This was consistent with last quarter in both dollars and earnings per share. This was achieved while incurring a net charge of $8.2 million associated with the refinancing of our debt. The restructuring costs for Q3 were $2.3 million. Going forward, we expect our restructuring costs to be around $2 million to $3 million associated with real estate we have on the market to be sold. At the end of June, we had about $70 million of real estate on the market at list price. My remaining comments will focus on the non-GAAP financial results for the…

Thanks Bob. Ladies and gentlemen, I will review the business environment for the third quarter and what we are seeing for September quarter. I am pleased with our third quarter results, as we continue to benefit from new programs and a stable demand from our key customers. We continue to be focused on basics of our strategy, by improving operating margin, continue to diversify our businesses, and customer base. As Bob mentioned, the key to our strategy is continue to drive quality of growth which remains priority number one for us. Overall, good quarter with solid results. Things are good with challenges and opportunities, as we continue to focus on Sanmina's core strength. Now please turn to slide 11; here I want to talk to you about the third quarter revenue by end markets. On a very positive side, that each of our end market segments grew in the third quarter. Top 10 customers represented 51% of our revenue, and we had no customer at 10%. For Communication Networks, it was up nicely, 5.6%. Overall, demand was pretty stable in this segment, but where wireless and optical networks were strong. Industrial, Medical and Defense segment was strong, up 15.1%. Industrial was strong, mainly driven by new programs. Medical overall strong growth during the quarter, Defense was strong. We basically experienced weaker demand on some of our existing programs. Computing and Storage up nicely 5.7% on stable overall demand. But we also had some good activities with our new projects, which are starting to deliver. For Multimedia, was up nicely 3.6%, on better demand than what we expected, and also a new project helped us overall growth in this segment. Now please turn to slide 12; now let me talk to you about our fourth quarter outlook by market segments. Fourth…

(Operator Instructions). And your first question comes from Brian Alexander at Raymond James. Your line is now open.

Hello Brian.

Hi Jure. Hi Bob.

Hi Brian.

Congrats on a nice quarter and all the work on the balance sheet. I just want to touch the revenue for a second. So it's a second quarter in a row where revenue came in at the high end of the guidance. Previously, the last several quarters, you were basically near the midpoint of your guidance. And if we look at where the upside came from, its mostly in Industrial, Defense, Medical, and it sounds like Industrial in particular. I mean, growth in IDM was up over 40% year-over-year, that's obviously well ahead of the overall market. So can you just kind of walk through IDM in particular, what specifically is driving the upside in that segment for the second quarter in a row, in terms of sub-segment, in terms of how representative that is across customers? And I know you talked about in oil and gas acquisition again this quarter, so I wanted to get more color on how that business is doing?

Well Brian, let me make a few comments in that. First of all, this is a business that we have been focusing for the last couple of years to drive the growth. We believe we are well positioned. We offer a lot of good technology in this segment, both -- in Industrial, Medical, and also in our Defense. Industrial specifically in this quarter was very strong. We extended a partnership with a very key customer of ours that we had a long relationship, and we took over one of their factory basically, as Bob mentioned, we spent some -- little bit money there, buying their inventory and few pieces of equipment. That was part of the strategy, and we worked on this for a long time. Most importantly, we believe what we developed, including oil and gas in this segment, that now we are positioned to continue to have a stable demand. We also have some new programs in that segment that I believe will continue to expand. It’s a good area for us, and we believe that we offer the right solution for our customers there.

Hey Brian, it's Bob. I just want to clarify, that acquisition this quarter was in the Industrial segment, but it was not in Oil and Gas.

Okay. And I guess, what was the contribution to revenue of that acquisition and what was the nature of that acquisition?

Yeah, I mean, we don't get into specifics with a given customer, but it clearly was an important part of the growth that you saw in the Industrial, Medical and Defense segment.

But if I can add to that, again Brian, it's a strategic long term partnership that we establish with one of our key customers that we have been doing business for a long time. We just expanded our relation. This was part of our planning for the last 12 months, and it's really -- most importantly a great customer, and it’s a customer that we can have for many-many years. The ball is in our court, it's all about execution, and continue add technology.

So if I look at the growth in Industrial, the $170 million roughly of year-over-year revenue growth, how much of that is coming from these two acquisitions, oil and gas and then the new Industrial?

So first of all, in last quarter, overall we saw the growth in all -- basically, in overall Industrial business, even without this new acquisition that we got. We don't release the percentage how much we got from oil and gas six months ago. But overall, definitely, those two are very -- two critical projects that we worked on, like I said, over a year ago, and it's really what's going to drive -- what's driving this business today, and Brian, what's going to drive this business in the future. So it’s a good two solid customers.

Great. Okay. Thanks for the details.

Thanks Brian.

Your next question comes from the line of Sean Hannan from Needham & Company. Your line is now open.

Hello Sean.

Hi. Good afternoon. Thanks for taking my questions here. So just a question on the guidance; can you talk a little bit about your expectations for how you view the IMS piece of the business moving next quarter in the likelihood of the margins directionally, as well as if you can go into that four components a little bit? Thanks.

Yeah Sean, definitely. We believe there is room for improvements in margin, in our IMS business. We are expecting that IMS business to improve the top line and the bottom line next quarter. As you look at the component businesses, definitely, there is a lot of leverage in that side of the business, as we talk to all the investors and analysts in May, when we were in New York on our Analyst Day. We expect those margins to improve over there. Today, it's going to take some time. But there is room for improvement. We are not hitting on all cylinders. I run this company every day, I know we can do better. So it's going to take some time, but I think we are moving in the right direction. Most importantly, we are improving quality of the customers that we have, and quality of the business that we are winning. And I believe, and rest of my management believes, that's the right strategy for us, to continue to add more technology, better solution, and focus on the area that we are good. And as long as I think we stay on that track, I personally believe, it would allow us to hit our long term margin goals.

Okay. That's helpful. So if I were to then specifically look into the computing business of yours, it sounds like we are getting some positive commentary here from you folks today. In general, it seems that there have been at least some encouraging data points that have been starting to emerge in the pockets. Just wanted to get your viewpoints on what you are perhaps seeing at an industry level, beyond just project orientation that you are designed in on? And then secondarily, do you see if we can get a pulse check on the ODM storage business of yours? I think there was a sense from the Analyst Day, that we could perhaps be getting some momentum finally here, materializing the back half of calendar 2014 in terms of business wins. So I just wanted to get a sense of whether that remains on track, or instead, maybe the foot is coming off the pedal already? Commentary around that would be great. Thanks.

Okay. First of all, in the Computing section, overall as I mentioned, we had a stable demand, and we are starting to see more activities. Some of the new programs that we won, and they are starting to deliver. First of all, in this segment in last quarter, some of our key customers did better, and that helped us to grow. I think as an industry, we feel very optimistic -- opportunities that is in this segment that we are focused on, and we are working very hard to really expand our relationship with existing customer base that we have, and also we are working -- some good opportunities to expand to the new customer base, and that's where I see more growth in some of these new opportunities that we are working on. When it comes to the ODM specifically, our new ISIS products. Again we work -- delivering our solution, and also joint development with our customers. We are doing a little bit better, than let's say, three months ago. We still have a lot of more leverage in that side of the business. Yes, I would expect that business to improve for us, and on a quarterly basis. Again, a lot of good opportunities, so we will see how these things move, and we will continue to bring new products to the market, which I think is going to speed up some of the growth. So overall, optimistic in this segment, and probably more optimistic, as we get into 2015.

That's great. Thanks so much.

And your next question comes from the line of Wamsi Mohan at Bank of America Merrill Lynch. Your line is now open.

Yes thanks, good afternoon.

Hey Wamsi.

Hi Wamsi.

Hey Bob, Jure. As you look at your Industrial, Medical and Defense segment at 36% of revenues, I mean a year ago, it was in the high 20s, so rapidly approaching the size of your Communication Networks business segment. Do you think that, as you look at the pipeline of new wins that you have and the investment that you are making in the Industrial, Medical, Defense segment, that for the next 12 months, do you see any quarter, in which this might become the largest segment, or do you see that within the next two years, this becoming the largest segment, and I will follow up?

Well Wamsi, if you look at these market opportunities in Industrial, Medical, and Defense for us is actually huge, it's bigger than a communication business for us, from an opportunity point of view. So can we get that in two years, to the same percentage or bigger, the answer is yes. We expect to grow from this point and we continue to diversify that spot of our key strategy back to the quality of the growth, and diversify each of the businesses and companies that are sustainable and repeatable for many years to come, and that's really the key to our strategy, is to focus on quality, quality of the growth, and I will be repeating this stuff, but we also repeat this internally every day, because we are not interested just to chase revenue for revenue's sake, unless we believe that is our long term relationship that is repeatable, and allow us to make a little bit of money. So back to the Industrial, Medical and Defense; it’s a huge potential. On the Defense side, that has been kind of flat and down, but we have been really focused on that. We believe there will be lot of activities in fiscal year 2015, hopefully more than in 2014, and we all know that the world is not the safest place, and that the Defense business will continue to expand. I believe we are planting lot of seeds in that side of the business, and we expect that side to help us. So overall, we are still very optimistic. At the same time as you know Wamsi, this is a business that moves slowly; so that's good and bad. It takes a long time to win the customers, but also if you do -- once you win and as long as we do a great job and continue to add value, this customer will stay with you for many years to come.

Okay. Thanks for that color Jure. And what I find particularly, I guess, impressive in the quarter is that, you had a really strong quarter-on-quarter revenue increase, that's one of the strongest we have seen in a long time. Part of it is somewhat in organic, but we haven't seen this sort of sequential increase since 2010. But at the same time, your incremental margins have been really strong. So I was wondering, do you see the trend of incremental margins continue to exceed the reported margins over the next 12 months, or are you going to see a more rapid sort of convergence between the two?

Hey Wamsi, it's Bob. So our goal again is to drive the right mix of business. So we are trying to find opportunities where we can expand our margins over time. I think in each segment, it’s a little bit different. On the IMS side, it's really a matter of going out for the complex products, so we can add more value, and have sustainable relationships, and over time, get some margin expansion. On the Components, Products and Services side, those are already inherently higher margin businesses, and so it's really a matter of winning our fair share of those and I think with both of those actions, we will see margins expand over time.

And if I can add to it, Wamsi, again, as we mentioned in our Analyst Call in New York, the key here is, pulling right business into assets that we have. We believe we have a lot of capabilities, that -- well you know, Components, Products and Services. How do we expand those, how do we load those up, will really drive that margin, and how do we load up these other assets that we have in IMS that are on the world, which we have some great assets, some great capabilities. So the key is again, the quality of the customer. I think that's what's going to drive us and help us the most.

Thanks guys.

Thanks Wamsi.

Thank you.

Your next question comes from the line of Joe Wittine at Longbow Research. Your line is now open.

Hi thanks. Congrats on the quarter. Bob, on Components gross margin, just looking back; a year ago we are 80 bps higher. Specifically, what would it take to get back to that level in the near future, or did something structurally change in the mix, etcetera?

Yeah, so hi Joe. I think you're asking about the overall segment, Components, Products and Services?

That's right.

And within there, we also have mix issues. So we talked about that before. I mean, Components as an area. Within that segment, where we have said quite candidly, there is room for improvement. We have made some progress. We still think there is more room for improvement there. Products, it's really a question of mix that we have, in any given quarter, and then Services has been a real steady performer for us. So I can't say when we will get back there. We really expect to do quite a bit better than we did this past quarter over time. But again, its very mix dependent, because the margins are quite a bit higher in some of the areas within that segment.

Okay, got it. And then, just switching over to the acquisitions quickly; in both of these situations, did you take over existing facilities at the customer base, or are you moving these into existing Sanmina facilities? Thanks.

In these two cases, we did take over facilities for the customer, and over time, will expand and hopefully move some other customers into each of those sites.

Okay. Then one more quick follow-up kind of on that topic. This real estate you have listed, I think it has been a while since it has been talked about. What's the strategy in keeping it out there so long? I mean, just the fact that it's sitting out there for years, kind of suggest that the prices you have it listed for are necessarily that realistic. Why not drop the prices in and get rid of it and drop this issue, or are these maybe such unique facilities that it's tough to find a buyer at all.

Well, first of all, we would love to sell it immediately. They aren't particularly liquid assets in many cases, so we have to be patient. And I'd also note, that we have sold quite a bit of real estate over last four to five years. So I think one year, we sold about $30 million, we probably averaged somewhere around $20 million a year. So we are definitely motivated to sell, we are not going to sell at any price, but we are hopeful, as the economy continues to improve, that we will have opportunities to liquidate more property.

Okay, thanks. Congrats on the growth.

All right.

Your next question comes from the line of Osten Bernardez at Cross Research. Your line is now open.

Hi, good afternoon. Thanks for taking my questions.

Hi Osten.

Hi Osten.

With respect to Communications, can you provide some color, in terms of -- from an outlook perspective, what sort of pace of sale should we be anticipating? Are you foreseeing any sort of ramp up in production in the coming quarters [indiscernible] into that? How would you characterize your forward forecast on your customers today, versus say a quarter or two ago?

Osten, is that for Communications segment?

Yes, only for Communications.

First of all, as I mentioned in my prepared statement, we expect to have a stable demand to continue, overall, more revenue than last quarter from that segment. I think, customers are feeling positive of what's in front of them. I think we are benefiting from a global expansion for the telecommunication infrastructure. We are well positioned with all the key players in that segment. We have a high reputation. So I would expect it for us, definitely next quarter to be better, and I am hoping to continue to be a little bit better in 2015.

And with respect to customer forecast today, longer term forecast?

That's what I said, I am not ready to give a long term forecast, but I would case everything I see today in projects that we are involved, the one we accomplished in 2014, another quarter to go. I believe we are well positioned for 2015 in this segment and other segments of our business.

And then, just to clarify, with respect to IMS gross margin for the quarter, quarter-over-quarter, would it tick down primarily the function of mix or startup costs with respect to new deal?

It was really related to mix, and I think had commented in each of the last two quarters, that we had a particularly good mix at IMS. So its not a bad mix this quarter, its just not as strong as it was in the last two.

Thank you very much.

Thanks Osten.

And your next question comes from the line of Jim Suva at Citi. Your line is now open.

Thank you and congratulations to you and your team there, really impressive great results.

Thanks Jim.

Thank you, Jim.

On quarter's time, you know.

On the commentary about the two acquisitions, if my memory serves correctly, am I correct that one was in prior to when the quarter closed, I think it was the oil and gas one, and then the other one occurred during this quarter, is that correct?

Yes, that's correct.

All right. Then of that one that was included that closed during that quarter, was that in your original guidance and outlook that you gave us about three months ago?

Yeah, one of the reasons we gave such a wide range last quarter, was we weren't 100% sure on the timing, when that acquisition would close, and so the way it ended up closing, we were able to get towards the high end of the range.

Got you. Okay. And then when we look at -- can you just help us out with the organic growth rate, whether it's quarter-to-quarter or year-over-year that Sanmina saw, and does it flow into the September quarter for -- I don't know, if it closed midway through the quarter? It must have, because we did our conference call about a month after your quarter closed?

Jim, this is Jure. I think its very hard to say. As far as we are concerned, this is all organic. This is a customer of ours that basically did not outsource any of the business before, and we had the relationship with them, and we work in this project. We have multiple projects with this customer, and they don't want us to talk too much about it. So as far as we are concerned, this is all organic. It's no different, because we only bought here ere is material and some equipment. So its no different than if we went down the street and bought a brand new equipment and go and order the material. The most important part of this project is that we were able to expand existing relationship, and this relationship has a great future, because both our customer wants -- I think, we provide right solution. So we are very excited about it, and breaking it down, as far as we are concerned, its organic.

Okay. And with this new one, do they move into the top 10 list, as far as [indiscernible] goes?

Well, hopefully one day.

Got you. Well again, congratulations to you and your team there at Sanmina, truly great results.

Thanks Jim. A lot of work left, but things moving in the right direction.

And your next question comes from the line of Mark Delaney at Goldman Sachs. Your line is now open.

Thanks very much for taking the question.

Hey Mark.

How are you doing?

Good.

I was just hoping first you could elaborate a little bit more on this new oil and gas customer; and I apologize if I missed this, but can you disclose how much cash you used to acquire the tools and material?

First of all, oil and gas partnership came in last quarter, and partnership with this Industrial customer happened to be in the middle of this quarter, plus or minus there a few days. And Bob, I thought you already --

Yeah, it was I believe $27 million in cash that we invested for the acquisition that we closed this quarter.

That's what I was looking for, thanks Bob. And then, in terms of the benefit from the debt refinancing, I know Bob, you said there was some incremental benefit that weren't going to be recognized until the third quarter, because of the timing of the tender. Could you just help us understand, how much more savings you'd get in the December quarter, when you get the full quarter's benefit of the second tranche of the 7% debt that you called?

Yeah, I don't want to get too far out into time. A lot of the net present value we got out of this transaction was for the future years, not so much the current year, because we had swapped the existing debt to floating, and -- what we have been able to do now is lock-in rates very similar to what we were experiencing on a floating rate basis. So while the MPV is driven by what we expect to be lower interest expense out in future years, much less so in the current year.

Got it. And then one last one, I know you talked about firming customer forecast in the Communications end market, and how Sanmina has been well positioned on newer programs and that positions you well within that market, and there has also just been some industry chatter, there had been about potential pushouts in parts of the wireless segment. I am hoping you could help us understand; did you guys see any of that, and was it just your position on certain projects helping you to still have growth in the Communications segment, or do you just think that the market forecast was stronger than some people had expected?

Yeah. First of all Mark, let me qualify [ph] that I am not a market expert like Bob, and actually we were talking about today. I think lot of times, we can only make comments, what we know is in projects that we are involved in. as you know, we operate in global environment with global customers. I think we are fortunate enough that the projects that we involved are doing well, will expect them to do well, as I mentioned earlier for next quarter. And I think overall our segment should -- as long as the economy is there and nothing crazy happens, we expect that we will do, in that segment, good, in 2015. So right now, I am optimistic, that's all I can make a comment.

Got it. Thank you very much.

Operator, we have time for one more call.

And your next question, last question, comes from Sherri Scribner from Deutsche Bank. Your line is now open.

Oh I squeezed in.

Hi Sherri.

Hi guys, how are you?

The best, the last, you know.

Thank you. Just wanted to ask a quick question about Communications, circle back with that. Communications has been declining on a year-over-year basis over the past couple of quarters and the guidance suggests another decline. So I am just trying to understand, should we expect Communications to continue to decline as we move into fiscal 2015, or do you think that will start to stabilize and maybe we will see some growth?

To make sure that I did understand it right, we did not say that the Communication will decline in September quarter.

Okay. But on a year-over-year basis, depending what you assume for the Q-over-Q growth, it still looks like its going to be a year-over-year decline?

But let me quantify on that, I think with Sanmina, you have to -- as much as I would love to be compared, we made lot of changes in this company in the last year and a half, especially, exiting certain businesses and so on and so on. The businesses didn't make lot of money for us. So really, from my point of view, to me its not that critical right now to compare it year-over-year; maybe a year from now, it will make more sense to do that. I will say Communications for us, I think I said our last quarter will do -- I believe my Communications business will be stronger the next four quarters. I think I said it three months ago, six months ago, than the last four quarters. We still believe that there is some great opportunities. End of the day, we got to continue to fight for every order, and continue to add value to our customers. But Sherri, I am optimistic of what's in front of us; on that segments. And as I always said, I think we are back to the basics. We are going to take one quarter at a time, and make sure we don't get ahead of ourselves.

Okay. All right. So it sounds like potentially, there could be some growth next year on a year-over-year basis, as we turn them around?

Yeah, I would expect that. Assuming that economy is okay, there is lot of crazy things going in the world right now, but as long as economy is there, I believe Sanmina will be fine, and the good thing is we are well positioned today. We have been in the best position since 2000 right now that we can operate in any environment. So we are really excited what's in front of us.

Okay, super. And then Bob, just quickly with all the changes in the debt, can you give us a sense of what you think interest expense should be in fiscal 2015, and then what type of tax rate should we use? Thanks.

Yeah. So again, as I just mentioned, most of the interest expense benefit is in future years, and I guess, 2015 is one of those. I think interest expense will be relatively flat. I mean, part of what we did is, we took the floating rate debt out, and we are much more fixed than we were before. I would probably model it somewhat similar on a run-rate basis. And then from a tax rate standpoint, we think right now, the run rate on a pro forma basis is around 16.5% and that's the best information we have. I wouldn't anticipate it changing as of today, but you never know, I mean, tax laws change all over the world, it seems like quite a bit. But right now, I think 16.5 is a number I would use.

Okay, great. Thank you.

Thanks Sherri.

Thanks Sherri. Well ladies and gentlemen, that's the end of our call today. Appreciate your time -- you're spending with us today. If we didn't answer all your questions, please give us a call. In the meantime, thank you again for your support, and looking forward talking to you 90 days from now. Bye.

Bye everyone.

This concludes today's conference call. You may now disconnect.