Flextronics Q3 2005 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brian White - Kaufman Brothers - Analyst : Good afternoon. Michael, could you talk a little bit about the revenue schedule from Nortel? You talked about the payment schedule, how do you think the revenues will pan out for the -- by quarter over the 2005?

Question: Brian White - Kaufman Brothers - Analyst : Okay.

Question: Brian White - Kaufman Brothers - Analyst : Okay. And then, could you talk a little bit about your software business. How big that is today? How many employees are in that business? And how many -- how many acquisitions have you made of Indian software companies? Thanks.

Question: Brian White - Kaufman Brothers - Analyst : Okay. Thank you.

Question: Alex Blanton - Ingalls & Snyder - Analyst : Good afternoon. I was surprised, Michael, at the size of the medical, industrial --

Question: Alex Blanton - Ingalls & Snyder - Analyst : -- and automotive. But we don't know very much about who the customers are there. Could you list off some of the major customers that's part of that? It's over $2 billion annually. And there must be some pretty sizable piece there.

Question: Alex Blanton - Ingalls & Snyder - Analyst : Just a clarification, you gave some numbers for Nortel during your presentation.

Question: Alex Blanton - Ingalls & Snyder - Analyst : What were those, 85, 210, 210?

Question: Alex Blanton - Ingalls & Snyder - Analyst : That's cash payments.

Question: Alex Blanton - Ingalls & Snyder - Analyst : So if according to what Tom just said, you're looking at a $2 billion run rate when this is fully geared up, this would be in the September quarter? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Alex Blanton - Ingalls & Snyder - Analyst : Okay. Thank you.

Question: Steven Fox - Merrill Lynch - Analyst : Hi, good afternoon.

Question: Steven Fox - Merrill Lynch - Analyst : Just looking at your operating margins again. I'm just curious if there's anything else you would call out that helped, besides, obviously, volumes, during the quarter, whether it was some of the vertical businesses standing out more? And then secondly, could you just mention what your off balance sheet receivables stood at the end of the quarter? Thanks.

Question: Steven Fox - Merrill Lynch - Analyst : Okay. Great. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Steven Fox - Merrill Lynch - Analyst : Okay. Thank you very much.

Question: Shawn Severson - Raymond James - Analyst : Good afternoon. Michael, could you give a quick update on, kind of, the ODM business and how that progressed in the quarter and your outlook and maybe your goal, talk about your goal again for the end of the year?

Question: Shawn Severson - Raymond James - Analyst : Thank you. Fair enough. Just a quick follow-up, then.

Question: Shawn Severson - Raymond James - Analyst : What's the general trend that you've seen out there in the business. I know it's going to vary by segment and end market. But you think people are feeling better or worse? Are you feeling better or worse than you did on the last call, as far as, kind of, the longer outlook for '05 for the calendar year?

Question: Shawn Severson - Raymond James - Analyst : Thank you.

Question: Lou Miscioscia - Lehman Brothers - Analyst : Okay. Great. I guess, Michael, just keying on the comment you just made, suggesting that the industry probably won't grow by 10 or 12 percent. Do you think that we're running to a little bit of waiting for some of the new markets to sort of mature, maybe bring bigger chunks out as you pointed in the medical, industrial, automotive, and then we'll get back to maybe 5 percentage points, let's say, above the end markets? Or do you think that we're in a period where it's only going to add, let's say, 2 or 3 kind of points just because top lines of a number of the EMS companies are starting to get larger.

Question: Lou Miscioscia - Lehman Brothers - Analyst : Then it wasn't EMS industry. Okay.

Question: Lou Miscioscia - Lehman Brothers - Analyst : Okay. Great. 1 quick follow up. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Lou Miscioscia - Lehman Brothers - Analyst : If you could just comment as to why Europe and America is actually look like they, as a percent of the business, actually increased a little more, where obviously -- obviously, you're so strong in Asia, would have thought that that would have maintained more growth.

Question: Lou Miscioscia - Lehman Brothers - Analyst : Okay. Great. Good luck on the new calendar year.

Question: Thomas Hopkins - Bear Stearns - Analyst : Yes, good afternoon, Michael.

Question: Thomas Hopkins - Bear Stearns - Analyst : First, can you touch base with us or give us a one-on-one on -- on what happens when a large customer may consider divesting a unit where you have a contract. And I'm speaking specifically about Siemens.

Question: Thomas Hopkins - Bear Stearns - Analyst : I don't know if you can tell us anything specifically about some of the stories about them potentially divesting their handset unit. But we've seen you go through this before with Sony Ericsson.

Question: Thomas Hopkins - Bear Stearns - Analyst : So, if you could just review what that's like and what people can expect?

Question: Thomas Hopkins - Bear Stearns - Analyst : Okay. Then, as a follow-up, just to look at your margin improvement from another angle, almost every quarter, it seems like the market's betting you're not able to improve your margins and they inch up. This quarter the improvement almost entirely came at the gross margin line. It wasn't any -- doesn't seem to be much SG&A improvement as a percentage of sales. Can you talk about it from that point of view?

Question: Bernie Mann - Morgan Stanley - Analyst : Hi, Good Evening.

Question: Bernie Mann - Morgan Stanley - Analyst : A question for you, Tom. The Nortel revenues that you gave, the 100 million in March, the 300 million in June, and so on, is that the systems integration part of the business?

Question: Bernie Mann - Morgan Stanley - Analyst : Okay. Have you already started to bring in house, though, some of the printed circuit board assembly or printed circuit board fabrication?

Question: Bernie Mann - Morgan Stanley - Analyst : Can you estimate, maybe, how much that contributed in the December quarter? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Bernie Mann - Morgan Stanley - Analyst : Okay. And then just following up on the margin improvements, on the gross margin line. So for the last 6 quarters you've improved gross margins on a sequential basis. Do you think you'll be able to continue that in the March quarter, given that utilization is going to fall off a little bit?

Question: Bernie Mann - Morgan Stanley - Analyst : Okay. And what was the biggest driver of the gross margin improvement? Is it the business mix into the industrial, medical, the higher utilization in the December quarter, or better pricing?

Question: Bernie Mann - Morgan Stanley - Analyst : Yes. It was a pretty big improvement on a sequential basis, like 50 basis points.

Question: Bernie Mann - Morgan Stanley - Analyst : All right. Great. Thanks.

Question: David Pescherine - Smith Barney - Analyst : Good afternoon, gentlemen. Michael, you spoke a little earlier about market share shifts in the handset market, and there's obviously increasing concerns about price wars with the handset vendors as secular growth rates slow down. So, can you just give us a little bit of understanding about what you expect to happen in terms of the margin in return dynamics, specifically from that end market? Then just give us a little bit of insight into are you seeing increasing pieces of potential business? Or are handset vendors looking to increase the rate of outsourcing? Or are they maintaining their slow and steady rate of outsourcing to you folks.

Question: David Pescherine - Smith Barney - Analyst : Well, I guess, in terms of what -- what do you perceive your penetration rate to be?

Question: David Pescherine - Smith Barney - Analyst : So, if you've got some customers who're losing share, and some who are gaining. Are the customers who are losing share, are you fully penetrated with them, or are they coming back to you and saying, hey, you're only doing 30 percent of our manufacturing, we'd really like to get 70 or 80, and really, really get some better efficiencies out of the manufacturing process? I mean, what are those conversations like?

Question: David Pescherine - Smith Barney - Analyst : Great. That's very helpful. Thank you.

Question: Todd Coupland - CIBC World Markets - Analyst : Yes. Good evening.

Question: Todd Coupland - CIBC World Markets - Analyst : I was wondering if you could give us the core levers that will bring you to, either the high end or low end of the guidance over the next couple of quarters. Just talk about that, please. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Todd Coupland - CIBC World Markets - Analyst : Great. Thanks a lot.