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Sanmina-SCI Corporation (NASDAQ:SANM)

F2Q09 (Qtr End 3/28/09) Earnings Call

April 22, 2009 5:00 pm ET

Executives

Paige Bombino – Investor Relations

Jure Sola – Chairman & Chief Executive Officer

Hari Pillai – President & Chief Operating Officer

Todd Schull – Senior Vice-President, Corporate Controller & Acting Chief Financial Officer

Analysts

William Stein – Credit Suisse

Jim Suva – Citigroup

Sherri Scribner – Deutsche Bank

Louis Miscioscia – Brigantine Advisors

Amit Daryanani - RBC Capital Markets

Sean Hannan – Needham & Company

Joe Wittine – Longbow Research

Operator

Good afternoon. My name is Molly and I will be your conference operator today. At this time I would like to welcome everyone to the Sanmina-SCI's second quarter fiscal 2009 conference call. (Operator Instructions). Thank you. Ms. Bombino, you may begin your conference.

Paige Bombino

Thank you, Molly. Good afternoon, ladies and gentlemen and welcome to Sanmina-SCI's second quarter earnings call. Today's call is being recorded and is posted along with a copy of the earnings release and slide presentation on the company's website at www.sanmina-sci.com in the Investor Relations section. You can follow along with our prepared remarks in the slide posted on the website. Please turn to page two, 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 operation 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 changes.

We refer you to the documents in the company filings from time-to-time with the Securities & Exchange Commission, specifically the company's most recent Annual Report on Form 10-K for the year-ended September 27, 2008 filed on November 24, 2008. As well as the most recent report on Form 10-Q for the quarter ended December 27, 2008 filed on February 2, 2009. 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 issued today that we have provided you with the statement of operations for three and six months ended March 28, 2009 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 is posted on our website. In general, on our non-GAAP information excludes restructuring and integration costs, impairment charges, gains or losses on extinguishment or repurchase of debt, 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 income statement measures will be directed at our non-GAAP financial result. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, SG&A and R&D expenses, operating income, operating margin, net income, or 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 CEO. Jure?

Jure Sola

Thanks Paige. Good afternoon ladies and gentlemen and welcome. Thank you for being here today. Joining me on this conference call is Hari Pillai, our President and Chief Operating Officer.

Hari Pillai

Good afternoon.

Jure Sola

And also Todd Schull, our Senior VP of Finance, Corporate Controller and also Acting CFO.

Todd Schull

Good afternoon everyone.

Jure Sola

So, agenda today is that Todd Schull will review our financial results for second quarter fiscal year 2009. Then I'll follow additional comments relative to Sanmina-SCI results and future goals. Then Hari, Todd and I will open for question-and-answers. With that Todd.

Todd Schull

Thank you Jure and good afternoon everybody. Please turn to slide three. Revenue for the second quarter of fiscal 2009 was $1.2 billion, down 16% versus $1.4 billion in the first quarter and below our internal goal of $1.3 billion. As we noted in last quarter's call, visibility going into the second quarter was very poor and the declining economy resulted in revenue being less than we had anticipated.

Jure will provide more insight into our revenue in his comments shortly. For the second quarter, we reported a GAAP loss of approximately $37.5 million, which equated to $0.07 per share. We reported a non-GAAP loss for the quarter of $30.9 million or $0.06 per share and this compares with a break-even earnings per share in the prior quarter. Gross profit for the second quarter was $70.6 million. As a percentage of sales, gross profit was 5.9%, which was down approximately 80 basis points from the first quarter due to the impact of reduced revenues partially offset by our cost reduction efforts.

Operating expenses excluding stock compensation expenses were $59.1 million, down approximately $5.6 million from the prior quarter. These expenses have continued to trend downward over the last year as we have focused on reducing infrastructure costs. Operating income was $11.4 million. Our operating margin was 1.0%, down 120 basis points from the first quarter. We continue to aggressively restructure our global operations and administrative functions to reduce cost. We've made significant progress and we are not done.

We expect to realize additional improvements as we take further actions over the balance of this year. Since the first quarter of 2008, we have been able to reduce our operating expenses by more than $30 million a quarter. Net interest and other expense, which consists primarily of interest income and expense as well as gains and losses from foreign currency exposures was $39.9 million, an increased of $3.7 million from the first quarter. This increase was due primarily to foreign exchange losses resulting from significant rapid changes in exchange rates during the quarter particularly in January.

Tax expense for the quarter was $8.5 million. Notwithstanding our negative earnings before tax, we still report a tax expense, as losses in certain countries under U.S. GAAP do not generate tax benefits to offset the tax expense generated in our profit making countries. To mitigate this inefficiency, we continue to pursue our long-term global realignment program. This effort has already produced substantial savings to the company and is expected to further reduce our tax expense in 2010. Our reported tax expense in the second quarter increased significantly from the amount reported in the first quarter.

This increase results from the fact that a significant portion of our expected full year loss before tax occurred in the second quarter and under the accounting rules a similar portion of our expected full year tax expense must also be reported in the second quarter. As a result, we expect tax expense in the rest of the fiscal year to be in the range of $3 million to $5 million per quarter. Depreciation was $20.3 million; EBITDA for the quarter was $31.7 million.

Now turning to the balance sheet slides four and five. Cash and short-term investments at the end of the quarter were approximately $851 million, an increase of $55 million from the prior quarter end. Cash flow from operations was $97 million. Net capital expenditures were $16.6 million, resulting in free cash flow of $80 million in the quarter. Accounts receivable at the end of the quarter were $710 million and our DSOs for the quarter improved by three days to approximately 53.5 days.

Inventories at the end of the quarter were approximately $706 million, down $78 million quarter-over-quarter. Accounts payable at the end of the quarter were $679 million, which equated to AP days of approximately 55, an improvement of 1.4 days. Our overall operating cash cycle for the second quarter was approximately 55.6 days. During the quarter, the company repurchased $33.7 million of debt and 23 million shares of our stock for $7.6 million. Since the inception of our stock buyback program, we have repurchased a total of 44 million shares at an average price of $0.43.

Our overall liquidity position is very strong with cash on hand of $851 million, available accounts receivable and bank borrowing facilities and a debt maturity profile that is very favorable. All of this plus our continued focus on improving our working capital metrics positions the company well to weather these economically challenging times. Let me now comment on restructuring. Although, we completed our major restructuring initiatives prior to this economic downturn we continue to fine-tune our structure.

During the second quarter, we incurred $15.6 million in restructuring expense. This expense primarily relates to reductions in force associated with previously announced plant closures as well as the restructuring of various corporate functions. Actual cash payments related to these reductions and previously accrued restructuring actions amounted to approximately $21 million in the quarter. We expect further restructuring related cash payments for the remainder of this fiscal year to approximate $30 million.

In summary, we are operating in challenging economic times. In such times, we must be focused on cost and asset management. Our results reflect that focus and we will continue to do so. I will now turn the call over to Jure to provide his comments and our outlook for the third quarter. Jure?

Jure Sola

Thank you, Todd. Good afternoon ladies and gentlemen. Please turn over to slide six. Here what I would like to do is review end market demand for second quarter. As Todd mentioned, revenue came in about $1.2 billion, down 16% from December quarter and is approximately 7% below our internal expectations. Typically, March quarter for Sanmina-SCI and our industry is seasonally slowest quarter, but this time most of our markets experienced greater than normal seasonal decline. Demand for January and February was weak and we did see some signs though of stabilization in March.

I like to do is breakdown our revenue and here again we break this thing in five groups, communication group includes networking, wireline and wireless infrastructure. Data represented approximately 44% of our revenue, down 13%. Medical represented 15% of our revenue basically was flat. Enterprise computing represented 15% also down 22%. Industrial, automotive, defense and aerospace represented 12% it was down 27%. The biggest drop that we had was in semiconductor equipment manufacturing and automotive industry. Those two groups were very, very weak. And also multimedia represented approximately 14%, down 20%.

So, if you look at overall this decline in revenue was mainly driven by weak demand. Also in the second quarter Sanmina-SCI had no customer over 10% of revenue. Now please turn over to slide seven. Here I would like to talk to you about our third quarter outlook and our internal forecast. Short-term visibility improved slightly, but it's still very difficult to forecast end market demand in this economy. We are cautiously optimistic that June quarter, our third quarter will continue to stabilize. So, let me give you some of our internal forecast, which basically we call flat to some potential for upside.

Revenue is going to be between $1.175 billion and $1.250 billion. Gross margin 6% to 6.4%, operating expenses should come down a little bit to $55 million to $58 million. Interest expense also should come down a little bit about $28 million to $29 million. Depreciation is going to be around $20 million. CapEx for next quarter again between $10 million and $15 million and number of share we are estimating for next quarter about $488 million. We are forecasting net GAAP EPS loss of $0.04 to $0.02.

Also we expect a positive cash flow in the third quarter. Again visibility is improving, but still limited as this business demand is unpredictable. So, we have to continue to stay cautious in this environment. Now, let me talk to you about our longer term and also market opportunities as we look out to the future. As a management, you always ask yourself to what you're doing in this type of environment. And you realize in this type of recession, you're not controlling everything. So, you focus on things that is in our control.

Number one, we are taking very aggressive options especially in last six months to reduce the cost and tune-up our operations. We are making company lot more efficient and enhancing our future financial performance as the economy normalizes. I can tell you that our customer satisfaction has continued to improve. We are focusing on building even stronger relationships here and we are continuing to add value and providing our customer with the new services and company is also investing some of the new technologies for future. We do have strong liquidity and strong capital structure and we believe that's one of the competitive advantage that we have in this economy.

As Todd mentioned in this environment, we are focused on generating free cash flow from operations. As he mentioned, we generated $80 million of free cash flow from operations in second quarter and we expect to generate free cash flow for the remainder of the calendar year. Let me talk to you a little bit about market opportunities. Even in this economical environment there are new business opportunities. So, if you look at our bookings in last six months, over 10% of our bookings came from our new customers and new programs.

Also bookings were positive this quarter, book-to-bill was positive and this is the first time in nine months. Also our new business and strategy is working well in this environment. This allows us to stay focused on our best businesses and best customers longer-term. We do have a strong customer base with a long-term relationship and we believe this type of foundation, it gives us a strong foundation to build future growth as the economy improves.

So, in summary, again in this environment the key is generating free cash flow operations. And as for future demand most of our customers are feeling most positive about the growth in the second half of calendar year 2009. I can tell you we as a company are cautiously optimistic that maybe the worst is behind us, but we are not ready to declare end of the recession at this time. We as a company have a very strong management team in place and I believe this management knows how to manage in this environment we've seen it before.

And we are very confident about our company future and also our industry. We will come out of this storm as a stronger company. Strategically leaner, be asset efficient and have the right technology and capacity for future success. Now, I would like to say thank you all for your time. I would like to also say thank you to our employees for their hard work and dedication to this company. Operator, we are now ready to open the line for question-and-answers. Thanks again.

Question-and-Answer-Session

Operator

(Operator Instructions). Your first question comes from the line of William Stein with Credit Suisse.

William Stein – Credit Suisse

Hi Todd, Jure.

Jure Sola

Good. How are you?

William Stein – Credit Suisse

Good. Just a couple of quick ones, you had mentioned that in March you saw signs of stabilization, I think you mentioned a book-to-bill of over 1.0. Can you talk about, which end markets are strong on the booking side in March and then also you mentioned you're investing in some new technologies for the future. Can you give us some details there? Thank you.

Jure Sola

Yeah. As I mentioned one of the, in any environment especially in the recession that we are experiencing, you always find out that customers are looking, upgrading their existing product and investing in the new technology. And with our new strategy, we are really well positioned with our key customers that we had for many, many years and I think that's one of the reasons that our new bookings was at least in this new projects are looking positive. Our traditional businesses I think are performing little bit better, yes they're down I will say communication infrastructure in which with us that includes networking, wireline and wireless I think it's holding reasonably well, while medical is holding reasonably well, industrial is holding reasonably well and the defense and aerospace, yeah we have some, few programs that got delayed, but even – but when it comes to the some of the little consumer that we are doing and the semiconductor equipment and automotive that was it's really weak. The technologies that we are really investing looking at the areas, as we look at the futures alternative energy, defense and aerospace and industrial and medical side I will say that’s the area that we’ve been lot more focused than our traditional telecommunication infrastructure. Can you hear me?

Operator

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

Jim Suva – Citigroup

Great, thanks.

Jure Sola

Hello Jim.

Jim Suva – Citigroup

Hey great. Can you maybe talk a little bit about on your sales outlook how much of it is acquisitive from the JDSU acquisition, I believe you acquired some assets there and what was the purchase price and run rate of sales?

Jure Sola

Well first of all that business, don’t want to give, too much detail strategically that was we went after that we had strong R&D capabilities here in North America and we were looking for expansion in a low cost region. So, when this opportunity came up, it was very exciting especially this assets that we partner with JDSU are one of the leading in our industry. And so the revenue potential and that is a couple of hundred million plus a year, we are bringing new customers to the area. So, we are really trying to make the business out of their long term, they could be a billion dollar business as you look at the three, five years down that line and that's one of the reasons we went after that business, it’s a really expansion into some of the latest technology in optical and also start for the future. We believe that optical technology especially if you look at out three to five years is going to be a technology that's going to have a nice growth and may be I'll turn it over to you Hari if you want to add up to and talk a little bit more about our position so.

Hari Pillai

No, I think you really covered it well, I think Jim it puts us in a clear leadership position in the industry in terms of optical technology, we are very confident that long-term the long haul communication space will be vibrant with in-satiable demand for bandwidth.

Jim Suva – Citigroup

Yeah. I understand the logic behind it and it seems to make good strategy sense, my question is I'm trying to figure it out your organic decline or your organic growth rate. So, would it be fair to assume about $50 million next quarter sales then is a boost from this acquisition and what's the purchase price?

Jure Sola

No, that's not, that will not be a fair statement. Actually, because that number is not going to be even close to that number in first quarter. And the purchase price really this was a really more partnership, it was a asset based type of a purchase there was no premium involved they're all it's really more based on a long-term partnership between two companies.

Jim Suva – Citigroup

Okay. And then on your notes that you, on your press release you talked about a payment to divest the PC business that's $16 million. Can you let us know what that's all about as well as future liability still associated with that?

Jure Sola

There is little future liability in there basically what that Jim is was that we had a basically a credit that we are holding on till everything got cleared up and, we basically had to return extra money that was prepaid.

Jim Suva – Citigroup

Great. My last part question, it seem like when you talked about restructuring, you said you done all the heavy lifting, are you done with restructuring now, I understand there is going to be little more cost, cash flow and a little more cost associated, are you done with restructuring?

Jure Sola

All the major stuff for us is done let me turn it over to Hari he could make a few comments, but as Todd mentioned from a dollars point of view, we have additional $25 million to $30 million there was it and then we are done, unless this whole economy turns down on us again, but as I said we are cautiously optimistic maybe the worst is behind us. So, Hari?

Hari Pillai

Thank you. So, Jim I think, we have done a lot of restructuring already over the years, we probably got a head start a couple of years ago and we've really have done a lot of the heavy lifting as you said when I read about some of the challenges that some U.S. companies or other companies have in France, I thank my stars we got that done a year ago. So, we are done, what we have really done is we have taken up break-even as a company in around rough terms from somewhere like $1.7 billion down to about $1.3 billion, somewhere in that range and we continue to work on it. So, we have really done, we have really structurally reset the company in real terms, if you take a contribution margin somewhere in the 15% range, the difference, on $400 million of sales could be a $60 million flow through in terms of profitability. So, that's quite a lot of work that we've done to rest and structurally make the company more profitable.

Jim Suva – Citigroup

And a housekeeping item, your stock comp year-over-year is up about a 11.5% the stock price is down quite a bit, sales are down. How should we think about how to connect those dots?

Todd Schull

I’ll take that Jure. Jim it's not comp, it's driven in part by price, but actually the larger variables that affect stock comp are things like volatility and forfeiture rates and things like that, that tends to have a bigger influence. And in the areas that we are dealing with, if you look at the history of our stock price over the last year or so there, although it's not a lot in terms of dollars, it is significant in terms of percent volatility and those kinds of factors would drive the stock comp expense. Overall stock comp expense is not a significant number and it is not expected to change materially going forward here.

Jim Suva – Citigroup

But you didn't change a policy of the way you compensated people?

Todd Schull

No.

Jim Suva – Citigroup

Okay. Thank you everybody.

Jure Sola

Thanks Jim.

Operator

Your next question comes from the line of Sherri Scribner with Deutsche Bank.

Todd Schull

Hello, Sherri.

Sherri Scribner – Deutsche Bank

Hi. Thank you. How are you doing?

Jure Sola

Great, good.

Sherri Scribner – Deutsche Bank

I wanted to dig a little bit into comments about sort of seeing stabilization in the market obviously the guidance for the June quarter was somewhat flat sequentially, but it seems to imply that you expect revenue growth in September and into December and I wanted to see if that was a fair or accurate description of sort of what you're seeing for as we finish out calendar 2009?

Jure Sola

Yeah. Let me make sure I would make that, put is clear Sherri I don't think I'm smart enough or anybody in this room is smart enough to know what's going happen in September and December. What I would say and what we are saying here is that based on information and as we talked to our customers, and as we look at their forecast and look into their analysis they are more optimistic that second half will be little bit better than what they experienced so far. So, based on that information and then what we have seen pipeline of inventory there is just not a lot of inventory in the pipeline. So, that's one of the reasons, we feel more comfortable that at least what we see today things are starting to stabilize the forecast are more predictable, so those are all the positive signs, but I don't think I can tell you that I really know what's going to happen in September and December as of today. But we are optimistic that things that maybe the worst is behind us and but we are not preparing to take our guards down. We are driving the very hard gear, the cost, and working very close with our customers, but I think when it does turn I believe it will be little bit more positive than what we think today because there is just not enough inventory in the pipeline.

Sherri Scribner – Deutsche Bank

Okay, that’s helpful. And then in terms of the, you put up a number of $1.2 billion in liquidity for the company, you’ve got the cash on the balance sheet, I was just hoping you could help me walk through how you are getting to that number, you’ve got 850 in cash on the balance sheet?

Jure Sola

Then we have assets and AR factoring capabilities.

Sherri Scribner – Deutsche Bank

So, how much is accounts receivables slowly again, it's at 250?

Jure Sola

It’s around $200 million. 250.

Sherri Scribner – Deutsche Bank

And then how much is your credit facility?

Jure Sola

Couple of 100.

Sherri Scribner – Deutsche Bank

Okay. So, that’s how your – there is the two items, I mean.

Jure Sola

Yeah. And basically I mean there is no bottoming in those facilities while we do have factor in approximately $40 million.

Sherri Scribner – Deutsche Bank

Okay. And then just finally I was hoping to get an update on your thinking about the CFO position. Is this something that you are looking at external people or do you think Todd will stay on this as the acting CFO or…

Jure Sola

Well definitely, we have, Todd and another partner is here they're very strong. So, I think from financial controls, we have great financial controls and two very strong individuals here internally. We are looking outside, but at the same time we are trying to bring some more stronger players to the team if we can't find that then definitely we will look internally.

Sherri Scribner – Deutsche Bank

Okay, great. Thank you.

Jure Sola

Thanks Sherri.

Operator

Your next question comes from the line of Louis Miscioscia with Brigantine Advisors.

Louis Miscioscia – Brigantine Advisors

Okay. Thank you.

Jure Sola

Hello Lou.

Louis Miscioscia – Brigantine Advisors

Hey how are you Jure?

Jure Sola

Good, good Lou.

Louis Miscioscia – Brigantine Advisors

Thanks. Could you walk through I guess where we are just with your free cash flow thoughts, last conference call you had mentioned 200 million for the year and maybe just recap first and second quarter and also if you could give us a breakdown as to how you get to the 200 million?

Jure Sola

Okay. Well let me give you highlights and it’s really a combination of cash flow from operations and the real estate. We have if you look at cash flow from operations as you can see this quarter we generated $97 million and free cash flow was about $80 million. For next quarter we do expect to be cash flow positive, don’t like to forecast now, but we expect to be really positive for the rest of the calendar year. So, it’s a combination the money that we get from operations plus real estate opportunity is lot higher than 200 million. We just know that that we’re not going to be able to sell all our real estate in this environment unless we discounted heavily. And no need to discount because these are the good assets mainly in North America and Europe that they have value they are not costing us lot of money to hold on.

Louis Miscioscia – Brigantine Advisors

What was the range in the real estate numbers that you were thinking about and I guess a high-end number?

Jure Sola

It could be as high over $160 million.

Louis Miscioscia – Brigantine Advisors

Okay.

Jure Sola

That's what we are, that's with prices, listing prices are higher than that, but like I said I think we will have some sales this year, but I don't think it will be a substantial amount because of just the market that we are involved in.

Louis Miscioscia – Brigantine Advisors

Okay, great.

Jure Sola

And we don’t need to auction it, so it’s a good asset that we are going to hold on.

Todd Schull

I’d just add one comment Lou if the, just to make it clear the majority of our free cash flow that we’re projecting the comments you’re making from our last call is really internally generated.

Jure Sola

Yeah.

Todd Schull

Real estate is a piece of it, but it’s not three quarters of it, its not, although we could potentially get a 160 million as Jure mentioned we’re not counting on that in this kind of real estate market.

Jure Sola

Yeah. Good point, Todd.

Louis Miscioscia – Brigantine Advisors

Okay, great. Now that we are obviously many, many months into this downturn, obviously as we are going through the tail end of '08, a lot of customers were obviously in a huge state of flux. Have you seen anymore interest in, with a tier amount of new outsourcing now that we are lot more into it or is the market just premature already so there is just not as much as used to be available?

Jure Sola

Yeah. Well first of all outsourcing has continued to expand I think that is such a huge competitive advantage for our customers. So, anybody who say that outsourcing is going to shrink doesn't know what he is talking about or she. Okay, so outsourcing I think what's happening, we have such a huge demand fall of the cliff demand for most of our customers that we are really they're, there were lot of our customers were surprised, they did not expect this type of a decline. So, there is a lot of going on, where few customers of ours they still have outsourcing and I think strategically you’re going to see a lot of those assets going to be available in next 6 to 12 months, it takes time to get these things organized and people and what is the best way to transfer. So, I believe because, we know we got some deals today on our hands that we’re looking at. So, I think outsourcing will continue to go especially from non-traditional outsourcing players, medical industry, industrial industry, and so on. Even all traditional companies even a high-tech that used to do manufacturing and they still have some internally I believe that's a short list, because when you look at the cost the companies that do this stuff internally are, their cost internally are lot higher than what they can get it from us or any other good competitor in our industry. So, outsourcing just makes lot of sense, so I am firm believer as market stabilizes there will be more deals out there.

Louis Miscioscia – Brigantine Advisors

Okay. Good. Glad to hear about some stabilization.

Jure Sola

Well we're hoping, it's hard to predict, like I said I don't think we’re smart enough to be able to forecast this recession, but in the positive side there is not a lot of inventory in the pipeline, customers starting to feel more comfortable, and we are hoping, we are just hoping that this economy is going to turn. I think when economy turns I believe the high-tech will move in the right direction at a faster rate.

Louis Miscioscia – Brigantine Advisors

Okay. Thank you.

Jure Sola

Thanks.

Operator

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

Jure Sola

Hello Amit.

Amit Daryanani – RBC Capital Markets

Hi, Jure how are you doing?

Jure Sola

Good, good.

Amit Daryanani – RBC Capital Markets

Hey just a couple of questions one on the component side I don’t think I heard you guys talk a lot about it if you just talked about, what’s happening in the component side and how much of a headwind was it for you guys on operating profits?

Jure Sola

Okay. Well we did some restructuring last six months here, we combined we just have two divisions and to bring the cost down we really separated this, mixed everything in one bucket, and I’ll have Hari comment on it. So, on the negative side in this type of environment components are the more affected, because when we had a downturn of course there were some inventory in the pipeline and then people had to use the inventory first. So, the components in this first six months are more affected then let's say EMS typical type of business. On the positive side, when things turnaround I believe the components will turn at the faster rate and they will have a lot bigger contribution. Today they're hurting you, but as the market turns around, it should be a positive contribution. So, we running it today as just like any other plants, and we do not release plant numbers. We have plants that are profitable and plants there are not profitable. So, I turn it over to Hari if you want to add some comments to this.

Hari Pillai

Yeah, Amit. The only thing I would add to what Jure already said is that in addition to that is that we're not trading still in those areas either, so those areas too were aggressively probably more aggressively than other divisions focused on bringing down the break-even levels. But at the same time, we're also trying to protect technology and capacity in some critical areas, where we know we have world-class technology that our customers are very tightly engaged with us on.

Amit Daryanani – RBC Capital Markets

Got it. And then just a question to you Hari, while you get loss per share it's going from $0.06 to $0.02 next quarter on roughly $1.2 billion of sales. So, definitely it looks like the cost savings are working, but I think you talked about $1.3 billion being the break-even down rate, so does that suggest that there is not a lot of cost saving, there is not a lot of realization of cost savings left in the model at this point and we just have to wait for that incremental sales to come?

Hari Pillai

No, Amit I think that's not, I was just saying that's kind of a checkpoint of where we are today. I can assure you this management team is going to continually to drive down that break-even point. You will see I think some of that reflected in the numbers that Jure talked about for example in operating expense, he is guiding with further reductions coming in this current quarter. So, we are going to continue to drive break-even lower and we are going to reset the reality as we see it today. Yeah.

Jure Sola

And just to add to that Amit I think at today's level we are really at the level, we are trying to protect some of the capacity for the future. It is the question if we believe that the market will continue to decline, then, I think we can take more out. We believe that what we have today is right things, right capacity, yes in a short-term might affect, maybe making an extra $0.01 or $0.02, was when you look at the longer term I think taking more out I don't know if that will be the best decision for a long-term success of this company. We do believe that it's not end of the world I will use Hari's phrase, in the good times we all always think the good days will never end, but in the bad times I think in this environment everybody things bad days will never end. Well this will end, I think the question is I think for us is that we need to continue to tune up this structure make sure that we have the leading technology and we can provide everything that our customers are looking today and help our customer grow again as the economy improves, and that's really the play that we are playing.

Amit Daryanani – RBC Capital Markets

Got it. Just finally for me. On stock repurchase, it looks like the share count was down $22 million or so and I know you guys were authorized to buyback some stocks. So, did you guys act on it in the March quarter?

Jure Sola

Yes. Todd what was the number….

Todd Schull

Yes. We did in the comments I mentioned we actually repurchased about 23 million shares during the second quarter maybe the confusion was is in total we repurchased 44 million over the life of the buyback program the 23 million to 44 million was in the second quarter the March quarter.

Amit Daryanani - RBC Capital Markets

Got it, perfect. Thanks a lot guys.

Jure Sola

Thanks Amit.

Operator

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

Jure Sola

Hello Sean.

Sean Hannan – Needham & Company

Yes. Hello, thank you. So, if I could just ask competitively what you might be seeing on the pricing front and then what your views might be at least in the current environment, now that we might be seeing a little bit of potential stability, if this is inviting any either greater risks or perhaps even protecting providing some pricing protection within your current business. Is there a way you can provide a little bit of comments around this?

Jure Sola

Yeah definitely. I mean any time in this environment when you have economy as crazy as we are involved in as an industry we do some times crazy things, but I can tell you that this industry learn a lot in last couple of years. I believe there is a lot more discipline in this industry, today to say, hey, listen we have to make a buck here. We add lot of value to our customers and I don’t think I mean, got to talk to my competition, but what I'm seeing out there is the most of the management in this industry today are focused to say we have to make a cost of capital, we have to focus on a customer that are looking for partnership. We are really not interested anymore just buying the revenue and so on. So, I think I'm definitely seeing this, so I will say discipline is lot better. I mean, this industry is not making a lot of money today. So, there is how much is to go down. So, I don't think the price at least what I seeing is a major issue today, I think our customers are very loyal. I can speak for my customer base. I will say 90 plus percent, I'm very loyal. They understand what we are going through, and they also appreciate what we are doing for them. So, I think its more what type of relationship and program that you involve with the customer than just pricing in this recession. But I just want to summarize, I think industry is lot more smarter and lot more disciplined, and I don’t think that our competition out there wants to just go and buy the business.

Sean Hannan – Needham & Company

Okay that’s helpful. If you look at the competitive environment, we are probably not entirely out of the woods yet, where perhaps some smaller more regionalized EMS players, you could still be struggling within some of their business. So, it sounds like you are not really seeing much evidence where there could be elements of some more aggressive pricing at this point?

Jure Sola

Well I think in our business, I don’t think our customers in a business that we participate in which is a high-end infrastructure business customers don’t just move the business because of the price and its very difficult for them to move it from supplier A to supplier B. There got to be a good reason behind it and lot of times its more than just price. So, I personally believe the players out there that have a strong customer relationship and performing well in this environment are not going to lose the business because of the price. I know we are not losing because of the price.

Sean Hannan – Needham & Company

Okay. That’s helpful Jure.

Jure Sola

Okay.

Sean Hannan – Needham & Company

A little bit earlier you would actually commented around a few different segments that were holding in there, it sounded like that the comments being for communication, industrial, medical was along the lines of general business levels and kind of product sell through, you also talked about some of the, while essentially the bookings in the quarter being actually positive first time in nine-months, can, were the bookings actually correlated to the same segments or is there a way you can provide a little bit of detail around that if this was a little bit more pronounced at this time?

Jure Sola

I don’t know if I am going to go that detail, but again its exciting for us, I mean you never want to be too excited at this level to be just looking positive, but it was exciting because it’s the first time in three quarters that things moved in the right direction, but definitely if we are not happy about the revenue level, I just want to make sure that it's clear. No, again on a positive side, bookings were positive as I mentioned telecommunications, infrastructure, industrial, medical side, I think a lot more stable, and weak markets for us was industrial I am sorry, semiconductor equipment manufacturing group and automotive those were the two weakest and few consumer type of products that we have.

Sean Hannan – Needham & Company

Okay. And then lastly on the free cash flow, you expect to be positive through the remainder of the year, is that an aggregate number we are talking specifically for both quarters?

Jure Sola

So, we are specifically talking, we expect each quarter to be, have a positive cash flow.

Sean Hannan – Needham & Company

Okay. It's really helpful. Thanks so much.

Jure Sola

Okay thanks. Operator, I have time for one more question.

Operator

Okay. Your final question comes from the line of Joe Whitney with Longbow Research.

Jure Sola

Hello Joe. We say the best for the last.

Joe Wittine – Longbow Research

Thanks. But the, there is a couple of additional things I have, or how should we think about usage of cash going forward, particularly in light of the fact that the share buyback is mostly complete I think at this point and then you also generated a pretty descent book gain on buying back some debt. So, how should we think about, things going forward?

Jure Sola

Well, as you know we have some debt that is due in 2010. So, we are well aware of that and we are making sure that we are planning money for that I think the rest of the cash right now we are holding on it and because we’ll see how this economy turns around at the same time, we’re going to make sure that we have a cash when economies turns around so that we can grow again, as Hari mentioned I think operationally, structurally we are in a best position that we were in last seven years. Technologically, we got all the best capabilities that we ever had. So, we got lot of positive things we just need the economy to turn around, we are going to keep the cash, we are going to watch what we spend in the short-term, because we don’t know if recession is over yet, but we are going to keep it.

Joe Wittine – Longbow Research

Okay. Thanks for that. And then maybe as a quick follow-up, is the stock spilt, the reverse split I should say still on the table, I know Nasdaq kind of extended their minimum requirement after July.

Jure Sola

Yeah. Well that's, yeah Nasdaq has extended their rules so that’s still on the table, but we are hoping our price is, value of our company today is so undervalued that we are hoping in any reasonable market, that will be fixed so we are just going to take one month, one day at a time and then we’ll make a decision at that time.

Joe Wittine – Longbow Research

All right. Thanks Jure.

Jure Sola

Thanks. Ladies and gentlemen again thanks for your support and thanks for your time on this call today, if you got any more questions, please give us a call. Thank you very much. Bye-bye.

Operator

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

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