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Executives

Beth Walters – VP, IR & Communications

Forbes Alexander – CFO

Tim Main – President & CEO

Analysts

Steven Fox – CLSA

Louis Miscioscia – Collins Stewart

Amitabh Passi – UBS

Wamsi Mohan – Banc of America

Brian Alexander – Raymond James

Shawn Harrison – Longbow Research

William Stein – Credit Suisse

Jim Suva – Citi Financial

Sean Hannan – Needham & Company

Sherri Scribner – Deutsche Bank

Alex Blanton – Ingalls & Snyder

Jabil Circuit, Inc. (JBL) F3Q10 (Qtr End 05/31/10) Earnings Call Transcript June 22, 2010 4:30 PM ET

Operator

Good afternoon. My name is Patrick and I will be your conference operator today. At this time, I would like to welcome everyone to the Jabil 2010 Third Quarter Earnings Conference 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. Walters, you may begin you conference.

Beth Walters

Thank you. Welcome to our third quarter of 2010 fiscal year call. Joining me on the call today are President and CEO Tim Main and Chief Financial Officer Forbes Alexander. This call is being recorded and will be posted for audio playback on the Jabil website jabil.com in the Investors section. The Q3 fiscal year 2010 press release and corresponding slides will also be posted there. In those slides you will find the financial information that we cover during this conference call as well as additional financial metrics and analysis that you may find helpful. You can follow our presentation with the slides that are posted on the website and begin with slide two now.

During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected fourth quarter of fiscal 2010 net revenue and earnings results, our long-term outlook for our Company, and improvements in the operational efficiencies and in our financial performance. Statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.

An extensive list of these risks and uncertainties are identified in our Annual Report on Form 10-K for the fiscal year ended August 31st, 2009; and subsequent reports on Form 10-Q and Form 8-K and our other Securities filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Today’s call will begin with some comments and highlights from Forbes Alexander on our third fiscal quarter as well as some forward guidance on our fourth fiscal quarter. Tim Main will then have some macro environmental and Jabil specific comments about our performance, our model, and our current outlook before we open it up to questions from call attendees. I would now like to turn the call over to Forbes.

Forbes Alexander

Thank you, Beth, good afternoon everyone. I now ask you to turn to slides three and four, our results for the third quarter of fiscal year 2010. On revenues of $3.5 billion, GAAP operating income was $96.5 million. This compares to a $7.8 million loss on revenue of $2.6 billion for the same period in the prior year.

Core operating income, excluding amortization of intangibles, stock-based compensation, restructuring charges for the quarter was $132 million or 3.8% of revenue as compared to $29 million, or 1.1% for the same period in the prior year. Core earnings per diluted share were $0.40 as compared to $0.04 for the same period in the prior year.

On a year-over-year basis for the quarter, revenue increased 32% while core operating net profits increased 355%. On a sequential basis, revenues have increased 15%. Our core operating income increased 38%.

I now ask you to turn to slides five to eight as I comment on our revenues. The EMS dividend grew $256 million sequentially or 14% versus an expectation of 8%. Strong double-digit sequential growth across all but one sector and a return to growth in our telecom (inaudible). Revenue was $2.1 billion, representing approximately 61% total company revenue in the third quarter. Core operating income for the division was 5% of revenue.

Our Consumer division represented approximately 33% of revenue or $1.15 billion in the third fiscal quarter; sequential increase of $118 million or 19% versus an expectation of 5%. Both the mobility sector and digital home office sectors producing strong double digit sequential growth. Core operating income for the division was 1% of revenue.

Our Aftermarket Services division increased by 8% in the prior quarter to $211 million and represented approximately 6% of overall company revenues in the quarter. Core operating income for the division is approximately 8%.

In the third fiscal quarter, two customers accounted for more than 10% of revenue and our top ten customers accounted for approximately 60% of total revenues.

Our selling, general, and administration expenses increasing by approximately $4 million to $124 million, research and development costs $6.3 million, while intangibles and amortization was $6.2 million in the quarter.

Stock-based compensation was $27.5 million in the quarter. The increase was primarily related to performance-based equity awards, which were previously deemed unlikely to vest in the fiscal year, but based on current expectations are now expected to fully vest.

Our net interest expense for the quarter was $20 million. And the tax rate on net core operating income was 22%.

I now ask you to turn to slides nine through 11 as I discuss our balance sheet and some of the key ratios. Our sales cycle in the third quarter contracted by one day to 16 days as a result of a one day reduction in days sales outstanding.

We continue to generate cash flow from operations, producing $37 million while revenue grew 15% sequentially. Our return on invested capital was 22% in the quarter, approaching all-time record levels of return. We are very well-positioned to cross that mark in the upcoming quarter. Our cash and cash equivalent was $600 million at the end of the third quarter with no sums outstanding on our $800 million revolving credit facility. Cash balances also reflect a reduction in overall debt levels of approximately $50 million in the quarter.

We are also pleased to know that during the quarter, we expanded our accounts receivable securitization facilities by $150 million providing us with continued cost-effective liquidity and flexibility as we continue to grow. Available liquidity at the end of the quarter on these facilities was approximately $175 million.

Our net capital expenditures during the quarter were approximately $127 million, but lower than our previous expectation of $150 million in the quarter. Our depreciation for the quarter was approximately $63 million with core EBITDA at $195 million, or 5.6% of revenue.

In summary, we are pleased with the quarter’s results. Sequential revenue growth was 15% and core operating income at overall targeted levels. Exactly a year ago I discussed our overall financial operating goals. With this quarter’s results, we’ve achieved these goals. Working capital management remains well under control at 5% of annual revenue levels, while cash flow from operations for the third quarter produced $142 million while revenue grew 23% over the same time period.

We are extremely well-positioned to continue to produce strong levels of EBITDA and positive cash flow from earnings over the coming quarters, providing us with ample liquidity to fund our continued growth.

With our long-term target of annual revenue growth rates in a range of 10% to 15%, our business model is positioned to produce free cash flows of 25% to 35% of annual EBITDA dollars. In such an environment, we would expect investments in capital expenditures and working capital to approximate 15% of incremental annual revenue growth.

Now I would like to turn to business update and some fourth quarter guidance and I would ask you to turn to slides 12 through 14. Before providing guidance I would like to advise you that we have recently entered into a letter of intent to divest our remaining manufacturing operations in France and Italy. Divested operations would include four sites and approximately 1500 people.

Revenues associated with these sites total some $300 million annually and shall have no material impact on our overall operating margin performance on an ongoing basis. This transaction is expected to close during the course of the fourth fiscal quarter and is subject to final negotiations, customary regulatory periods in consultation with employees and their representatives. We anticipate a loss of approximately $0.05 per share associated with this divestiture to be recorded in the fourth fiscal quarter.

Now turning to our overall guidance for the quarter. Revenue is estimated to grow sequentially in a range of 10% to 16%, or $3.8 billion to $4 billion. EMS division is expected to grow 8% sequentially while the Consumer division is expected to grow 25% sequentially. The Aftermarket Services division is expected to have consistent revenues with those of the third quarter.

Core operating income is estimated to be in a range of $144 million to $160 million. The mid-point of our guidance reflects revenue growth of $1.1 billion, or 39% on a year-over-year basis and core operating income growth of $87 million, or 134% on a year-over-year basis.

As a result, core operating margin is estimated to be in the range of 3.8% to 4%, and core earnings per share in the range of $0.44 to $0.50 per diluted share. Our selling, general, and administrative expenses are estimated to 3.3% of revenue. Research and development costs are estimated to be $7 million in the quarter while intangibles and [ph] amortization is expected to be $6 million.

Stock-based compensation expense is estimated to be in the range of $15 million to $19 million depending on overall company performance in the fourth quarter. Our interest expense is estimated to be $21 million in the quarter. As from current levels of production, our tax rate is expected to be 20%.

Capital expenditures are estimated to be $100 million in the quarter. This level of expenditure reflecting ongoing maintenance capital expenditures to support our ongoing revenue line.

With that, I now ask you to turn to slide 15 and I will hand the call over to Tim Main.

Tim Main

Thank you, Forbes. I am going to depart a little bit from our typical conference call format and really spend a little bit more time talking about our business direction and what we are up to. If you turn to slide 15, just in terms of highlights, we are really entering now our second year of very robust recovery from our trough quarter and in fact if we look at the last 12 months, the last 12 months have been a record year. Last 12 months we’ve done $12.3 billion in revenue and recorded record core operating income of $400 million over that period.

So, last 12 months have been pretty good. If we look at our sequential growth in healthcare, instrumentation, and industrial and a very rapid rebound in mobility on the previous quarter, we are very, very busy right now. New business pipeline and our ability to continue to grow the business, the combination of new business awards and gaining share of wallet with the existing customers and really making progress in targeted sectors has been very good.

I think we are seeing some evidence of broader trends that we think will shape the industry for the next three to five years and we’ll talk a little bit about that in the next few slides and because of that and our position in our marketplace, we really believe that we are uniquely well-positioned for sustained growth and continued positive financial performance.

Slide 16 please. With that in mind, I think it’s appropriate to just do a quick review of some of the tangible benefits we bring to bear on our customer relationships and what it actually is that we do for a living. I think it’s a much different value proposition today than it was 10 years ago and definitely different from what I believe investor perceptions are. And so some of the highlights of things that we today and this would be Jabil’s whilst some of the other folks in our industry.

We really help customers localize supply chain to the consuming regions. I think that the way this will become interconnected and the growth in emerging markets being more and more important to our customer base. Our ability to command a global supply chain network for our customers is becoming increasingly important and critically important that we find ways to localize both supply chain to the consuming regions.

Especially today, particularly when we approach the smaller customer relationships that we might have in the industrial, instrumentation, and healthcare segment, we are really doing a lot more of global supply chain consultation, design, and then implementation of that global supply chain network. We are seeing a resumption and very robust growth in virtualization companies that may be vertically integrated today that would like to globalize their supply chain and move some of that into a virtual model with Jabil. We really don’t understand the complexities of many abstracts of localizing supply chains and moving into that network and there is quite a bit of consultation and design work upfront with those customers.

Total lifecycle management we think will become increasingly important over the next three to five years really going through the collaborative design process with customers, helping them go through new product introduction, broad based global launch of those products, fulfillment, and providing reverse logistics and aftermarket services to those customers, so complete lifecycle management. It becomes particularly important also in highly regulated industries like defense and aerospace and healthcare and life sciences were product lives are very long and component lives sometimes are very short. We have tools that help us analyze the bill of materials for those customers and really help them understand what they need to do to mitigate the risk of having parts of their bill of material go obsolete.

Global logistics and final product fulfillment should be very familiar with investors today, but we have a set of very advanced tools that help our customers look at their total supply chain network and really pick through the many, many choices that there are today and what it means to build parts of their product in one part of the world, ship it into another for final integration, fulfillment somewhere else along with all of the variables associated with duties, logistics, transportation costs, what happens if oil cost increase and these types of things. So, we are doing a lot of work in that area with some advanced tools.

I think everybody is familiar with our product development capabilities that continues to expand particularly in targeted markets. We provide many of the customers in emerging sectors important access to fully scaled procurement leverage and access to global markets. We find many customers that have a very good presence in North America and Europe that would like to establish a presence in Brazil and parts of Asia and we can help them do that.

And then I think this is very appropriate given the recent things that have happened in Asia in the press that has covered it, we provide very good brand protection to our customers by having uniformly high global corporate and social responsibility standards. And we really believe this and we think it’s high-time that the world paid closer scrutiny to the supply base and we feel very good about our ability to continue to protect the brands of our customers.

Slide 17 please. And with all of that in mind I think the last 12 years have been all in all asides from the negative experience in the great recession and the dotcom bust, have been a period of very outstanding growth for the Company. I think it’s a good idea that we visit our track record. Over the last 12 years, our Company has grown revenue and operating income at a faster pace than the industry overall and we think we are on the cusp of another period of very strong expansion.

Slide 18 please. Margins for the Company have expanded rapidly as we focused on cost and lean manufacturing to better leverage our revenue growth. You see metrics here from Q3. Across quarter EBITDA margins have rebounded over 200%. Gross margins are in good shape and operating margins have also expanded. We will produce approximately $750 million in EBITDA in fiscal 2010. That’s about $244 million higher than it was in the previous year.

Our total debt to trailing 12 months EBITDA today is trending below 2:1. It think it’s just over 2:1 in this quarter. The mid-point of guidance will go below 2:1. We believe that provides us ample support for expansion.

And if you really just look at the mid-point of fiscal Q4 guidance, the Company will produce $3.43 per share of EBITDA and so that’s I think kind of an interesting metric to review in light of where we’ve been.

Slide 19 please. Latest quarter EBITDA margins compared to our peer group industry average. The names of the companies are highlighted at the bottom of the slide. As you can see, based on the most recently reported quarter, we are exceeding the industry average in terms of margins.

Slide 20 please. With that in mind and really now that we are in the second year of rising results with margins and return on invested capital at acceptable level, I think the question is really where do we go from here and how can we generate additional profitability in our business. Number one of course we will SG&A as we continue to grow revenue and I think investors can expect us to continue to focus on controlling SG&A cost and provide that operating expense leverage. But another important element is a more fundamental change to the balance of our portfolio of markets served. And this distinguishes areas of our business that we regard as more mature; a little bit more cost focused areas and areas that are more growth focused

I would like to distinguish the EMS assembly part of mobility from the materials and technology services part of mobility. We report those sectors together, but they are very distinct in terms of the profitability profiles of the business and our go-forward strategy.

Today, the mobility EMS portion of our business; digital home office, which includes our printing business, set top business; and our date center IT, which would encompass networking, telecommunications as well as computing and storage, comprise about 61% of our overall revenue.

While Aftermarket Services, emerging growth sectors, the defense and aerospace, instrumentation and industrial, clean teach, which combined is a billion dollar business for us today, and the healthcare and life sciences area of our business and then the Jabil Green Point Materials Technology portion of our business comprises 39% of our revenue.

So, with that as background, that is where we are today. Let’s move to slide 21. Longer term, our strategy is to place more emphasis and investment in the sectors on the right part of the right hand side of the pie chart. And I would like to point out that the differing growth rates that we would expect long term for these sectors not because any of these are less attractive in terms of customers that we serve. In fact we have great customers and important relationships throughout this area, but in terms of where we think growth will come from over the next three to five years and the sectors on the right hand side of this pie [ph] chart we are targeting 50% of our revenue in these sectors. Our expected long-term growth in these areas is 20% to 30%. The sectors on the left hand side which will be a little bit more cost and efficiency focused, we would expect the growth rate to be a little over in the 5% to 10% range. And we believe that in the end, three to five years out this will fundamentally change the margin structure and profitability of the Company and help us to continue to drive operating margins above 4% long term.

And of course return on invested capital we believe at the mid-point of guidance return on invested capital in Q4 will be approximately 25% and we think we can run the business at an ROIC of – as high as 30% depending on market conditions and where we are in the business cycle.

Slide 22, I think there is strong evidence that the Company can drive this growth particularly in these targeted segments. Our experience has been very positive since 2004 and we are seeing acceleration in that growth year-over-year from 2009 to 2010 with about a 33% year-over-year growth rate in the sectors of instrumentation, industrial and healthcare, Aftermarket Services, and aerospace and defense. These businesses alone now make up approximately 30% of our business. It’s a $4 billion business today. So, a very strong growth rate since 2004, strong growth over 2009. And we think we have a value proposition, which is very attractive for customers in very sizable growth markets.

These markets tend to be – have very low penetration rates. The level of outsourcing ranging from 10% to 15% depending whose data you read and this is a very large industry combined $200 billion to $300 billion for us. So, we feel like we have desirable value proposition for very attractive customers in these sizable growth markets.

Slide number 23. We really believe that best companies in our industry can grow and I think the good news here is that the industry overall is growing and this slide is really not about taking business from other people in the business. In fact, very little of that happens in our industry. I mean incumbency is very variable and it’s not common for us to take business from each other. But in terms of the pie growing and Jabil’s ability to garner more than a fair share of that growth is something that we are very focused on as a management team. We’ve done that since calendar year 2004.

You can see our growth rate since calendar year 2004 has been 12%. And five competitors that are typically associated with North American EMS space have not been able to grow at that rate.

Slide 24 please. We talk about top five drivers of sustainable growth for our business because I think it’s important that we really take a look at what the foundation of our business is and we are really driving to deliver our customers superior operational performance, service, and quality. And if we do that we can garner a greater share in an industry that is out pacing and has outpaced macroeconomic growth for really the last 22 to 25 years. I have been here since 1987 and industry has shown year-over-year growth in all of the – throughout that period.

So, it is an industry that out paces macroeconomic growth and as Jabil continues to focus on superior operational performance, service and quality for our customers, I think we continue to garner a greater share of growth in that industry.

Secondly, we are really seeing accelerated growth in target market sectors. A little bit different driver, a couple of very good trends in our favor, one is that we are in early stage of virtualization in healthcare and life science, industrial markets, instrumentation, and defense and aerospace. But again this is process where the sectors are very lowly penetrated by our industry and we have a lot of needs that we have a value proposition for. It helps them growth global place and we think we are in good shape to continue to take advantage of that trend.

I think we’ve also been an early mover to capitalize on the global trend to smart grid, better energy, alternative energy generation, transmission, and management. And again this a billion dollar business for us a today and has been growing at mid double digits for the last couple of years.

Three, we do believe we're in sustainable expansion of advanced IT and communications infrastructure, really a convergence of many drivers, but our IT facing areas of our business began to recover in the summer of ’09 have continued to show very strong growth and we expect to continue to see that for probably the next two or three years. And some important drivers behind that trend, social network and streaming video requires a lot of additional bandwidth and storage. Corporate governance document retention requirements in terms of – particularly North America but also in Europe. The productivity that IT investments provide to big companies like Jabil, we’ve actually been modernizing our IT infrastructure as well.

IT refresh, many companies delayed their procurement of IT related capital expenditures throughout the recession and there is certainly a significant catch up. And growing affluence in China and India, Latin America and really the what many people refer to as the BRIC countries, folks don’t want the low end cell phone anymore, they want phones with cameras and streaming video that requires more bandwidth, that requires a more sophisticated wireless infrastructure, all of these converging we think to provide a sustainable expansion of advance IT and communications infrastructure.

Four, the trend to total lifecycle management is very well aligned, which enables comprehensive portfolio of services, collaborative design, global logistics fulfillment and Aftermarket Services.

And fifth, increasing global complexity favor fully scaled and sophisticated service providers. It’s less about subassembly price today and more about total solution and compressing total cost around the world and having expertise and knowledge about how to do these things rather than the cost of labor in any particular geography. And we think this is a trend that will continue to take place in our industry and favor fully scaled sophisticated global suppliers with a rich global footprint and a rich set of capabilities and services.

Slide 25, and let’s not forget the post recessionary period of expansion that our Company has gone through time and time again. This chart begins in fiscal 1992 for Jabil. I think we made $7 million in total core operating income in fiscal 1992, take us through fiscal 2010. The shaded areas represent recessionary periods. The early 90s was a recessionary period. Of course the dotcom bust followed by 9/11 was a recessionary period and then the great recession that we’ve all just survived and lived through.

The post recession expansion has been extremely robust in each case. Now, post 1993, the Company went on a six, seven year great run of growth after the industry – after the 2001-2002 recession, another significant expansion over multi-year time period. And we think again we are on a very handsome growth trajectory as we come out of the latest recession.

So, in summary, our presence is growing in targeted sectors. And we expect that to be complemented by strong growth in our smart phone exposure and mechanical components in the upcoming quarters. We really remain focused on execution and satisfying our customer. They have increasingly complex needs in a rapidly changing world. And we think we are in a good position to help them work through those issues and challenges. And we expect to increase our share in those targeted markets and deliver – continue to deliver strong financial results consistent with our long-term objectives.

Beth Walters

Operator, we are ready to begin the question-and-answer period.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Steven Fox from CLSA.

Steven Fox – CLSA

Hi, good afternoon. Tim, I appreciate all the direct comments regarding some of the labor and wage related issues that have been in the papers lately. I was wondering if I can get you to talk a little bit more about that in terms of what does it mean for your business longer term? You mentioned to start off with that businesses and usually very transient once a program is won, but what are the global advantages and maybe some disadvantages that play into your suite of offering maybe over next 12 to 24 months?

Tim Main

Right. You know, great question. First of all, cost escalation in China is really not a new thing and there will be – Yuan has been appreciating against the dollar for the last three, four years. And taxes have been going up. Wage rates have been going up continuously. Minimum wages were increased several times over the last couple of years. Now, having said all that, we have been paying folks in our China operations generally above the minimum wage. You know the cost escalation that we’ve seen recently removes the bit of the cushion but we think that impact to our business we see no labor strife, no demonstrations, no strikes, no other disruptions to our production. And we’ll deal with that on a basis as it comes up and presents itself to us, but we don’t expect any disruptions to our business. And we are very proud of the way we treat our people and the way we pay our people and work our people. So, we think we are in good shape there particularly relative to some of the practices of companies that are headquartered and based in that part of the world.

Having said that, we think it makes heck of a lot of sense for Jabil to continue to maintain a global manufacturing footprint. We have a very competitive site in Penang, Malaysia, competitive site in Vietnam, competitive sites in India. And we have great sites in Eastern Europe and in Mexico. Continued escalation of cost particularly in China for a large scale production of big IT equipment, for example, will make operations in Mexico and Eastern Europe look a little bit better. And I think the decisions that OEMs will have to make about where a product gets built, how the supply chains come together is going to become more complex as the playing field goes through some fundamental changes.

And I think we are at the end of one era here of go vertical big in one locational world and that’s China. And that’s the answer to your supply chain. I mean that’s been kind of the decade from 2000 and where we are today. That curve [ph] is inflated, it’s over. Everybody is in China. Everybody is where they need to be in the world. Nobody has got an advantage in terms of the labor cost or base cost. And now it’s, how effective you are in managing the supply chain, how effective you are at transparently running through the various manufacturing ops and then being execute and deliver on delivering products that will be manufactured in multiple plants around the world and how responsible you are – responsive you are in managing demand and supply chain networks. So we think it’s the beginning of a new era and that era will be more complex and play to the hands of companies that have sophisticated IT systems and a broad based global footprint.

Steven Fox – CLSA

Great. Thanks very much.

Tim Main

Thanks.

Operator

And your next question comes from the line of Louis Miscioscia. Louis, your line is open.

Louis Miscioscia – Collins Stewart

Okay, thank you. I am in an airport, so apologize for background noise that comes through. I guess, Tim, appreciate you know a good quarter. Let me start with that and appreciate the color on how the mix is changing. One thing obviously that obviously got $3.4 billion, $3.5 billion of revenues. You said about 10% to 15% incremental operating margin dollars in that incremental dollar. Do you have a new number for us? Obviously I can do the math on the information you gave, but just haven’t had the chance to do that yet.

Tim Main

Yes, we are really – the margin expansion we talked about for the last year was really from a trough quarter. So we are not really talking about margin expansion much anymore. We think 3.8%; we are in the zip code of where we expect it to be at this point in terms of revenue. We think we can continue to expand profitability longer term through portfolio management and leveraging SG&A expenses (inaudible) quarter to quarter it depends on the mix of our business. So no leverage metrics to track any more.

Louis Miscioscia – Collins Stewart

Okay. Two question, they are big picture question. Aren’t you all concerned about Europe and wonder if you can comment if you saw any changes in demand in Europe and the – obviously a very strong quarter-to-quarter growth numbers that you gave for all the industries and those are helpful. Could you also help us out with how much you think is new wins and how much of that is organic? Thank you.

Tim Main

I can't help you much not because I wouldn’t like to but in terms of quarter to quarter we had a very robust recovery in mobility and that’s due to –due primarily to good demand, but also a broadening of our portfolio and the number of products that we build for a small set of customers in that sector. So that was important. We saw 12%, 13% sequential growth in the instrumentation and industrial and medical sector, which is a very strong growth, the second double digit sequential growth that we’ve seen in consecutive quarters. That’s all organic growth that existing customers’ share of wallet, new assemblies, all that kind of stuff. You know, the rest of it was just kind of a rising tide and organic growth. We are seeing more service adoption and the new business wins velocity is increasing. So, we feel pretty good about that.

Louis Miscioscia – Collins Stewart

Okay. And then just on the macro environment that you are seeing – couple of other companies have making to do–?

Tim Main

So about – I think we believe that it’s about 30% to 31% of our production ends up in Europe is bound of Europe. So it’s based on European consumption. Right now we’ve seen very little change to forecast, very little impact. Not to say that we won't, I mean we always have to be cautious. But I think that the hysteria that was going around a couple of weeks ago is probably over blown I mean that the major economies in Europe that are may be struggling with (inaudible) are showing some growth (inaudible) countries like Greece and Spain and Portugal are very important. They are just not as big economies as France, Germany, U.K., Italy and the Scandinavian countries and it’ just –we think to put things in proportion, we are not seeing any kind of major disruptions in our business.

Louis Miscioscia – Collins Stewart

Okay.

Tim Main

Getting a lot of background noise now, Lou.

Operator

And we move on to our next question. Our next question comes from the line of Amitabh Passi from UBS.

Amitabh Passi – UBS

Hi, thank you. Can you hear me?

Tim Main

Yes. Yes we can.

Amitabh Passi – UBS

Okay, thanks. First question just had to do with your sequential increase in inventories up $200 million plus. Just wondering if you can give us some color in terms of what the driving factors were again given the strength in mobility has a lot of that skewed to the dynamics in the mobility segment or is some of that sort of an anticipation of again the strong mobility growth that you expect to see in the August quarter, so incremental color around some of the inventory new build would be great.

Tim Main

No we are seven turns. You know our sales cycle is consistent with the previous quarter and so really what you are seeing here are heavier inventory investments and customers really mitigating the risk associated with those inventory investments with faster receivable collections and kind of on a very cautious basis. So we are able to manage our sales cycle in a period of a higher level of inventory investment. Having said that, we think inventory investment at this point is very – is a smart investment. It’s very little risk, it helps JABIL and our customers to optimize and capture as much revenue as they can while the demand is there. The material – the continuity of supply issues are still – are still there before the market. I mean component shortages are spreading across multiple industry sectors. We are still – it’s still very challenging to manage mix. And so we are hand and month in a number of areas. All the inventory is purchased through a customer purchase order so there is very little down side risk to it in terms of ownership.

We have a demonstrated ability and a 90-day window to liquidate inventory. To the extent that business closed down, we’ll be able to liquidate that investment very rapidly, so it is not driven by any – you asked about mobility. It’s not driven by any particular industry segments. When I look at may be IT areas and higher mix segments of our mix, little bit slower inventory turns and the higher velocity parts of our business it’s always been true. But anywhere you see a higher mix business, we are carrying additional inventory and we think that’s a smart investment and we’ll continue to work, try to work that level back up to an eight turns and – but for right now we think it’s a very low risk investment for us.

Amitabh Passi – UBS

Okay. And then just one other question for you. You know when you show your business breakdown now you kind of break out the mobility EMS segment versus the mobility technology services segment, which is part of Jabil Green Point. Again, just wondering as we look over the next quarter, the 25% growth in mobility, are you able to give us any sense as part of this pie growing faster than the other particularly in the August quarter?

Tim Main

Well, the assembly side of the business, the EMS side of mobility will grow faster. It’s a – you know you are talking about an electronic assembly with a much higher bill of material content than mechanical components. So that’s a higher revenue, lower margin, higher asset velocity business. And on the mechanical side, it tends to be higher margin, higher investment, actually pretty good velocity in terms of being a high volume low mix business but a higher fixed asset investment per dollar or revenue than what you see in the EMS assembly side of mobility. So, when we get burst [ph] in demand you’ll see the revenue grow higher in the EMS side than you will the mechanical side. Having said that, we are in a period of very strong expansion of our mechanics business and we continue to ramp production there and we’ll continue through the August quarter and into the November quarter. So, we are still very excited about the – what’s on the horizon for us there.

Amitabh Passi – UBS

Okay. And then finally, do you have the precise percentages for your two 10% plus customers?

Tim Main

We don’t.

Forbes Alexander

Not to hand.

Tim Main

We don’t think that we provide that other than on annual – on an annual basis.

Amitabh Passi – UBS

Okay. Thanks.

Tim Main

Okay.

Operator

And our next question comes from the line of Wamsi Mohan from Banc of America.

Wamsi Mohan – Banc of America

Thanks a lot. Tim, your investments in Green Point have truly driven some of the strength in you guidance here. Can you talk about perhaps the sustainability of the strength I mean sort of through the course of the next three or four quarters. And secondly where else outside of mobility are you currently leveraging Green Point? I think you’ve mentioned medical in the past. When should we start to start to expect a more material revenue contribution from those areas?

Tim Main

Yes so just why don’t you just kind of calibrate – the revenue growth is primarily driven by the EMS, the assembly side of mobility. And again, the mechanics part of mobility will be a lower revenue business. Having said that, we believe that we’ll continue to grow the mechanics business in mobility at a much more rapid rate than has happened over the last couple of years. And you asked a great question about fertilization [ph] into our healthcare business, potential areas of automotive and other sectors. And we believe that will take place but that’s a longer term prospect. So I – you really need to think about the contributions in other sectors of our business from Green Point in terms of – over the next couple of years, not over the next couple of quarters.

Wamsi Mohan – Banc of America

Okay, thanks. And you alluded to this portfolio (inaudible) growing from 60-40 to 50-50 longer term. Clearly the 40 you are just translating to 50 is much higher mix, higher margin, including Green Point there. So, how should we think about the sort of operating margin given the op mix of revenues?

Tim Main

60:40 versus 50:50?

Wamsi Mohan – Banc of America

Yes.

Tim Main

Yes, when it gets to 50:50, we’ll see.

Wamsi Mohan – Banc of America

Alright, thanks a lot.

Tim Main

It’s – you know by my definition it should be better than 3.8 but there will be a lot of moving parts over the next few years. So we do think – really the point there is from here, now that we are at 22 going to 25% return on invested capital, we are right around a 4% operating margin. If not next quarter then certainly within a clear shot of where we are today. The question becomes is there – where do we go from here? How do we get additional margin expansion, better profitability in the business, and incrementally that will come from leveraging SG&A expenses and shifting our portfolio more towards those higher mix, lower volume segments, just a little bit more value-add rich.

Wamsi Mohan – Banc of America

Great. Thanks a lot.

Tim Main

Okay.

Operator

And the next question comes from the line of Brian Alexander from Raymond James.

Brian Alexander – Raymond James

Yes, may be to follow up on that last question in terms of that 50:50 long-term split you are expecting between traditional EMS and (inaudible) solutions for a lack of a better term relative to your longer term of 4% operating margins,. I guess the question are you expecting margins to expand on both sides of that pie chart or do you think there could be some degradation in one side of the pie chart that could offset some of the favorable mix because I guess to the last question, it would seem that your margins could actually get closer to five based on that longer term split. Thanks.

Tim Main

Right. Well, you know, I think it’s rational and reasonable to think that commodities – that the cycle of commoditization continues and I – we don’t expect a lot of margin erosion in the more mature sector, but they are definitely be more cost focused and efficiency focused. So, driving cost out of the system, lean manufacturing, more collaborative design, shifting the services from assembly and fulfillment to assembly, fulfillment, and aftermarket services and collaborative design and the other things that we can do as a business to add to our value proposition for customers there. I think it’s rational to think that as healthcare, life sciences, clean tech continue to grow in size and scale to our industry that there will be some commoditization there as well. So there should be some offsetting commoditization and margin erosion over long period of time.

Having said that, if you really kind of do the math and think about tech [ph] correctly I think you are thinking the right way about it, I believe. If you are 3.8% to 4% today and you are able to continue to drive lean manufacturing to support mature segments, and you are able to rapidly grow these emerging sectors then we should be moving beyond 4%, closer to that 5% over time.

Brian Alexander – Raymond James

Great. And then just back to the quarter you just reported, the revenue upside. You guys are pretty good at predicting revenue on quarterly basis and you just beat the high end of your guidance I think by $150 million in a demand environment that most would agree probably hasn’t improved a whole lot over the last couple of months. So, I know you have some larger programs ramping, may be talk about whether that mobility ramp, which it sounds like it isn’t, was well above your expectation, but as you go back to that and just how are you feeling about customer inventory levels in the context of the revenue upside you just experience in particularly the explosive growth you saw in industrial and networking. Thanks.

Tim Main

Right. Yes, those are great questions. You know we generally are better at forecasting our revenue. I think we did a – may be a – we didn’t do a very good job handicapping in a number of risk factors into our Q3 guidance. We were in a very tight material market, we still are, but very tight material market, a number of complex launches of mobility platforms that we weren’t sure how quickly they’d come out of the gates. And they did a little bit better than expected. And we just are winning more business than may be we have historically counted on. So I think all of those things combined really surprises a little bit on the revenue side. I think this time as we look at Q4, we always try and be a little bit conservative but we are trying to give you a pretty fair picture of where we think the revenue strength is and what the quarter is actually likely to turn out and trying to not handicapping as much of the risk factors and as maybe we did in the May quarter. Some good reasons for that, mobility platforms have launched, we kind of know where they are. We are doing a better job of managing the material constraints using tools that we have and demand, supply chain optimization. We are doing a better job of I think communicating what customers can expect from us in terms of throughput and therefore expectations in providing commitments to their customers. So, all of that leads us to a little bit more of a – little bit more confidence around the kind of sequential growth that we are forecasting for the August quarter.

Brian Alexander – Raymond James

Great. Thank you and congrats again.

Tim Main

Okay.

Operator

And your next question comes from the line of Shawn Harrison from Longbow Research.

Shawn Harrison – Longbow Research

Hi, Tim. Congrats on the quarter. First question, just with the mobility business. As we look at say into the August and November quarters, is there a potential upside to the EBIT margins we witnessed this quarter that 1%? Was it may be affected just by the additional depreciation being added and where can kind of those margins go within the consumer business for the next few quarters?

Tim Main

Yes, it’s a fair point. 1% is definitely not at a targeted margin. And I would expect that business on an annual basis to be in the 2.5% o to 3.5% range. And we are going through some – we are actually going through some costly ramps and a significant ramp of a costly program in the mechanical area of the business and launching a number of new programs still in the August quarter in the electronic assembly side. So that’s definitely lot of pressure on the margin side. I think by the time we get into the November quarter, I would expect much better margin performance from that part of the business.

Shawn Harrison – Longbow Research

Okay. And then just as a follow-up on the capital spending within the mobility business. Do you think you will be down with kind of the large I guess capital program here within the August quarter or should we expect more in early fiscal ’11?

Tim Main

I think we’ll be done with the significant investment we talked about last quarter.

Shawn Harrison – Longbow Research

Okay. And then the final question is I know when you announced the capital investment last quarter, there was the expectation that you’d expect to see other customers begin to take interest in the more mechanical side. I guess kind of what has been customer interest level or response so far?

Tim Main

We are not marketing it broadly right now. We are very, very into the launching the program that we are responsible for now and similar to the medical discussion we think that’s something we – I’d ask people to (inaudible) thinking about in terms of quarterly buckets [ph] and think a little bit longer term. We’ll be very busy with the ramp that we are going through right now through the August quarter. I think throughput and expectations will be much closer to where we wanted to be by the November quarter and really about early in calendar 2011 we’ll be able to may be sit back and look at hey, let’s approach other customers in other industry sectors to see if e can broaden the appeal of that investment. So, we are probably six to nine months away from being (inaudible).

Shawn Harrison – Longbow Research

Okay. Thank you.

Tim Main

Okay.

Operator

And your next question comes from the line of William Stein from Credit Suisse.

William Stein – Credit Suisse

Hi, thanks. I am wondering if you can comment, Tim, on lead times and shortages and perhaps relate that to inventory with (inaudible) anything to do with the inventory build on the quarter?

Tim Main

Yes, sure, we talked probably actually in a previous question that the supply constraints continue and really haven’t improved much from the February quarter. Kind of a same-same and it’s really gone into sectors like goods and even healthcare customers are seeing some issues in getting supplies. So that’s been difficult. So, look, I mean it’s – if we look at it, we think that an additional investment of – an additional investment in inventory right now is a smart bet for us. Again, it allows us do a better job of managing mix, it allows us to help customers capture revenue in the marketplace and it’s just too difficult to predict at this point day to day what’s going to show up and what we can ship. So – and demand is going up. So, it’s a very low risk way for us to hedge against component shortages. So it definitely has something to do with why we are seven turns and not eight or nine.

William Stein – Credit Suisse

So, it sounds to me like this is not a matter of incomplete chips because you had a supplier who failed to deliver because of a shortage, it’s more of a strategic investment. Is that fair?

Tim Main

That’s fair. You know, it isn’t an incomplete kit on a single program customer because of a single device. Broadly speaking though, it is because people are fearful of incomplete kits and being lying down. So a more significant investment in inventory allows us to do a better job of managing mix. So people need to realize that I think it’s 70%, 80% of our output is still from lot quantities of 100 or less. May be it’s 200 or less; a very, very high mix business today. But it’s cost to manage a high mix business in an environment of material constraint. And I think if you look at people in our peer group, something like Flex probably turns inventory I am not sure what it is, but four or five times. I think they are running a business that’s kind of a proxy for what our instrumentation, industrial, and medical segment would look like and you know so it’s just it’s tough to get good inventory velocity even though revenue is going up in an environment where material constraints are so looking around every corner. So, it is a strategic investment. Customers are asking us to do that. We are responding with additional investments. The sales cycle has been expanding appreciably as many customers are mitigating the additional investment in inventory with accelerated accounts receivable payments. And we’ll continue to work closely with customers to mitigate our risk and yet allow them to capture as much revenue as they can.

William Stein – Credit Suisse

That’s very helpful. One follow-up if I can. It looks like this new investment in Green Point in starting to pay off much – it seems much more quickly and successfully than kind of the first initial go you had in the components business a few years ago. Thinking longer term, are there other verticals that you might attempt to go into or other products that we might see coming out of Green Point in the next coming quarters?

Tim Main

No, I think we are pretty set in terms of where we think it’s smart for us to invest in vertical integration. Again, I think over time, the Materials Technology Services area of our business and that’s really an intentional new brand for that part of our business and it connotes the strategic intent to broaden the mechanical operations there into the healthcare industry, life sciences and other important parts of our business. So, that’s just, it’s more than just a label change for us. It does have meaning to it. It won't be meaningful to the overall business for the next – for another year or so. And we think that’s important. In terms of vertical integration, I think on a – one off, here and there joint venture to provide enclosures in a particularly difficult field [ph], localizing supply chains, for instance in India. When we first started building set top boxes in India, we invested in a present – in a current mechanical supplier to place in operation in India in order to localize the supply chain. So here and there we’ll find parts of the world where the supply base is inadequate locally and make investments to ensure ourselves of world-class supply. But other than that I don’t expect to see – you should expect us to make any additional big investments in vertical integration.

William Stein – Credit Suisse

Helpful. Thanks very much.

Tim Main

Okay.

Operator

And your next question comes from the line of Jim Suva from Citi Financial.

Jim Suva – Citi Financial

Thank you and congratulations. It looks like your mobility really at least if we look at the different segments of the Consumer segment growing 19 versus 5% and mobility of 20%, 23% I really think that was really the biggest upside and may be if you can just let me know if that is indeed correct and was that more from the growing of this new big CapEx program you put in or, Tim, I thought I heard you mention a few minutes earlier or ago that the materiality of that won't come for some future time period.

Forbes Alexander

Jim, yes, Forbes. You are correct. Tim’s characterization there was these investments will start to bear fruit in the coming few quarters. The upsides here mobility were – as we talked about earlier, ramping some electronics production and that continues in this upcoming fourth quarter. And in some of our revenue guidance, we – perhaps we haven’t handicapped fully the nature of these ramps, the timing of these ramps. So we are very pleased with that, with the way those ramps are – occurred in the third quarter and how they continue in Q4. But, as I say, it’s principally electronics based. There is some contribution from mechanicals area. But that will start to bear fruit as we move forward here.

Tim Main

Yes, if anything we had margin headwinds from the mobility area because the growth in electronic assembly was much more robust than the mechanical side. And we are growing through the ramp process with that mechanical investment. So don’t expect that to be profitable during the ramp period. And so if anything, we had headwinds there. And I think it’s, we have overdrive, very good efficiencies in the rest of the business and deliver a 50 basis point improvement on operating margins. So we felt that was at least a pretty decent performance given the circumstances.

Jim Suva – Citi Financial

Great. And that exactly lead me to my short follow up is if that’s the case, which I assumed it was, it seems hard to believe why 4% is the run rate, why the 4% operating margin shouldn’t be much higher when you are facing such – the ramps that you did and the large CapEx involvement and the ramping and the yield should improve that it seems like you know 4% should be kind of more the base line rather than the target goals and you know it was just a few years ago when you were consistently for multiple course setting 4.5% margin. So Forbes in 10 year kind of given a history overview for a good junk of this earnings call. May be you can talk about should we be looking at going back to 4.5% or why shouldn’t we be.

Tim Main

I don’t think there is any reason that what you are saying isn’t true. What you are saying probably is true. We just haven’t provided any guidance beyond the August quarter and we try not to back into that and I know people are going to struggle kind of what the heck am I going to put in my 2011 model now. Company is doing about $4 billion of revenue and – that implies at least $16 billion number in 2011 and what kind of operating margins like, yes, we’ll provide as much help as we can when we get to the September call. That’s what we can do right now.

I mean I wouldn’t argue with you a lot. There is lots and lots of risk in the business. You know there is lots of things that can go up in the night. There is – you know there is still people say there is going to be double dip and we don’t see that. So – I think what we are saying is to say don’t ever expect us to go over 4%. It’s – this economic model works great where we are. I mean if we do 3.8% to 4% operating margins in the August quarter, we are going to drive 25% return on invested capital. I mean at that level of loan and a $16 billion 2011, we’ll drive almost $1 billion in EBITDA and probably drive 30% to 35% free cash flow after paying interest, dividends, and CapEx, and working capital consumption and everything else. So, yes, the margins can go beyond 4%, but where we are today is something that fundamentally is very sound.

Jim Suva – Citi Financial

Thank you and congratulations to you and your team for a good quarter and great outlook.

Tim Main

Thanks, Jim.

Operator

And your next question comes from the line of Sean Hannan from Needham & Company.

Sean Hannan – Needham & Company

Yes, good evening. So, I am going to keep it to one question that kind of multi-part. Jim, thanks a lot for the strategy comments. That was actually I think very useful. When you look at this space today and you talk about the pie growing, gaining share of wallet of you customers, you talked about as well some examples of increasing efforts around life cycle management, consultation, et cetera. Can you share some of your views on how this may make your relationships more sticky the importance of that in your approach and then when you look competitively, how do you expect others in the industry to execute on similar type of approach?

Tim Main

Great question. I mean it’s really all about making these relationships so fundamentally powerful and the group of companies so small, that we must be one of two or three manufacturing partners to the most attractive companies in the world. I mean that’s what it’s all about. And our ability to do that if we were just say, we could be the best circuit board assembler in the world or we are just going to provide commoditized service from low cost regions, we shut down more plants, we jettisoned more SG&A, we wouldn’t invest in design, we wouldn’t make the investments that we were making over the last 10, 15 years. You know we think the world is changing. Every seven, eight years, the world seems to change fundamentally in our industry and in 2001-2002 the world changed in the direction of Asia. And Asia will continue to be extremely important, but its’ importance will become less as the factory to the world and more as a consumption reasons and growing affluence and what does the rise of the rest of the world mean to the United States and North America and the more mature economies.

So the world is going to change again. And it’s going to be very complex and the companies with the best IT systems, the best footprint, the best lean operations, the best systems to be able to connect all of the complexity around the world into something that’s understandable and simpler to manage, and has a very passionate, powerful culture of people that care like crazy about their customers, I mean those are the companies that are going to win. And we don’t think – we think there is really just a handful of companies out there that can provide that.

Now customers want to have two or three suppliers in many cases and guess it will be big parts of the business that we don’t even touch. I mean we’ll never build a PC again. We’ll probably never build a notebook computer, but for anybody in the world with complex needs where the customer is providing software engineering, product design, any high mix requirements, regulated industries, those are the types of customers that we think we’ll be ideally suited for and we think that’s a big expanding market. And I think that it’s going to put folks that haven’t invested in systems and tools and don’t have a cohesive culture at risk and the companies that do have cohesive cultures and great systems and can make the investments I think will prosper. And there will be a number of companies in our industry that will do very, very well in that kind of environment.

Sean Hannan – Needham & Company

That’s great. Thanks, Tim.

Tim Main

Thanks.

Operator

And your next question comes from the line of Sherri Scribner from Deutsche Bank.

Sherri Scribner – Deutsche Bank

Hi, thanks. My questions have been answered. Thank you.

Operator

Okay. We move on to our next question, which is from Alex –

Beth Walters

Operator, operator, this will have to be our last question please.

Operator

Okay. Thank you. This will be our question from Alex Blanton from Ingalls & Snyder.

Alex Blanton – Ingalls & Snyder

Just made it. Thank you. Just quickly, the tax rate again for this year what you are expecting?

Forbes Alexander

The core rate for the year will be 20% and for the fourth fiscal quarter also 20%.

Alex Blanton – Ingalls & Snyder

20% versus 32% on the year just ended right?

Forbes Alexander

On a core basis it was also 20%.

Alex Blanton – Ingalls & Snyder

Okay. Core basis is what we are talking about, right?

Forbes Alexander

Yes.

Alex Blanton – Ingalls & Snyder

Okay 20%. Thank you. Tim, you mentioned that the targeted growth sectors on slide 21, they are growing at 33% for you or for the industry?

Tim Main

For Jabil. Now that would – I don’t have the slide in front of me – well I think it was about $4.1 billion–

Alex Blanton – Ingalls & Snyder

Yes.

Tim Main

(inaudible) and $3 billion in fiscal ’09.

Alex Blanton – Ingalls & Snyder

Okay, so that’s –

Tim Main

So, that’s about a 33% growth rate year-over-year.

Alex Blanton – Ingalls & Snyder

That’s the growth rate for the past year.

Tim Main

Yes.

Alex Blanton – Ingalls & Snyder

And you said $200 billion to $300 billion total available market?

Tim Main

Yes. When you consider all of those industries combined, it’s several 100 billion dollars of addressable market. We think the penetration rate is relatively low.

Alex Blanton – Ingalls & Snyder

Yes. Do you have any forecast or a statistics on that penetration rate? What is it do you think–?

Tim Main

It’s different in – for instance in healthcare and life sciences, it’s in the 15% range.

Alex Blanton – Ingalls & Snyder

Yes.

Tim Main

In the industrial and instrumentation area, it’s probably 15% to 20% range.

Alex Blanton – Ingalls & Snyder

Okay.

Tim Main

Aftermarket Services I am not sure what the outsource percent is but the significant opportunity there is that even the stuff that’s outsourced is outsourced in a very fragmented, disorganized way. So there is a tremendous opportunity for us to provide a more rational solution to customers even though it’s outsourced. There are very few big players that have dominated that industry. So, that’s a significant opportunity for us.

Alex Blanton – Ingalls & Snyder

Okay. So the 200 and 300 includes aftermarket?

Tim Main

Yes.

Alex Blanton – Ingalls & Snyder

Okay. And – I had one other one here. Listen, let me just ask you about Nokia. I don’t know if you can talk about that. But they pulled a lot of stuff back in house last year because they said we’ve got factories and we’re going to use them. What do you expect from Nokia going forward?

Tim Main

Our Nokia revenue is very small, now immaterial to our revenue stream. We went through that negative experience with Nokia back in 2007 and thankfully we are through that, going on three years now.

Alex Blanton – Ingalls & Snyder

Okay. So that’s not in – you are not expecting much of a bump from them at all then?

Tim Main

No, I would love to do more business with business but strictly in the mechanics area.

Alex Blanton – Ingalls & Snyder

Yes.

Tim Main

Because I tell you what, we avoid like the plague competing with big vertical customers internal factories if they are not strategically committed to outsource. Because you get it in any of these soft economic periods, and they pull stuff back inside.

Alex Blanton – Ingalls & Snyder

Yes, okay.

Tim Main

For that, we avoid that.

Alex Blanton – Ingalls & Snyder

One final thing. If I used the high end of your EPS guidance range for the next quarter and the mid range, mid-point of your sales guidance range, it implies about a $0.10 there. It’s the top end of your range, $0.50. It implies about 6% incremental margin on the additional sales to get there. Does that seem low to you, 6% incremental on – at this time or not?

Tim Main

Not given where we are today the mobility sector and particularly the electronics assembly sector is driving a lot of the growth in Q4. So there is margin headwind against us in terms of the Q4 guidance. I think we are really going to stop talking about, Alex, to the operating leverage side of it because we are in a range of performance now where we’d like investors to think about this is a good business that 3.8% to 4% operating margins if you just take what this company is going to do in fiscal Q4, Q1 and spin that out into fiscal ’11 it’s a $16 billion business that wants to run at 3.8% to 4% operating margin, that will produce $1 billion in EBITDA. That will produce free cash flow of 30%, 35% and you know that’s a good business.

Alex Blanton – Ingalls & Snyder

Yes.

Tim Main

And so we’d ask people to stop thinking about that quarter to quarter at this point, you know they will be fluctuating from how much leverage there is.

Alex Blanton – Ingalls & Snyder

Well, as long as you can get that kind of top line growth, you don’t need to leverage. Okay, thank you.

Tim Main

(inaudible) keep focused – thank you for saying that but (inaudible) absolutely stay focused on driving lean and efficiency and making the business more profitable. We think over the next three to five years that incremental profitability is going to come from SG&A expense leverage and what we can do to manage, get a better balance in our portfolio

Alex Blanton – Ingalls & Snyder

Okay, thank you.

Tim Main

Okay.

Operator

And now, I would like to turn the call back over to the presenters for their closing remarks.

Beth Walters

Okay, thank you, everyone. Thank you all our investors and analysts on the call today. We appreciate you joining us. And please feel free to call in for any other follow-up questions you have on the quarter. Thank you very much.

Operator

And this concludes today’s conference call. You may now disconnect.

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Source: Jabil Circuit, Inc. F3Q10 (Qtr End 05/31/10) Earnings Call Transcript
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