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Benchmark Electronics, Inc. (NYSE:BHE)

Q2 2010 Earnings Call

July 29, 2010 10:00 am ET

Executives

Don Adam – CFO

Gayla Delly – President

Cary Fu – Chairman and CEO

Analysts

Brian White - Ticonderoga

Sherri Scribner – Deutsche Bank

Amit Daryanani – RBC Capital Markets

Sean Hannan – Needham & Company

William Stein – Credit Suisse

Jim Suva - Citi

Brian Alexander – Raymond James

Operator

Welcome to the Benchmark Electronics’ Second Quarter 2010 Earnings Call. At this time, all lines are on a listen-only mode. Later there will be a question and answer session and instructions will be given at that time. (Operator Instructions)

At this time then, I’d like to turn the conference over to Mr. Don Adam. Please, go ahead, sir.

Don Adam

Good morning. Welcome to the Benchmark Electronics Conference Call to discuss our financial results for the second quarter of 2010.

I’m Don Adam, CFO of Benchmark Electronics. Today, Cary Fu, our CEO, will begin our call by reviewing the current market environment and resulting impact to benchmark. Gayla Delly, our President, will then discuss our operational activities for the second quarter and our outlook for the third quarter. Then I will then follow with review of our financial metrics for the second quarter.

After our prepared remarks, Gayla, Cary, and I will take time for your questions in our Q&A session. We will hold this call to one hour.

During this conference call, we may make projections that are forward-looking statements regarding future events or the future financial performance of the company. We would like to caution you that those statements reflect our current expectations and that actual events or results may differ materially.

We also like to refer you to our reports that are filed from time to time, with the Securities and Exchange Commission, including the company’s 8K and S4 filing, quarterly filings on Form 10Q, and our annual report on Form 10-K.

These documents contain cautionary language and identify important risk factors which could cause actual results to differ materially from our projections or forward-looking statements. We undertake no obligation to update those projections or forward-looking statements in the future.

Now, I’ll turn the call over to Cary.

Cary Fu

Good morning. Thank you for joining our call today. Benchmark Electronics second quarter results, once again show a material growth in some operating metrics.

For the quarters our revenue was up 22% compared to the same period of time of 2009, and at 3% subsequently. Earnings per share excluding [inaudible] charges, up74% compared to the same period 2009, and up 10% subsequently.

Our earnings per share result was in the guidance we reported last quarter. For Q2 our earnings per share were impacted by two items that were not forecasted; the favorable tax rate, and a favorable FX impact. These items are basically setting up our results.

For the year-to-date results on revenue, first half was up 19% compared to last years. And earnings per shares excluding the [inaudible] was up 85% compared to 2010 to 2009.

Our gross margins for the quarters, the 2010, was 4% compared to 2.8% in 2009, and consistent with our first quarter of the year.

We have a retained our operation leverage while ramping up some of the new programs which we have been talking about over the last several quarters, in addition to the overall challenging component environments.

Of course, we are disappointed that our Q2 earnings [inaudible] our revenue guidance. In comparison to our guidance, we’re negatively impacted by the continued challenging on the supply chain, changing the mix on our customers forecast, and additionally to a lack of a demand pool at the end of the quarter of one of computer customers. We expect this to impact our revenue and the inventory level as well.

For the second quarter, we’re confident with our revenue guidance. In the development of Q2 forecast, we considered the supply-chain environment. We also conservatively discounted forecast provided by our customers. But that’s not enough.

The product mix change we see from our customers was in with this condense supply change, in addition to the lower demand pools on the computer customers; we did have a slight miss on our top line.

The good news is our peers continue to do a diligent job in this environment, in meeting the needs of our customers. The long return [inaudible] component has continued to impact our ability to meet our forecast and exchanges in supporting the job order from our customers.

Our supply chain team, in support with our customers, were very diligent in walking with the supply chain to bring the demand challenge. However, this extended lead-time impact our shipment in the $30 million for the quarter.

Our revenue for the medical sector was slightly down from Q2. In Q2 from Q1, mainly due to a product transition of crossover. We do expect this to rebound in the second half of the year, with the new program, the ramping we have in front of us.

Looking at Q3 forecast, we’re looking for continued growth which our customer forecast to continue to gross quarter over quarter. In determining our guidance, particularly in the revenue for the third quarter, we have considered the supply chain challenge, and takes a more conservative discount on the forecast for the customers.

Also, consider quarter-to-day shipment at volumes. We do anticipate top-line growth for the third quarter. We do feel comfortable in the guidance we are providing today, looking at new programs ramps and the quarter today activity.

Noted, we do anticipate the overall macro environment with mainly stable during the quarter, but clearly changing our overall environment could impact our results.

Now, I turn to Gayla to talk more about operational issues.

Gayla Delly

Thank you, Cary. As Cary noted, the second quarter was a challenging quarter; another quarter of good results and continued restraints within the supply chain, as well as significant mixes in the demand level from our customers including their increase demand.

As you will recall, we booked 11 new programs with current estimated annual run rate revenues at 300 to 375 million at full production during the first quarter of 2010.

These are tracking to plan, and we expect to start seeing the benefits of these bookings beginning in 2011.

During our second quarter we booked 11 new programs with estimated annual revenues 87 to 92 million. These bookings were in the following industries sectors; industrial control, telecommunication, and the medical sectors. And they were with a new and existing customers.

These bookings, of course, are subject to risk of timing and ultimate realization of the estimated revenues.

Additionally, in our sales front log, we have opportunities which we anticipate will close in Q3 that have not closed during Q2, that are significant.

During the second quarter, we did not report any restructuring charges as we did complete our plan restructuring activities during Q1. Of course, we continue to review our global footprint in relation to customer demands and to determine if actions are warranted for the short-term or the longer term.

As noted, we expect to see continued growth in the third quarter of 2010. And based on what we see today, we expect estimated revenues, considering the factors Cary pointed out, during the third quarter of 2010 to be in the range of 500 to 630 million with corresponding earnings per share for the third quarter in the range of $0.33 to $0.36, including restructure charges.

We’re providing third quarter guidance only at this time. And at this time, I’d like to turn the call back over to Don to go through some financial metrics for Q2.

Don Adam

We completed the second quarter of 2010 with revenues of 589 million, which was a 22% increase over the prior year, and a 3% increase over the first quarter. Yet, these revenues were slightly below our revenue guidance of 600 to 630 million provided during our last conference call.

On a quarter-over-quarter basis, we saw a stronger shipment for all industry sectors we serve except for medical, or we saw a decrease due to product transitions and crossovers.

Subsequently when comparing Q2, this year compared to Q1 of this year, revenues from test and instrumentation were up 14%, revenues from the industrial control sector were up 18%, revenues from the telecom sector were up 7%, revenues from the computing sector were up 3%, revenues from the medical sector were down 20%. Our earnings per share for the quarter were $0.33. Note that we did not report any restructuring charges during the second quarter as anticipated in our last conference call.

Providing more meaningful comparative analysis, we will present certain financial information excluding restructuring charges incurred in the prior periods during this call. As previously mentioned, we do not report any restructuring cost this quarter. We call your attention to the fact that these items are excluded when we do so.

In today’s press release, we have included a reconciliation of our GAAP results to our results, excluding these restructure charges.

Our gross margins for the second quarter was 8%, which was once again an improvement over the prior quarters, gross margins of 7.9%, excluding restructuring charges.

Our operating margins for the second quarter was 4%, which is consistent with the first quarter. Net income was 20.8 million for the second quarter of 2010 compared to 12.2 million in the second quarter of last year, which is excluding restructuring charges.

GAAP net income in the second quarter of last year was 11.6 million.

Second quarter diluted earnings per share was $0.33 in 2010, compared to $0.19 in 2009, excluding restructuring charges. GAAP diluted earnings per share was $0.18 in the second quarter of last year.

Interest income was approximately 447,000 for the quarter. Interest expense was 340,000, and other expense was 680,000, which is primarily related to foreign currency losses for the quarter.

Our effective tax rate was approximately 10.8% in the second quarter compared to 15.2% in Q1, which excludes the restructuring charges. The decrease is due to changes in forecast and taxable income between tax jurisdictions.

Diluted weighted average shares outstanding for the quarter were 63.2 million, our cash and long-term investments balance was 397 million at June 30, which includes 46 million of auction rate securities classified as long-term. The unrealized loss in our auction rate securities at June 30th was 4.1 million due to changes in the market value for the securities. The unrealized loss is reflected in accumulated other comprehensive loss as a component of shareholders equity. For the second quarter we used cash flows from operations of approximately 24 million due to increase in receivables and inventory levels. We expect to generate 30 to 40 million of cash flows from operations during the third quarter.

Capital expenditures for the second quarter were 9.7 million. We anticipate capital expenditures to still be in the 35 to 45 million range for the year; of course, dependant upon market conditions. Depreciation and amortization expense were approximately 10.1 million.

Repurchase of common shares in the second quarter were 15 million, or approximately 800,000 shares. Shares repurchased, total 33 million and 1.7 million for the first half of this year.

Since the inception of our shares repurchase program in July, 2007, we have repurchased approximately $207 million of common stock or 11.7 million shares.

Receivables were 413 million at June 30th, an increase of 5 million from the last quarter. Inventory was 389 million at June 30th, inventories declined slightly from Q1 to 5.6 times from 5.8 times in Q1.

Our inventory turns were impacted by material constraints, weaker-than-expected computing demand and planning for new program ramps.

We expect inventory levels to decrease during the quarter when we compare that to the second quarter. Current assets were approximately 1.2 billion and our current ratio was 3.5 to 1 in Q2 compared to 3.41 to Q1. As of June 30th, we have 11.5 million in debt outstanding which is primarily related to a long-term capital lease on one of our facilities.

Comparing second quarter of 2010 to the same period in 2009, the revenue breakdown by industry is as follows; computers is 31% in 2010 compared to 38% last year; industrial controls was 25% this year compared to 19% last year; telecom was 23% this year compared to 26% last year; test and instrumentation was 11% compared to 3% last year; and finally medical was 10% this year compared to 14% last year.

At this time, I’d like to open the call for Q & A session. During the session, we request that you limit yourself to one question and one follow-up question. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Brian White with Ticonderoga. Please go ahead.

Brian White - Ticonderoga

Yes, good morning. Cary, could you talk a little about what you saw – you said the computing business weakened at the end of the quarter. Was that just one customer? And, what’s going on, is that end-mark demand weaknesses, is that some type of consolidation of relationships?

Cary Fu

We have a significant under pull from one of the computer customers towards the end of the quarter. And not knowing the overall computer industry environment – this is probably a very unique situation. I cannot tell you the overall macro environment, but the under pull is significant enough to know this.

Brian White - Ticonderoga

And Cary, one of your competitors is benefiting from a consolidation of a server customer. And I’m wondering, could that have a negative impact on Benchmark at some point this year?

Cary Fu

They might, you know, because of the volume that that particular customer has dropped in volume; it’s not a significant amount. But the under pull we talked about is not related to the customers.

Brian White - Ticonderoga

Okay. Thank you.

Cary Fu

Thanks.

Operator

And our next question comes from the line of Sherri Scribner with Deutsche Bank. Please go ahead.

Sherri Scribner – Deutsche Bank

Hi. Thank you. You gave a little bit of detail in the commentary, but I was hoping to get your sense of how you think your segments will break out in the third quarter. I think you said medical would recover, but wanted to see what you were thinking about some of the other segments. Thanks.

Cary Fu

I think for the third quarter, we do anticipate the computer sector will be back up a little bit. And the, of course, medical will be coming up.

Don Adams

We’re expecting all of the sectors to increase over Q2 in real dollars, all of them to increase over Q1 levels, or Q2 levels, excuse me.

Gayla Delly

And with respect to mixed share, we expect medical to have a slight increase in Q3, probably the more dramatic increase would come in Q4. And then a little bit of strength in the computer sector as we indicated. But overall, we don’t expect significant mix changes within the industry, just the strength across the board as we are clearing through some of the supply chain. And probably of note is the fact that we expect some of the supply chain constrains to ease a bit, both because we have had the increased forecast out to the extended supply chain for a longer period of time for them to be able to react to.

And also because within the extended supply chain, there have been some investments made for them to ease the constraints that exist, as well as some of the increase in inventory levels that we have as we position inventory for the ramping programs, and the new programs that we’ve talked about beginning to ramp.

Sherri Scribner – Deutsche Bank

Okay. I guess just two quick follows. It sounds like the under pull issues you had in the segment have been resolved. You expect that to be up. I mean, you’ve had some visibility in July, I assume those have come back.

And then in terms of the supply-chain issues. Was there any particular segments that was impacted more by the constraints? Thanks.

Gayla Delly

First in the computing, we have seen specifically – don’t have clarity around whether it was the actual forecast that was out there that has now been pulled, but yes, July has been stronger than expected as a result of potentially what was rollover.

And then as to industry, I don’t believe the supply constraints pick favorites. I think it was really across all industries. Given the mix of product that we support for customer and the level of unique components that we have for a number of our customers, the constraints are pretty common across the product set. And as they go to their customer demand, and have drop-in orders in this environment that that’s where the challenges arise.

So it’s not specific. It probably is specific to some sub-tier suppliers that our supply chain team members know very well at this point.

Sherri Scribner – Deutsche Bank

Okay. Great. Thank you.

Don Adam

Thanks.

Operator

Our next question then comes from the line of Amit Daryanani with RBC Capital Markets. Please go ahead.

Amit Daryanani – RBC Capital

Thanks. Good morning, guys. Hey, I may have missed it. Could you just update us on the two big computing customers that you guys talked about last quarter? They were supposed to be 350 to 370 million. Is that number still on track? And should both of them start to ramp in Q4? Is that still the timeline?

Gayla Delly

As I mentioned in my comments, some of those are going to begin ramping. We won’t see significant impact until next year. But we will begin the ramp in the later half of 2010. I don’t know specifically. It won’t have much of an impact in Q3, probably more so in the beginning of Q4.

Amit Daryanani – RBC Capital

And then, is there a way to kind of quantify how much of a headwind did you really have from this one computing customer? And was this more product transition issue, or a program that you’re transitioning away from you guys?

Gayla Delly

It is not a loss of business. I think there is a transition within the program. I don’t know if that’s significant to the end customer, but it is not a loss of business.

Amit Daryanani – RBC Capital

And did you guys have any customer over 10% of the revenues this quarter?

Gayla Delly

No.

Amit Daryanani – RBC Capital

Perfect. Thanks a lot.

Don Adam

Thank you. And our next question then comes from the line of Sean Hannan with Needham & Company. Please go ahead.

Sean Hannan – Needham & Company

Yes. Good morning.

Don Adam

Good morning, Sean.

Sean Hannan – Needham & Company

So, on the medical side, you spoken around transitions, prior transitions there. I just want to see if we can clarify and nail down, are we talking about a single program, multiple programs, multiple customers, or single?

Gayla Delly

We actually have ramps and transitions taking place in four programs right now that are pretty significant. So they’re kind of all coming at the same time, which tends to be what we’ve seen traditionally with the markets we serve.

Sean Hannan – Needham & Company

Okay. Four programs, four customer?

Gayla Delly

Yes, four customers.

Sean Hannan – Needham & Company

Okay. All right. That’s helpful. And then, in terms of – if I look at what you did in terms of OpEx, is this 23 million kind of a sustainable level that we should assume moving forward through the year?

Don Adam

Yeah. I think, you know, 23 million, you know, 23.5, somewhere in that range is probably a pretty good estimate.

Sean Hannan – Needham & Company

Okay.

Don Adam

To the extent if revenues go up, I think you’ll see some marginal increase. You’ll keep the leverage, but the dollars may go up a little bit.

Sean Hannan – Needham & Company

That’s great. All right, thanks so much.

Operator

All right. Thank you. And we have a question now from the line of William Stein with Credit Suisse. Please go ahead.

William Stein – Credit Suisse

Thanks. Just first, a housekeeping question. The taxes, I understand how the predictability of profits differences drive this. I get the idea. Can you tell us what we should expect for the rest of 2010? Is it the same level?

Don Adam

Yeah. You know, I’d probably use, you know, that 11 to 12%.

William Stein – Credit Suisse

Okay. Then I’m wondering if you can quantify how – to what degree components hurt revenue and cause inventory to increase in the quarter? And when you expect these problems might go away based on what you see on the supply base.

Cary Fu

In the component challenge, most of the suppliers still have a pretty good booking into Q3, and Q4. And we believe that we will see some improvement, slightly improvement in Q3. You’ll probably see the most improvement in Q4. We definitely say in the Q4 conference call, we anticipating improvement coming in Q2 2010.

But it looks like it’s going to come earlier. We do seem some suppliers to add additional capacity, and not only from the [inaudible] from the assembly resources standpoint point of view.

So what we is, it’s almost like improving in Q3, and I don’t believe – the lead time is still long, but have been stabilized. So we see a sign that it’s getting a little bit better.

And again, this is not a across the board, 20,000-component shortage here. You know, component of backlog is in the 300, 400 different components, but those are the components preventing us to ship the product.

So it’s kind of, in some way, receding. The lead time will probably not be significantly improved in Q4, but we’ll see a slight improvement in Q3.

William Stein – Credit Suisse

And the affect on revenue and inventory in the quarter?

Cary Fu

The impact of the supply-chain challenge for Q2 still be. And inventory is probably in the 20-some million dollar range. And keep in mind, some of the inventory increases are related to the new [inaudible] on RAMs. And in this environment, it’s become a multiple issue when you have a new program. You have no commodity relationship with the supplier for the particular commodity. That makes it more difficult.

William Stein – Credit Suisse

Thanks, Cary.

Cary Fu

Thanks.

Operator

Great, thank you. And our next question comes from the line of Jim Suva with Citi. Please go ahead.

Don Adam

Hi, Jim.

Jim Suva – Citi

Hello.

Operator

Make sure your line is muted on your end. We’re unable to hear you.

Jim Suva – Citi

Good afternoon, everyone. Thank you. The quick question I had was on your new programs. You know, last quarter, in the March quarter they were extremely strong. But when we look at the June quarter, it looks like they’re down year over year. And I think many people on this call would assume the economy is better today than it was a year ago.

Where some of the programs wins kind of borrowed into the March quarter from the June quarter? Or can you help us understand if the economy’s better, and business is better now than a year go, why would business wins be down year over year, or you see some hesitancy in signing new programs, or just the topic in general?

Gayla Delly

I wouldn’t try to read too much into it as bookings kind of are on a long continuum. We have a very good pipeline of opportunities. But some of the larger opportunities probably do take a little bit longer in the decision making. So they tend to be a little bit lumpy.

But we do not see any indication that the funnel is not improving. In fact, we see just the contrary. We do see good opportunities in front of us and expect, as I said, that Q3 would be stronger. So nothing to cause alarm there. That’s just a cutoff that we used that doesn’t always indicate quarter over quarter.

Jim Suva – Citi

Okay. And just a quick followup. I know this is a long-term question, but when you look at, assuming that those bookings continue, and the pipeline to be extremely strong, would you expect, you know, growth year over year and quarter over quarter to accelerate as we go ahead, you know, in the next few quarters and into 2011? Or how should we think about benchmark? Obviously, year over year’s benefiting from easy comps, but how should we think about the acceleration of revenues?

Gayla Delly

Well, as you can see from the first half revenue that we have, while we had better opportunities in our forecast and our guidance, and we weren’t able to fully achieve that. What we did have is 19% growth as compared to the industry, which was at 14.7%. So I think our growth year over year, while we say easy comps, easy comps from the standpoint of the backlog and the demand being there. Not so easy as to shipment in a high-mix industry.

So yes, we do continue to see the opportunity there, the challenges there. And I think our guidance proves out that we are seeing continued opportunity for growth. So I’m not sure that I fully comprehended your question. But hopefully that answers it.

Jim Suva – Citi

Okay. And just housekeeping tax rate as we look ahead?

Don Adam

11% to 12 percent going forward.

Jim Suva – Citi

Great. Thank you very much, everyone.

Don Adam

Okay.

Operator

Thank you. And we have a question now from the line of Brian Alexander with Raymond James. Please go ahead.

Brian Alexander – Raymond James

Thanks. Just back to Amit’s question earlier. I don’t know if you guys quantified the impact from the computing customer where you saw the pull at the end of the quarter was not quite what you expected. And then related to that, was that driven by demand for that customer’s product, or was it really due to a product transition issue? I’m just trying to understand why you expect that revenue to come back in the third quarter.

Gayla Delly

I don’t know that we specifically can say demand, product transition, and quantifying the actual impact with, you know, probably 10 million, maybe a little bit more than that, to read in as to whether the demand evaporates or it’s really there. Our true indication is based on the fact that the July shipments remained and were in fact stronger than we anticipated.

So I don’t get into the mind of the end customer and understand what the forecast expectations were built upon. But we just see the dynamics of the outcome.

Brian Alexander – Raymond James

Okay. And then you guys talked about baking in, I think I heard you say more of a discount to your customer forecast in terms of what you’re guiding for the third quarter than the discount you’ve applied over the last few quarter. And if that’s what I heard correctly, what’s driving that approach? Is it because the customer forecasts are becoming more volital and more unpredictable? Or are you just choosing to be more conservative?

Gayla Delly

Clearly based on not meeting guidance, it is prudent for us to say that whatever we had used in our modeling previously needed to be ratcheted down. So while our customer forecast continue to show strength, as we mention in our comments, we are seeing strength and demand, in fact, increasing. And so the gap between what we are providing as guidance and what our customers are providing as guidance to us, it has expanded. And because of slightly missing the quarter, this quarter, that is the basis for it. It just seemed to be prudent because we, as you, do not like surprises, and we want to be able to meet our commitments.

Brian Alexander – Raymond James

In terms of magnitude, are we talking 5%, 10%, 15%?

Gayla Delly

I would say it’s between 5 and 10%.

Brian Alexander – Raymond James

Okay. And then the last question –

Gayla Delly

Incremental.

Brian Alexander – Raymond James

Incremental, okay. Gayla, just on the – I think you guys talked about mixed changes within your customer base that you saw during the quarter, and that somehow affected your results. Could you elaborate on what you meant by that?

Gayla Delly

Because of the mix of products we have for our customers, just because even dollars of shipments may increase for a customer, when they want Product A at the beginning of the fourth quarter, and that’s what we forecast and they end up having true demand for Product B and C, even though there’s increases, those drop-in orders, they come very challenging if you’re one part shy and you don’t get to ship. And yet, your inventory for Product A will be on the dock and ready to go.

So that’s the ongoing dynamic we have in our marketplace. That’s not unusual. But volitility when there’s growth opportunities out there, as we’ve seen this year, the volitility seems to be increased because somebody’s got to anticipate the exact nature of the orders in order to play demand and supply chain. Supply chain has got elongated lead times in it, which dictate the forecast being put in place. But they don’t seem to get any more accurate just because demand increases.

Brian Alexander – Raymond James

Okay. That makes since. Thank you very much.

Operator

Thank you. And we’re going to go back to the line of Brian White with Ticonderoga. Please go ahead.

Brian White – Ticonderoga

Yeah, Cary, just on the component situation, do you think the component situation will ease in the September quarter because there’s enough inventory out there? Or capacity has just come on in these different component areas?

Cary Fu

It’s a combination, I guess. We do see some inventory increase in distributors for certain components. And of course, of the new capacity coming in line, they will ease up a little bit. But the good thing about it, if you look at these component challenges, usually first will be a lead-time extension, and then next time was a price increase, right? And once you see the lead times stabilize, not continually extended, that means the situation should start getting better. And that’s what we’re seeing today.

Brian White – Ticonderoga

Okay. And just on – is there any reason that December quarter sales won’t see a typical uptick from the September quarter? Is there any reason that we could see a downtick this year?

Cary Fu

I don’t anticipate a down tick. And particularly was the – several major programs start ramping in Q4. And the typical Q4 will have a stronger demand. No, we do anticipate a look into the customer forecast and we think Q4 will be an interesting promise.

Brian White – Ticonderoga

Okay, great. Thank you.

Operator

Thanks. And we have a question from the line of William Stein with Credit Suisse. Please go ahead.

William Stein – Credit Suisse

Thanks. So two quick followups. First, can you help us understand what’s driving the strength in the testing market that’s been strong for a while, and it looks like it’s continued in Q2? Do you expect that to continue into Q3?

Gayla Delly

At this point, yes. We see continued strength there as I believe we’re taking market share.

Brian White – Ticonderoga

Okay. And can we get an update on the vertical precision machining business?

Cary Fu

The business is doing very well, and we have – this particular business, I’m very excited about. Number one, it’s a better margin business. And the second thing is further expending our service scope with our customers. It’s difficult profile [inaudible]. The volume could definitely continue to increase. We are starting to introduce the capacity to our key customers.

And we’re also, at this point in time, looking at expending the capacity into Asia’s market. So we’re pretty excited about it, and I think this is a great addition to the customers, to the Benchmark portfolio to supporting our customers.

Brian White – Ticonderoga

Great. Thank you.

Operator

Great. Thank you. And we’re going to go back to the line of Amit Daryanani with RBC Capital markets. Please go ahead.

Amit Daryanani – RBC Capital Markets

I just have two quick followups. Just from the medical side, was the entire 20% sequential drop due to programs coming into life and new ones not ramping? Or was there some end market softness as well?

Cary Fu

It was part of a crossover between the new product and the old customer.

Brian White – Ticonderoga

Got it. And then, you know, FX has been fairly volital and a couple of your peers have kind of called that out as headwind in the June quarter. I’m curious, could that have any impact for you guys at all?

Don Adam

FX for the second quarter?

Brian White – Ticonderoga

Yea.

Don Adam

Yeah. I think, you know, FX was probably $800,000 - $900,000 for the quarter loss.

Brian White – Ticonderoga

And how do you see that shake out for Q3?

Don Adam

Well, I think – I guess it depends on what the exchange rates are going to do going forward. It seems to have moderated a little bit so far, but you know, we still have two months left in the quarter, two-plus months.

Brian White – Ticonderoga

Got it. Thanks.

Operator

Thank you. And we’re going to go to the line of Brian Alexander with Raymond James. Please go ahead.

Brian Alexander – Raymond James

Yeah. Just a follow up on the medical segment. I understand the performance this quarter. But it seems like you’ve had a lot of success with new wins there over the last several quarters and yet the segment continues to decline on the year-over-year basis. It’s really declined, I guess, every year going back to ’06. So is there anything else going on within the medical segment that you could talk about? And anything that gives you confidence that going forward, we’ll start to see that business grow again?

Cary Fu

No. It’s probably two things. One is as we’re moving more product to overseas, we do see price reductions and the [inaudible] prices have declined in the medical device. And the, also, we have several of customers that have some FDs and the product sensation, some of the product support has been there for a long time. And the summer sensation time takes longer than anticipated.

But fundamentally, I think the medical device portfolios are looking pretty good. We still see PG capacity, what we have, we’re probably about to spend more revenue on the view. This is also program ramped, and we feel very comfortable with our medical device practice. And we do see some sales issues, and we see some growth in the second half.

Brian Alexander – Raymond James

Cary, do you think this business can get back to 350 million a year like it was back in ’07-’08, or that too aggressive?

Cary Fu

It’s a possibility, yes.

Brian Alexander – Raymond James

Okay. And then just – did you guys say what utilization was for the quarter?

Cary Fu

Probably about high 60 and approaching 70. It is not 70 yet.

Brian Alexander – Raymond James

Okay. Thanks so much.

Cary Fu

Thank you.

Operator

Thank you. (Operator Instructions) And at this time, I’m showing no further questions. Thank you.

Don Adam

All right. That will conclude the call, and we’ll be in our offices for follow-up questions.

Gayla Delly

Thank you, all, for joining us today.

Cary Fu

Thank you.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thanks for your participation and for using AT&T’s executive teleconference. You may now disconnect.

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Source: Benchmark Electronics, Inc. Q2 2010 Earnings Call Transcript
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