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Molex (NASDAQ:MOLX)

Q3 2012 Earnings Call

April 25, 2012 9:30 am ET

Executives

Steve Martens -

Martin P. Slark - Vice Chairman, Chief Executive Officer and Member of Executive Committee

David D. Johnson - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Shawn M. Harrison - Longbow Research LLC

Sherri Scribner - Deutsche Bank AG, Research Division

Jim Suva - Citigroup Inc, Research Division

Steven B. Fox - Cross Research LLC

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Amitabh Passi - UBS Investment Bank, Research Division

Unknown Analyst

Wamsi Mohan - BofA Merrill Lynch, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Molex Incorporated Earnings Conference Call. My name is Pamela, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Steve Martens, Vice President of Investor Relations.

Steve Martens

Thank you, Pamela. Good morning and welcome to our March 2012 conference call. I'm here today with Martin Slark, our CEO; Dave Johnson, our CFO; and Liam McCarthy, our COO. We want to limit the call to 1 hour, so when we get to Q&A we ask for one question and one short followup.

Also, please visit the Investor Relations section of our website to download the presentation materials and to access a replay of this call.

The Safe Harbor statements are on Slides 1 and 2 of the presentation materials. During the course of this presentation, we will be providing forward-looking information and referring to non-GAAP measures. Please read carefully the forward-looking statements section of our press release and Form 10-K for an understanding of the risks and uncertainties associated with forward-looking information and a reconciliation of non-GAAP measures to GAAP. And now, I’ll turn the call over to Martin.

Martin P. Slark

Thank you, Steve, and welcome to everybody on the call. Overall, the March quarter, if you look at Slide 3, was a little weaker than we expected from a revenue perspective, stronger than we expected from a bookings perspective and at the high-end of our guidance for EPS.

The March quarter was impacted as usual by the Chinese New Year holiday with lower production during the period, particularly for mobile phones and consumer electronics. We expect production volumes in these markets to start to increase in our fiscal year Q4 and peak in the September-October period, when pre-Christmas builds usually end.

Revenue is typically down sequentially in the March quarter and then rebounds in the June quarter. From what we can see, we are following a normal seasonal pattern with some variation by end-markets which I'll discuss in more detail later. The book-to-bill ratio for the quarter was 1.04:1. Monthly bookings strengthened as the quarter progressed with March bookings being the strongest in the quarter. It appears that the period of inventory destocking, particularly in our distribution channel has ended. We experienced double-digit sequential bookings growth in all end-markets during the quarter except consumer and telecom. Our backlog increased 9% during the quarter, while lead times taken for shipments from Molex declined slightly over the period.

All of these data points, combined with a strengthening CRM pipeline and a very strong new product pipeline, give us cautious optimism as we head into the balance of this calendar year.

Molex has a strong history of generating cash. This is how we have self-funded growth throughout our history. Our goal is for free cash flow to approximate net income, and we have certainly achieved this objective for the last 3 quarters. We continue to view our dividend as integral to our capital allocation strategy. With the business environment stabilizing and cash flows very strong, our Board of Directors has authorized an increase of 10% to our quarterly dividend. Our balance sheet remains very strong, and we will continue with tuck-in M&A at opportunities. And in addition, we have more than sufficient liquidity available under our revolver to finalize the opportunities as they become available.

Now please turn to Slide 4. Revenue for the quarter was $837 million, 2.4% below the December 2011 quarter, and down 4.3% from the March 2011 quarter. And I just like to remind everybody, when you look back at the prior year quarter, that quarter benefited from stimulus packages particularly in Asia and inventory build in the infotech markets and distribution channels.

The March quarter is generally down 2 to 3% on a sequential basis, and we were right in this range this year even in what is perceived right now to be a fairly choppy environment. The order pattern was encouraging, with monthly bookings increasing each month in the quarter. All of the bookings growth was organic. As mentioned in my summary, orders increased by double digits in a year-over-year basis in all markets except for telecom and consumer, which were relatively flat. Issues in both the telecom and consumer markets have been well-documented. Key customers are dealing with delayed infrastructure spending and seasonally weak mobile and consumer markets.

Now turn to Slide 5, where we've shown a breakdown of our revenue and orders by industry. And I'll try and give you some additional color here on each of the end-markets that we sell into. Automotive continues to be a strong end-market. Revenue increased 12% sequentially and increased 5% year-over-year. From a seasonal perspective, March is generally stronger than the December quarter as productions schedules increased due to fewer holidays, particularly in North America and Europe. As a result, we saw the strongest growth both sequentially and year-over-year in the Americas. Europe was strong sequentially, however, production was lower than the prior year as growth in the region has stalled due to stimulus programs that pulled sales of Ford last year and an uncertain consumer environment. Asia also benefited from increases in production builds after Chinese New Year.

Going forward, we expect a steady growth in the automotive market, with global unit production growth projected to be up 5% for calendar year 2012. Electronic content increases will also provide a tailwind for this market, particularly for the infotainment and safety systems. We continue to leverage technologies, and recently developed the consumer and infotech markets into the auto market. We are particularly excited about design wins we have had for our high-speed networking products with the major U.S. car manufacturers. Numerous other new product introductions, as well as increased sales of standard products, and good opportunities to sell value-added assemblies into this market give us increased confidence that we can continue to grow our sales and profits in the automotive sector.

Turning now to the infotech sector. Revenues in this market were relatively strong, increasing 3% sequentially and 4% year-over-year. Bookings were up sequentially and year-over-year. Tablets and service were the strongest parts of this market, and the storage sector was relatively flat. The introduction of the Intel Romley chip also had a positive impact on the demand from our leading server OEMs. We were encouraged to see increased distribution orders for this sector as well. The inventory correction that we saw in the infotech market during the second half of calendar year '11 seems to have ended. Beyond this quarter, we expect reasonable growth for the IT products as we believe there is still pent-up demand for new equipment, both to replace aging equipment and to add new equipment with higher bandwidth capability. This is to support the growth in mobile video content. Also, we are well-positioned for the gradual transition from copper to fiber-optic based platforms, with a wide range of high-speed copper passive and active optical solutions. One of the key technical challenges here is to offer connector systems that can transmit data at faster speeds with more economical solutions. Molex has recently demonstrated the first 100 gigabit I/O connector and cable solution, and we're excited about the design wins we have received for this new active optical technology.

Revenue in the telecom market, including both mobile and telecom infrastructure, decreased 17% sequentially and 13% from the prior year comparable quarter. Production mobile phones is generally down in the March quarter, so this was not a surprise. Going forward, we expect smartphone penetration to continue to grow. However, the production of mid-range devices will likely continue to decline. We are well-positioned with all of the major OEMs in this area, and we'll continue designing a broad range of new products. The telecom infrastructure submarket was also down. While the supply chain is in Asia and is impacted by Chinese New Year, the market was also slow in general. We were encouraged to see stronger orders and a book-to-bill for this subsector that was posted for the quarter. And we expect this area to pick up as we move into the final quarter of our fiscal year.

Molex is well-positioned for next-generation systems and the transition to LTE, which will require similar high-speed products that we have already developed for the infotech market. High-speed networking products are a core strength for Molex. We continue to work closely with all our key customers on new high-speed applications.

Consumer electronics was also affected by the Chinese New Year holiday. Revenue declined 8% sequentially and 10% year-over-year. Orders did increase through the quarter. And white goods, LCD TV and Pachinko gaming were relatively stable, while home electronics, digital still cameras, plasma TVs and gaming systems were all down. Also, excess inventories do not appear to be a problem in this sector at present. We believe this is primarily the result of the abbreviated pre-Christmas build that we experienced in 2011. Hardest hit areas, maybe, we expect to be the Japanese consumer companies who have had well-documented challenges particularly over the last year.

Looking ahead, we expect the new product introductions and increase production builds will improve revenue in the June quarter. However, we expect relatively low growth in the consumer electronics market over the next year or until higher wages in low-cost countries result in significantly higher purchase of consumer electronics.

Uneven consumer sentiment and poor economic conditions in Europe and in Japan are clearly creating a headwind for this market. The industrial market has been struggling for several quarters now due to excess inventory and project delays. This quarter we were very pleased to see revenue and orders increase 7% and 12%, respectively, on a sequential basis, indicating that inventories are more in line within demand, and also reflecting the increased confidence of OEMs and distributors. On a regional basis, Europe and the U.S. both increased sequentially. Revenue and orders are still below prior year levels, however, this market appears to be in the early phases of recovery. Factory automation is one of the strongest areas. This seems to be the result of rising wages in the developing countries and a lot more focus on putting in place automation, and thereby, reducing the labor content.

You turn now to Slide 6. I'll quickly comment on our sales and orders by geography and by channel. By channel, the EMS channel saw the biggest increase, both sequentially and year-over-year. Distribution orders increased 13% sequentially and 6% year-over-year, indicating more confidence by our distribution partners and an end to inventory destocking. Both POS and POP numbers were up in February and March. The fastest growth was obviously seen in the EMS sector, and that's driven by the fact that the fastest growing customers that we deal with today outsourced virtually all of their manufacturing, and the companies that do that are well-known to all of you.

By region, orders in the Americas increased both sequentially and year-over-year for the second straight quarter, and economic conditions in the U.S. seemed to be stable or perhaps improving somewhat. Europe improved sequentially from the very low levels in the December quarter on the strength of the auto production and some recovery in industrial customers and particularly in northern Europe. Weakness in Asia was driven by Chinese New Year and seasonal weakness in the consumer and cellphone markets, so there's a pretty consistent picture both by market and by geography.

Overall, we experienced a very normal seasonal pattern for revenues. Sequential bookings increase was above the 10-year average but consistent with 2010. Now let me turn the call over to Dave Johnson, our CFO, who'll give you more details on our financial results.

David D. Johnson

Thanks, Martin, and good morning, everyone. Revenue of $837.1 million was 2.4% below the December quarter, reflecting Chinese New Year and normal seasonality, especially in the consumer and telecom markets. Despite this sequential reduction in revenue, we again were able to hold our gross margin level and SG&A spending. Gross margin for the quarter was 3.5%, aided by modest impacts from commodities and currency and favorable product mix. SG&A continues to be a key focus of management and was $163.9 million, just above the sequential quarter level but well below the guidance we provided on the last call. The ongoing legal costs for our Japanese litigation matter trended down again to $2.5 million or $0.01 per share for the quarter. Interest expense dropped to $1.2 million due to the repayment of debt resulting from our positive cash flow results. And other income of $1.6 million, which includes foreign exchange and minority interest income, is comparable to both the sequential and prior year periods. Our effective tax rate for the quarter was 27.2%, including a one-time tax benefit of $3 million or $0.02 per share. This benefit is the result of reducing valuation allowances that were no longer required related to net operating losses in foreign jurisdictions, partially offset by the requirement to write down certain deferred tax assets as a result of a lower tax rate awarded to us in a foreign location. Without this net benefit, our effective tax rate for the quarter would have been 30.6%, and we are guiding to a tax rate of 30% to 32% for the June quarter. And finally, our reported EPS for the quarter was $0.36 per share.

Page 8 sets forth our balance sheet and operating metrics. Net cash increased by more than $70 million to just over $370 million. Both accounts receivable and inventory days increased slightly from the prior quarter, DSO to 72 days and DSI to 93 days. Our inventory in absolute dollars is lower than in each of the last 2 quarters, but the number of days continues to be higher than we would like due to the reduced level of sales over the past 2 quarters. Our return on net assets of 20.1% continues to hold at a reasonable level though slightly below the sequential quarter due to the seasonal decline in our business and the resulting operating income. And finally, our research and development expense increased slightly to almost $46 million as we continue to invest in new product development projects with our key customers.

The slide on Page 9 shows free cash flow in the red bars and net income in the gray bars. Free cash flow, defined as cash flow from operations less capital expenditures, has been very positive over the period shown, and more importantly, it has significantly exceeded net income in each of the last 3 quarters. Capital expenditures of $54.4 million or 6.5% of revenue, right at the midpoint of our target range of 67%. But most of our capital expenditures were again targeted at new product releases and production tooling and equipment in our manufacturing operations. Our new global structure continues to support a lower level of capital spending than we had historically experienced.

As Martin mentioned, we have increased our dividend by 10%, to a rate of $0.22 per share. Our success for generating free cash flow, especially in the U.S., has led in part to this decision. In determining our dividend level, we consider our payout ratio both in terms of net income and free cash flow, and we targeted dividend yield significantly better than the S&P average.

And finally, on Page 10, we show our outlook for the upcoming quarter. Due to our stronger bookings in the March quarter and the usual seasonal recovery into the June quarter, we are guiding to revenue in the range of $870 million to $900 million, which at the midpoint of this range is a sequential growth rate of 5.7%. At this level of revenue, we anticipate EPS in the range of $0.36 to $0.40 per share, which assumes an effective tax rate of 31% and $0.01 per share for costs related to our Japanese litigation.

In summary, the March quarter was another strong quarter in terms of gross margin, SG&A spending control, capital expenditures and cash flow generation, despite the lower level of revenue which is typical of the March quarter. And we are encouraged by the 1.04 book-to-bill ratio, and in particular, the double-digit sequential growth in bookings for the automotive, infotech and industrial markets. This concludes our prepared remarks. And we would now like to open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Amit Daryanani with RBC Capital Markets.

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Just a quick question and a follow-up from my side. How should we think about OpEx and gross margins heading into the June quarter? On March, sort of I think, you potentially get 31% gross margins and about $168 million of OpEx. Does that seem accurate? And beyond that, how do you think OpEx will grow as a function of revenues?

David D. Johnson

Okay. Yes. We're looking at gross margins to be relatively flat between Q3 and Q4. As I said, we had some very good product mix in Q3, so assume about a flat gross margin into Q4. A slight increase, and maybe a couple million dollar increase, in SG&A as we continue to invest in R&D and sales costs at the same time as we are going to be holding, as we've said, on our admin costs. And in terms of how you look at it into the future, I think we're still targeting longer-term a fall through to operating income incremental OpEx of about 25% to 30% or so.

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Perfect. And if I would just follow up. If you can just maybe touch upon, given the sustained cash, for the duration of the company has had stock and shell out in the future, can you just maybe revisit your thought process on potential M&A? What are the deal sides and segments that you'll be focused on? And is this a big priority for the company in fiscal '13, coming to '12?

Martin P. Slark

I think we've been pretty clear about our sort of priorities for our cash, obviously, reinvestment back in the business. So we generate way more cash than we need for that. We're trying to send a very strong statement that the dividend is important to us and our shareholders. And we will continue to increase that as our profitability increases and our cash flow increases. M&A would be the next priority after that. And obviously, our goal there, I think, is to continue as the opportunities come along with smaller tuck-in acquisitions, like the ones you've seen over last year with Temp-Flex, Luxtera, etc., that buyouts - new technologies that we can buy quicker than we can develop ourselves. And then obviously, we will look at larger opportunities as the right opportunities come along. We have a good pipeline of those but you can never project the timing of when they will happen. And I think our focus would be, we have said we want to focus on the RF part from a technology perspective. We want to look at potentially backward integrating into some high-speed cabling capability to help us with our high-speed cables. And we're very interested in expanding our presence in the industrial and medical markets. So those would be the priorities that we would focus on going forward.

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Perfect. And just so I understand this, I mean, you will be open to doing a Woodhead-size deal again, and that wouldn't be a concern to you, right, in terms of having...

Martin P. Slark

Yes. I would think about tuck-in acquisitions as being in the kind of $20 million to $40 million range, typically. That's about what it will end up being. And I think a bigger deal for us is like in the kind of $200 million range.

Operator

And you're next question comes from Shawn Harrison with Longbow Research.

Shawn M. Harrison - Longbow Research LLC

Just want to revisit the gross margin question as we move beyond kind of the June quarter. I guess if you could just touch on where you think incremental gross margin should be if there's any difference between kind of where they've historically been. And also, I guess, include in that maybe some of the pricing tailwind that was alluded to earlier.

David D. Johnson

Shawn, yes, I think we might change that still 30 to -- 35% to 40% incremental gross margins or what we call fall through. That still is what we are looking for into the future. And we didn't mention a pricing too specifically, but yes, we are still below our 3% price erosion year-over-year in this quarter. So this is I think now the fifth quarter that we've been below that 3% level.

Shawn M. Harrison - Longbow Research LLC

Okay. And then as my follow-up, I guess, if you guys can give some commentary on the demand as we've -- through, I guess, mid-April or late April. Are there any trends where you're seeing things accelerate even further given that maybe you had some aspects on the March quarter a little bit light, were you're even getting more positive heading into '13?

Martin P. Slark

I think what we've seen over the last 4 or 5 months actually has been a very choppy environment. In prior periods, when we've seen pickup in bookings, we've seen consistently on a daily basis the bookings moving in the right direction. What we'll have to look at a bit here actually is we fill up more volatility in the day-to-day bookings, and we've been kind of looking at the underlying trends. And as you saw the underlying trend for the entire quarter, last quarter was very positive, and we we're pleased to see, given the downturn we saw in the back half of September and October, that the positive trends continued. And I think the weakness that we saw in the consumer market, if you look back in prior years, prior the financial crisis. Now this is only a weak quarter for consumer. It's been pretty well documented that the TV market et cetera is very weak in Asia, and I think that, that's an ongoing challenge. But I think the strength we've seen in infotech, in automotive and industrial is very positive. And the thing that really encourages us is when we see distribution bookings start to pick up, because when distribution picks up, I think that's indicative that a lot of the small or medium-sized customers are also seeing improvements in there end results. So I think that channel picking up was encouraging as being an indication that the underlying market is stronger.

Operator

And you're next question comes from the line of Sherri Scribner with Deutsche Bank.

Sherri Scribner - Deutsche Bank AG, Research Division

Thank you for the detail on the different segments. I guess when I think about the detail that you gave on all the different end markets that you addressed, it sounds like you expect most segments to see some growth in fiscal '13, but the areas that we should expect some weakness will be in consumer electronics and mobile phones, as we have a transition with mid-range phones basically declining. Is that the right way to think about it?

Martin P. Slark

Yes, Sherri, that's a great summary of exactly what I said. You obviously were listening pretty hard. That's exactly what we're thinking about this year, is that I think the overall market growth rate, we think, is going to be reasonably modest. I don't think we're going to see the year-over-year growth for the entire market that we saw in the last couple of years coming out of the financial crisis. But we do think we'll see positive growth overall. And I think the 2 sectors we're most concerned about, I think, would be consumer, because I think a lot of that demand, particularly in Asia, were driven by incentive last year and that has now gone away. And clearly, as you've said, the transition in mobile is going to result in higher content devices but potentially lower volumes overall for the market.

Sherri Scribner - Deutsche Bank AG, Research Division

Okay. Super. And then just thinking about commodity costs, it doesn't seem like anyone is talking about commodity cost headwind this year. Is that something that you think really was last year's issue and we've really moved beyond that now with some of the copper and gold declining a bit?

David D. Johnson

Sure, Sherri. Yes, in the last 2 quarters we haven't seen much impact and so we haven't talked about the impact on our quarter itself. But when you look year-over-year, there is still about a $6 million impact in this quarter versus a year ago. So -- and if you look at year-to-date, there still is, if you look at the 3 quarters through March versus the year before, there's about a $26 million impact year-over-year. So when you look at versus the past, there still is quite an impact. But we're viewing this as being quite stable. This quarter versus the last quarter, copper is up still about 11% and gold is up just a bit. But our view is, going forward, that, that will be a fairly flat. We're seeing maybe copper coming down a bit, which could be helpful over the next quarter.

Martin P. Slark

It's interesting, Sherri, that if you look year-over-year, gold is up 22% and copper is down 14%. I'm looking at the average price that we buy, ignoring the benefit of our hedges. So those commodities aren't moving in tandem, but in total, as Dave said, it's not had a huge impact on us but it's still negative at this point year-over-year.

Sherri Scribner - Deutsche Bank AG, Research Division

So were you able to offset that with some price increases that you did over the past couple of quarters?

Martin P. Slark

Yes, I think we feel that if the commodity costs don't accelerate dramatically between the new tools that we have in pricing, I think that's one of the reasons we had a hold at gross margin so well is being how to take appropriate steps to do that. So the headwinds from commodities is certainly not as bad as it's been in prior years, and I think our pricing flexibility has helped us offset some of it.

David D. Johnson

And we've also continued our hedging program throughout this period, and we will continue that because that gives us some good support in the midst of volatility.

Operator

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

Jim Suva - Citigroup Inc, Research Division

A quick question now that the distribution inventory situation has pretty much been rightly aligned or resolved. Can you help us understand what normal seasonality is? It's been a long time since we've had normal seasonality kind of for each quarter, whether it be the June, September, December, March quarter. Just kind of what normal status should be...

Martin P. Slark

Yes, Jim, that's a great question, because I think as you appreciate better than most. If you look back over the last 10 years between the tech bubble bursting the financial crisis, normal seasonality got very distorted. But for us, based on looking back at data, or over sort of a 20, 30-year period we'd normally expect the September quarter to be up 2% to 3%, sequentially. We then expect the December quarter to be up 1% to 2%. March is down 2% to 3% sequentially versus December. And then June is typically up about 5%. So that's about the average that we've seen over that period.

Jim Suva - Citigroup Inc, Research Division

Great. That's very useful. And my quick follow-up is now that we've progressing, most of April is behind us, anything so far in the month of April that is surprising from an end market perspective? And it sounds like the distribution inventory continues to remain no longer a headwind. But anything from an end market perspective on both the positive and softness that we should be aware of?

Martin P. Slark

No. Nothing that I think is out of sync with the comments I gave about the prior quarter. What we did see interestingly enough is a very strong start to April. A little bit of a pause over the Easter period, but then it's picking up since then. And I think part of that, you'd normally kind of discount Easter. But interestingly enough, as you've probably seen, a disproportionate amount of the positive news has been coming out of the U.S. versus Asia. And I think the U.S. economy outside of housing is a lot stronger than people think. We've certainly seen our business in the U.S. be relatively strong.

Operator

And you're next question comes from the line of Steven Fox with Cross Research.

Steven B. Fox - Cross Research LLC

A couple of questions. First of all, you mentioned that your margins benefited from a more favorable mix in the just completed quarter. But it didn't sound like you're saying it continues in this quarter. So I was wondering if you could just talk about what were the mix issues again specifically that helped you in maybe repeating this quarter if I have that right?

David D. Johnson

Sure. I think it was one program in the infotech area, one in telecom, both of which were quite strong with good margins in the quarter. They are slowing a bit we think in this fourth quarter.

Steven B. Fox - Cross Research LLC

Okay. And then secondly, just going back over the question of about "normal seasonality". You're not advocating that we're in that type of environment given what's going on with some of the, I guess, sub-cycles in some of the end markets. Can you just talk about for the second half of the calendar year relative to maybe the most important ones which seemed to be distribution and telecom?

Martin P. Slark

Yes, Steve. I think the comment we were making was that the seasonality or the slowdown that we saw in the March quarter was typical of the normal sequential seasonality we saw from December through March. As you look out through the balance of the year, obviously, the numbers I gave in terms of sequential changes is the averages we've seen over the past 20-year period. But I would agree with you that the segments we're concerned about that could distort those numbers, obviously, is weakness in consumer and weakness in the telecom market.

Steven B. Fox - Cross Research LLC

And then just lastly on that, Martin, distribution. Are you seeing that the distributors are restocking inventories? Or is it just sort of hand-to-mouth right now at the distribution channel in terms of the pickup?

Martin P. Slark

Good question, Steve. What we saw, and obviously really brilliant with the benefit of hindsight, was that if you look back last year, distributors of ours anyway added significant inventory after the Japanese tsunami. And I think felt that there was going to be component shortages that they could benefit from on the second half of the year. And then in the second half of last year, it's tailed off their inventory. I've tried to work that inventory down. And in particularly as you know in the infotech end market, I think there was significant inventory builds as well. So that compounded their issues. What we've seen since the start of calendar year is our distributors' distribution bookings being very strong. But now at the end of the quarter, we are able to look at both the POP purchase on us and their POS sales of our products. And what was encouraging was post-Chinese New Year, both have been improving. So at least we don't feel that the improvement we've seen in that sector is all driven by just restocking. We think a good chunk of it is driven by reasonably good in-sales for them as well.

Operator

And you're next question comes from the line of Anil Doradla with William Blair.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

A couple of questions. On the telecom side, you talked about some of the trends, but if we dig a little deeper into it, can you share some thoughts on both the wireless, wire line? And from a timing point of view, when do you think we might see perhaps an inflection point or snapback?

Martin P. Slark

If you look at the telecom market, I think we can always, with the merger activities that were all taking place in the fourth quarter last year, there was a slowdown as you saw in capital expenditures that took place in the fourth quarter. And that's continued into the first quarter this year. But what we have seen there, Anil, is an improvement as you saw in bookings in this quarter. And there's no question that with the deployment of these smartphones around the world, that there is going to be a need for that equipment. So I think we believe that the telecom infrastructure side of the market is going to snapback in the second half of this year. And certainly the design activity we have on new projects is very healthy. And so if those programs go into production, we feel better about the second half of this year in the infrastructure sector. If you look at the mobile market, I think what you've seen there is there are a number of companies that are well publicized in the mid-range, they're really struggling. I don't see them coming back in the near future. And obviously you got this transition to smartphones, and there is a question of building up the content on those devices and benefiting from the increased volumes in the second half of the year. And that mobile market is strongest between March through the September-October period.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

Great. And switching gears on the mobile side, you said some softness in the mid-tier continued strength obviously on the smartphone space. But is this dynamic being played around across-the-board? Or is it more on a non-3G handset side?

Martin P. Slark

More on non-3G handset side.

Anil K. Doradla - William Blair & Company L.L.C., Research Division

And any idea why is this happening?

Martin P. Slark

I don't, actually. I think there are market experts out there that are closer to that than I am, but it's certainly a dynamic that you can see.

Operator

And you're next question comes from the line of Anthony Kure with KeyBanc.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Just one question on or a quick one on China. Just wondering how, if you have granularity, into how demand trends paced through the last 3 months of the first, the January, February, March. Did you see any definitive positive or negative trend in that market in particular?

Martin P. Slark

Good question. We do have through our SAP system pretty good granularity by end country. Interesting enough, looking across, we obviously looked at Asia in 2 regions; Asia Pacific North, for us, which is Japan and Korea; and Asia Pacific South. In the last quarter, even though the Asia Pacific South countries in general picked up in Chinese New Year, China was weaker than we would have expected. And I think some of the efforts that are being made in China to dampen inflation, I think some of the wage rate pressures there and people moving production out of China to other Asian countries slowed down, I think, some of the electronics growth in China as a market. So I would say, even though we expect good growth in China year-over-year, on a sequential basis, China was weaker than in by comparison to some of the other Asian countries.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Great. Thanks for that color. And just on Thailand in particular, I think it was a $15 million revenue headwind and you were also get some of that back in the March quarter and beyond. Any quantification on how much may have gotten back from that if you can?

Martin P. Slark

Yes. We think actually there was some ongoing negative impact in the consumer and dry markets this quarter that probably impacted us to the tune of about $5 million. But then in some of the other sectors, particularly automotive and things like that, we've got that revenue back that was delayed. So I think it was negligible in total in the quarter.

Operator

And you're next question comes from the line of Craig Hettenbach with Goldman Sachs.

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Martin, just a question on your expectation of the growth as the market recovers. I know this is a mild downturn compared to recent ones, but typically into an upturn, Molex tends to outperform from a revenue growth. I just want to get a sense of how you feel from a new design perspective and markets that could try better growth for you?

Martin P. Slark

Yes, great question Craig. I think as you know, when we saw the downturn in September, we were very concerned that we were going into another significant downturn because the order deceleration in September, October was very similar to what we saw of the financial crisis. But then it picked up significantly, obviously, on a daily basis through Christmas, a little dip for Chinese New Year that now picked up again. So our view is that, calendar year, we're going to see probably market growth of 3% to 5%. But that's kind of what the view is, which is obviously lower than the last couple of years. But we believe, as you said, that we can do better than that. I think there's going to be a square as over the last 2 years, there's been good growth across all end markets. I think the growth this year could be very different by end sector. I think we're going to see more strength in certain sectors versus others. But we're pretty excited about what we're seeing in terms of design wins, and provided there's no serious outside economic shock that derails things, I think we view this as could be a good year.

Craig Hettenbach - Goldman Sachs Group Inc., Research Division

Okay. And then if I could follow-up for Dave. Can you just discuss kind of the current manufacturing footprint? I know there's been a lot of restructuring, and you're eliminating factories in recent years. Just where you stand today, and what that means maybe going forward in terms of your CapEx targets?

David D. Johnson

Okay. Well, let me start with the CapEx. Our goal is still to be between 6% and 7%. We were at 6.5% as we said in the prepared remarks for the quarter. It will be a little bit higher than that possibly in the fourth quarter as we are coming out with new products as we've discussed. But still for the year, we'll be well within the range of 6% to 7%. And I think that should be -- that should continue through next year as well, but we'll provide guidance for that as we get into the beginning of the year. Our footprint is, we believe, very good now. We're looking at potentially expanding to other locations as we grow. We're kind of looking ahead to that, but no major changes to our footprint at this time.

Martin P. Slark

I think, Craig, in total, we have about 40 facilities in 25 countries around the world. Our capacity utilization is obviously fairly healthy across those plants. As you've said, we've eliminated a lot of small inefficient plants primarily in North America and Europe. And the expansions we're looking at are actually in Korea, in the Philippines, and then also building, expanding on tool of Chengdu in China, which has been a huge asset for us.

Operator

And you're next question comes from the line of Amitabh Passi.

Amitabh Passi - UBS Investment Bank, Research Division

Martin, my first question for you. I was just wondering if you had factored any potential impact to your automotive business from the [indiscernible] Plant explosion or do you think it's essentially a -- I don't want to call it a non-event, but do you think the industry or the supply chain will essentially managed through that disruption?

Martin P. Slark

What I can tell you is this, is that the PA-12 material that comes out of that plant, the resin that comes out of that plant, we don't use any of that material ourselves, so there would be no direct impact on Molex. But similar to what we saw with Thailand and Japan, we've also taken a look at the indirect impact. And I think it will take some time to figure out what that would be. As you may well know, the materials primarily used in fuel and break line coatings and flexible tubing and other components like that is also used a little bit in solar applications. What we found is that our Japanese OEMs, I think primarily because they've learned from previous disruptions, seem to have a pretty good amount of inventory. And so there would be no direct impact to them in the short-term. And we've also seen that our customers generally are working very fast to approve alternative materials. So I think there have been some good lessons learned from recent automotive supply chain disruptions. And I think that should help mitigate the damage. So our view is no direct impact, probably limited indirect impact, provided alternative materials are qualified quickly.

Amitabh Passi - UBS Investment Bank, Research Division

Got it. And then I guess just maybe a more philosophical question. Nice to see you raised your dividend again. I'm just a little intrigued why the board wouldn't contemplate some mix of dividend increases and maybe reinstituting share buybacks to give you some flexibility in terms of your use of excess cash? Maybe on how some excess drop out for M&A. So just curious why we continue to see just sort of a one-sided approach, just in terms of raising dividends and maybe not a mix.

Martin P. Slark

It's really a timing question. And I think when we get to our year-end board meeting, we will consider that point in time looking at buybacks. And certainly, we've said that one of our attention is to have a buyback significant enough to offset any dilution from equity incentives, et cetera. I think we've also got a pipeline of acquisition. So we're looking at our projected cash flow usage over the next year in determining what the right balance would be. So it's really timing more than anything else.

Operator

And you're next question comes from the line of Mr. Mike Wood with Macquarie.

Unknown Analyst

This is Adam for Mike. Just a quick question on distribution. I recall you said last quarter that European distributor destocking was a cause for weakness and you call that some Asia distributors strength this quarter. Was there any kind of bounce back in Europe in terms of distribution?

Martin P. Slark

There was, not to the same degree that we saw in the U.S. in that the extent we saw in Europe, it was largely in the industrial market and largely in Northern Europe.

Operator

[Operator Instructions] Your next question comes from the line of Wamsi Mohan with Bank of America Merrill Lynch.

Wamsi Mohan - BofA Merrill Lynch, Research Division

Martin, autos are now just shy of 20% and becoming more material and closer to levels that you had back in 2005, which is a good thing because there will be a nice growth trajectory over the next several years. So I was wondering if you could maybe talk about this market as you view what sort of dollar content. If you could give some clarity perhaps by region where your relative exposures are, that would be helpful.

Martin P. Slark

Yes. Let me start with the back-end of that question. Our exposure by region is pretty evenly spread actually, about 1/3 in North America, 1/3 in Europe and 1/3 in Asia. So fairly well balanced, so we're pretty pleased with that. Although I think the Asian portion of it is likely to grow faster, particularly as we are seeing in newer products adopted in China. And the thing we did is when we saw that big downturn in automotive, we did some pretty significant restructuring of our automotive operation. We now have a very lean manufacturing footprint supporting that. And what we're seeing now is 2 things which make us excited, actually 3. Number one, we're seeing greater adoption of standard products across the industry. So that helps us because we get bigger volumes across multiple end customers which enables us to amortize the depreciation, which is the big challenge in that market before we dedicate product. We're also seeing a lot more adoption of technologies that we have developed for other markets inside the cockpit of the car. So when you think about telematics applications, safety and convenience, things like that, and now networking products are actually going into the vehicle itself or these automatic breaking systems. So a lot of high-speed connectors which aren't high-speed by infotech standards but are high-speed for automotive standards, we have a great leadership position there. And then we're being asked also to make some value-added assemblies for that market, electronic subassemblies. So all told, I think between reasonable unit growth, increased electronic content and the combination of more standard products, more infotech type products and these value-added assemblies, we're excited about where that market grows. And I think it's certainly a more attractive market than it was a few years ago. In terms of content, it varies widely by car. But I think one of the bits of data I saw recently was the electronic content in a vehicle today is about 22%, 23%, and that's expected to expand to close to 30% within 10 years. So between unit growth and the expansion of electronic content, it's really an attractive market for connector companies.

Wamsi Mohan - BofA Merrill Lynch, Research Division

And Dave, as a quick follow-up, can you update us on the hedge levels for gold and copper?

David D. Johnson

Yes. The average strike price that's relevant for the fourth quarter for copper is $3.60 per pound, and for gold it's $1583 per ounce.

Martin P. Slark

That's the last question that we show on the call. So I'd like to thank everybody participating today. We'll, obviously, will be available for follow-up questions later in the day if you have them. And we appreciate your attention, and we look forward to talking to you next quarter. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.

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