Beth Walters – SVP, Communications and IR
Tim Main – President and CEO
HH Chaing – CEO, Materials Technology & Executive VP
Hartmut Liebel – EVP & CEO, Aftermarket Services
Courtney Ryan – SVP, Global Business Units
Steve Borges – VP and Business Development, President - Jabil Defense & Aerospace
Alan Myers – VP, Global Business Units, Healthcare & Life Sciences
Jim Suva – Citigroup
Alex Blanton – Clear Harbor Asset Management
Brian Alexander – Raymond James
Jabil Circuit, Inc. (JBL) 2012 Analyst Meeting May 3, 2012 1:30 PM ET
Good afternoon. At the behalf of the entire Jabil management team, I'd like to welcome you to Jabil's 2012 Analyst Meeting. I'm Beth Walters, Senior Vice President of Communications and Investor Relations. We're pleased to have investors, industry analysts and other guests join us today both in person and via the webcast. We've posted an agenda on our website and distributed one here to those attending in person. So you see today we are planning to cover a broad array of topics with a special emphasis on our growth areas of diversified manufacturing services. Following each presentation, we will pause to allow for any follow-up questions from our audience in attendance here and I ask that you wait for the microphone from our folks so that you can be sure that your questions and answers will be heard on the webcast.
And we will taking a few short breaks this afternoon following each approximately 1 hour 60 minutes of presentation material. So during the breaks you will have time to spend at the five kiosks that we have located around the room. Each of the kiosk is dedicated to a specific business area and has materials, products, information on the specified business as well as Jabil representative who will be available to answer any questions and talk to you and discuss that specific business area.
We will be making forward-looking statements today regarding our future performance and as such we ask that you understand that these are just predictions and that actual results may differ materially. We ask that all investors and interested parties read and understand all of the risks and uncertainties that are detailed in our filings with the SEC, specifically our most recently filed 10-K and 10-Q.
While preparing for this meeting, I began thinking back to our first sales meeting which was in 1997 and looking over some of the firms that were in attendance at that event, many no longer exist. Montgomery Security, Alex Brown & Sons, Roberts & Stevens, the Robinson Humphrey Company, Unterberg Harris, there's been many others through the years, CIBC, Credit Suisse, Thomas Wiesel, Lehman, Cowen, Bear Stearns, Smith Barney, yep. We've had a long list of analysts covering us and we've survived the breakups and the mergers and dozens and dozens of self-side firms. And I just wanted to give a call out to the one and only firm here today that was represented in 1997, and I bet you guys can't guess, but it was Needham & Company. So Shaun, carry on the tradition.
So as evidenced by all that, yes I have been a Jabil, a long, long time. Actually since 1992. In fact one of the unpiloted facts about this managed team that you will see here today is that most of us have spent the better part of our career at Jabil. We typically don't spend much time taking and talking about our credentials and who we are and doing much bragging. But given all the changes in industry and in the environment and obviously in our coverage universe I thought it would be beneficial to providers, investors with a bit more in-depth look at our team that's presenting here today.
So up first, while many of you of course may know or have heard his name on calls hosted and conferences, you may not fully appreciate the respect that he's earned from his team at Jabil. To say that his name is a quick study is really an understatement. Tim joined Jabil in April of 1987 as a production control manager in Michigan which of course was our largest site at the time. And five months later he was promoted to operations manager running our biggest manufacturing site. So after doing that for two years, Tim was named business unit manager and just one year later was named Vice President of Business Development and served five years in that role before being named Senior Vice President.
Tim has served as Jabil's President and Director since 1999 and Chief Executive Officer since 2000. But still you won't find a lot more information out there about Tim. We keep him very low profile. I tried looking and finding more and I couldn't. Prior to joining Jabil, Tim was a commercial lending officer in the international division for the National Bank of Detroit. He earned his Bachelor of Science from Michigan State University and many of you probably know he's a strong, strong Spartan fan, following them we have to sometimes join the events on the road. He also got his master's degree of international management from the American Graduate School of International Management which is also known as Thunderbird.
For the last 10 years under Tim's leadership, Jabil has grown to become the third largest and arguably the most highly respected global EMS provider. Inside of Jabil Tim is widely credited for completely transforming Jabil by making diversification a strategic focus of the company shortly after watching the communications industry implode in 2000. And then he actually led Jabil to deliver on that commitment. Tim is regarded as a steady hand during this turbulent times and a charismatic business leader. He is smart and direct. He's also known for his idioms. He likes to turn a phrase if you will. And he's coined numerous Jabilisms over the years. In fact I think that you are going to hear some of those today that I don't even know what they are. But one of them might be Jabil; it's not your father's EMS Company. We believe that we've got a very different story for you today about how different Jabil is than a lot of the other EMS companies that you all know and cover. Today Tim is going to tell us how he plans to help us continue to be a long term producer of a differentiated services in a high valued growth market. Tim?
Thanks Beth. That's the first I've ever been introduced that way. If I could only live up to that introduction. You know I thought it was interesting, she referred to a lot of the firms that have perished in your industry, now we might refer to a few firms have perished in our industry, Group Tech, SCI, Selectron, Dovatron, ALCATech, MSO, I could go on and on. I don't this for a fact so I'll tell you that right away, right out front, but we may be the oldest surviving EMS Company in the world today. This company was founded in 1996 and flew under the radar screen for a long time but I think that's probably predates ONK. Not really sure about that but we certainly have out survived SCI.
Thanks everybody for coming here today. My notes, it's a long ride. There's budget constraints, everything else and this is your industry, I can appreciate much like ours isn't quite the high flyer that it once was, so in order for this to be worth your while, it really needs to be meaningful. I think today we have some meaningful information to share with you and hopefully you'll agree with me by the time we get to the cocktail hours. If not, I'll just wait for you to have one or two and then it won't matter so much.
Today for me is really about the old and the new. Okay. The old way of looking at our industry and our industry being the end of the whip in the supply chain being a very cyclical industry driven by macroeconomic activity. I'll focus really on the short-term from the analyst community perspective. Really the only justifiable way to look at it was in the short-term with a real focus on things like capacity, capacity utilization, inventory levels and how those inventory levels might change quarter to quarter.
And now that we're going to talk about the new today and we're going to ask you to think differently. First about our company but then more broadly as you think about the context of the ecosystem that we do business in perhaps longer term about even more than just stable. But first, time to think differently about Jabil. Jabil is in a higher growth markets in higher value add activities driven by engineering and capabilities. We're managing complexity around the world with real genuine know-how and I think the perception may have been that we manage complexity by being in lots of different places at the same time but really managing complexity requires a great deal of knowhow systems, capability. You are going to hear about managing complexity a lot today.
We're going to ask you to focus on the long-term, when you think about high growth markets, high value add markets that are engineering driven and engineering led, capabilities led and about managing complexity, I think that really justifies thinking about our industry in terms of the long-term and think about our industry in terms of capabilities and performance, actual performance against the strategic initiative that we share with you.
With that still that down today, we are going to make a very simple case. The case is we will make the case. Of this you should take a longer term view of Jabil. Our presenters are going to share with you, a lot of capabilities and the building blocks of how they create value when their customer relationships, and how they create the building blocks that sustained long-term value creation over an extended time horizon. So we will make the case today, that the analyst community and the investor community should take a longer-term view of Jabil.
And I have an ask of you. As we go through the presentations today, my ask is that you remain open minded. You may have heard of this type of thing from other companies and the tendency will be to go back to the learned behavior, the learned muscle behavior just like a golf swing, you always go back to your old golf. We always tend to try and distill things down into simple anecdotes, simple ways of looking at things. And I'd ask you over the course of this day to be open minded, to listen to the presenters, interact with them, engage with them and if you agree at the end of the day, share with investors why there are compelling reasons to take a longer term perspective on Jabil and our ability to create value.
So most of the day is going to be devoted to the future. I am going to take my time and go back and retrace footsteps a little bit from 2010 till today because I do think that part of being able to be comfortable with, taking a longer perspective on Jabil, requires some evidence that these things, these themes, these capabilities, the value, the engineering is already taking root and already creating a significant differences in the way our business runs, operates, earns money, delivers value to customers than by 10-15 years ago and I believe there is very credible evidence if that's underway and I am going to talk about that today a bit.
So it's a little bit tough to get a read on Jabil today. And I can understand the issues, the definitions that have been used in the past in terms of EMS, don't really fit. So EMS is really an inefficient label when you think about all of the things that our company does in the markets we're engaged in. they are real tangible differences driving the change in the way our business is being reshaped. It isn't simply the process of going out into markets where our companies hope that there is higher growth and hope that there is better earning opportunity for them, their higher value add opportunities, real engineering, real know-how changes that have taken place in our business over the last decade, really that have created tangible difference.
I think the context is lagging the actual changes that have taken place in our business. The context for the investor community is still around, low margin, commodity, end of the supply chain web, servicing the IT industry, it's about computing communications and that's an inappropriate context when you look at our business today. We've talked about this a longer term perspective is justified. We'll go back and look at the last decade for Jabil. It isn't like there hasn't been some evidence of Jabil being a little bit different and that what you might find in this industry commonly are decade of growth in the last decade, an 18% compound annual growth rate revenue. That places us in the top five Fortune 500 companies since 1993 and since the 2008 recession, makes us one of nine companies in the Fortune 500 community that have grown at that rate. And certainly there has been some GAAP earnings volatilities we've gone through there, but the core earning engine of the company defined as our ability to produce cash available to pay debt by equipment, make acquisitions that are strategic, compound annual growth rate of 14%. If you look at definitions of what makes up a high growth company, high quality growth company in the S&P 500, this meets the definition comfortably.
We'd take a minute and look at this slide. Along this access is EBITDA margin, you see begins at 3%, 5%, 7% and along this access is EBITDA growth. And what you see here is a collection of four or five legacy North American EMS providers and of course we've stripped names because this isn't about the other companies, it is about our company. All right, but you see big and small companies in terms of EBITDA margins being principally 5% or less. These are for fiscal years 10, 11 and 12 and those are Jabil fiscal years and we've made the adjustments to everybody's fiscal year in order for this to be apples-to-apples. So we've made the quarterly adjustments.
And you can see the gravitation of companies here at under 5% in terms of EBITDA that tend to be very low growth rates, some of them this year are contracting and you see Jabil 10, 11 and 12 expanding EBITDA margins and while we acknowledge EBITDA growth rate is slowing down, it is still growing and growing at what for the rest of the industry is a very difficult year. You can see company see here that's done relatively well, a little bit of EBITDA growth issue but in terms of scale and size, certainly less consequential in the industry than what Jabil is. Now this is something very new, so I am old enough to remember all of the times that the mega tier was created and then disbanded. For the mega tier was created and then imploded.
And the characteristic has been that EMS companies gorged at the trough of community manufacturing and they get big and they destroy margins and then restructure or become acquired and that type of thing. This is something completely new. This is scale with performance. And scale with sustained performance. And this is the primary engine for which we are going to create shareholder value because with scale and performance, by doing business in higher growth, higher value add markets, we are going to produce increasing levels of cash flow and as we operate our business efficiently, we will have more cash flow available for the stakeholders in our business and this will drive significant accretion in terms of shareholder value. This to me is something new and this alone to me is evidence that there is significant differentiation and significant change of foot in the historical perspective and framework for how we think about EMS companies does not fit that JBL company.
So I share responsibility with you for helping investors understand where our business is going. And I think this was actually for us by an external advisory firm but I think it's telling that we do a phenomenal job of predicting foreign investors what's going to happen in the next days. This is guidance, consensus and what actually happened in the 90 day period. Top charts are revenue, the bottom charts are EPS. Everybody see that okay?
The basic is we do a great job of throwing the dart with two feet with the lights on. We're not doing a very good job at all of throwing the dart from five feet in any type of uncertain conditions. Management plans to the board is difficult. You don't have that. We haven't shared that with you. So we're not giving you anything to use. So with the lack of information, you've historically been a little bit below where our management plan is and of course we've exceeded both the management plan and consensus by actually a period of wide range. 6% in terms of revenue and 14% in terms of EPS. Now that's on an annual basis.
If we go back to fiscal year '10 for Jabil and look at how we did predicting, forecasting for fiscal years 11 and 12, okay so that two year time horizon in your two year financial models. The other four EDMS companies actually did a pretty good job in fiscal '11. Everybody had some upsides, one exception, competitor A. this is clearly a more difficult year. The several EMS companies have had issues in fiscal year '12, the lighter blue is fiscal year '12. But you can see in terms of Jabil we exceeded the models for fiscal year '11 and fiscal year '12 by a significant margin, $0.31 and $0.34 or $0.34 and $0.31 respectively. That tells we are not doing a good job of communicating with you, sharing information we need to share with you to service the investor base because they missed a fabulous opportunity in fiscal year '10 to enjoy the performance of Jabil.
Now left to nothing but 90 day timeframes to deal with and I can certainly understand looking at the rest of our industry with any lack of better information what else can you do except characterize Jabil as another EMS company. When I look at the EBITDA margin performance in growth, and I look at this chart, again I would assert that there is a very strong case to be made that this changing definition of the business that Jabil's actually in is really warranted.
So I ask you to think differently. The historical frame of reference for EMS is not working, I think that's clear. There are transformational changes in the content of our business and how it's operated and we think our long term business prospects are outstanding. That's principally what today is about. To be more transparent with you and share with you the real tangible reasons why we think our long-term business prospects are outstanding.
Just real quick take a look at what we said back in 2010 and how we've done against that. 2010 was the point at which we changed our segment reporting to the current DMS, E&I and HBS structure with the specialized services, industrial Clean Tech and healthcare and Life sciences rising what's in DMS. And we did that to provide more transparency, not in the individual customer relationships or programs because that as always in this industry that's very confidential and things that we can't share are specific customer programs and strategies.
And we wanted to make more transparent to the community. What our strategic initiatives were about? Where we would be investing money? And to make commitments which you could hold us accountable. That was the purpose behind that segmentation. We organized our management and our business practices to support those strategic commitments and we sustained our conviction to those commitments even when in some cases, run in to headwinds, run in struggles. But our strategic commitments and our strategic plan, we will support, stand behind and continue to drive over the next few years. And this all sets a table to take a longer term perspective.
Diverse manufacturing services, this is actually an original slide from 2010 with the same words, I am not going to go through, you've heard this on conference call and analyst meetings the last couple of years, so I am not going to go through but diversified manufacturing services is really about those industries where we think genuine differentiation is available to Jabil, where we can lead with engineering, our ability to manage complexity around the world where we can innovate genius solutions for customers and really drive significant value. And in the enterprise infrastructure and high velocity area the more traditional areas, of EMS, really focus on the historical drivers of lean, efficiency, capability, cost and the customer base there.
Intent has always been back in 2010 to have look, we're going to drive our business to hyper growth diversified manufacturing services to 20 to 30% a year and if we just do a good job of supporting customers and high velocity and enterprise infrastructure, we think the growth rate there will be more of a secular nature, 5 to 10% a year. And the differential in growth rate is going to drive this much more valuable DMS content up to 50% of our business and we're on that path today. So take a look at how we've done since 2010, the traditional EMS, high velocity and enterprise and infrastructure has dropped from 68% of our revenue to 55%. Now that as a percentage of overall revenue, the business itself has actually grown. Fiscal '12 estimates would suggest that this traditional area of our company will be about $9.5 million of revenue this year which makes that part of our business substantially larger than our next nearest competitor's entire company.
So far from exiting this business, we become stronger in this business and driven margins from 2.7% collectively in 2010 to 3.1% 2012. That's despite some recent headwinds that we've had in our ENI area. Also navigated some specific customer and business challenges for that period. The diversified manufacturing service was kind of excited about the progress we've made there. That's gone from 32% of our business to 45% of overall business and the margins have been consistent, not some variation but generally within the range that we talked about. A 35% compound annual growth rate in this segment, above the top end of the range that we talked about back in 2010. Global XPs will talk about today in terms of simplifying complexity, investment, ingenuity, scale, scope, global reach.
So I think this is interesting, this bubble chart, is DMS, diversified manufacturing services as a percent of total revenue and this acts as wide as DMS growth. Okay and you can see Jabil has the dominant position really on the whole scenario. And I think it's interesting that about 45% of our business this year will be DMS in terms of revenue. Sometime over the course FY '13, DMS will cross over that 50% arc and become the dominant part of our business. So the revenue side of our business should cross over sometime over the course of fiscal year '13. The operating profit engine has already made that cross over. Forbes will address that in his presentation later in the day. We talked about why Jabil has become a more resilient, sustainable business. We're driving a lot more of our profit out of diversified manufacturing services in the other areas of business making us less reliant on the commodity parts of the businesses.
So the highlights of the day, when we go through all of the business areas we're going to talk about, specialized services must be a little bit confounding to you and I say confounding in a good way. I mean this is MTG and this is the aftermarket services group which is now 25% of our business and frankly they are just lighting it up. They are just lighting it up and its confounding because we haven't given you enough texture what's that really about there and we're going to try and do some of that today, but now it's too big to ignore and we're really excited about it and we talk about MTG, the Materials Technology Group, HH's Group, HH will be presenting and discussing that today, a very impressive individual. I can't wait to hear your introduction to HH but surely it will be, he has a Ph. D so he's already got me on that one.
But in terms of automation, material sciences, look these guys have the best tooling operations in the world. I am no expert in tooling but I can see when I walk through factories, their tooling operation is head and shoulders of everybody else and that's the one thing consistently I hear from the customers. Customer always want to complain about price and there is always some dispute about, you're not really as good as that guy or you're just the same. Universally they say the best tooling operations in the world and it's got a hug e-market opportunity. They are riding the mobile internet wave and this is going to change the way we live and think and interact with each other and I think it will be very interesting to hear if HH believe we're at the mid-point, late innings , middle innings or early innings in that trend. And it's providing very significant value to the other strategic areas on diversified manufacturing services and the broader company particularly when we talk about healthcare, converged products and also automation.
Hartmut will discuss aftermarket services. Aftermarket services has moved way, way beyond deeper repair. I mean every time I go through a business review with this group, I am just floored at the complex things that they are doing all around the world. I mean they are operating retail outlets in Turkey. They have telecommunications repair operations in Pakistan. They can take a British telecom product that was built 30 years ago, bring it back, find a person, put it back in service. You're going to hear bits and pieces about stuff that aftermarket services have done about distribution, the EMS companies, private equity companies but really we have the talent, we have the balance sheet, we have a global presence, we have the capabilities to make this a huge growth engine for a company for many years to come. You combine all of this and you've got a tough job due in terms of communicating to investors what this stuff is about, but it's a very dynamic area with a great value and prospects long-term.
Industrial, in Clean Tech, we build more high-mix electronics in low cost occasions than anybody else in the world. I am going to make that assertion, I've got some facts that I can't go through every OEM and determine what they make but in terms of companies that we're associated with, we build more high-mix electronics, in low cost locations than anybody else in the world. So how many percent of Jabil's output for the company overall is built from large quantities of 100 or less. 70% of the total output of the company is built on large quantities of 100 or less. 50% of what Steve Borges will talk about in industrial and Clean Tech is built on large quantities of 50 or less. We built something like, well I am not going say numbers, because I can't remember the numbers exactly but I do know this, in terms of the end items that we ship, the average revenue per end item that shipped is $700,000. You have to amass a lot of $700,000 programs to add up to the $1.6 billion and more that we have in industrial and Clean Tech. We have market leadership in this area and I'd really encourage you to take a look at some of the things we have in the kiosk for covering that area.
Healthcare life sciences, we talked about this in the last conference call, a very large pipeline of opportunity, driven by skills and design engineering, process and converged products. That really important to think about the healthcare life science here and these are converged products. They require capabilities, engineering and expertise from mobility, from MTG, from aftermarket services, from our core healthcare operations and assembly operation and so that's a key advantage that Jabil has long term.
Traditional EMS, again, it's not like we are going, doing business in traditional EMS. That traditional paves the way for success in the rest of our market. Fast, competitive, managing complexity around the world. We feel like we do that as well as anybody else and I think that's a reason that we've actually had some success over the last few years. That really paves the way for success and the rest of our businesses contributes substantially to our technical know-how in managing complexity.
And then Bill Peters will talk about social responsibility. Bill will cover traditional EMS, Bill runs about 75% of our company I guess, to make the numbers easy. And he'll share with you our position there and what we are doing about it. Social responsibility, we think about it this way. We want to do the right thing consistently throughout entire company and in doing this, we protect Jabil's brand, we protect our customer's brands, but we feel good about the business that we are running today. This is a company with a very strong culture, a lot of passion and we couldn't operate in good conscience if we didn't feel like we are being consistent, in the way that we run our business around the world and that every employee is treated with the respect and dignity that they deserve and we are absolutely 100|% committed to that.
Finally, I am going to get off the stage, I don't if I have gone blown my time budget, but I don't really care much. The big thing that, I've been doing this for 25 years, I started with a company that was $40 million in revenue, we had 400 employees. You could put all of the good people in the company, all of the drivers in the company in somebody's office and have a confab of about what we're going to do. We have thousands of great people now. And they are doing extraordinary things around the world and we have a global best practices competition every year. The last few years that sponsors in four categories, 1,800 applications were made for best practices awards. Behind each one of those 1,800 applications, there's a group of five to 10 people that worked weekends, until midnight every night, working on that application, the passion is there and the people that are going to present today, lead all of those people. And I can tell you that, these are some of the best people in the business that you are going to have an opportunity to meet. So I really encourage you to engage with those people, during their presentations, at the end of their presentations and over the course of our brakes, cocktail hour and dinner today because my job in the last 10-15 years has gotten easier and easier and easier because the quality of the people in the company has got higher and higher and higher and I think that's really how the business is driven. So I'd encourage you to engage. With that we're going to have a bit of an overview video. I've been talking long enough, it's time to mix up the media, but this was a nice overview of our company, capabilities in the people in our company. So hope you enjoy it. Thank you.
Up next is HH and Tim since you mentioned this, I have to tell you, I didn't make those things up about you all by myself. What I did in trying to put together not just your bio and whatever everybody did, I did this for everybody, not just you, is ask your peer group. So among the people presenting here today and among other people that work with you, I said, ask everybody, give me a few words on these people and tell me what you think of them, what do you think their biggest accomplishment at Jabil's been. So that's how I put together this stuff which to me actually means even more. It's not just what one person thinks, it's what your team members think. You had talked about having a strong team and great people working with great people, I think that there is a lot of consistency and cohesion with this management team. HH Chiang is an ingenious technology executive. This is what his peer group said. He has proven track record of successfully riding technology waves. I thought that was the perfect statement for HH.
I'll go through in his presentation how he's been on the forefront of a lot of these different technology changes and I thought that was a really great way to capture that. He has served as Executive Vice President and CEO of our Material Technology Services since 2011. He was Senior Vice President of Mobility and Materials Technology Services since 2007 when Jabil acquired Taiwan Green Point. He served as General Manager of Taiwan Green Point for five years after been in R&D, sales, engineering, production and business ownership rules for the company since 1998.HH earned his masters and his Ph. D in mechanical engineering from Cornell University in Ithaca, obviously a really smart guy. From 1989 to 1985, he was employed by advanced CAE technology developing a commercial, computer aided engineering pro simulation software for plastic injection molding. That is hard to say, I don't even know what it means. See, this is all based on his Ph. D work. From 1995, to 1998 HH was employed by Genec Institute of Manufacturing Technology in Singapore where he studies thin wall molding and other manufacturing processes, essential to the mobile phone industry. HH is a true entrepreneur, a very, very rare combination of a brilliant scientist and an innovative thinker, who's always keeping his team of Ph.Ds busy pushing the envelope in the materials technology services arena. HH will continue to illustrate and talk to his team of why Jabil is not your traditional EMS Company because we are not a materials technology services team does is different than what any other EMS company in the industry is doing.
Thanks Beth. While I have been hiding for the last 20 years, I believe the background. Today I would like to talk about a part of business which is totally not a traditional EMS business and it also not a commodity business and the reason is that we have been into the component mechanic business for the last 30 years and we have been trying to identify what other markets have the highest growth potentials and have the highest differentiations, a very complex engine solutions that require that and because of that we can generally have values.
And I like to talk about how we look at industries factors and we've a lot of complexity, we have a lot of growth in how we develop the solution around that. And well I put together the slides based on reports by Morgan Stanley in 2009. We actually put together a report, talk about the computer and technology cycles of a decade. And I talk about from the main frame computers from our inner dates to minicomputer to personal computer to internet computing and talk about how to use that slide, increase 10 folds in every decades. And during that times, obviously you have winner, you have loser, you have slight well creation and every time the well creation is connects of that and also of course you have a company that dropped off from the race.
While I had in the second half of the comparisons, to talk about the wildest industry, because when points in the early days have been into the wireless industries starting from the two way radios and we have probably been supplying that globally, this is the only one company doing the best two way radios in the world which is Motorola. So Green Point have been working on as a supplier for Motorola for more than like 20 plus years, like close to 30 years working on two way radios. Obviously two way radio have very, very high requirements because two way radios have to go to military applications, they have to like sometime police use that as weapon.
So it's go to a lot of abuse of how do you build the most robot casings in the industry. So from there the pager was invented and it was also the Motorola who invented pagers. Naturally Green Point evolved with Motorola to become one of the largest supplier in the pager industry. So back then, we built lots of lots of pager casings for Motorola and then after that, then a lots of industry come-ons and then again the technology evolved. It changed from just plastic molding to think wall moldings because analogue cellphones tend to be like, well of course analogue cellphone it's just like a brick, huge brick. From that brick then evolve into a thin products and then the device got thinner and thinner than the (inaudible) and which material makes a lot of money and I was doing the analogue cellphone there and a number of user becomes like 10 folds.
And then after that, then digital cellphone technology comes on and the market go to like approximately one billion users a year. And then now you have new coming like Nokia, Samsung, they all come into like this chase this and gradually Motorola lose the market share. But the technology have evolved and every cycle there is a lot of new technology required and it's just more and more into like personalization, a lot of customization etcetera.
So Green Point pretty much rides the wave to that wireless industry. So now in this new technology place, there is a convergence of all IT industry, the computing industry and the wireless industry into the so called mobile internet cycle and the forecast say that, it's going to be about 10 billion users combined. And it's more than a phone. It's a combination of smartphone, reader and so everything, all the consumer products you can dream of, it's all converged into one device. You are going to use it and you can carry that. Of course we are just at the beginning of this cycle and of course we see some new winner coming online and obviously there will be, because we are still at the beginning on the cycle there is still a lot of people trying to come into this industry.
So what I am telling you is that we are just at the beginning of the mobile internet and the amount of information you can access in the internet is Google big and I will personally say that this is the opportunity of a lifetime personally. But we have to surf very carefully because as I point out that every cycles you have winner, you have loser. It's a very competitive business. So how can we ride this wave and can still land it safely.
Okay, this is talking about the overall megatrends of this industry. Now let's look at the forecast. I do not make this up. This is coming from my supply. They put together a forecast of the market and eventually say that the PC has pretty much slowed down in the growth and new shipment is only about total about PC combining mobile PC and desktop PC is 400 million. But the smartphone is like by 2015 is going out to a 1 billion and then combining the tablet, talking about the tablet is going to be shipping more than the notebooks.
So what I say is that, the PC otherwise mature though with slow growth and now we are talking about the post PC area. What are the post PC era? Well, we are going to look at the trend, its mainly driven by the cloud computing. Just imagine, you talk to your iPhones, the latest iPhone, Siri. You talk to the phones, it was actually calculating the answer in the cloud. It's not the phones doing the calculation. So that is the power of cloud computing because you have generally the whole bunch of like database in the background and the computer can with all the thousands of servers connected together can provide that instantaneous response, it's that powerful.
Now as far as the whole focus, of course I mean like cloud computings. What can we play in this. The only thing of course we can do is that we can contribute to the device that allows you to assess that information. So we're focusing on mobile internet device where we can assess that information. So the whole focus is mainly about smartphone and tablet where the user, the consumer can assess the mobile internet.
All right let's focus, we're talking about smartphones. We'll get the smartphone markets and now the feature phones is pretty much because and the negative goal rate and I think that rate is going to be even faster, the rate of decay is going to be even faster and now the smartphone is going to be predicted to grow at double digit growth and tablet is growing at a 46% growth. This is the forecast by IDC. So growth is mainly driven by smartphone and tablets.
And for our business, if you followed Green Point in the past, we have been doing a lot of mobile phones business in the past. But we have shifted our focus on feature phones to smartphones and tablet. How can we do it so quickly? Mainly because we are following the industry. We are riding the wave. And we prepare our self-many years to understand what is the technical challenge of this industry and how can we develop a technology so that we can ride this wave. And now obviously when we shift our focus on feature phones, it's mainly we're targeting for the higher growth rate and the higher value added.
And this slide shows a graph of the top 10 smartphone market share of the top 10 OEM company in the smartphone space. Of course that's a lot of the name. Of the 10, only two of the OEM we are not supplying which are GT and Huawei and now we supply to every one of them. Beside the others. And now we do not supply to GT and Huawei mainly because we do not know how to collect payment from them. So we are selective in our customer that will provide value to it. We are not going out there just to sport a set of growth and we are very selective in our customers.
This slide shows the global tablet shipment. Again this is predicted by the iSupply and obviously iSupply is a little bit bias towards the PC industry because iSupply basically grow up from the PC industry. So they are predicting that the iPad market share is going to decay but it's okay, because they are predicting that other media market is going to grow. And for us it doesn't matter because we can supply to all of them. Because the quality requirements for the tablet is not the same as the PC or the notebook. The notebooks have an industry requirements, have a drop pass of tablet height. Means that, you drop your notebooks from the table height to the floor, it always do not break, you survive. You can ship the product. But in a smartphones, you have to drop your products at 1.8 meters or higher to the concrete floor and not break it. And that becomes a much bigger challenge because of that requirement. And not a lot of the company in the world can do the mechanics that can survive that kind of drop. Obviously we have been developing the media tablets customer very rapidly because this market is so new I cannot talk about that who are they. By the way, please do not ask me customer's specific questions. You can do after the question and answer session, because I cannot talk about that.
Okay, well, how can we transform our business from feature phone to the mobile internet so quickly? We must understand the industry very well. What does industry require? If you look at the characteristic of the mobile internet device, it tends to have the largest display. It tends to be like, you need to carry them around it becomes think enough. So the product require stronger, stiffer, thinner, lightweight materials and therefore it requires very high precision components. In addition to that I wish to talk about my colleagues that we all spend, I spend more time with my phone than with my phone, so people tend to want to have a good looking product because you carry with that.
So that's a lot of product differentiation, quite an industrial designer. So if we look at the products today, you cannot be really elegant, very good looking and a lot of mature integration and that is the beauty of this industry. Because it's moving so fast, it's getting thinner and thinner. So the requirements becomes tougher and tougher. Then the next level is integration.
You have mechanic supplier, you have electronics supplier. But now the next level of integration is that, how do you combine electronics and mechanics together? Okay you give to the mechanics supplier, they do not know how I do with electronics. If you give to an electronics guy, they do not know how to do mechanics. SAO how can a good supply chain can do both of them together. It becomes a very challenging stuff.
And because of that integration, it also increased the mechanic's values and of course if you look at the industry was evolving so fast and pretty much every year we have to change design because mobile phone become a fashion. Okay, you have something like is part of the cause, is torn away and guess something else and because of the products change so fast, we have to get involved in a very early design with the company so that we can cut down the lead time of the developments. So we have to do a lot of that and we have to increase, of course because of that we have to increase our requirements for fully solution integration that is the higher barrier for entry, for the VI suppliers. That's just a technical challenge.
Let's look at operation challenge. Well, as you note, the industry ASP is decreasing at a very rate. We all know that. This industry is moving so fast. The ASP, average selling price is decreasing at a very fast rate. And how do we cope with that? So we have to improve our cost structure by lean and could use an improvement. And basically the Chinese labor rate is increasing very rapidly and is off the records, the Chinese garments, they are going to increase labor rate by the double in five years. That would translate into approximately 15 to 18% a year of growth. So how does that impact our bottom line? And obviously we have to do a lot of productive improvements by automation. While today you can hear everybody in the industry talk about automation but anyone talk about how long they have been in automation. We have been building machine, we have been building equipment. We have been building automation equipments for more than 15 years. Who have that kind of background and depth to compete with us.
And time to market is shortening. We talk about like, we have to get involved very quickly, we have to help the customer to introduce product very quickly and we have developed a very sophisticated computer aided system in to our design department, that way we can reduce a prototype toolings. Right now we are doing in weeks, we're talking to do it in half a week's time.
So our target is that customer can give us the design on Friday by Monday or Tuesday, we can send the prototype type sample to our customer. And that is the lead time we're talking about. Of course the most important is that the CapEx intensive and not everyone can afford the CapEx and of course that's one of the reason I convinced my former shareholder to engage with Jabil.
Okay, that is the challenge we are facing. So now let's talk about what we have done. Our transformation for growth (inaudible). Of course we have been investing in the R&D centers since for more than 10 years. Since the day I joined Green Point, we have been investing in R&D and every year we are locating a significant amount of our budget into R&D centers. And I started R&D center when I joined Green Point and now it's about 15 years ago. So today our R&D center have more than 200 scientists. We are building stay over our R&D centers where our scientists constantly looking at material innovation and how can we take the materials, combine them and provide a unique solution. I used to talk to some of my noble scientist. They said while there are only chest move, you have grey chest, that's only 10 move. If you combine them, you can have (inaudible) move together. So there are only may be eight to 10 basic rules. If you combine them well, you can create all kind of innovations today. So we are doing it well. We can create a lot of innovation by just building a basic manufacturing process.
Of course the next in this, we're talking about differentiating decoration technology, talk about smart mechanics and now I would like to talk about our state of the art tooling operations and our computerized paper work, a discreet automations. We're tooling operation we have, every component we make is not one. Want to make it once and then move on to the next one. So its automation for complete discreet. And of course then we talk about the continuous automation where we just constantly do it repeatedly. So we have the two extreme automation. One is discreet, one is continuous. They all blend in, so in the future we can do anything in between.
And of course talk about diversification in adjacent sector because we are right now more than 90% of our business in mobile internet, we have a lot of technology and now start to look at how can we take the technology we have and start to diversify into other sectors. Our transformation is about material solutions. (Inaudible) 15 years ago when Green Point started out with a crafting motors.
Today of course our call business do prospect, but we start to like do all sort of material processing. So now we call our shower material processing and what packaging company, we package product for our customer and we can integrate fiber, stainless steels and glass ceramic plastics or any kind of metals you can name of to form innovative solutions. Our strength is that we are leveraging the plastic loading net shape. Net shape means that we can make it very cheap, very low cost. With other material unique property to create a very cost effective innovative material solutions. And therefore that increased our stickiness to our customers. And of course I just mentioned that we have more than 200 material scientists and engineer working on this.
Decoration technology. You can combine digital printing, non-conductive vacuolization while you can absolutely right, what specifics behind a metal but it's not conductive, if you mattered about this. We can deposit metal on to the surface but it's not conductive and that is the brainchild from our scientists that come out with a process that allow us to coat metal but it's not conductive.
Why is that important? Because mobile phones today when you started to moving into 4G, LTE technology, there is at least 11 antenna. If you have a coating that's conductive, what is going to happen? It blocks the antenna signal. Therefore if its conductive material, it's not going to be used. But the user likes metal feel, look and feel of metal. So we develop this non-conductive vacuolization process so that we can provide that look and feel to the casing. Of course then because of that we combine that, we can create very vibrant and sensible decoration. There are a lot of samples on the site where you can pick a looks after the presentation. Of course we can also integrate leathers, fabrics or woods on plastic covers.
The next smart mechanics, this is just at the beginning of innovation and we are looking at embedded electronic function on cover and lenses. Of course the first thing you heard about that was antenna and circuit. What I was working on is still in the phase where we will not talk about it but we still have a lot of innovation coming up that's while looking at a lot of integration on electronics and mechanics together into a component. And that requires great expensive early design involvement with the customer because this are future.
So the next thing I am going to talk about how are we going to create something unique. This is the best in the world and this operation, we have state of the art tooling operations and now its paperless, its fully computerized and it involves three dimensional cast, automation, we can do design automation, we design cat stent for computer aided design. And now its knowledge based. Basically we can pool the design from the database and be able to decide what we are supposed to do next. And three dimensional camp, is after you have the design and now you have to generate the manufacturing cut it too fast, it's called computing and manufacturing. So we also have developed lot of automation in there.
Then of course we have manufacturing automations where we integrate ID trackings into the components manufacturing on the floor and that's how we can track lot one production. Then of course after the machining and manufacturings ED and etcetera, we have to do quality assurance. Again that's fully automatics and after that we have to the tri-shot. Again it's based on the knowledge base. And the whole system is integrated with productions, management system which is paperless, go to our floors and the production schedule is real time and the status of the project is real time. Of course we have a lot of high speed machining as close to none. Now I'll show you a video about what we means about not one automations.
We make the tools, yes a lot of component we need to manufacture. When we make one tool, one production tool, there are at least 1,000 components we have to custom machine. 1,000 component we have to machine.
That's why the tool we're selling more than a Mercedes Benz. Every tool we sell is more than a Mercedes Benz and because we bought thousands of thousands component, we have to machine and custom make it. So we have a thousand components and can we machine all that in a wig and then be able to collect them together and assemble into a product. And that is required a lot of automations and a lot of ID tracking etceteras to make it happen. So basically this shows that we integrate robots into our picking the pots out, put into the machines and so this is like nobody will touch operator touching that, our operator basically just loading the components into the system. So it's fully automatic and then slow it and then on morning and evening collected and load it again, it's just ongoing.
So this one here is talking about machine electrodes and then checking, this is after machinery electrodes, we are go to the quality control making sure that the electrode is machine to spec, to design spec and so it's going to check in order quick because I mentioned, specified by the designer and so computer would just automatically pull the data because once it sends the RFID, it knows that one data for it to measure and they would just automatically mention and then verify that is go or no go.
Then after that we go the EDM process where we load out the electrodes and where we burn the steel. And that's where we make the cavities because of course as the cavity we can direct machine it, we'll machine it but some of the features are so deep inside, our cutter cannot go inside and we have to use electrodes to burn it. And that because electrode is reverse, so we have to burn in it into create the pocket inside.
And this sort of electrode discharge and because it takes hours before it will complete and it's still operator waiting around and now we have the robots set it off and it will run automatically. So our two makers now we are moving them to do the most difficult part of engineering design. So all this is not needed anymore.
And now this makes it sure that we have eight EDM machine and eight of them are all running at the same times. Because they are all green and so robots are going there just pick it up. And this final automatic measurements and its making sure the cavity blocks is too spec before we can do the production.
Okay the next thing I'd like to talk about is our continuous automation. We have been building molding machine automations for more than 20 years. Before I joined Green Point, Green Point already has a machinery department and where we make molding machines, then after we start to make multi shot molding machine per table and now we do customization. Why is that? Because in the early day when we get into mobile phone manufacturing, it required thin walls. It required very high pressure moldings and all the molding machines cannot deliver that pressure and therefore at that time the founders have German friends said that we have this molding machine, license it to you.
So we take the molding machine, we build it, we custom make it so that we can generate triple the injection pressure so that we can make thin wall productions and that's how we started with machine automations and because the processes we require are different and therefore we build our machines because we needed and nobody else in the industry can give us that capabilities.
So we build that machines and today this machine using that in the most sophisticated production because it's German design, it's 30, of course, three years ago when our competitors start to have a lot of people coming off the roof and we said that loud that we have this problems and our labor cost is going up and we saw while we have start to light big wave and we transform the globe into automations and we started to look into loading automations where we can take all time of insert into the note, increase the productivity by 50% to 80% and I also look at flexible robot assembly and of course now we are looking at test system automations.
And the first video is showing our molding's automations, and when I showed it to our customers motormen said are we in China? You are the first one in China doing this, all right, so it's unbelievable for people to see that, we are doing this all right and are now all competitors seller are doing automation but we have been doing for multiple years, right. This basically you would take the metal part if you look at the parts on the wall right you have that's a lot of metal parts that we have to pick it into the mode plastic and route it and then assemble the glass on it.
Now I will show you the – and this is where we assemble the glass, we initially when we have the assembler like people put in glass on it and then I put on glue and then the glue was like depending on how you on that glue was squashed over the place and it was extremely long. So we did with the robots to assemble the glass into that and we can control the pressure you put in and so consistently that our view is now is the best in the industry, nobody else can assemble glass with the view (ph) we have all right.
And while we call this the spider robots, this you like Matrix-Reload, okay, this slide is talking about assembly we develop this machine out south and this is basically assemble cost spikes so probably none of you knows that, we produce 80% of the world golf spikes, a (inaudible) factory stopped producing golf spikes, a (inaudible) factory has start producing Goff spikes there will be a lot on happy golfer because you cannot buy golf shoes anymore. I will develop these machines right and we run in for two months, the machine is recovered because of labor savings and that is the automation we are talking about right.
Fully automatics, automatic fittings and put them together and a lot of people say well this must be expensive, no we design it, we build it, we built it to our specs and it's at cost not with – of course this video shows assembly component on to the a smart phone back casings and this petty spend and I just move on station and station and they put on the components. Okay and we just have to load the past one in it.
All right that's about automations, okay next in this item, how can we sustain in the globe all right and of course we have to look into diversification into agency sector and we have been looking at necessary, looking (inaudible) adaptor et cetera and looking at medical device, single use device, test strip (ph) et cetera and also we are working with Quintech Groups and working on function grass on solar panel at looking at heat sinks, looking at water treatment components and energy device. This is the big so I have been putting a lot of (inaudible) and flow batteries and of course we are working with the high velocity sector on high-end consumer products.
Okay what's the result of our transformation, we talk a lot about our transformations, we are able to increase our market penetrations, the market leaders appreciate our differentiated complex capabilities and many time the customer will ask, are we in China? Question like this, our skills are big enough for major competitions and our differentiated value add, okay we will not talk about it last work because our customer does not allow me to talk about that and our revenue growth 5x in the last five years, all right that is compounded 38% a year and we target to grow one or two X in the next three years and beyond and we are looking at approximately on average about 26% growth per year.
And I would like summarize as our biggest differentiation is our ability to develop differentiated complex and value added engineered solution by creating and combining new or assisting manufacturing process. We are not a traditional EMS company and we are also not a commodity company. Thank you.
Do you have any questions? If you can wake for the microphone to get to you please.
Customer specific questions, I will not answer that because I find NDA with my customer, I will not talk about it if you look at over the next couple of years what percentage of your revenue do you think comes from outside of mobility and what percent comes from other customers besides your top customer who I think today is about 50% of your business, over the next few years how do you diversify away from that.
That was the, of course now we have on mobile internet customers, we have a major customer and of course that was supplied in that markets diversify into media tablets, our target is to be able to generate half of the revenue come from that would suffice the mobile internet device and then of course looking at the discussion to different sector and the goal in that sector is not as fasten in the mobile internet. So we are doing as fast we can we are taking approximately 10%-20% of our targets but again I mean it depending on how fast we can grab the market opportunities.
It's not a question, when you look at kind of the entire process, machine automation, tooling, molding everything. If a customer decides to change the materials they are using from plastics to metal something else does that change the entire process, you have to reinvent the entire process and how does that impact yields and margins on the road?
Sorry can you repeat the question, sorry.
I am confused when you look at the entire process and I am assuming is it fairly different if you go from plastics to metals to a different alloy, does the process change completely?
Can I talk about specific process? But if you look at, if the process is getting more complicated, we have a lot of metal and plastics and so you have a little bit of value add here and a little bit value add here, and then I when you sum it up and…
My question is do your yields drop dramatically as we change the material ever, or is the process.
Of course many you do it, the yield drops that's where you want automation, that's where we want automation to have a higher yield of better quality because automation allows to run at consistent at (inaudible) time, if you have people if you are taking like 5, 10 methanol components putting the notes and you have operator it in the second time will be like 60 second, like 90 second right but then we can run a consistently because the robot will pick it up, go in there. The cycle time is consistent.
It would be safe to say though when you make a technology migration at the early period of building experience in that technology the yields would lower plus and then it will be after a few months of experience.
Yes of course, I mean I when we said it on issue we are of course we have to debunk the system of course the yield we lost, I mean I when you have the whole system put together I mean you run it you have a lot of problems and that's where you debug it and you try to find out what's the problem that the yield will be low then after you tune and once the production is ongoing pretty much you can maximize the yields and also you have to minimize the cycle of time.
So on one hand you are reducing the number of people that you are using in the process because obviously the labor rates are going up in your major manufacturing area but on the other side I have a question about engineering talent and how quickly you can bring new engineering talent in because I am kind of wondering how large the engineering force was just a couple years ago compared to what it is now and what you think is going to look like over the next few years as you are going to grow your revenue considerably again.
Yes the venturing (ph) talent becomes very critical while future growth and whenever we look at new site for our expansion the first thing we look at is not just low cost labor rate, we look at abandon of engineering resources and yes that ratio is going to change. Definitely it is going to change and because we need more engineer and we have setup of our own trending cost to train our engineer to train our technicians right, and the former chairman of Green Point is a German Trains Engineer, if you know about German system it's lot of appetence like system and we still have the appetence system going on in our company and we sign our contracts with school that where we have (inaudible) and technical school sending student to our factory to alternative semester so that you can study for one semester come to our factory to work for one semester and then go back again so we have this kind of apprentice system company in our companies and so if you look at the history of our employee retention the highest in the industry and it's our people highly sought in the industry because of our training system.
You spoke briefly about CapEx and not that one can afford CapEx, can you talk about the capital intensity you are seeing in your business today and then is there any relief in terms of co-investment from some of your partners.
Sorry I cannot talk about customer and yes we are CapEx intensive yes that's why every time you see me you saw I want to curl my fingers.
Let's talk about on our last earnings call is we are accelerating some CapEx in the coming quarters, we are spending about 500 million this year and approximately 75% of that expenditure is been focused in the diversified manufacturing services area of which it's responsibility why so that is accelerating at the moment and certain programs there is some element of core investment as we move forward.
Two questions one is a very maybe an ignorant and stupid question is if you look at CNC capacity that's primarily used just for metal and alloys, plastic does not require CNC.
Okay then my second question is a follow-up to that is what do you think potentially happens to the metal CNC industry if a major customer or someone in the industry decided to ship materials dramatically out of metal.
As I said we with machines with plastic parts.
Do you still use CNC to machine (inaudible).
It depends on the design, it depends on the requirement it depends on a lot of requirements. If you look at some of the parts we make the uni-body parts, that's CNC machines.
Okay and then my last question is on pricing, pricing for casing has been pretty stable over the past years, have you recently seen any increases in pricing pressure with BOIDE (ph) coming into the industry.
Did not see that happening because people like UID they don't have the bandwidth to develop the technology we have. So they may wonder come in and after like three months then the customer come to us which is you just take more capacity.
Can you discuss the competitive position of (inaudible) in the industry who your major competitors approximately market share and your major segments and so on, it's not occurred to me who you compete against. Are some of those people part of your customers operations or they internal?
No we are not competing with our customer operation, our main competitors are like Foxconn.
Their operation is similar to yours?
And what's the relative size?
Of course they are big, but we are better.
Do they buy anything from you? You can say that but say what your market share is approximately of the total industry can you give us a number?
Sorry I cannot talk about that because that is for customer information, so sorry I cannot.
Asking a customer, he is not asking where your market share was specifically…
We have approximately like 30% of the market share.
Okay. Thank you.
Okay one more question and I know there is a lot of question HHH because this is very important part of our business what we will do is at the end of the day we will fill questions for each HHH as well because we are way behind schedule so one more question then we will break, come back and we will bring HHH up answer any follow-on questions at the end of the day.
So just on the roadmap that you talked about, can you talk about what's most important in terms of materials maybe smart mechanism going forward and how that keeps you ahead of the competition, what is going to drive say that market share staying where it is or going higher and then secondly is your capital intensity safe, you looked at an investment that turns into revenue dollars, is your capital intensity going up, down, staying the same as you perceived down the roadmap.
Okay the first question is about smart mechanisms and we recently presented our technology to our customer, every customer say we want this technology. So now we are developing products for that technology I cannot talk about that sorry, it's new products and but it's involving that something integrating second part (ph) into the casing and CapEx yes and as we grow and as we grow because we are adding capacity definitely we need to add CapEx and get to a point we will have to stop the CapEx so that we can harvest the investment we have so by a few years down the road we have to stop that.
Okay great. Thanks HH, we will take a quick 10 minute break and start right back at 3:30.
All right we are ready to get started for our second round, all right so let’s go ahead and get going with our second group of presenters this afternoon. Up first in this block is Hartmut Liebel who joined Jabil in 2002 as Vice President of Global Services. He was appointed President of after Market Services Division in 2004 and currently serves as Chief Executive Officer and Executive Vice President of After Market Services which as most of you know is reported in our specialized services division within the diversified manufacturing services area.
Prior to joining Jabil he served as Director of Business Development and the Power Conversion and Communication subsystem group that Emerson Electric. He has also held positions as Assistant Treasurer at W.R. Grace, and Vice President-Capital Markets at Bank of America and an Associate Derivate in trading at Merrill Lynch. Liebel received his Bachelor’s Degree from Flagler College and his MBA from the University of Notre Dame. Hartmut also holds the Chartered Financial Analyst designation which by the way he earned in his spare time at Jabil, I don’t know he told he spend a lot of times at airports and standing in lines and listen to all the tapes and I find this amazing.
As you might have noticed by his name and you will see accent Hartmut is of German ancestry and although an international pool recently declared that Germany is the least funny country in the world, Hartmut actually defies the stereotype, he is known for his dry sense of humor, his riddles and his really empowering employee based focus business style. Today Hartmut will continue on a theme that we set up today demonstrating that the differentiators of Jabil’s aftermarket services business and where they are taking this business now I think Tim alluded to a few of those unique differentiators this morning and Hartmut is going to expand on that now for us.
Thank you for great introduction, if you like the storyline in the last couple of hours, you are really going to like this business. This is a great business in a very large market, they fragment we are very well positioned and it has a very, very high barriers of entry. So there are few points that I want to share with you in the next few minutes here. One is I want to give you a perspective of what this market really is, where we play and give you a couple of product examples of how we engage with our customers. So, this is a very, very large market about $200 billion market and we can slice it into different pieces. There is the consumer electronics piece which is both half of the 200 billion then you have Telnet and Telecommunication market and some other smaller submarket. We play and position very well in about three quarter in the Telecommunications and the consumer electronic, we are very, very well positioned there.
You can also look at this entire market in terms of the geographies, the largest service market is still in the developed countries, in Western Europe and in the Americas similarly driven by a very, very high installed market which we service. You can also look at in terms of the type of business that are been conducted in services ranging from divisional depot repair to warranty management, to advanced logistics, to field services as a recovery of liquidation and so on and we are very, very well positioned in depot repair, advantage logistics and technical support and we are interacting with lot of other components.
So we have exposure to this entire market that is in the rate of 200 billion, we can also at it in terms of breakdown of the in customers, the largest component is still OEMs followed by small medium OEMs, followed by warranty companies and retailers and so on.
So gives you an idea this is a very, very large market and we are very well positioned from retirement from a SAM perspective. So I thought we should give you a specific example all of you have probably a smart phone in your pocket and given the idea of kind of where we do in deck (ph) when you have a user experience, right after purchase, there is a user experience and a typical reaction and would be to either go into a store or go perhaps online or call 1800 HELP me and it could be a technical issue and it could be a user issue, it could be a software issue.
So we are interacting with all of the three different touch points, we are receiving one of the largest numbers of smart phones in this case in our consolidation centers around the world and we are conducting a number of activities on this units that we receive every single day.
Maybe also another illustration for you, for you to think about this is we are interacting with these type of illustrative customers on the left columns all the way from service operators such as Verizon, AT&T to the OEMs as well as with retail companies such as (inaudible). So we have exposure to a variety of event market and a variety of touch points with whom we are actually providing the service. So the consolidation points is with Jabil and then we are providing a very long list of highly value added activities all the way from planning to inspection to technical diagnosis to data wide, data transfer from consumer to consumer products, asset recovery, LCD repair many of you maybe have experienced even tiny scratch on the LCD phone on the cover.
3G, 4G network testing, failure analysis, data analysis that we feedback into our company as well as other company’s design the manufacturing centers. We are strengthening the structure and then eventually obviously the fulfillment back into the consumer swap pool. So what appears to be kind of a high commodity business when you look at this high degree of value added services, it is very, very difficult type of business to replicate for anybody in our industry.
The next thing that what I want to share with you is distinct differences in terms of the service life cycle versus the manufacturing product life cycle. So significant differentiation in this particular business and the first thing that you see here that eventually the service to life cycle is a lot longer typically two to three times longer than the production life cycle and I was just thinking about this morning in the 2006 and 2007 the Motorola Razr phone was probably the highest one mobile phone in the world was about 40% to 50% market share and the Motorola’s Razr phone is has been long out of production we are still servicing it.
So there are different layers of service experiences that we have with a variety of different products but to give perspective also different changes that we are going through as we are managing the service life cycle so at the very beginning, at the beginning of the production life cycle there is also intimate discussion with the firm like us in terms of developing a service strategy depending on the product, depending on the warranty conditions, depending on the geography.
The first 60 days are very, very critical and very special because in the first 60 days we help our customers collect the very first user experiences, are there software issues, are there the manual issue, are there instruction issues and we feed this information right back to our customer base to help them educate their other ASPs and help them understand and then help this product launch properly.
As you can move through the product life cycle when the product volume peaks this also typically when the functional failures or the user issues peak and this is a time when we have to start switching the type of focus we have in the service supply chain when you to have start to prepare for the out of warranty environment you have to start establishing secondary supply chain to support a product that’s still been used but for which there is no longer a production platform available.
And then finally as the product really comes to end of its economic or useful life you have to start developing even other strategies for the very same product including different ways of how to replace again different service and component strategy.
So it's a very, very long life cycle and within that life cycle the product goes through different life cycle and if you add to that we are not only servicing our mobility but we are also in the Telecom Networking Space, we are in the medical space, we are in then different types of consumer electronics so every product has different warranty features has different warranty periods, so you can imagine kind of different layers of service lifecycles on top of each other which makes it a very, very sticky business. But a lot of visibility actually and a lot of consistent long term growth rates.
To summarize kind of the things visually what we just talked about on last four, five minutes. There are three themes that I want to share with you kind of post a big recession of experience in the last two, three, three themes they always have held true but I think they are especially right now a significant focus on reduction total cost of the service supply chain and then many, many of our customers today who have a service apply with 150 or 200 providers around the world. And many of them are being in process of figuring in how to bring them down to 100, to 50 to 10 to 5 to 3 service providers.
Every time one of those consolidation has occurred, we pretty much get a call because we are one of the very few companies were positioned to consolidate and bring a very vast global network down to just one or two major, major providers. The second point is a significant trend in the service supply chain to bring the service much closer to the service point so you probably maybe even have a very personal experience where if you walk into maybe a retail environment that you would like to have your issue dissolved right there then or perhaps you want to have an issue resolved right online with maybe a counter apart in a check room or in a call center environment and we have fully engaged in this type of interchange with our technical knowledge that we bring to our customers.
The second point is using, we are seeing more mobile customers focusing on using services as a customer retention tool to regain customers and really using service as a differentiated environment where more and more of the end product is becoming very difficult to very, very difficult to distinguish and especially you know using service that’s a very, very important tool to gain a competitive edge.
The third major trend is how we are helping our customers to bring their own brand to bring their own brand to bear in emerging markets. So, it is one thing to sell product into a local fast going emerging market to break another surrounding countries but the other thing is to build a service network that has a consistent brand story and that’s again where many of our customers are turning to us to help them to help them bring global brand to bear in a local country where quite often you cannot simply paste and copy a service strategy from a developed country into a local country.
A significant differentiate we bring to base obviously our vast footprint then in our industry this is our dedicated service footprint which is by far the probably the most relevant footprint that at any of the last you must provide as has and these are the yellow dots that we have today, if we were to meet again in about a year’s in time that would be many, many more dots on that map.
Again we are driving we are driving service networks in fast growing emerging markets and again a significant proximity to local markets and bringing our service much closer to the market to the actual service events.
So, in summary we have had the fantastic success with a great management team we have a lot of dedicated service experience, we probably have the company with a strongest dedicated infrastructure IT system and service mentality and I think we are very well positioned that we can continue the success that we have had for the last few years, for the years to come.
So with that let me pause and take any questions if there are questions I know.
I was trying to wake up the people with the microphone sorry.
Thank you Hartmut I think you talked about the industry being a $2 billion plus industry I think your share is about 0.5% can you give us a sense of maybe the competitive landscape, who is the largest player in the industry and then related to that you had a stacked that showed the various industry verticals, the various service consumers, big in consumer big in telecom do you have interest in penetrating euro space, medical and some of these other verticals and similarly for the service segments do you plan to go into some of the other service segments.
So these are five questions.
One long one with six parts.
Okay very good. So, try to give them all maybe the first one you will right the biggest component of the total market is CE and then the Telecommunication network and space and we are very well positioned in that one and we do have a small market share so fantastic growth opportunities for us. We have the beginning of having a good presence in the smaller markets but we still want to maximize and stay focus in consumer electronics and Telecommunications network.
So there are still plenty to be done, all right so that’s probably one response the other one in terms of who is the biggest player in the service industry. I like to maybe rephrase that in terms of who has who is most relevant to the key customers and the players who are most relevant who can who have information in the knowledge space to connect all these similarly disconnected pieces in the service supply chain from deeper repair to logistics to call center, to recycling to customer facing, who can connect those pieces most effectively and in that sense we are definitely positioned one in our industry to have the most IT connectivity that goes away very deep in the service space.
And so in that case information on its matter it actually much more than actually the volume that you were to do as a cost and operator well as the depot repair company. But overall I think if you know within the MS space we are kind of number one or number two we don’t measure much topline revenue we are very much type of what is the relevance of our customers that would drives value for us for them. But there was another question that I missed, you good, okay, very good.
Jim Suva – Citigroup
Thank you it's Jim Suva from Citigroup. Can you talk about the percent of customers you are servicing how much of a percent of them are also business customers and other parts of Jabil whether it be traditional EMS work, whether it be on the Green Point side what’s the percent there. And as a follow-up to that is it very important for Jabil to be involved with that customer early and does that give you an advantage.
Yes, so Jim that’s a great question, I do not have a specific number we actually do not really track us because we did very good customer objectives, we have we are dealing with customers who are distinctively looking to have separate solutions for product manufacturing versus a service support. We want to be able to address those customers properly, we don’t want to exclude ourselves from those opportunities. At the same time we have very, very low barriers inside of our organization to work jointly with Green Point or with other aspects of our manufacturing group on joined solutions. So it's very much driven by our customers how they want to engage with us and but there is clearly a trend among our existing customer base to bring service design and manufacturing earlier together even design for not only design for manufacture ability but also design for service ability.
Jim Suva – Citigroup
Not to give away too much but you talked a lot about the emerging markets becoming a big theme and when you look at the map there is obviously a number of places that go or can go I should say as you look at the decision of build versus say buy in there, I mean when you look at those markets where does it lean more?
Where does it lean more in terms of?
Jim Suva – Citigroup
Meaning is there you are moving into emerging markets, could it be where there is already some existing suppliers in there or is it just because of what you have already talked about in terms of technology and the knowhow and so forth. I am not assuming these plans to take, these facilities. They are not heavy manufacturing, they don’t take as much to get them off the ground.
Well they do and they don’t, so first of all service is been done, services is been performed and (inaudible) of the emerging markets. We are not claiming that we are coming along on a white horse and service is been done, what is happening is that it's been the level is been raised, so that and instead of perhaps a local country manager for retailer ABC or OEM ABC in Mozambique and Swahili (ph) Land making a decision in our corporate headquarter driving branding and branding position in a country and then they are looking for, they are looking around who can help me with this, who is reliable, who has done this for me and perhaps in Turkey, one Russia.
Consistently and that’s when the choice more often these days comes to from Jabil and that plays favor and the way we execute this by the way is we may not even have to in many cases have to put a brick and mortar in those very challenging countries but we actually partner and starting to manage some existing source providers in these local places and become a we actually call internally a control tower function where you actually get paid for that. Excellent question.
Jim Suva – Citigroup
So specific to mobile phones when you think about we have fairly rapid product life cycles are getting obviously migrates the higher cost content phones, can you talk about the opportunities in front of you as that as both of those dynamics perhaps continue and your customers as you work with them, the preference to repair et cetera versus eventual replacement or wherever the risk is of ops lesson and thus your opportunity of (inaudible).
Yes, so a great point because the I don’t want to expect them but I think the average life cycle of a smart phone in the last two three years went from maybe 80 months down to seven month right, it's shrinking like in order to differs in some countries folks switch (inaudible) every three, four, five months but so the service aspect remember there is a visual picture we had in terms of the service cycle even when the folks switched these phones they don’t disappear, they are very, very functional and they are very valuable.
They are even after they are been switched because the user switches off the six seven months it's fairly $200 to $400 as such and so the service life cycle still continues and we have a lot of opportunity to help our customers then bring those smart phones that are maybe less popular in Japan but are now becoming quite popular in the emerging countries to bring those, to service apply in different parts of the region that’s where our global network comes into work quite a bit.
So, we are actually benefiting at certain times if the new bill product cycle shrinks we are benefiting from in terms of the work that HH do, as does at the same time we have the backbone to benefit on the fact that these valuable smart phones are not been thrown away that there is a strong interest to do something with this and I should return a higher asset return on those retired phones.
There was a question here.
Thanks I was wondering just because it's such a large fragment in market how active can you think be in M&A in this space?
You are dealing with very large fragmented market here, so moving forward do you start to be very active in mergers and acquisition or consolidating the industry.
You know I wish I could but it's really, really hard to find high quality piece of business in this space, so we are on the search the whole time, our standards are very, very high and that I think is also the history that you see with Jabil on this topic in general.
Yes so, the picking were rather slim but we have built up a very, very good kind of capability to I think I just mentioned a few minutes earlier of how we work with smaller and medium size players who are special, have special niche capabilities as in a control tower environment without actually having to deploy capital or cash to have a controlling ownership position and there was a question.
Yes thanks I was wondering how the margin profile changes overtime through the service life cycle, do you make most of your money at the beginning middle of the life cycle or towards the end when you are still servicing Razr phones long after the period.
What is your guess?
I don’t know.
No it's still CMs, that’s why the word becomes really, really difficult and that’s when fewer people are becomes very difficult, the choices of how you. So that’s when they really comes to bear the knowledge that you have and your management team was throughout your institution of where to go, which providers, which suppliers to go, how to use your network of suppliers around the world to find components then spare parts of rebuild spare parts that now nobody else can do anymore, right. So obviously offset by overall volume shrinking.
So it's an element of profit pool but margin profile all is equal increases towards the end on a shrinking base.
And if you were to look at the life cycle of your portfolio as it stands today and how you think it will evolve over the next few years, because you are such a fast growing business now should we actually think that the margin profile of that the contribution from the newer projects will be lower so there is an offset obviously so where are you in that lifecycle of the projects such that how do you expect that margin will evolve.
It absolutely surprises me how well we can we are maintaining the margin profile in this business and I don’t have really scientific answer for that, but I want to give you example in 1985, I came across a little ad for our company actually had an ad in electronics newspaper and I actually saw this ad in a closet a few days ago and it was about a computer mouse that we offered fix for $50 fixed price the computer mouse, $50 fixed price 1985 because back then the computer mouse cost $200. Today you can find them in a garbage can. So it is amazing how that service cycle kind of rejuvenates itself and I often I am kind of as paranoid as maybe you trying to infer as we grow very fast and the duration of our supply chain should change but it doesn’t change actually.
So I think it's because we have grown and we have so many different layerings and layerings of different product lifecycle, if you think again about this graphic that we had up there little bit earlier and to that exposure to different markets but so you heard all day long the diversified story line, while he have an example where the business in itself is diversified and I should give you a fair degree of confidence that the store line should continue.
Thanks Hartmut, all right, up next our panel we actually have a panel of I am calling them the good guys, Courtney Ryan is going to head up this panel, Courtney who has started at Jabil in 1993 I think one off four people today that begin at Jabil in ’93. He has held a variety of positions, he is probably one of the most well rounded executives in our industry as a result of this, he joined as a quality engineer and during the time of really explosive growth for Jabil, he became an integral part of the operations team and was named Vice President of European Operations where he over saw 13 plans in eight countries.
Following his tour of duty in Europe Ryan served as Senior Vice President of Global Supply Chain for four years where he was responsible for directing over $10 billion in material spend. In 2007, Courtney was named Senior Vice President of Global Business Unit, so rounding out his three legs of the stool, going over to the business development side, he has responsibility for 2.6 billion in revenue and growing Jabil’s targeted growth markets of healthcare and life sciences, defense and aerospace emerging markets and the industrial and Cleantech space.
Courtney holds a Masters of Business Administration Degree with a concentration in decision and information sciences and also at Bachelor of Science in Economics both from the University of Florida. He is one of many, many Gators at Jabil. He also serves on the University of Florida MBA and supply chain advisory board.
Today Courtney is going to further illustrate how Jabil’s diversified manufacturing services business are developing and to join him in illustrating this for investors are Steve Borges and Alan Myers. Alan is a relatively newbie at Jabil, he joined in 2010 following a nearly three decade in his very distinguished career in the healthcare industry, from Baxter International to cardinal health, Alan has run a vast array of programs and operations from Singapore to Malaysia and Mexico so he has been in and out of the country, doing business for a variety of healthcare companies.
Prior to joining Jabil he spent three years as COO and SVP of Global Operations heading both strategic and day to day global supply chain for Catalent Pharma Solutions. He was responsible for almost 10,000 employees in 11 countries and an annual operating budget of over a $1 billion. Since joining the Jabil team, Alan has defined and refocused Jabil on six key areas of opportunity in healthcare and life sciences businesses. He has built a more robust team of specialized industry veterans to grow these areas and thought out capabilities and services where Jabil can bring value.
So he has been a great add to our team and I think that we will continue to see value from that just going to talk to that, Alan holds a Bachelor of Science and Business Administration from the University of Tennessee who I think might be the arch enemy of the University of Florida, Gators, I am not sure though, Alan though despite that Courtney hired in my guess, Alan is a cool hand, you will see quite unflappable.
He has affinity for vintage cars and I hear Tennessee Moonshine and someone told me that his family may have made a lot of money during prohibition; I don’t know this to be true. Steve Borges on the other hand is in sharp contrast to calm and calm and unflappable, he is very excitable and very energetic. He joined Jabil in 1993 also started out on the production floor as a manufacturing line manager for two years, he worked as a buyer for three years doing planning and supply chain and finally moved to business development in 1998.
Steve took the lead on numerous customers over the years including Quantum and HP, he was named Vice President of Global Business Units in 2002 and he has been running our industrial and energy business for the last three years. In short if it's hard and it's complicated and you need a really nice guy to do it, Steve is the guy, we put Steve on all of those and he is probably the nicest guy at Jabil. He also holds a Bachelor’s Degree in business management from Fitchburg State College. He has truly phenomenal relationship skills which again why you put him on a tough customer to make that work out.
He has, I am just going to put the word probably in front of this but I don’t think it's necessary, he is probably the best Golfer at Jabil and a little known fact. Steve was Junior Champion ping pong player and last year review the China, U.S. ping pong diplomacy match by facing off with our Wangpo Operations Manager, they put on a match with 1000 of our Chinese employees very entertaining and also Chinese government officials and I am just going to Steve will tell you how that turned out, Ping Pong Champion.
After hearing Courtney, Steve and Alan I think you will see that this yet another part of our growing portfolio of services that is breaking the traditional EMS mode. Courtney.
Thank you Beth, entertaining and thorough introductions, appreciate that. Just to reinforce, I think that these guys are fantastic Steven and Aland we are going they are part of my team I am proud to have it's part of my team. I am not sure I would say like Tim that my job has gotten easier over the years, so please step it up okay.
And I started in 1993 like Beth said I think it was October 93, we are in electronics, we are high tech company and the thing that got me most excited most guys will remember this, Steve you will remember this is every quarter, every month, opening up the computer shopper magazine, computer shopper and this was the magazine that had it was focused on PCs and disk drives and laptops and we could see the products that we are building in this magazine and I thought it was great. Now at the time the company name was Jabil Circuit, emphasis on circuit.
And if you walk in any of our factories we only had two at the time, we had machines lined up from one end of the factory to the other okay and we built, everything we built and shipped was a green circuit card with components on it. While the business has obviously evolved and the fact is as we were talking today, as HH was talking today, as Tim was talking as Hartmut was talking, I was thinking to myself we were probably nearing a point where you could walk into the majority of our factories around the world and not see a surface mount (ph) machine.
Okay, it's really, really evolved, we are drifting away from that electronics core. It's still very relevant, it's still very important but drifting away from it, okay. So in fact we are here to talk about industrial in Cleantech and Healthcare and instrumentation.
I think these two business Steve runs Industrial and Cleantech, the vast majority of that Alan runs healthcare and instrumentation, these two businesses are a fantastic proxy for that journey that we just talked about, okay.
Very rarely I think that we any of the three of us walk-in and talk to executives at customers and have conversations about bill to print engagements, typically we are talking about simplifying supply chain design. We are talking about how we can bring some innovation to new products to get them to market, we are talking about how we access new markets or how we can help them access new markets.
So, again we will talk about these businesses in more detail, I think they scream, we are different I think they testify to the fact that the markets we are playing are not commodity markets and I think you will see that these businesses are in the midst of transformation right now. Kind of transforming away from the E and more in EMS and more into the manufacturing services, higher value added services packaged around the manufacturing core.
So, talk a little bit more detail about that momentarily, the three of us have three objectives today. First thing we want to talk about and emphasis is why we think these markets are really, really attractive, why we have set the course that we have set. Big markets, big challenges, extremely complex but enormous opportunity. We will give you some more detail on that, the second thing we would like to accomplish today is give you some more insight into how we are doing that and how we are packaging or building out capabilities and packaging more value added around the manufacturing core.
Okay, so we will talk a bit about that and the third thing the third objective is to demonstrate to you why we think these long term growth and margin targets are valid sustainable. So, that’s what we are after.
So, first stating the overwhelmingly obvious, we play in very, very large markets here. Particular chart, don’t get too wrapped up in the numbers this particular chart is in OEM perspective of the parts of the market that we play in. So in OEM perspective of industrial and Cleantech and healthcare and instrumentation and what it says is that both markets are huge, they are both $350 billion to $400 billion markets. They are both backed by some really compelling mega trends, case of healthcare and instrumentation you have got the aging population demographics, you have got convergence, you have got mobility, you have got the emergence of emerging markets as important end markets for our customers.
Again Alan will talk in a little bit more detail on that as we go forward and then in industrial and Cleantech you have got the increasing industrialization of the world, the electrification of the world and again Steve will talk in more detail about some of the mega trends there.
Both markets are very underpenetrated from an outsourcing standpoint, okay so great secular opportunity for us in both these markets. One of the things that I think is interesting here is that despite the size of these markets they are both growing the end markets we are talking about, growing it at greater than most projections are worldwide GDP, okay, so healthcare and instrumentation is growing in the 6% to 7% range annually and industrial and Cleantech is in the 4% to 5% range, okay, so enormous opportunity for us and again we will talk about that in more detail as we go.
Now the fact that these are big markets and growing at greater than GDP worldwide GDP is interesting. It's not overly inspiring, so we have taken a lot of time over the last three years to really, really understand the sub-segments and the microsegments of these markets that line up best with the capabilities that we have got and the capabilities that we are investing in to give us the best shot of differentiated growth value proposition, okay.
And so, that’s where we are going to get in today, Steve, Alan and I are going to talk a little bit more about why we think these 20% to 30% long term growth targets are achievable and sustainable. That been said Steve will start with you, can you Steve can you talk a little bit about how you see the market and what the complexities are?
Sure before I do that though, I want to talk a little bit about the introduction. I don’t think it's healthy to have the lowest handycam (ph) in the company and be part of the biggest growth area of the company. So one or two thing will happen, either you won't see me next year or my handycam (ph) is going to go way up all right just want to clarify that. But first before I get into the question in directly to Courtney I want to give everybody a little bit of flavor for the amount of diversity of the products that we support in this sector and the reason why that’s important is as we continue to grow it's important to have enough diversity to deal with the ebbs and flows of the micromarkets that you support.
So let me just give you a little bit a color of products, we do everything from a solar panel to a wind pitch system that goes up in a wind mill, we do micro and centralized inventors. We do flow and monitoring devices, we do advance metering. We do generators and convertors, we do electronic controls for construction mining and farming. We do (inaudible) for escalators and elevators. We do rail system capabilities as well. So I will stop there because I can continue for a long period. I am just trying to show you just the amount of diversity that we have on our product base and to sorry to answer your question more directly, we have to take that complexity and simplify in a way that allows us to go after the markets in a most exciting have the most growth potential to them.
And the first area that I will focus on what is what we call energy generation, when you think of energy generation I want you to think of renewable energy and the mega trend there is alternative fuels and how you use those in the market of tomorrow. The second area that we focus on is what we call energy infrastructure, and if you think of energy infrastructure I like to think about the smart grid and all the eco-system around that and the balance of systems that would take place in that environment.
We focus a lot on meters, metering where the most dominant player in that market space and we look at the mega trends behind metering you are talking about mega trends that allow better use of energy that we today, how you take that energy does not consume get it back to the grid to be more efficient. The third area that we focused is what we focused is what we call energy efficiency and if you think of energy efficiency I would like you to think about the smart home, everything that can happen inside of the home to make it more efficient.
The obvious mega trend there is how do you for the consumer reduce your energy cost and take that excess energy back into the grid to generate better utility cost. The fourth and the final area that we focused on is what I call heavy industrial and when you think of heavy industrial I would like to think about construction, mining and agriculture and the mega trend there is kind of it's fun mega trend to talk about that you have huge population growth and with the surge of population you have wealth appreciation and with that people eating more meat, if you eat more meat you need more calories, if you have more calories you need more grapes.
So that whole fun kind of eco-system is one of the drivers behind that particular area, and so if you look at the tail winds of these mega trends and the fact that these trends and the proxy that we built in the life cycle for 10-20-30 plus years you can see why we are just so excited about the continued growth and opportunities that we have in this particular segment.
Steve the slide that’s behind you has a sample customer list on it, why don’t you talk to investors about a little bit more about the customer list and how we differentiate for these guys.
Sure I think Tim mentioned earlier is that we are first mover in this particular business. We have been doing this for a very, very long time and having first mover opportunity usually allows you to have a seat at the table for the opportunities but you can’t stop there. You got bring value, you got to bring something that’s different than what your competition is bringing to the table to make it not just about price. And so let me spend a few minutes just talking about where we are trying to focus in differentiating ourselves.
One of the first areas and again Tim mentioned this early that this is a high mix low volume business, our average loss sizes on 50% of our revenue is 50 or less. We created over time by having that first mover advantage, we have created capabilities and supply chain and logistics and how we manage inventory in and out of the factory, how we manufacture the business itself.
We have created those overtime and we have the credibility by the longevity of been in this business a value to our customer base. But the other things we try to do is take a look at, what are the gateway technologies that we can leverage to enable our customers to be more sub-committee with their business and their market place and how do we help our customers innovate their products both now that they have today and in the future.
And so one of the areas we decided to invest in many years ago is power electronics and so we have invested in a team of resources focused on creating a design and product capability to support our customers in that particular area and we are not talking about power supply that are in your laptop. We are talking about high end very complex, high safety, reliability requirements of approximately could be 20, 30, 40, 50 kilowatt in power flow through.
So these are very, very complex products, what excites me the most about that investment is how it's turning out today. We are finding our customers asking us to co-locate these resources with them in their factories with their design team. So we have taken it from a manufacturing relationship it to a design into parked evolution relationship and that’s incredibly exciting for us and I am really proud of the team that’s been able to pull that together.
The next area that we focused on is touch technologies which crosses a lot of things that we do and we are talking about touch on plastic, touch on glass. We worked with MTG and HHs team to create that capability, create it in a product form, the take to our customers allow them to determine how they can best utilize that technology in their exciting products and most importantly in their future products.
And we are having the exact same type of success that we have with power electronics, where customers are now asking us to co-locate some of those resources to be part of their design team and you can think about from our standpoint we talked about a lot about stickiness that certainly huge attribute to this but think of it from a customer perspective, these parts are in the field for many, many, years and they need to align with people that have the capability that understand their customers’ requirements of quality, of precision manufacturing, of reliability, of safety and to align with a company like Jabil to do that is to their advantage as well.
So we are really proud of how this has evolved to be more of a product solution to our customers and not just the manufacturing solution. But we are not going to stop there, we are going to continue to look for gateway technologies that we want to invest in to continue to help our customers be successful. We are also going to be looking at disrupted technologies that may have an impact on either proxy that we build today or proxy our customers maybe building tomorrow and how do we help resolve that problem for our customers that’s what creates differentiation and that’s what creates a very unique relationship.
Steve a couple of times and that’s for that, couple of times in that you mentioned high mix, low volume can you give the group a little bit of insight in what complexity that creates and what your business looks like and the challenges you deal with that in regard.
Yes if you can flip the slide for a second, so I mentioned first of all the lot sizes is 50 or less but this is a good illustration of the complexity that we manage. We are in 14 markets, we support since the slide 30 customers over 6000 different assemblies that we built and we procure over 107,000 active components and I purposely miss something in the middle and that’s a 153 customer divisions that we support just think about that for a second.
Just think about that for a second, a 153 divisions we support, I mean wow you talk about complexity and what’s interesting about the value proposition to that complexity is something us to do with the company forever, it's our (inaudible) model, something that’s part of my DNA of 19 years and 19 years it will be a great golfer and that (inaudible) model is so important to these types of customers, we are talking about conglomerates like a and Snyder and Emerson and folks like that we are doing business with 25 plus divisions.
The Workso (ph) model of those of you are not familiar with is really about a dedicated team of resources focused on an individual customer relationship and that’s all they focus on, every day they get up in the morning, every day they go home they are working on that particular customer.
There is a single point of contact for that customer, so we are taking complexity with these conglomerates that have disbarment systems, lot of growth through acquisition, so they have a lot of systems that don’t talk to each other, we can get 25 different forms of purchase, everything from an email to SAP to an Oracle feed to an EDI fees and we are able to take and we are able to take that complexity and simply something very complex for our customers by having a single point of contact that all that can flow though and then we manage the process from there for them with a dedicated team by each division only focused on their relationships that’s incredibly powerful and it's been on our history.
So it's pretty exciting.
Steve you great insight on the complexity and some of the challenge that we deal with internally maybe could bring a little bit of this to life with some product examples.
Sure. Next slide, so this is what we call the wind pitch system. This is a device very complex device that we move to the factory floor on cranes, this is tested in turbine environment in close, we don’t wake up at City in Guangzhou, we test this. This is over 30 different process steps to support this kind of product and this product goes into a nasal (ph) which is in lower left right hand corner of the screen here so you can get kind of an idea of the size of the product that we are manufacturing and there is very little PCBA content to this and 90% of it's a mechanical assembly with batteries and a lot of other mechanical devices and then the end proxy, the wind mill that stands 200 feet up in the air and if you think from a customer perspective why to align with the right company.
Is it when you go to a wind farm and have to install a group of you are talking about a huge capital investment of cranes and other infrastructure to get that ready. You are talking about really high end labor resources that you can’t have sit idle, you can’t have product late. You can’t product lead, you can’t have reliability issues and quality issues and you surely don’t go back to the farm late point in time with resources to continue to repair certain aspects of the product.
So again you know this type of complexity is what we are focused on and this is the type of value that we bring our customers, you go back to that value of first move, high mix low volume, differentiation in design. These are the types of proxies we can deliver and we can deliver at the highest rate of quality.
I think I have another slide to illustrate complexity and what’s interesting you probably looked at the last slide it looks really complex and you look at this slide and you go wow, maybe not so much but which is kind of compelling about this that there is as many process steps in this manufacturing operation as there was in the last one.
So this is a product that has over 30 steps outside of SMT so that gives kind of the indication of the PCBA portion of this and so we are talking about process steps like conformal code, stop potting, (inaudible) 24 hour cure periods, test under compressed air for 24 hours. I mean this is a very, very complex back end processes and from a customer standpoint this is not consumer, this ships into oil refineries into water treatment plants, gas stations, these are very, very complex high reliability products that need to work for 25 years and so I thought this is was a good comparison to give off the two, hope that helps.
Steve one more, investor often times ask you and I, I will reamp the question they will come later, investors often times ask you and I, given the attractiveness of this kind of a market how do you see price elasticity and pricing pressures moving forward and what makes you think it's sustainable.
Sure so first of all you know price does matter, but if you listen to what I said in the presentation we are selling differentiated value, we are selling deflated value, we are selling an entire solution. We are not selling just selling a price, and customers in this space need and understand that they need capability for their own successes. So is this sustainable absolutely, the types of complexity that we are bringing to the table has a different value than bringing a circuit board and that’s how we are maintain that.
Great, why don’t we, we will shift over Alan and talk about your business a little bit here. And again kind of same kind introductory question for you, how do you see the macro level trends in the industry. You got a great resume in healthcare Alan, you know the business upside down, inside out, your team does as well. Maybe spend some time talking about what you see as the macro level trends and how you see the industry and what the catalyst are moving forward.
Sure thanks Courtney and I am very pleased to be here today to talk about our healthcare business a bit, so it's best that I spend about 25 years in the industry. My perspective about the trends really are the perspective of the industry and not as we described from electronics perspective.
In the old days it's pretty simple you could look to grow surgical procedures, in Western Europe and United States, take a little bit of a look at the R&D budgets of companies, you could pretty much figure out what top line growth was, what the margins were et cetera that rules changed and I would suggest you think about in a couple of fronts from a geography perspective, number one, number two and just couple of really technology trends that are prevailing.
First of all, there is the developed world and by the way surgical procedures in the United States over the next three years will be flat to prior history that isn’t heard of and that profound. The Asian population and the combination of surgical of procedures and reimbursement really are shaping how and where healthcare is performed that’s creating an opportunity structurally and from an innovative perspective to participate differentially, that’s in developing world and you talk about Western Europe, Japan, Australia.
It's a tale of two cities, if you think about the other side of this coin emerging markets, absolutely the trend that we have seen probably most explosive in the last two years are our customers coming to us saying help us move rapidly into emerging markets and the conversation isn’t about electronics, it's about structure, it's about legal entity, it's about regulatory compliance and how could we provide more value there.
The other thing I would I guess suggest about when you think about emerging markets don’t get caught up in the trap the emerging markets for healthcare remain cheaper unless expensive products. There are definitely is a segment of that but the value for great engineer products and great technologies exists and is growing overseas as well.
Couple of more really interesting trends, healthcare companies today are growing by acquisition more so than innovation and that’s if you look at how people are managing to the P&L they are doing a lot of acquisitions, it's creating a trust and gap for innovation that we see every day when we talk to our customers. I think the final thing I would think about if I think about if I think emerging trends and several guidelines I think Tim spoke to it.
Unprecedented amount of technology asking for multiple convergence of technologies where the plastics, optics, electronics the ability to precision mold metal and bring all that together in a regulatory environment we are really seeing it's mega trends that we see from a healthcare perspective Courtney.
Right, thanks Alan. Now knowing quite a bit about your business I think it's also important for people to understand that you are not pursuing healthcare and instrumentation as a big umbrella market. You are pursuing some very discreet sub segments of the market for very interesting reasons why don’t you talk about that a little bit.
And I think that’s a theme for if you think about healthcare our business at Jabil, we very much if we look at the way we thought about this three or four years ago we would say how can we make electronic content for a variety of different customers and the way we think about the market today and Courtney put some information up there, the way we think about segmentation is about maybe two or three ways that are really important. Number one, we have got great print position with our customers, you see our customers up here I would tell you there are a couple of mark key customers not on this list really for confidentiality reasons don’t wish to portray who they do business with but our ability to grow with our customers and line technologies reflect what they want to do is really important because to gain the confidence in print position with the customer in healthcare takes a long time.
So we are really pleased with the group of customers we have, the other thing we have done is again we have move decidedly away from the view of okay we are going to build electronics, we have looked at these markets at the top of the page and so we want to be in fast growing markets that are moving faster and growing more rapidly than the rest of healthcare and we are very methodical and very analytical about how we choose to do that.
So as an example we have product category where we call portable on body, that’s really a lot of technology around treating the diabetes disease state around insulin delivery and the future diabetes management which is really portable pumps, so those are the way we looked at the market kind of from a customer perspective. We also looked at it and obviously as our customers want to move geographies, it move geographically. We think about the emerging markets, the final thing I would say about Courtney is really I think maybe I will use an example is with intentionality we swim towards areas where our scale and our complexity give us advantage.
We swim away from areas where we will have jump balls, RFQs, so we are swimming towards the hard things to do an we intentionally do that and I will give you an example, in this summer. We will work with a customer (inaudible), we will launch a new diagnostic product for acute internal feeding, this people very sick and the diagnostic part is very important.
We will bring a product together where we are using technology from Jabil Green Point, we are pulling technology from our optics business and frankly it was a project with the customer came to us and said we don’t think we can make this and so in Jabil and what’s profane about this product number one it will reduce the time to interrupt to diagnosis by over 80%.
So if you are really, really sick you want to get you’re therapy pretty quickly. The placement of the diagnostic is absolutely critical because it could be in the lung or toward the heart or whatever. So that’s profound from a treatment perspective, this product likely will reduce the amount of money to do the treatment probably about 50% as well.
So I mean there is an example where the electronic content of our participation in this program had nothing to do with our being a successful person on the program that was the ability to bring a variety of technologies and capabilities together.
Right, thanks Alan. Another question that comes up frequently I think is what gives you the level of confidence you have in your organic growth rate, what kind of visibility do you have to the pipeline. How long does it take to work things through and what gives you that level of confidence.
Sure yes, so, I think Courtney you showed a slide few minutes ago that basically said and we think about market and growth from a global perspective the work we would do would say that the device market that we really track to would be growing about 6.5% a year.
So the question is and I think Tim affirmed in an analyst call last report we anticipate wanting to grow at least 15% a year. So the question is if the market is growing 15% or 6% how do you grow 15?
So number one we are seeing a trend toward more outsourcing in the industry and remember we are in a very underpenetrated industry and we see the rate of outsourcing growing about 2X the rate of revenue growth so think about 11% or so outsourcing growth and that’s something we have been looking and predicting for a while, we are starting to see that. We are also seeing the industry consolidated and with consolidation we have been able to take some share.
A couple of other things, I think are really important is first of all we talked about being in faster growing business segments and this an adaptation of what we showed in I think our earnings report is something I am really excited about is where we choose to get into design.
And if you look at the progression we with a lot of intention two years ago said we want to get in the upfront A position with design, we want that to be a real important part of our progression revenue and I won't go into the details here but if you just look at the number of programs we have in our pipeline in the last two to three years you will see that progression. And maybe just as an example Courtney we can talk about one.
Okay so about 18 months ago CEO of a company that from a colleague of mine came to us and said Alan we have got a platform here with hemodialysis where I have to launch to a new technology and new regulated FDA device and 18 months, we had a serious cliff issue with my GPOs and with my companies that I sell to. I don’t think my team can bring this product to market in 18 months. I need a company like Jabil that can bring a variety of technologies together, it can bring a variety of talent on a global basis to put this thing in a marketplace and so we embarked with a co-located collaborative design and this by the way is a pretty torturous path from a regulatory perspective and so we embarked on this program two years ago and we are very, very close to bringing this to market.
So just maybe some of the features. So if you look at what’s important up here from our customer's perspective and by the way if you tore this thing apart and looked at it, it has over a 1000 components in it.
So the number of electronic components in this machine are less than a handful, the vast majority are not electronic component. So our customer said we need improved reliability, and what that really means is they could have one filled service repair a year from a reliability perspective to meet their needs.
It was important to reduce weight, the change the ergonomics to go to a modular approach for electronics that’s really important because this platform will be in a marketplace for six years, the ability to service modular electronic product with fluidiques is very important and by the way this thing takes blood out and your body reprocesses and puts the blood back in.
So it's kind of important that it works well and then leak, okay that’s just an example of something’s we are doing are really excited about.
Thanks Alan, similar question that I asked Steve also a question that we get pretty frequently, investors ask constantly whether or not we believe margins in healthcare and instrumentation are sustainable, can you talk about your views on this?
Yes it's a good question and I think for the investor community if you look at the population of folks you might follow, I think if I were skeptic I would ask the question gosh, just describe a healthy market, underpenetrated, lots of opportunity. Why isn’t everyone rushing in becoming communized with their offering and why aren’t people, why aren’t prices coming down. Okay, so first of all in the way we describe this market we have 200 competitors in this market.
So from an analyst community perspective you may track handful, we view the market as a couple of 100 folks. So I would argue that everybody that would try to get into this market is already in this market so what do we think might be happening, from our perspective customers come to us and they say gosh, what do we want, number one we want, we have too many suppliers.
So that’s one point, number two, we want people we can do business with long term that are sustainable and have staying power and can invest with us along the curve of investment that we need. A third item that comes to mind with customers would be we need people who can bring great capability on a global basis.
So I would guess argue at one level Courtney, our view is this is not going to be an easy market to stay in, we actually think the barriers of entry are raising and I actually think you will see activity who is fair amount of consolidation, a fair amount of customers wanting to work with fewer people and I think that sales really well for what we do at Jabil.
I think the final thing I would say is we charted a course where we really have a really specific view that we want to be different. We have charted a course where we want to take the road less traveled I would say and we want to be viewed very much as a person or a service company in healthcare.
And the days of thinking about as an EMS company, I think that ship is sailing pretty quick. If you look back in 2009, 2010, 80% plus of what we did was electronic base, if you look at where we are today that’s moving closer and closer to 50% and if you think about where we are going probably 2 to 3 to 4 years out, electronics will be the minority of our revenue in this business. So we are excited about that and by the way we look electronics business but we really think sustainability is moving away from where the jump balls are and where the commodities and moving more towards the complex and more difficult to do.
Great. Thanks Alan, it just to summarize here and then if we have time we will take couple of questions but it's interesting to me given the kind of the personal anecdote that I talked about earlier started 1993, saw the business evolve quite a bit. It's interesting to me to be a part of a company now and two businesses that have drifted made that same journey. We are talking the hemodialysis machine has more fluidiques, and valves and pumps in it than it has electronics.
The wind mills, the refineries we have come a long way from the days when I would read the computer shopper magazine to see our products, okay, and it's been a great journey. One thing I think is also interesting for investors to understand about these two businesses in particular. I think illustrates how different they are from kind of traditional old school Jabil that the average customer size is only in the $40 million to $50 million range.
Okay so the average customer relationship is only $40 million to $50 million here, it's a big business, well diversified, very complex and I think we are trying to design value added services around our manufacturing core in a way that will sustain that 20% to 30% growth rate in the margin structure that we have today.
So with that we will take a couple of questions.
Alex Blanton – Clear Harbor Asset Management
It's Alex Blanton at Clear Harbor Asset Management. You talked about the 200 competitors and there is obviously a tremendous potential here but in things like high velocity some of these Asian competitors have come in and taken the bulk of the growth, people like Foxconn who are large competitors who have tremendous resources to get into this business and I'm talking just the whole diversified manufacturing business, the healthcare, the solar panels, et cetera.
How much exposure do you really have to these Asian competitors? I think that's the real worry that investors have is that there is great opportunity of high margin business that is hundreds of billions of dollars would somehow disappear because the Asian competitor could come in and take it from you, eventually as they have to find places to grow
I'll give you my thoughts on that first and I'll tip the ball to these guys. I won't say Alex that it will never happen. I can tell you that in the current environment and certainly over the last three years we haven't seen much of an incident. I'd also say that if the investments we're making in both of these businesses are around capabilities that are different than manufacturing generally, okay, very different than manufacturing, so is it possible that somebody could jump in and be competitive in a certain piece of the value chain? Yes, it's possible. There's no question about it. Where we're headed though, I think is in a different direction. We're looking at these businesses from a system standpoint, a supply chain standpoint. We're looking to enable customers access to new markets that requires a fairly sophisticated ability to navigate multi-cultural regulatory environments, government bid processes, et cetera, et cetera, et cetera, which again are all kind of value added services packaged around the manufacturing the piece. So I don't know what you guys think?
Unidentified Company Representative
Yes, I think for this particular, my sector, industrial and Clean Tech, on a lot of the portion of the business we're really moving into more of a product solution group than a manufacturing solutions group and now that makes it very difficult for others to penetrate the complexity of what we manage is really at a product level.
The challenges for these company that with the protection of their IP and the fact that these products have 28 or 30 year life cycles in very, very complex environments, the risk of failure would be incredibly concerning. We're talking about products run oil rigs and oil refineries. You can't have those go down. You can't have problems because it's revenue loss for those companies. So the risk and exposure to this particular segment of trying to go to a lower cost solution is highly risky for them.
Unidentified Company Representative
Yes, and maybe I would just answer from an healthcare perspective. By the one of my roles, prior to Jabil, I was the decision maker for outsourcing in not a Fortune 100 company but also call it one of the top 10 global device guys. Price was never the first consideration of where we would source business.
Given the consequences of an adverse safety event or adverse regulatory event or the sustainability of a company when you are on a 10 year product platform and that supplier goes out of business, who chooses not to be in this business. Those consequences not only effect the product that's been sourced. It has a ripple effect across the whole good name of the company and if we go to trade shows in China or Europe and the halls are literally packed full of hundreds of guys showing their wares. There is components. There are metals, there are wires, and it's amazing, they've been at it for 10 years or 15 years.
It's just amazing, the methodical careful approach healthcare companies take with this and is that changing and our healthcare companies becoming more adverse and adept to doing business overseas in emerging markets, absolutely but trusting capability trumps everything else and I think innovation is a third leg of that stool. So that would be my answer to your question.
Alex Blanton – Clear Harbor Asset Management
Intellectual property and it strikes me that might be a very important factor that would inhibit North American companies from having a Chinese company do their work, is that the case?
Yes, in a lot of instances for certain products absolutely.
Brian Alexander – Raymond James
Related to that, Brian Alexander, Raymond James, what are your win rates generally and how does that vary by sub segment? How is that trended and who gives you the most fist competitively. It doesn't sound like it's the Asian players but North American players are the most competitive?
We run up against the Flextronics to the world and others that were mentioned today. Our win ratio is higher than this because the way we sell our value proposition and the growth that we have achieved. I think that what's changing the landscape is that the complicity now is getting so advanced and the capabilities that these customers are looking for a design standpoint that's so advanced, the ability to understand safety, regulatory and those things of that nature in a design environment really limits the amount of competitors that can really come in and play in this particular market. So it gives us a huge advantage.
Brian Alexander – Raymond James
You talked about outsourcing penetration, you talked about it could increase over several years. It's finally starting to increase. What are you doing with the trigger in the last 12 to 18 months that drove that and then just sort follow up, I'm curious, in instances where you guys don't win an engagement, what is it driven by? It doesn't sound like a surprise. What's typically the pushback you get in cases where you don't win the engagement?
Yes, so outsourcing penetration and again having come from the industry, if you think about the landscape most of our customers have grown by acquisition. So by nature there is an agglomeration of a lot of people in the marketplace. Customers have recognized a long time ago we should change our core business. We need to outsource more. There is risk because every time you move something in the healthcare you invite the FDA for registration which is like asking for another tax audit, right.
So I believe is changing that rapidly is two things. Number one, top line growth of healthcare companies and the margins of healthcare companies no longer sustain inefficient business models. They are recognizing that and they're moving toward outsourcing and I believe that to be the case.
To answer your second question generally when we're not successful winning a piece of business it's generally not because we lost the business to a competitor but is a customer ours saying because we generally don't bid on things that are relatively commoditized. We bid on more complex things a customer would say gosh, Jabil, you're making great progress. We just don't feel your quite ready for the maturity of this complex device and a put a lot of that on the conservative nature of the industry so it's more a decision for one of our customers to keep the activity versus us losing it somewhere else, we do pretty well when we go head to head in the market place.
Thank you guys very much. We will also make these guys available. They will certainly be at dinner tonight and if there are follow-up questions in any of these areas we can certainly continue to address. I don't know why our next speaker got up and ran out of the room. I'm sure it doesn't have anything to do with he's worried about my introduction of him but Bill Muir is up next and he is Jabil's Executive Vice President and Chief Executive Officer for Manufacturing Services, I think as Tim mentioned this morning responsible for about 75% of the revenue. This is a position that he's held since 2007. He has also served in a wide variety of management positions since joining Jabil in 1992 as quality manager.
Ironically he and Courtney have run sort of in similar fashion around Jabil in operations and in business development around the world. Bill was Senior Vice President and Regional President of Asia from 2004 to 2007 and lived in Asia. Prior to that Bill worked for two years as Vice President, Business Development an spent the first eight years of his career in operations management positions in Florida, in Michigan, in Guadalajara and (inaudible), last serving as Vice President of Operations for the Americas.
Bill is another one of Jabil's many Florida gator brands having earned a bachelor's degree in industrial engineering and an MBA from the University of Florida. I understand he and Courtney spent some time in partying mode up there. I think that's what we do at Florida right? They're the number one party school still. I think it's harder to get into today than it was then but I don't know. I'd like to know. Prior to joining Jabil rumor has it that Bill spent a summer building emergency vehicles, ambulances, fire trucks, you get the picture. Is that the training for EMS industry or what. Bill is competitive, intense and very focused and today he's going to walk us through Jabil's traditionally EMS business supporting Tim's thesis this morning that there are reasons for Jabil to continue participation in these areas.
But I'll tell you one of the main things that we hear from investors is why are you even in this business and I think Bill is going to address that today.
Thank you Beth. With a lead in like why we're even in this business would be a tough start but I've got two objectives over the course of the next few minutes that I'll be up here. Our traditional EMS business is about a $10 billion. I want to convince you that we compete incredibly well in that space, we operate incredibly well in that space. We can defend it, we can grow it selectively. That's kind of one objective relative to the business today.
And I don't want to convince you that being exceptionally good at the EMS business allows us to do what we want to accomplish strategically in the DMS portion of the business. So we'll see how I do in that in the course of the next handful of minutes.
All right. So when you think about our high velocity enterprise and infrastructure business we're thinking about a $550 billion market. We're thinking about a market that's growing in mid-single digits. So if you think about world GDP growing between 3.5% to 4% or so, 4.5%, this marketplace is growing slightly, slightly outpacing world GDP.
As I said earlier, it represents about $10 billion of our business today and it's a business we're actually doing incredibly well in. This business has grown between fiscal year '09 and fiscal year '11 at a compounded rate of about 12%. So if you think about the economy catalysts during that timeframe, if you think about specific customer challenges that we've had during that timeframe, I'd assert that we've done exceptionally well in this business over the course of the last couple of years.
And I'm going to do, I'm going to take a minute or two and talk about the characteristics of large scale customers that we deal with in this space and then more specifically how those engagements feel within Jabil. So when you think about these companies that we deal with in our high velocity enterprise and infrastructure business, think of very, very large OEMs, think of OEMs that might $20 billion to $120 billion or might be $20 billion to $120 billion in size.
I'd argue that these are some of the most sophisticated supply chain organizations on the planet because of the expectations that their end customers place back on them. They outsource billions, and billions and billions of dollars and do so in a very, very global manner because that's for further business.
Within Jabil these might be relationships that are anywhere from $200 million to well in excess of $1 billion. I think it's important to note that a significant portion of the revenue stream that we have in this space has been engaged with Jabil for an excess of a decade and increasingly a significant portion of revenue that we have in this space and high velocity enterprise and infrastructure is actually is approaching two decades of engagement with Jabil. These are long term partnerships we've nurtured through the years.
So I'm going to step you through how we believe customers make sourcing decisions in this space and how we rank relative to the competitors. I've got five criteria, certainly criteria is not all inclusive but I think it provides a good snapshot of what's important to large scale OEMs in this space and again how Jabil ranks relative to the competition.
Probably a good place to start is by talking about who the competition is in this space. Probably the best way that I can do that is by talking about who the competition is not. So the competition space is not $2 billion to $6 billion EMS providers. They just simply don't have the scale to manage a $500 million to billion dollar relationship, certainly not companies less than $2 billion in scale.
The competition in this space is not companies who's service offering or model is constraint on when geography because again by its very nature, this business is very, very global in its nature. So it's a fairly limited set of competitors. So one very, very large EMS like competitor. It's one EMS competitor who is a little larger than Jabil today. It's one competitor that's maybe a little less than half the size of Jabil and its two, maybe arguably three ODMs that play in certain elements of this space. Again time this back to the $550 billion as I defined it.
So a fairly limited group of competitors. And when customers in this space go towards business they look at a number of factors. One of the things they look at first, they look that historically does a provider have a very, very competitive footprint and historically that's means China, that's means China in a big way for a number of years but increasingly it means India, a geography where Jabil has been manufacturing product for this space for over a decade. It means locations like Vietnam, a geography where Jabil is actually the first tier one EMS provider back in 2007. We've got a solid track record of five years of experience manufacturing products for high velocity customers, enterprise and infrastructures customers in Vietnam.
A highly competitive location like the Ukraine where again we have a number of years of experience under our belt. And it means location like Mexico which might seem a little bit counter intuitive but if you think about cost headwinds in China over the course of the last couple of years, think about relative competitiveness and productivity within Mexico, for select products at high service levels with high logistics cost constant to them, Mexico increasingly looks more competitive.
So if I rake that across our competitive space I'd say we're at relative parity and the dash check represents relative parity and you might ask well, gee, if Jabil is just at relative parity why would you spend time going through this point and I do so because I think if you would have done this five, six years ago, certainly eight, nine years ago or so, there would have been one or two providers that would have had a very distinct advantage given the scale and size in China and I think the market has markedly shifted over the course of the last couple of years to be much more global in nature. There is geographies that are equally if not more cost competitive for certain products and the more and more that shifts, the more and more that benefits Jabil. I think this is an area where we rank up pretty well. I think we have some relative advantages with our experience set in Vietnam and our experience set in Ukraine, other steps of advantages as well.
Let's move to maybe an area that's a little bit more interesting and where there is some clear differentiation. So regional fulfillment, customers in this space want very quick access to large consuming markets. And when I talk about this I'll start off kind of on brick and mortar. Customers want to make sure that you have a location a logistics friendly location like Memphis, Tennessee, so you can get products to their locations very quickly. They want to make sure that you have a presence in Mexico again to service North America, a location maybe like the Netherlands, in Eastern Europe to service Europe and similarly in Asia and we have brick and mortar in all those locations. We've provide those services from all of the locations. This is actually not even an exhaustive list. We provide fulfillment services out of Brazil. We have a capability in Russia, we have capability in a number of different geographies.
What is substantially more important for customers is the ability to architect and the IT intellect to manage a highly integrated global supply chain at incredible velocity and I assert that we do that better than anybody else in our space. We manage 10s of millions of permutations of end items out of our fulfillment facilities. We ship hundreds of thousands of units out of these fulfillment facilities. So think about that from a mix standpoint, 10s of millions of permutations shipping out in hundreds of thousands of volumes and we do at amazing speed. For certain customer relationships 50% of what we ship, what we fulfill from these facilities from the time we receive an order to the time that's packed and ready to go happens in eight hours. 90% of happens in 16 hours.
So not only we executing a fulfillment piece of that business, we're managing the entire back stream downstream supply chain, printed circuit board assembly, downstream suppliers and all the complexity that that entails. You think about what that looks like in the course of the last year or so when you've had the tragedy in Japan and you've had flooding in Thailand and all of the complexity that brings in the supply chain. We manage that complexity in an environment that I assert is exceptionally high mix. It is high volume because we do a lot of it and it's exceptionally, exceptionally high velocity.
So let me move from regional fulfillment to access to growth markets. You've got GDP in mature economies growing at sub 2%. You've got GDP in emerging economies growing at 6% or 7% or so. Customers are looking for avenues for growth. They want to talk to us, certainly over the years they want to talk to us about China, through the years everyone has developed a good presence there but more and more so, they want access to large pools of population and explosive GDP growth. They want to talk about Brazil, they want to talk about India, they want to talk about Russia. There's only two providers in this competitive space, two providers in the entire EMS that have the ability to service all three of those markets.
So again very similar to how we stack up in regional fulfillment, I think Jabil is clearly advantage in this space. Smaller EMS providers don't even have a footprint in these locations. The ODMs that we're referring certainly don't have a footprint in all three of those locations.
We not only have a footprint, we have decades of experience in Brazil. We have a decade plus of experience in India and Jabil is one of only two providers, two tier one EMS providers with an EMS presence in Russia, so again an area where I think we stack up very, very well.
Large scale relationships, you're going to outsource a book of business that might grow to $1 billion over the course of maybe 6 months, maybe a year to two years or so. You want to do business with a customer that has global scale. You want to do business with a company whose business is important to them, who is going to give appropriate mindshare. You don't want to outsource $1 billion though and have that end up being kind of a rounding year for a certain corporation.
At the same time you don't want to wake up the next day and find out that you are a 20% customer for a certain corporation. So in the context of the $550 billion I defined earlier for high velocity enterprise and infrastructure I'd assert that we have great, great global scale and maybe one or two other folks have good global scale as well but in those marketplaces and the ability to service them in all corners or the globe, areas and marketplaces are increasing interest for customers of this scale. I asset that Jabil has exceptional global scale.
I'm not asserting that for PCs and not asserting that for laptops or entry level routers but if we're having a conversation about high complexity networking equipment, if we're having a conversation about wireless telecommunications infrastructure, printing peripherals, set top boxes, again all of the markets that define that $550 billion marketplace, our company has exceptional global scale.
So what else is important to these customers? Cost is certainly important. We can't hide away from that. Cost is certainly is important to customers in this space. These are constant set of products, they are in constant set of marketplaces. Companies want to know that they're doing business with somebody who's obsessed about cost and I'll tell you at Jabil that we're absolutely obsessive, absolutely obsessive about removing waste, removing cost, internally within our facilities, downstream with our supply base and working collaboratively with customers to reduce cost. And our focus is disproportionately on changing the discussion from having it be one that's pricing or margin focused.
Taking a look at Jabil's pricing structure, taking a look at Jabil's margin structure and having that be a discussion that focused on collaboratively eliminating cost, collaboratively eliminating waste. The slide represents a number of kinds of events we performed across the company. You've seen us reference this and thoughts about this previously. Fiscal year '11 we did 17,000 kinds of events more or less. This year we're on track in excess of 30,000 kinds of events. We've doubled that number.
We think by fiscal year '13 we'll be on (inaudible) excess of 40,000 kinds of events. You heard me reference early we've grown this business over the course of the last two years at a 12% compounded annual rate. You saw Tim's slide early. We've actually expanded margins in this business by 40 basis points over a similar time horizon. In combination of the fact that we're growing in this business we're expanding margins at the same time and the commitment we have from a cost standpoint absolutely validates that Jabil is hyper competitive in these markets from a cost standpoint.
So I go through these five factors, and I say that paints a pretty rosy picture for Jabil. We check every single one of the boxes. I think we check them more completely or as equally completely as anybody else does in this space. I'd ask you to keep in mind that these customers, when they go to outsource, you're going to take $1 billion or $2 billion to $3 billion or $5 billion and give that to one supplier. Customers, they want some level of competitive tension. They want a robust supply chain architecture and they want risk mitigation by having multiple suppliers. So all this business isn't going to one player. Our intent is to always have the option of having a seat the table. If we continue to maintain our competitive advantage on these points and expand on that we'll continue to grow at a fair rate and we have the ability to selectively grow at the rate the market grows or where we choose to grow at a rate more aggressive than the market growth.
So the first part of my pitch is about convincing you that we have a $10 billion business. We performed exceptionally well in that $10 billion. We're well positioned to defend it. The second part is all about convincing you that being really, really good on the EMPS portion of our business, allows us, enables us to accomplish what it is we want to do strategically on the DMS portion of our business and try back to earlier comment.
We do business in this space with what I'd argue are some of the most sophisticated supply chain organizations in the planet, who's companies push us to do better and they push to evolve our foot prints, they push to evolve our skill set and our capabilities. They push us to be lean and mean in how we run our organization because you have to be in order to appropriately service those customers and make a fair return for our company and I'd point to a couple of examples that I think clearly connect the dots between what takes place in the EMS side of our business and what takes place in the DMS side of our business.
We did an acquisition for a Shanghai facility a handful of years ago. When we did that acquisition it was for one telecommunications customers. So one customer and one industry. Today in Shanghai we have near 300 design engineers. You hear Courtney and Alan and Steve talk about the intellectual capital from a design perspective that goes into supporting their business. A lot of that intellectual capital is supported, is led, is engaged with design communities and built out through the years in Shanghai, location we have more design engineers than any other Jabil locations on the planet today, and now has evolved from servicing a telecommunications industry to disproportionally servicing healthcare and life sciences industrial energy as well as areas like enterprise storage.
It also happened to be our healthcare manufacturing center for Asia. We have more healthcare relationships today in Shanghai than we have in any other Jabil facility on the planet. So from this kind of initial foray in Shanghai with one customer and one industry in a totally different area of our business, we've evolved capacities in such a way to very, very effectively allow us to support Healthcare and Life Science. By the way it supports industrial energy as well and it supports a number of other important areas of our business.
So these companies push us to be lean and mean, they give us leverage, they give us scale. Jabil buys $1 billion a year worth of printed circuit boards and resistors, capacitors. You might sit there and say okay, why should I possibly care about that. Buying $1 billion across those two commodities is substantially in excess to what a number of our customer's total electronics spend might be in the DMS space. You heard Courtney reference that a number of these relationships are $40 million customer relationships in terms of their engagement with ourselves. So this gives us great insight into what the material market is doing, what's happening from pricing standpoint. It gives us really, really powerful leverage to bring that into the other areas of our business.
I think most importantly though, being exposed to these companies gives us a great deal of supply chain sophistication for ourselves internally. The fact that we've been building product in China now a near 15 years, in India for 10 years, in Vietnam for five years, in locations like Mexico for an excess of 15 years or so.
You've heard Allen describe what the growth avenues and conversations look like for healthcare customers today. They are increasingly about getting access to new marketplaces that have nontraditionally have been sources of growth for their business. When we take the summation of the supply chain intellect we've been able to master the years by doing business for these customers and are able to sit across with a company that might only be a $300 million to $400 million to $500 million industrial company and for the first time is building product in China and might not even have more than a handful of employees in China. We bring a great deal of intellectual capital to that discussion to allow that customer to navigate through all the challenges that are required for their business to first get access to that avenue for growth. That's a really, really different discussion. Then again, just taking a quote, for printed circuit board in a design print type environment.
Those are some very, very clear tangible benefits that in the EMS side of the business brings to the DMS side of the business and then finally in a more traditional business model sense it generates capital. It allows us to reinvest back into the EMS side of our business, funds the growth that we're trying to do from MTG perspective, funds the growth in healthcare and life sciences, EMS and Industrial energy.
So I had two objectives. That was it. I also recognize it's getting late in the day and you've heard all the exciting stuff that's going on in NCG and mobility and EMS and healthcare and life sciences and traditional EMS might get a little bit boring late in the day. So I've tried to move this along and hopefully met those two objectives. I'd be happy to take questions.
We are going to bring you back in to the end presentation and do that. In the interest of time we're going to move on to our next presentation without taking a break and again Bill, you'll be available for questions in our Q&A at the end. So we won't get back on time obviously but. Okay, now onto Bill. So Bill Peters has joined Jabil in 1992. Materials Manager at Jabil Michigan, and quickly promoted to operations manager. Sounds a little bit like Tim's start there too. He flourished in his role and he's a very encouraging and nurturing kind of guy, bringing the workforce along. He's got great stories of building that can do workforce. He's got some great stories of having to get out on the line himself with some of his other managers in order to meet customer deadlines that he could tell you war stories around that.
Bill is still sort of our Jabil historian. He's got great stories from back in the day and loves to tell them with a great deal of enthusiasm. He was promoted to Vice President of Operations in 1999 and then moved on to Senior Vice President in 2001 and served as President of the Americas for three years before moving into his current role as Executive Vice President of Human Resources and Human Development. Bill holds a Bachelor's degree in Economics from Michigan state university and also keeps close tabs on his Spartans. He also holds the record of presenting at every single Jabil analyst meeting since 1997. So I guess you and Needham are the long timers here.
Bill Peters might also be called MVP, Most Versatile Player. He is actually a really, really great blend between operations and human development. As I mentioned very, very nurturing of the workforce and so it actually in a really great role now. He can clean up, fix up or reinvent any organizational arena and has done so through the years. So after a day of hard hitting presentations on our business you might ask why is he going to talk about social responsibility. Well as we're all aware our industry has taken a little bit of a black eye and under a bit of scrutiny due to the loads of media attention on working conditions, on employee treatment and on other traditionally more softer topics. So we thought it was well verse, Bill taking the time to call out our position and where stand on this and put any investor fears to rest. Bill?
Thank you Beth for that great introduction. I was a little afraid I would be introduced as an older heavier version of Steve Borgis if he was a poor golfer. So thank for that. I know I'm running behind so I'm going to go through it quickly but this is a pretty important topic and a passion for us about our social environmental responsibility and our culture as a company.
Really I think our philosophy here is pretty simple. We believe that showing respect to our employees, the environment and the communities in which we do business can have a profound impact on our business. You look at that, you say well how can that benefit the business? I think the employee engagement Tim talked in SCR about building a brand, we've talked a lot today about diversification and new capabilities. When I think about this topic I think about the opposite which is how do we get consistent, how do we build one culture, how do we have people like-minded, right.
So caring about the workplace and each other, being culturally consistent. So how we operate the company, doesn't matter which region we're in, which country we're in, we think about our people the same way and we want them to think about the company the same way. If we can deploy that asset with that kind of it's really powerful for us.
Second point, customer brand protection. I thought Alan, you answered that question for me right, the trust integrity I think that goes with the company that our customers can look at us and see how we run, what we stand for as a company right. The safe pair of hands, we're a New York Stock Exchange listed SEC regulated company but we also have great programs for our employees. We are very environmentally conscious.
I'll share a little bit of a data with you today but I think there is that safety side to it that says this a company we can trust. And we just think it builds a better company. You can get mind share with people when you've got their hearts and minds, when they're emotionally tied when you're trying to do. I think it was Teddy Roosevelt who said people don't care what you know if they don't know that you care. I think for us to try to talk about new strategies, diversification of our business, if our people understand and trust what's going on, they respond well to that.
So for us, we try to really build that consistency into our culture. The other thing we find it gives us like-minded employees. People would come in that wanted environment like that, to feel good about it and where they see that there are career growth opportunities.
I'm going to show you a little video on Jet Airways. It was partially in Tim's video there after his presentation but I think it's important to understand the backdrop or where this came from because I think it's a good example of how to give our employees our opportunity but yet we solve our business needs.
Think about growth in China for instance. We may have a campus where we need to hire 10,000 people. To find direct labor, manufacturing folks for the manufacturing floor, it's not that difficult, it's a big country right. But you also need to find a high percentage of those 10,000people are that next tier, the tier of buyers, planners, inventory analyst, technicians. It's hard to go find couple of thousands of those folks.
So we started talking about what can we do to give our folks opportunity here. So we've got some great folks for that manufacturing floor. They come from rural areas. They come here not knowing what to do, they're on the east coast, on working on a manufacturing environment. They're trying to make money, they're working hard. There is not much more they see. So we came up with an idea that we have proposed to the Guangzhou government and we've jointly invested in this training center where we identify our best direct labor force, our folks in the manufacturing floor. We train them into these positions. So with that backdrop I'd like to show you this video real quick.
Okay, so again, this kind of story in the backdrop of an industry that's getting a black eye, who's been considered kind of a sweatshop, right. It's not how we feel about what goes on at our factors and about our people and I can't emphasize that enough, it's really different. So some of the things in the employee side, the working environment, making sure that everybody has the tools to do their job, there are trained well, they understand what they're doing but their social and recreational things for folks to do. In many of our campuses they are living on site. So there is dormitories, there is housing, you've got to have a life for people outside of work, right. We really believe in providing that for our folks.
Health and safety, making sure they're well trained on the job, they have everything they need to do their jobs internally, they feel well prepared for their work in a safe environment. Then learning and development. We just talked about Jedi as being one example. HH talked about an apprentice type program for engineers in the MTG side. There's a number of creative things going on across the organization to really help develop and train our folks.
Some of the recreational and social activities, it's a big deal for us. In Wanku (ph), in our campus there we have got 100,000 square foot recreation center there. We do a lot of things that we sponsor for employees to do. Just recently here, last week I think we had the St. Anthony's Triathlon in town. We had about 33 people from Jabil participate. So we get very involved in community activities that are fun for the employees.
Medical care varies by site but most of our large sites we have on site medical care. So doctors and nurses there, not only for the employees in all cases bit in some places where are folks are remote from their families, they can bring their families to see the doctor if they're not feeling well.
Also psychological support, on site. So if folks need help with that and they feel like they need somebody to talk to, we have that ability. And communications, we believe again if you're building this consisting culture you've got to be able to talk to people, you've got to have them see what you're trying to do. We do that in many different ways across the company but the important part of it the two-way. So we really live by an open door policy culture in our company. Folks can bring forward anything. It's never held against them. Everybody's door is open and I can say honestly if I've had an employee come forward to me with something I will always drop what I'm doing and I know the other guys in this room do that too. So we live by that standard.
Also for folks who don't want to bring things forward that way we have a 24-hour integrity hotline. That's a third-party manned anonymous type thing and every one of those calls is logged, there is actions taken and responses given to it.
I'm going to go through quickly at the deliver best practices, you saw that this morning, it's a pretty amazing thing that we do within the company because it gets such great response. These are folks again bringing forward ideas for improvement. These aren't the 30,000 Kaizan (ph) events that bill referenced.
These are unique ideas on best practices in a global competition and what you saw on that video this morning or earlier today, when they were getting their awards and their checks, these are folks that have competed at the plant level, at a sub-regional level, at a regional level and then in October we actually bring them to Florida and we have a board meeting in October. They present in front of the board, they have dinner with our board and the global competition is graded later that week. So for many of these folks who come up with these ideas, they are from the manufacturing floor. It's the first time they may have travelled outside their country or even been on an airplane. So it's pretty powerful to see some of the cool ideas that come out of that.
We talked about the respect, recognize and reward. These are folks that are nominated by other people and they don't just get recognized at the plant level. That's submitted here to corporate and the communication is blasted across the intranet site so everybody gets to see who our employees feel are doing a good job, people that they want to recognize. There are great program to recognize the employees.
Community programs, one of things that we have gone out across the companies is a lot of volunteerism and we haven't been company that is going to say this is what our mantra is, we're going to support this foundation or that foundation. Instead we got some fantastic grassroots stuff that comes up out of a plant level. So we'll let them do whatever it is they want to do. I'm going to share more video with you with you at the end that will tie into this but there's some really powerful things that go on at our plant site levels.
Environmental program, we believe in taking care of the environment where we are. We have a do your two program where we ask our people to pick two things in and impact the environment. We're also very proactive as a company. So we're one of the, I think still the only EMS provider that's doing public disclosure of carbon usage and we've had a best rating for two years in a row in that area.
We also have a global ISO 14001 certification. So again this is across about 75 of our sites. So every year we add to that. We're working our way to total completion but this is another case where instead of shaving individual site certification, it's is a global certification. So everything that's going start's with a management review at the company level and trickles down. So again for that consistency. So if a customer walks in to a plant in Mexico, Malaysia, Michigan, China, Vietnam the look and the feel and the way we operate and we treat the environment and the tools and processes are the same.
So what's that led to. So news week has, our rankings with S&P 500 for green companies and you can see Jabil over the last three years has improved. So now we're actually in the top 25% of the S&P 500 for green company rankings. Again, I mentioned we are the only EMS Company that's publicly disclosing our carbon usage and we see continued improvement in that area with a best in class scoring.
The other thing is EICC. So you hear a lot today about NGOs and audits and FLA and EICC. We are members of the EICC and not only members, we sit on the board of the EICC. So we try to influence what goes on or what legislation or what kind of policies they try to dictate and we believe in that, right. So we actually participate in a number of what they called EICC validated audits. So these are third parties that will come in and audit our sites using the EICC guideline. So what you see there in this graph is blue bar shows that Jabil results. So based on a score of 200 as the max, you can see in China we average 160. All the other EICC audits that are out in that area average about 120. In Singapore we averaged 195. 144 is the country average. Mexico 193 versus 84 and then Hungry got 192. So we continuously kind of outperform other companies to that standard and we're very proud of that.
So why is this important? We talked a little bit again in the last presentation with Alan about the brand protection. We really believe that having a company you can trust, kind of the guys in the white hats right, it's important to our customers. They feel like they can do business with a company that they know what they're going to get. There's going to be no negative surprises. We think it builds a better company. It just gets everybody behind the same thing, it gets everybody focused, it allows us to really communicate well and move and change this company in a more efficient way and finally it's the right thing to do. I don't know that there's a better way for me to explain that. I can show you this last video which I think will really give you a feel for kind of the community impact of some of the stuff that we do. We'll go ahead and show that.
Well that's a nice heartwarming story and if Forbes has tears in his it's probably not because of the numbers, it's because he's watching that video. So don't misinterpret that. Forbes joined Jabil in 1993 as Controller of our Scottish operation, was promoted to Assistant Treasurer in 1996 when we he relocated to the Tampa Bay area. He served as Treasurer from 2004 to 2006 when he was named Chief Financial Officer. Prior to joining Jabil Forbes was a Financial Controller of Tandy Electronics European Manufacturing Operations in Scotland and has held financial missions with Hewlett-Packard and Apollo Computer. He's a fellow of the Institute of Chartered Management Accountants and holds a BA in Accounting from you University of Abertay in Dundee, Scotland. I can't say too much bad stuff about Forbes because he's my boss. So I've to keep it real careful here.
Forbes is our financial rock. He keeps our company of entrepreneurs in check helping us to deliver industry-leading financial results. He is everything you wanted as CFO, thoughtful, analytical and conservative. Well that's not to say that he doesn't like to have fun. After all he's Scottish. So he's also a huge cricket fan and he knows anyone who's anyone in Scotland. This afternoon Forbes is going conclude our formal presentations with some thoughts regarding our outlook, our expected financial performance and continuing to create long-term value at Jabil and we'll finish after Forbes with a Q&A with everybody just so you guys can make sure you get to ask questions of all the different presenters today. Forbes?
Thank you Beth. Good afternoon everyone. Pleasure to be here. I think you will agree this afternoon has been a great afternoon, presenting to you, starting with H.H., (inaudible), Steve, Alan, Courtney and Bill, the depth of the management team in town we have here in Jabil. Not only that, the differentiation that we bring to this industry and this marketplace and I would like to put some hard data behind that and just reflect for a moment or two on some of the growth that we've experienced really getting back to 2009 and the great recession, where does our growth come from.
So this chart here represents in dollar terms about $7.5 million to $8 billion of revenue. Just think on that, okay. So four year period had somewhere between $7.5 billion and $8 billion of revenue, 65% larger than we were in 2009, quite extraordinary if you step back and think about that.
During that time frame we've added great debt in terms of capability, knowledge base that we shared with you this afternoon, quite extraordinary, in terms of how we've moved this company not only over a 20 years that I've been with the corporation but over this last four year period in terms of our capabilities, depth of knowledge, depth of relationships and new markets that we're entering.
Each of these parts represents the 100% of revenue we've added in each of the years and I've also included an estimate for 2013. Now we've gone back and looked at where are these sources of revenue, not necessarily by industry sector, we've shown you that before and I'll talk a little bit about that in a moment or two but new customer wins, existing customer wins and others are macro. So from a macro environment we've assumed 2%. That's a tough one to measure. I think everyone in agreeing that 2% to 3% a reasonable with a GDP race we've had over this timeframe and moving into '13.
To find a new customer as a customer that did not have any revenue, so zero revenue in the previous fiscal year. Now what we've seen is generally with the exception of '11 with 20% to 25% of our revenue increase in each fiscal year is coming from new customer relationships.
So that's really good news. It's actually accelerating, 21% last year, we expect it to be 24% in '13. So it's actually accelerating and the majority of that revenue stream is coming from those areas that we talked about this afternoon, industrial, healthcare, clean technology, aftermarket services. That's where the bulk of that is coming from. Much of the NPG growth came from existing customers. These are long term relationships with an (inaudible) area and he discussed a number of customers there.
So really quite extraordinary and we see this moving forward. In terms of our fiscal '13 estimates, the amalgamation of those new customers will represent somewhere between 15% and 20% of our fiscal '13 revenue. So that's in excess of $3 billion.
So that's the source of the growth. We'll plan to continue to give you this type of information as we move forward and then break them by each of our segments. So is that growth sustainable? We contend it is absolutely. Each of the presenters today has shown you the scale of the market, how we're penetrating those markets, the debt to the capabilities there and the intentionality we have around further penetration.
We believe our addressable marketplace is in excess of $1.1 trillion, huge and in excess of essentially 50% of that or approximately 50% of that is in the areas of diversified manufacturing services where we spend the bulk of the afternoon discussing those capabilities, very, very well positioned, early mover advantage in some of those areas, great innovation and technology and skill sets and knowledge base in our specialized services area.
The right hand side of the chart, as you're looking at this is what we discussed with you on our last earnings call. So some framework for our fiscal '13 and obviously halfway through our '12 right now, fiscal '13. What this means on our total base is an overall growth rate of somewhere around 12%, 13% next year, if you apply these growth rates to our exit rate of fiscal '12 which is right in the sweet spot in terms of our overall stated growth rate of 10% to 15% a year.
So very well positioned for '13 and very well positioned for the next three to five years. So what's happened over the last two or three years and how does that shape into fiscal '13 and if you remember back in fiscal '10 Tim showed some of those slides earlier today when we started re-shaping the organization formally in terms of the three segments that we're serving. It's been our goal was to drive diversified manufacturing services revenue to 50% of the overall portfolio whist growing corporation related to 10% to 15% a year.
So 2011, 32%, we'll exit this year somewhere between 43%, 45% in diversified manufacturing services and if you've not already done the math its 47%, 48%, as we exit fiscal '13 whilst adding somewhere in the region of $2 billion worth of revenue during that timeframe.
So good growth rates continue across all of these areas in terms of our business and you know really on track in terms of our overall strategy. What I would also say and echo Tim's comments is that at some point during fiscal '13 DMS will represent 50% of the revenue stream, one of those quarters as we move through fiscal '13.
Probably more importantly is where is our operating income coming from in terms of its contribution to the overall operating income of the corporation and I contend with 60% of our operating income coming from diversified manufacturing services this year, growing by another five basis points next year, 65% I contend that we've past the inflection point of viewing ours as an EMS player in the peer group in which we're measured today.
So 65% as we move through '13 of our operating income coming from diversified manufacturing services reflected both those capabilities you're seeing today, knowledge base, the early mover advantage and the complexity and stickiness of that business.
As we move beyond '13, obviously this green portion of the pie chart will continue to grow and I'll talk a little bit more about in a moment or two in terms of overall framework I'd like you to think about in talking to investors about Jabil over a longer term period.
Obviously to grow these types of rates, we're having to make investments and talked a little bit about this on our recent earnings call. So the first half of fiscal '12, our capital expenditures were about $180 million. We talked about an additional $320 million in the last six months of the fiscal year remembering our fiscal year ends at the end of August. So that investment is underway and on track. Total expenditures for this year are $500 million. We'd expect the same types of level expenditure in fiscal '13. We're going to continue to invest in our diversified manufacturing services arena. Great growth, great capability and customers who are looking for our service and overall just a ratio just for you that green bar, that's about 75% to 80% of our capital expenditures being focused on diversified manufacturing services.
What does this mean in terms of cash flows, obviously that's a key performance indicator for us in terms of cash flow generation. Roughly $400 million of free cash flow defined as cash flow from operations minus CapEx in fiscal 2011 our returns on invested capital 27%. This year with our investment levels at $500 million essentially and our operating cash flow is at $500 million, essentially we'll see a net push in terms of cash flow from operations. These investments going into this back half of the year and our Telmar acquisition just dipped our return in invested capital. Just a couple of points. This fiscal year is 25% but see that rebound very nicely in '13 driving towards a 30% beyond there and I'd expect to be up in the 30% as we start to exist fiscal '13 once that capital is being deployed. We also expect operating cash flows of $1 billion next year, very, very achievable, even with the addition of $2 billion in revenues, thus leaving right about $0.5 billion of free cash flow under this definition for deployment, be it continued growth, be it acquisitions or be it in value return to shareholders. So we're on a really great track and again I contend the growth rates that you're seeing over this timeframe, to be positioning cash flows at these types of level is pretty impressive.
So I'd just like to leave you with a framework and as we've talked about earlier today working with you, ourselves and the management team in giving investors a longer term picture of Jabil and as a framework you'll see more of this as we talk to you and how this long term value comes about. So the goal here is to driving earnings per share and EBITDA clearly. That's the one E we want to keep, earnings, EPS and EBITDA if you will over the future timeframe. We have grown EPS substantially over the last few years and I expect that to continue along with EBITDA.
So how do we do that elements of (inaudible), all this total company revenue, 10% to 15% for versus the same per year. Assume that we grow that revenue at the targeted rates we've given you in terms of operating income, high velocity in 2% to 2.5%, enterprise infrastructure 4% to 4.5% and high velocity 6% to 8%. So just assume that for a moment. You see a mix shift occurred. You talked about 32% in DMS growing to 47% next year. For every 1 percentage point in revenue shift, in DMS, that's roughly about 4 basis points or $0.03. So think of that in a way if we grow those rates in terms of revenue, fiscal '13 and beyond, and assumed the DMS is still 45% of revenue next year versus this year, add another 3% there, that gives you 12 basis points, both accretion in terms of margin. I'd like you to walk away with that one number 1% at about 4 basis points in terms of margin accretion.
Acquisitions, we've not talked much about acquisitions today. I think there was one question earlier on. It is part of our growth strategy. We'll be very focused, conservative and thoughtful about that, adding capabilities where we feel it's appropriate and particularly focus in terms of aftermarket services arena, industrial and healthcare. We do see some good opportunity there, not eminent but that will be part of our overall growth strategy.
Cash flow generation, share repurchase. We currently have $100 million of share repurchase approved right now. We acquired $200 million last year, took advantage of the weakness in the equity markets. Again, another statistic here, about $100 million of cash, that gives us somewhere between $0.03 and $0.05 of accretion depending upon the equity volume but we will deploy capital there where we feel it's appropriate and as we see that cash generation. Obviously we'll continue with our dividend, our dividend care and we returned about $60 million to $70 million in cash to shareholders on an annual basis today.
So a result of all those elements is a return on invested capital of 30%. That's the goal. We're well on our way there and as I said earlier we should see these type of numbers being hit as we move through fiscal '13. At the same time our working capital management is clearly very, very important and we've done a very good job during this growth timeframe managing that under 5%. I am often asked by investors you're moving more to this diversified manufacturing area of business, okay, smaller lot sizes, more inventory intensive.
Steve talked about some of those lot sizes today. Even with that shift and some of those lower average returns we see acceleration of returns in the other parts of our business and we are very, very well positioned to continue to manage the business with working capital levels certainly below 5% of our overall revenues as we move forward.
So with all that free cash flow targets 30% of EBITDA. We talked about that over the last couple of years. We stand by that and we're very, very well positioned as we move through '13 and beyond to really generate some significant free cash flow and we'll deploy accordingly as we move forward here, whilst growing that topline of 10% to 15% and continuing to drive earnings per share and EBITDA growth in excess of that 10% to 15% of top line growth rate as we have done over the last 3 or 4 years.
So that's the formal part of my presentation. I think we can now move into Q&A.
John Harris – Longbow
It's actually a question for Tim. It's John Harris at Longbow. I wanted to just ask you about 10% customer rent. Solstica (ph) had some commentary the other week essentially saying they don't know what's going on. Flex is saying they are losing the business maybe if you just update on the relationship, whether it's an opportunity, whether it's a risk.
Unidentified Company Representative
As H.H mentioned before we can't comment on the specific customer relationships or specific customer strategies. So let's put that aside. I would say that given our capabilities and Bill talked about our competitors. They are paying the way for other parts of our business and our competitiveness in aftermarket services and materials technology group. We feel like we bring quite a bit if value add to companies that are in that business and so we feel like we can offer a little bit more holistically and we can look at entire relationship value in ways that some of our competition may not have a patience for or may not have the capabilities to engage in that way.
So and I've always said this, whether a customer of ours is doing poorly in their marketplace or doing very well in their marketplace, whether they're going through a hard time or a good time, we care deeply about all of our customers and we'll do everything we can to keep them providing that the value of that relationship is good for us and good for that customer and as long as that condition remains I would expect our relationships to have a lot of longevity. Bill talked about some of our high velocity and enterprise infrastructure customers in spite of our competitors are going on 20 years and you never know. I'll just leave it at that.
And just to remind Bill can get any Q&A. So if you have a question for him, this is a good time. H.H. and all the guys, although Harvard was able to answer some questions, Courtney Ryan, but it's open game here.
John Harris – Longbow
Actually I have a question for Bill. If I listen to the first half of your presentation I probably would have thought that your margins are going up but then if I listen to the second half of the presentation I would have thought that you're feeding the other growth businesses by supplementing it or adding services, not necessarily for free but at reduced margins. So are you being measured as a separate business or are you being measured on how you're helping the other business, grow and if you could talk to that, that would be great.
Certainly. The intent of the second part was not to leave a picture that's of service offering to the balance of the business. I think it's an extension of the experience set that we developed through the years that allows us to accomplish what it is we want strategically but we look at each one of those segments and in line with how we report them externally. We look at enterprise and infrastructure, high velocity or DMS business, much more internally within the company and certainly with some strict margin expectations for each one of those businesses.
John Harris – Longbow
Yes, I wouldn't view the fact that we're helping other things, other areas of our business like DMS as a drag or a detraction from accomplishing what it is that we're doing. I think the experience that we developed through the years is an experience set that through time, other areas of our DMS business can leverage.
John Harris – Longbow
Just to follow that up, so where do those benchmarks go say over the next few years given the competitive environment you just laid out. Are you able to improve your returns on capital, on cash flows or how do you think we should look at that?
Yes, I'd point you back to the margin expectations we've communicated publicly for high velocity enterprise and infrastructure and I think Tim and Forbes will address that on an annual basis. We'll look to make tweaks if necessary but today we enterprise infrastructure at 4% to 4.5% operating margin expectation, high velocity of 2% to 2.5% and we feel those are appropriate right.
John Harris – Longbow
Just to follow up Bill, one of the push backs on the traditional EMS is the customer concentration issue. So just want to get a sense, are you managing that any differently today or as we look in the future could that shift a bit in terms of the concentration of customers?
I think we've got exceptional diversification in that space. If you look across each one of those segments, you partner with some of the very, very best brands in that space, I'd tell you that the one thing, one of the strategic benefits of the way that we've looked at our high velocity business and the fact that we've attributed or signed different growth expectations in that business, for certain parts, it allowed us to be a little bit more market agnostic and make sure that we look at those marketplaces only to the extent that there is a value proposition that over the long term has been meaningful product company as well. So that doesn't maybe directly address the concentration piece but I think it reinforces the fact that we'll continue to be disciplined in how we manage those elements of the business and holding strict margin expectations and growth expectations.
Thank you Bill. Another question for you. The one question we get often from investors is, you've made a dramatic turnaround in HVS margins. I know it was pretty within much a short period. I think you still operate between plus or minus one. You went to two and now we are sitting at four. Are you able to shed some light in terms of what changes you've made within the business unit to drive the lease margin improvement. And then secondly, you've got a very big customer in the HVS that relatively challenged. Are there any other areas within HVS that are interesting to you, that you think replace as this customer probably becomes a small piece of your segment.
First I want to say I am delighted that traditional EMS has garnered so much attention. I thought we'd be on the short end of any Q&A today. So that's refreshing. Thank you very much. Yes, I figured out that was the extension to the question. So why we make such great progress from margin perspective in high velocity, I'd point you first and foremost to the chart that I showed up there from a guiding standpoint and the commitment that we have in an organization from a lean standpoint. I didn't spend time on this. I think this might bore some of the investor community but the rigor and depth of education, the expectation that we have for all our plant managers be Black Dog Six Signals certified. The number of bronze certifications we have at different levels of our company, we've made massive, massive progress in a reasonably short time from in that area and I get excited because I think there is a lot, a lot more progress to be made but we pointed that skill set, that infrastructure, we pointed that focus much more acutely at our high velocity business, because as you said, a couple of years ago there were some pretty substantial margins challenges here. I think we made real working progress. But I continue to be excited about the progress we can make another reason a bit.
And in our high velocity business, I'll kind of take our high velocity business excluding mobility for a second, our high velocity business including mobility too exceptional well from a relatively growth expectations we've set out for that business.
Forbes may be a question for you, you talked about 10 to 15% revenue growth given all those segment breakdown, if I played the math with a margin expectation on the segments, I just want to make sure I get this right, you should be able to target mid to high teens EPS growth on a 10 to 15% revenue growth basis. And secondly you have all the divisions over here and you all obviously come and ask you for capital. I am curious, what's the basis on how you allocate capital because I would imagine HBS at 4% margin is almost better ROI business than materials and technology could be right now.
They are all relatively similar in terms of return on invested capital because you could hire asset velocity and high velocity enterprise infrastructure than you might have in DNA. So there are clearly hurdles there. But in our stated strategy is to grow diversified manufacturing services, that was the capability that we have, the sustainability of those relationships in growth. So keeping priorities for capital which we have plenty of capital available today, so that's not a real concern, but the diversified manufacturing services wins the day in that regard. So stated strategy and that's where we will continue to invest there. Assuming appropriate returns, 68%. In terms of operating margin, appropriate work capital working management on the 5% and ROIC at 30%.
If you could just follow up, talk on share repurchases, how do we think about your philosophy in capital allocation as you go forward given you should generate 500 million plus B cash flow for the next couple of years I would imagine.
Yes, you know that's something we said certainly think hard on. In terms of capital allocation, first and foremost is investing in the business and as you see fiscal '13, $500 million certainly gives us room to do that. Our dividend policies, we continually review that and that will be, certainly the levels we are seeing right now as we move into '13 clearly there is potential there. In terms of share repurchase, the philosophy there is really run dilution. We'll be opportunistic if there is weakness in equity markets but really a sense to run dilution over a stunning share count. So somewhere in the $100 million a year, I am very comfortable with and that's still right all dilution $4-$5 million share, something of that nature.
Jim Suva – Citigroup
Thank you Jim Suva from Citigroup. When I am just comparing this presentation today to a year ago, it looks a little bit similar but a few moving parts and I just want to make sure I accurately captured a few moving parts. And it kind of looks like a little bit like last year you were expecting high velocity in 2013 to grow 5 to 10% and today kind of flattish. Am I right by, there is a little bit of a down tick just for that little segment. And then when you talk about total sales for the company on your probably saving now 19 billion plus and I think last year there is a reference to like 21 billion and I would assume those two are associated together, the high velocity, a little bit of a downtick or my number is just not right wrong.
The high velocity area has been done ticking. I think our exposure with the electronics and handsets in there so that market's being difficult but the rest of the business is in really good shape there in terms of our printing relationship, set top box, automotive etcetera. So you are absolutely Jim in terms of your thought process. In terms of that overall growth number, again, the high velocity is a weak part of that. We've also seen some weakness obviously in the solar market. I think that's well publicized in terms of regulatory environment there but other parts of business really growing very nicely with BMS and that targeted 20 to 30% range.
Jim Suva – Citigroup
And a quick follow-up, one of your competitors Flextronics announced a very large write-off of $10 to $20 million which is in their segment which they call high velocity also and without talking about customers, that aside, that wiped out about three to six months of their profit associated in that segment or for that customer. If high velocity for you is flat as you've indicated, does that mean Jabil should be able to side step in a big write-downs or are you actively going to be able to redeploy things in a flattish environment or is there a chance of some write-offs coming in that segment which appears to a little bit softer.
Now we're in great shape. No write-offs coming, certainly anywhere in our business that's unaware of the conceive as we move that forward to see on the back half of the year into '13. I think our capacity has aligned accordingly and most of our business areas and in fact with our CapEx in the back half of this year and into '13, we're continuing to add, so we are in great shape.
Alex Blanton – Clear Harbor Asset Management
You didn't cover this during the presentation but you have talked about it in the past. You said that in fiscal '13 you're going to start reporting earnings per share on a GAAP basis. Is that still the plan and how does it affect the earnings comparisons. How much has it evolved here in and reducing the earnings from where they are now.
Yes that's a great question. That is the plan. We'll start reporting on a GAAP basis on adjusted basis as we moving into fiscal '13. Not sure we stand to the quality of earnings and looking at the business more realistically. So in terms of adjustment, that is somewhere in the region of the two adjustments are essentially intangible, we stopped these compensation. So overall terms on an annual basis, that's well $100-$105 in terms of impact and dollar terms.
Alex Blanton – Clear Harbor Asset Management
Yes, something like that. Something just a little bit less than that. So we'll start on fiscal '13 and report all our metrics in that regard. But if that's $0.50, what you'll actually see is no continued growth, our GAAP EPS earnings will actually be much higher than our core EPS earnings as we move into '13, just some of those adjustments and comparison year-over-year but certainly well into the double digits and beyond in terms of EPS growth.
Alex Blanton – Clear Harbor Asset Management
Certainly, you said the GAAP EPS will be higher in the quarter…
The percentage growth year-over-year will be…
Alex Blanton – Clear Harbor Asset Management
So even if there is a $0.50 drag, you're going to still be up…
Alex Blanton – Clear Harbor Asset Management
GAAP to GAAP, yes.
Alex Blanton – Clear Harbor Asset Management
Absolutely. Thank you.
And we'll continue to provide enough information to you so that you can make comparisons anyway that you would like and we think markets are efficient enough to see through that and the markets are going to look at whatever numbers they think drive stock values.
Alex Blanton – Clear Harbor Asset Management
Looking at your PE, they are probably putting your PE on your GAAP numbers anyway right now.
So why is 2 to 2.5% still appropriate for HBS. It sounds like you actually think you have more room for improvement given what you've already accomplished and I am just wondering concerns you or is it mix, is it growth, what concerns you that can cause that to come back off before (inaudible).
Thinking about foreign in perpetuity, these are really, really accustomed to this market. There is gyrations that might not be an appropriate number in perpetuity but we have said that on an annual basis, we're going to reevaluate the financial targets for those groups. We'll go through a long term planning process. We'll close our strategic planning process like we do in an handful of months and as we step into fiscal year '13, we'll take a hard look at whether or not that's the right number or we need to make adjustments. But it's been a handful of quarters where high velocity folks have clearly just absolutely hit it out of the park and nice job from a cost management perspective, well positioned with the majority customer relationships. We'll take a hard look at sustainability.
Forbes, you are spending about 800 million here in CapEx on the DMS side here, this year and next year. And it's a significant amount of capital. I mean for a good reason, you've outlined all of those today about how you're focused on growth in DMS, how's that strategic for you. The question is, how do you think about the risk profile about this CapEx over the long run. I mean historically on the EMS side at least, the capital spend by at least some companies had to bear it off in later times because of different issues. As you look at the risk profile, can you talk about may be what the risk profile is maybe in terms of customer exposure, maybe in terms of fungiability of the assets that are being deployed with this CapEx. Any color there will be helpful.
Sure in terms of fungiability of this, so again, there's infrastructure, so the number you've quoted, there is probably about 100 million plus in terms of total gains in infrastructure right there. Okay, so that's very, very fungible. There's IT systems, (inaudible) quality systems and architecture. Again that's fungible. So when you get then to the actual pure equipments, it's relatively fungible as well. Standard industry equipment as HH talked about some of the investments there, in terms of the material that's being used there, the metals, alloys, plastics, again a very fungible in that regard this whole standard industry equipment. And it's really the tool set that essentially changes and not the actual body of the equipment. So we feel pretty good in that regard. We depreciated these assets over a pre-conservative timeframe, typically aligns with customer product roadmaps. So I certainly wouldn't expect any cataclysmic event or write-down we particularly have approach there to match that with the line of sight we have around product platforms and price accordingly there. So we feel pretty comfortable by that.
Great. As I mentioned, all of these guys who are presenting today as well as I think some incremental people from Jabil will be available at the (inaudible) over back at the (inaudible) and the busses are outside waiting to transport you back there. So thanks very much to everyone online for joining us today for the webcast portion of the Jabil investor meeting 2012.